Year-End Planning Checklist
by SGL Financial
Our 2 Cents – Episode #121
Year-End Planning Checklist
The year is wrapping up and it’s got us thinking about 10 somewhat nerdy, but ultimately important, “end-of-year planning” tasks to put on your radar. Then we’re tackling two listener questions about life insurance!
- Year-End Planning Checklist:
- Observe the impacts of sequence of returns, if you’re taking income
- Double check your planned retirement date to confirm if it is still realistic
- Calculate your withdrawal rate percentage
- Review CARES Act distributions and repayments
- Have an inherited IRA? You may need to take RMD’s
- Understand the changes to FSA spending rules
- Consider bunching your charitable giving
- Review all your various insurance coverages—yes all of them
- Consider a Roth Conversion
- Engage in Tax Loss Harvesting
- Listener Questions:
- “My husband is 13 years older than me and he’s retiring next year. The only life insurance that he has is provided by his job, so he will have none when he retires. Should I take out a policy on him since he is older than me?” – Jane
- “I have been seeing conflicting answers so I thought I would ask you. What is the better life insurance—term insurance, universal life or whole life?” – Ted
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Announcer: You’re listening to Our 2 Cents, with the team from SGL Financial, building wealth for life. Steve Lewit is the president of SGL Financial, and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies, and more.
Gabriel Lewit: Good morning, good afternoon, good evening. This is Gabriel Lewit and Steven Lewit, your hosts of Our 2 Cents.
Steve Lewit: The second penny is here.
Gabriel Lewit: All right. Good to have you here, second penny, and good to have you here, our listeners. We love having you join us for our show. One of our favorite things to do each and every week is to get together and stare into Steve’s lovely eyes…
Steve Lewit: Oh, wow.
Gabriel Lewit: While we talk turkey or finances.
Steve Lewit: We got to talk holiday food.
Gabriel Lewit: Sure.
Steve Lewit: What’s your favorite…
Gabriel Lewit: I can’t say talk turkey, that’s a Thanksgiving thing.
Steve Lewit: That was Thanksgiving food, so do you…
Gabriel Lewit: Talk money. Money talks.
Steve Lewit: Money talks.
Gabriel Lewit: Yeah.
Steve Lewit: Okay.
Gabriel Lewit: Well, so we’ve got a good show lined up for you here today. Of course, we think so. Otherwise, we wouldn’t be talking about it, but hope you’re doing great, wherever you are and whatever you’re doing while you’re listening to the show, and first and foremost though, Steve, it’s been a little bit before I’ve asked this question. How are you doing?
Steve Lewit: I am… Well, I had hip surgery. I got a new hip.
Gabriel Lewit: Yep. Yep.
Steve Lewit: I have been hip replaced.
Gabriel Lewit: He’s up and running, proverbially.
Steve Lewit: It’s quite amazing, because I’m seven, 14 day, 15, 16, two weeks and three days, and I’m walking around like a champ.
Gabriel Lewit: Yeah. Looking good.
Steve Lewit: Yeah, looking good. Not limping or anything, and I’m just amazed.
Gabriel Lewit: Other than the hip, what else is new with you?
Steve Lewit: What’s new with me?
Gabriel Lewit: Yeah.
Steve Lewit: Oh, gosh. Well, I had a… By the way folks, I hope you all had a wonderful Thanksgiving. I certainly did. Had the whole family, and Gabriel-
Gabriel Lewit: I think we said that last show.
Steve Lewit: I don’t know. I can’t remember.
Gabriel Lewit: That’s why I’m looking… I think we had…
Steve Lewit: So, what’s new between now? Let me see. My book’s coming along. My poetry is doing great. Working out now. I worked out for the first time last night.
Gabriel Lewit: Very nice.
Steve Lewit: Love being here and seeing our clients. Again, was out for a little bit. So things are good.
Gabriel Lewit: Excellent.
Steve Lewit: Things are good. How about you?
Gabriel Lewit: Me?
Steve Lewit: Since we’re sharing.
Gabriel Lewit: Yeah. Well, gosh, let’s see… Kids are growing older.
Steve Lewit: Boy, aren’t they?
