Kimmy is concerned that her mother's retirement investments are too conservative. Should she recommend taking on more risks? Peyton has heard the advice against using Whole Life Insurance as an investment, but is it a viable option as a savings tool for children? Is there a practical application for this? Jeff and his wife are financially stable, yet they worry their retirement savings are overly concentrated in traditional IRAs. Will they face tax issues down the line? Former financial planner Joe Saul-Sehy and I address these queries in today's episode. Enjoy! P.S. If you have a question, feel free to leave it here.
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Kimmy inquires (at 02:12 minutes): What level of risk is appropriate for my mom in retirement? She has completely transformed her financial situation. Having grown up in poverty, she now has $1 million in liquid assets for retirement. She owns her home, valued at $300,000, with $40,000 remaining on the mortgage. I recently analyzed her spending and retirement benefits. If she starts withdrawals next year at age 62, her income will include:
A pension of $29,000 annually
Social Security of $27,000 annually
A modest withdrawal requirement of only $8,000 