Gabriel Lewit: But you could just say that about every day, because every day, they’re a day older. Let’s see. Trying to plan ahead for the holidays. Gift shopping, tree decorating at home. So we have no less than… There’s a story behind this, which I won’t get into. Three trees in our house.
Steve Lewit: You have three trees?
Gabriel Lewit: We do.
Steve Lewit: Oh wow. Okay.
Gabriel Lewit: There’s a story, as I said, behind that.
Steve Lewit: Is there a quick story behind that?
Gabriel Lewit: Well, we bought one, and it was too small, to replace an old tree that we had, and so we didn’t like it for where we wanted it, so we moved it to a different room, and we still had it, and then we got the actual one we wanted, which was a nine footer, and then we have a little baby one that we put downstairs in the basements for the kids to decorate a little bit more, however they want to.
Steve Lewit: Do I need to buy you decorations for Christmas?
Gabriel Lewit: No, no.
Steve Lewit: Ornaments?
Gabriel Lewit: We’ve got plenty, actually. Plenty. This was two years ago; my mom gave me a couple of boxes of old ornaments of all sorts of eclectic-ness. So some of those, well…
Steve Lewit: Actually, some of those are collective…
Gabriel Lewit: So those go on one of the trees, and then the other tree is our formal, pretty, shiny, modern tree. So we got some mix and match trees.
Steve Lewit: A tree for every personality.
Gabriel Lewit: Of course, of course.
Steve Lewit: You’ve got to.
Gabriel Lewit: Of course. Well, maybe next year we’ll get the fourth tree. Who knows?
Steve Lewit: When are you selling tickets for viewing?
Gabriel Lewit: Actually, that reminds me that I haven’t ever decorated my house with lights, and I’d like to be one of those guys that… My neighbor just recently… New neighbor moved in, he trimmed the entire house, the edges of the house with lights, it looks really cool, and my daughter, we were driving home the other night, she said, “Dad, how come we don’t do that to our house?”, and I felt bad.
Steve Lewit: Uh oh.
Gabriel Lewit: Like… Well, maybe next year. Well, hopefully your holiday preparations are going well, and meanwhile, let’s go ahead and dive into our show here today.
Steve Lewit: Okay.
Gabriel Lewit: We’ve got here a checklist of some admittedly nerdier year end planning checklists. I say nerdier because, of course, you’ve all heard the typical year end checklist, holiday shopping, and all sorts of other things that might be on their contributions. These are a little more nerdy and a little more technical, some of the ones that we’re going to get into here. So it’s not just your standard year end planning checklist, but your nerdier year end planning checklist.
Steve Lewit: So, we need a little song to introduce that. A nerd song.
Gabriel Lewit: I’ve got no song for you. You’re the singer of the group, so if you want to go ahead and sing.
Steve Lewit: No thank you. I have no nerd songs. Yeah.
Gabriel Lewit: Okay. So the first… Number one nerdier retirement planning topic of the end of the year checklist is observing the impact of sequence of returns on your portfolio this year if you are currently taking retirement income distributions.
Steve Lewit: Yes sir.
Gabriel Lewit: Okay. So why is that nerdy? Well, sequence of returns is a somewhat technical topic that we don’t want to get too deep into the hole of here today, and essentially, it’s when you’re taking money out of your portfolio while the market is down over an extended period, which it’s been this year. So this has been one of the first years we’ve had to worry about this in a long time. That can cause your portfolio values to start to deplete more quickly over time.
Steve Lewit: So, think of it this way, you’re selling securities for income, but you’re selling while the market is going down.
Gabriel Lewit: So, you guys have more shares.
Steve Lewit: So, you’re selling at losses, you’re compounding the loss, and compounding losses accelerate, like April said, the depreciation of your assets. So if that’s… Between the years 2000 and 2010, which we often talk about, which is called the lost decade, the S&P made no money. So folks that were using a market approach, like the 4% rule, just pulling money out of their investments, kept compounding their losses. So they wound up 10 years later with far less money than…
Gabriel Lewit: Yeah. So the question here is objectively identifying if you’re at risk for this, because what many people think, but nobody knows, is that the market is going to recover next year, but there have been examples where the market is down for extended periods of time, multi-year periods for bear markets, and so there’s talk of a recession next year. So there might be moves to make right now that can help continue to protect you from sequence of returns risk if you have that exposure in your portfolio, and so given the end of the year arising, it might be a good time to look back and see how this really impacted you and decide if there’s any changes that may be warranted as a result of that.
Steve Lewit: For the upcoming year. There’s nothing you can do about it now.
Gabriel Lewit: Oh, correct. Not hindsight. Next year.
Steve Lewit: So, if you had to take your RMDs out of the market, then you sold, you took your RMDs. Now hopefully you reinvested that, so it’s almost a wash, but going forward, if this continues, as it didn’t… In 2000, 2001 and two, the market went down three years in a row, and then took four years to recover.
Gabriel Lewit: Yeah, exactly.
Steve Lewit: So, if we have a cycle like that and you’re pulling money out of the market, it’s really a bad idea. It’s just a bad idea.
Gabriel Lewit: Okay, so that was the end of year item number one. Number two is, if you have not yet retired, is to review your plan and double check whether or not you need to plan to shift your retirement date, especially if you’re thinking of retiring next year, because the reason for that, folks, is pretty simple. Nobody wants to retire and then realize that they’ve made a mistake, and then try to unretire. Give up your job, give up benefits, lose a bunch of money, realize you don’t have enough, and then have to find some new job to go back to work with. So if you are on the cusp of retiring, now is the time to reassess your plan for next year, because that first year when you retire is such a critical year. So many moving pieces of the puzzle, and it can be a good time to really delve into those details.
Steve Lewit: Well, how you plan your retirement, where you get your income from, how you protect yourself against sequence of return risk is all part of that decision. So for example, if you’re using insurance products to get your income, like you purchased an annuity, and there’s no sequence of return risk there, well, that’s a more favorable environment to retire than if you’re using a market approach and the market’s down 18%.
Gabriel Lewit: Yeah. So the goal, though, is to take a look at that retirement date, confirm if it is still realistic, if you have to, just to give yourself a cushion or wiggle room, push that back six months, a year, something to that effect. Those are the kind of calculations we want to observe here.
Steve Lewit: Yeah, it’s a hard decision, because… When that retirement phase…
Gabriel Lewit: When that bug is in your head.
Steve Lewit: Yeah. It’s like the R word. It’s like, “I can’t wait for this to end, get onto the next phase of my life.”
Gabriel Lewit: So, number three is, if you are taking withdrawals, and this maybe is combination with number one, but it’s a separate one on our list, is to calculate what’s called your withdrawal rate. So, Pops.
Steve Lewit: Pops.
Gabriel Lewit: Papa, papa bear.
Steve Lewit: Papa.
Gabriel Lewit: What is one’s withdrawal rate?
Steve Lewit: Withdrawal rate. So let’s say I have a million dollars.
Gabriel Lewit: A million bucks.
Steve Lewit: A million bucks, and I’m taking $40,000 out of my million dollars.
Gabriel Lewit: Yep.
Steve Lewit: My withdrawal rate would be $40,000 divided by a million, which is 4%.
Gabriel Lewit: 4%.
Steve Lewit: So that would be the 4% rule, for example. So if you take 4% of your investments, then that’s called the safe money withdrawal rate.
Gabriel Lewit: I’ve got a client that… I’m going to use my calculator here, just taking out…
Steve Lewit: I thought you were going to make a phone call.
Gabriel Lewit: Taking out… Yeah, right now. Hold on guys, real quick, just got call. 40, he’s saying now $48,000, and has about $600,000.
Steve Lewit: So, what’s his withdrawal rate?
Gabriel Lewit: His withdrawal rate this year is 8%.
Steve Lewit: So, think about it. If this person has an 8% withdrawal rate, his money has to earn 8% compounding in order to just stay even.
Gabriel Lewit: Yep. Yep.
Steve Lewit: So, I was going to say this guy, I guess he is a guy. This person is headed for trouble.
Gabriel Lewit: Well, and plans…
Steve Lewit: Earned a down market.
Gabriel Lewit: So, there are obviously cash flows and how much you take out in a given year are very…
Steve Lewit: This is our client. This wasn’t our plan.
Gabriel Lewit: What’s that?
Steve Lewit: This wasn’t our plan.
Gabriel Lewit: Well, no, actually it is, but there’s plans to downsize in the future, free up home equity, but the point is, what if you’re… The safe withdrawal rate that you might hear tossed about out there in the financial planning world is less than 4%. 4% or less. So if you’re taking more than 4%, the value of this exercise is it’s a quick measuring stick, if you will, of how concerned you should be about your withdrawal rate impacting the longevity of your assets.
Steve Lewit: Yeah, and you might…
Gabriel Lewit: So, this client and I, we’ve had many conversations about, “It’s too big and he needs it, and what are going to be the options for changing this in the future and reducing costs and expenses?” So that’s all part of the conversational process, but it’s important to identify that if you’re on a trajectory to be withdrawing too much money.
Steve Lewit: Exactly, and here’s what a lot of folks do that are taking a market approach and using the safe money withdrawal rate, is when the market goes down and they feel the squeeze of that, they don’t take the inflation adjustments. So they actually cut back on their standard of living to make up for the market going down so they feel better, have more peace of mind.
Gabriel Lewit: If you’re not comfortable cutting back on your standard of living, then there’s got to be an alternate solution, other than to just put the blinders on and sally forth.
Steve Lewit: Move your withdrawal rate from four to 4% to 8%.
Gabriel Lewit: Yeah. So something to keep in mind. What is your withdrawal rate percentage? That’s our nerdy year end calculation tip number three.
Okay. Number four, a little lesser known, so that’s why it’s in our nerdy list, but is paying back any CARES Act distribution. So if you recall, there was this little thing called the pandemic a couple years ago in the rear view mirror, and if you needed a pandemic related withdrawal or coronavirus related withdrawal that was allowed through the CARES Act, you could take out a withdrawal from your 401k, for example, not pay the 10% penalty, but you’ve got to stretch the tax payments for that out over three years, which was also designed to help ease the impact of that withdrawal. However, little known provision there is that you could pay that back and not pay the taxes, if you were so inclined.
Steve Lewit: That runs out…
Gabriel Lewit: This year.
Steve Lewit: This year. Yeah.
Gabriel Lewit: Yeah. So that’s the idea there is if that happens to apply to you and you do not want to be taxed on that and have the funds ready to repay that, there is a deadline for that that is quickly approaching.
Steve Lewit: Right.
Gabriel Lewit: Right. That was a quick one.
Steve Lewit: A nerd, a quick nerd.
Gabriel Lewit: Quick nerdy…
Steve Lewit: Quick nerd.
Gabriel Lewit: Alrighty. Number five is… Dad, you want to take this one?
Steve Lewit: No.
Gabriel Lewit: No?
Steve Lewit: No. I think…
Gabriel Lewit: Oh, my goodness.
Steve Lewit: I hate inherited IRAs. It’s such a pain in the…
Gabriel Lewit: If you have an inherited IRA…
Steve Lewit: It’s a topic that really annoys me for some reason. Why they can’t make it simple. It’s just like… It drives me crazy.
Gabriel Lewit: Is making sure… A, you should take your RMD for this year anyways if you’re a regular RMD age, but if you have a beneficiary IRA, regardless of your age, you may or may not have to take an RMD this year, and the reason this is nerdy is because the rules get really complicated.
Steve Lewit: They do.
Gabriel Lewit: So, it depends in part on the date of birth, date of death of the deceased, depends in part on RMDs, whether they were taking them or not taking them. It depends in part on your tax situation, whether or not you should take out more or less this year because, in most cases, you have a 10 year window for someone that’s passed away recently.
Steve Lewit: Recently. Right.
Gabriel Lewit: Older inherited IRAs were subject to what was called a stretch provision that may have allowed you to take that out over their life expectancy. So it’s just something to be aware of, because there are just more planning considerations with that type of account than there might otherwise.
Steve Lewit: Yeah. So if you’re under the 10 year rule, it means that you could wait nine years before you take out your required minimum distribution. All that says is that account needs to be emptied out in 10 years.
Gabriel Lewit: Well, and the IRS is coming out with some new potential changes to that starting next year.
Steve Lewit: Maybe.
Gabriel Lewit: Where you would have to take the RMD either way each year, as well as empty it out over 10 years, just adding even more complexity to the fire.
Steve Lewit: But the idea is, folks, at the end of the year, to make sure you’re taking care of that responsibility, or obligation is a better word, or if you need the money, just take it out.
Gabriel Lewit: Right. Yeah. Okay. Number six is understanding the changes to FSA spending rules, meaning that there had been some exceptions allowing you to roll over unused FSA, flexible spending account money, which are also coming to an end. So what does that mean? It means use it or lose it, buster.
Steve Lewit: Yes, and if your name’s not Buster, we could apply that to your personal name if you would like.
Gabriel Lewit: Use it or lose it, Steve.
Steve Lewit: Steve, or Gabriel or Katie.
Gabriel Lewit: Yeah. So you don’t want to… This is money that you’ve paid in. It’s pretty bad if you just get it and let it go to waste. So step one is to know whether or not you have an FSA, which hopefully you know if you do, and if you do, is making sure you haven’t forgotten about that this year, so you come up with a way to make sure you spend that money.
Steve Lewit: All right. Good nerd point for those FSA nerds.
Gabriel Lewit: All right. Number seven, for you charitable types, which is some of you out there. Bunching. Okay. Bunching your charitable gifting. Now, bunching is a more technical, advanced, nerdy strategy where you would, if you say you make a certain amount of contributions to charities in the given year, but you’re still not able to itemize. Okay. So it’s related to itemizing on your taxes.
Let’s say, for example, that you gift $15,000 a year to a charity, but that, plus your state and local property tax cap of 10k, means you’re below the standard deduction.
Steve Lewit: Yes.
Gabriel Lewit: So, you can’t itemize. What you could do… But if you plan to do $15,000 this year and $15,000 next year, you could bunch those, and next year, of course, is three weeks away. You could bunch those this year.
Steve Lewit: You could bunch five years if you wanted.
Gabriel Lewit: You could bunch anything, but let’s say you do $30,000 this year, and now plus your $10,000 and your property tax cap, you’re at $40,000, which you could itemize with.
Steve Lewit: That’s exactly right.
Gabriel Lewit: Okay. Giving simple examples.
Steve Lewit: Then you don’t give next year. You…
Gabriel Lewit: Correct. You gave for next year this year, and now what do you do? Or you take the extra amount of tax savings that you created and you give more.
Steve Lewit: Exactly.
Gabriel Lewit: Right. You’re just playing the game, the tax game, shell game a little bit, and moving things around from one tax year to the other, creating tax advantages.
Steve Lewit: Exactly. So if you’re gifting, and that’s part of what you do…
Gabriel Lewit: Charitable gifting, not regular gifting.
Steve Lewit: Charitable gifting, yeah. Thank you. This is something to consider to get you into the itemized territory, which will pay off in tax deductions.
Gabriel Lewit: Yes, sir. Yes, sir. Okay. Alrighty. Number nine. We are getting closer to our end of our list. Number eight. Sorry, this one’s… Because nobody ever does it, because it’s getting into the weeds, reviewing all, and I do mean all of your various insurance coverages.
Steve Lewit: Now when’s the last time, Gabriel, that you reviewed your insurance coverages?
Gabriel Lewit: Well, Mr. Steven Lewit, I’m a financial planner.
Steve Lewit: Yeah.
Gabriel Lewit: So, I do it pretty frequently.
Steve Lewit: Do you?
Gabriel Lewit: Yeah. Now, certain ones more than others.
Steve Lewit: Yep.
Gabriel Lewit: Now, certain parts I don’t have to review, because I already have it locked in, like life insurance. So I’ve got my life insurance calculated. Homeowner’s insurance, you should shop around with from time to time, especially with home value spiking, though they’re coming down a little bit, but still, good to check your home insurance coverages. Certainly other things to pay attention to, be it car insurance.
Steve Lewit: Umbrellas.
Gabriel Lewit: Umbrellas, if you don’t have umbrella or you’ve been meaning to get it. If you’re at risk of working and not being able to work if you get injured, disability insurance, if you’re older and you’re worried about long-term care, long-term care insurance. So there’s a checklist of insurances that are worth checking into.
Steve Lewit: I’m trying to figure out, Gabriel, how do we motivate people to do this? This is such an un-motivational topic.
Gabriel Lewit: It’s just not fun.
Steve Lewit: No. It’s like…
Gabriel Lewit: Gosh, let me dig up all my old policy limit to thresholds.
Steve Lewit: “Hey, you know what we should do? You know what we should do tonight, honey? We should review our insurance.”
Gabriel Lewit: Yeah, that sounds fun. Yeah.
Steve Lewit: I’ll break out the scotch.
Gabriel Lewit: Let’s do it.
Steve Lewit: We’ll make it fun.
Gabriel Lewit: Well, we’ll drink some scotch with you and do that for you, if you’d like us to.
Steve Lewit: We could, but…
Gabriel Lewit: Now of course, of note, we don’t sell car insurance or homeowner’s insurance, but if you have questions about whether or not you’ve under or over-insured, et cetera, et cetera, that’s part of what we do as planners.
Steve Lewit: Yeah. Well, this is supplement time too, so that’s a good time to look at your supplement.
Gabriel Lewit: Yeah. Oh yeah. That’s another one too, supplement insurance. Well, the open enrollment or annual enrollment just ended for your PDPs, but certainly, if you’re unhappy with your overall plans and health insurance, you could review that too, depending on your enrollment dates.
Steve Lewit: Good job.
Gabriel Lewit: All righty. This one, of course, I know you’re intimately familiar with, Steve. Number nine, Roth conversions. Would you like to take this one, sir?
Steve Lewit: Yes, do it, but it’s getting awfully late to do it. Look, we have been spending the last… Because October, November is worth conversion months here, and in December too. If you think taxes are going up in the future and you have IRA, 401k, or 403b money, what we call qualified money, why not pay the taxes now instead of paying it in the future when the taxes will be higher? There’s a lot to unwrap in that, but it’s a very simple tax play that protects you in the future, and it protects the folks that are going to inherit your IRA in the future that they’re not paying taxes at an even higher rate when you pass on.
Gabriel Lewit: Amen.
Steve Lewit: Now the problem now, Gabriel, is that time is running out.
Gabriel Lewit: Yes. So if you have questions on that, if it’s still on your mind, call us. (847) 499-3330.
Steve Lewit: Hurry up.
Gabriel Lewit: Almost gave my personal number again. Pause the podcast and call us so you can get that scheduled.
Steve Lewit: Yeah.
Gabriel Lewit: All right. Number 10 is tax loss harvesting. Now, if you’re with us as a client, we’ve done this for you throughout the year. If you have outside accounts, crypto accounts, your time ticker is running out to do tax loss harvesting. Now, tax loss harvesting, actually, we made a note here, we’re not going to have time to do it today, maybe on next week, we’ll do a deeper dive into what that is and how it works.
Steve Lewit: Why it’s good and why it’s important for you.
Gabriel Lewit: But the idea is you sell something that’s lost money, and you replace it with something similar, but does not violate wash sale rules, which is what we’ll get into, and you harvest or capture that loss to carry forward and apply towards future tax returns.
Steve Lewit: So, does this mean we’re going to have two nerd podcasts in a row?
Gabriel Lewit: Well, this one’s just the nerdy list, where I think all of our podcasts are semi-nerdy.
Steve Lewit: We’re going to lose all our listenership.
Gabriel Lewit: No, no. I think this is good stuff.
Steve Lewit: Sometimes I think I see people, when we do stuff like this, sitting there yawning like…
Gabriel Lewit: I think they laugh enough at you. Definitely not me, but laugh enough at you to keep it interesting.
Steve Lewit: Well, okay then.
Gabriel Lewit: I’m just teasing.
Steve Lewit: All right.
Gabriel Lewit: All right. A quick 10A, which isn’t on my list, but I just thought of your HSA contributions. You do have a year-end deadline for those health savings accounts.
Steve Lewit: Very important.
Gabriel Lewit: Your other normal RMDs, don’t forget about those. These are a little less nerdy, simpler ones. So yeah, lots of things to keep track of towards the end of the year, huh?
Steve Lewit: Yeah. Remember, if you turn 72 anytime this year, you’re required to take an RMD, a required minimum distribution. Otherwise, you have to take two next year.
Gabriel Lewit: Nerdy item 10C, if you’re a business owner, make sure any write-downs or write-offs or expenses you want to front load into this year, so you don’t get taxed next year. This year is running out.
Steve Lewit: Si.
Gabriel Lewit: Si.
Steve Lewit: Si, si, senor.
Gabriel Lewit: Si, senor. Yeah. So yeah, lots of different items there. Okay. Well, again, if you have questions, go to our website and click “contact us” and schedule an appointment. (847) 499-3330 is our number, our website’s sglfinancial.com, of course, and to end today, we’ve got a couple listener questions that I did want to get to that have trickled in.
So without further ado, Jane. Jane, you emailed us and said that your husband is 13 years older than you and retiring, and his life insurance is currently through work, and when he retires, he won’t have any life insurance. “Should he get some because he’s older than me?”, was your question.
Steve Lewit: Well, that’s an interesting question. It depends on… Older is one thing, 13, but if you are 30 and he’s 43 is very different than if you’re…
Gabriel Lewit: Well, I’m assuming he’s retiring, because yes, that’s correct.
Steve Lewit: Oh, he’s retiring.
Gabriel Lewit: I don’t have your age.
Steve Lewit: You did say that. You did say…
Gabriel Lewit: I’m guessing sixties.
Steve Lewit: Oh, they’re in their sixties.
Gabriel Lewit: Guessing.
Steve Lewit: Yeah. So look, why do you buy life insurance? You buy life insurance typically to replace income. So if you believe the statistics that your husband will… Or you will outlive your husband.
Gabriel Lewit: Good probability here.
Steve Lewit: Which is a high probability, and if he passes away, you will have insufficient funds to live on, then looking at life insurance might be a good idea. Now, the problem there is that at 60 years old, life insurance becomes expensive. So it’s a matter of, what’s in your budget, how much money you have, are you working, will you continue to work? Can you sustain yourself? Those are all the ingredients that go into buying life insurance. The other part of life insurance, and I don’t know if… What was this, Jane?
Gabriel Lewit: Yes.
Steve Lewit: I don’t know if Jane was thinking this, but the other reason to buy life insurance at 60 is to build tax-free income in the future. 10 years down the road, you can buy life insurance at 60, specially designed life insurance policy, and then at 70, start receiving tax-fee income from those funds.
Gabriel Lewit: Yeah. Can I add a third thing?
Steve Lewit: A C?
Gabriel Lewit: Item C.
Steve Lewit: An item C.
Gabriel Lewit: So, you tackled A and B, right? A is income replacement, and B is tax free income. C is, if you are good on income and you don’t necessarily need the income replacement and you’re good on assets, you could still choose to buy life insurance to leverage or pass even more to your spouse, or he could buy it or you guys could buy it on him to just leave you with even more if and when he passes before you…
Steve Lewit: Which will eventually go, if you have children, to your kids.
Gabriel Lewit: So sometimes, people are going, “Well, why do I need life insurance?” Say, well, if you could spend a hundred grand to give you 300 grand, hypothetically, right, would you do it?
Steve Lewit: Yeah. So Jane, that might be part of your finances that you’re never going to use, and you know that they’re going to go to your kids. So you could buy life insurance and leverage that.
Gabriel Lewit: Well, it’s so surprising…
Steve Lewit: Into tax free money.
Gabriel Lewit: Yeah, I have so many clients that, the first time I bring this up to them, we do their plans, and Jane, if we did your plan, we’re going to see, “Hey, you’re going to have X, Y, and Z million dollars, two million, whatever’s left over at age 80, 85.” What that tells us is you’re not spending all your money, so you have extra money to spend, in theory. You could take some of that every year, buy a guaranteed life insurance policy, and two things will happen. If you die earlier than expected, you massively leverage that and pass even more to your kids, and if you live a long time, you pass about the same amount that you would’ve passed had you not bought life insurance, and so it’s such a no-brainer to me and seems so simple and makes a lot of sense, but a lot of people don’t think about it that way. Say, “Hey, my kids are all grown up. Why do I need life insurance?”
Steve Lewit: That’s the first thing.
Gabriel Lewit: Yeah, but this is such a good thing to do, because you’re protecting yourself in the short term, leveraging your dollars, and you’re not losing in the long term either.
Steve Lewit: Do you notice Gabriel, as soon as you bring up life insurance, how people’s eyes kind of roll up in their heads and say…
Gabriel Lewit: Well, that’s a nerdy topic.
Steve Lewit: “Why is he talking to me about life insurance?”
Gabriel Lewit: Exactly. So Jane, I hope that helps a little bit. My answer would be yes, if you can afford it, because it’s generally a pretty good idea any way you slice it, but do it quicker than later, because one thing to keep in mind, your health, when you’re in your sixties, for the insured, is never a guaranteed thing. So if you’re healthy…
Steve Lewit: It can change overnight.
Gabriel Lewit: Take advantage of that. Absolutely.
Steve Lewit: Yep.
Gabriel Lewit: Okay. Our second funny, interesting topic here today must be in the air. Ted asked, “I’m thinking of buying life insurance. What’s better? A term, universal or whole life?
Steve Lewit: You set this up. You did that.
Gabriel Lewit: No, I didn’t.
Steve Lewit: There’s really two separate emails?
Gabriel Lewit: I’m not joshing you, man.
Steve Lewit: Isn’t that funny?
Gabriel Lewit: Yeah.
Steve Lewit: Yeah.
Gabriel Lewit: Just came in the other day, and some of these, so you know, I take… Not today, but some of our questions are actual questions I get from clients through our planning that I turn into questions to answer on the show, but some of these… These ones are actual emails that we got in. So what do you think, pops?
Steve Lewit: Well, Ted, it’s not what’s better. It is what fits your goals and your plan. In other words, if you are younger and you need… Because you have kids and you need a lot of replacement income if you die, for the next 10 or 15 years, you buy term insurance.
Gabriel Lewit: Well, I can answer this question more simply than that.
Steve Lewit: Oh my god. That was really simple. Folks, wasn’t that simple? That was so simple.
Gabriel Lewit: Yes to term, if you’re younger. Yes to universal life or index universal life, if you want your money to last, and generally no to whole life.
Steve Lewit: Well, but explain the difference between term life and index.
Gabriel Lewit: The biggest… Term builds no cash value. Index and universal, IUL, index, universal and whole life build cash value, and they just build it differently.
Steve Lewit: To say it really simply, one is temporary.
Gabriel Lewit: I thought I said it pretty…
Steve Lewit: Well. It was okay.
Gabriel Lewit: One’s temporary.
Steve Lewit: One is temporary.
Gabriel Lewit: The other’s permanent.
Steve Lewit: And the other is permanent.
Gabriel Lewit: Yeah. So Ted, we’re missing a lot of context here. So it depends on what’s more important to you, but that would be the quick and skinny of those.
Steve Lewit: One is very inexpensive, because it builds no cash value. That’s the term.
Gabriel Lewit: If you don’t use it, you lose it.
Steve Lewit: You lose it. Right. Yeah. The other builds cash value, sometimes a lot, sometimes a little, depending on how it’s designed, but it lasts as long as you do.
Gabriel Lewit: Amen.
Steve Lewit: Amen.
Gabriel Lewit: Well, folks, thanks for tuning in. That’s our time allotment here for today. We try to keep you close to this 30 minute mark, which I feel like I blinked and it went by here today.
Steve Lewit: Yeah, that went by pretty quick.
Gabriel Lewit: But if you got questions, call us, (847) 499-3330, or go to sglfinancial.com and click “contact us”, or email email@example.com with your questions, big or small.
Steve Lewit: Nerdy or not.
Gabriel Lewit: Nerdy or not, and most importantly, we hope you have a wonderful rest of your day, week, weekend, and we will talk to you on the next show.
Steve Lewit: All right. Stay well, everybody.
Gabriel Lewit: Bye now.
Steve Lewit: See ya.
Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at (847) 499-3330, or visit us on the web at sglfinancial.com, and be sure to subscribe to join us on next week’s episode.
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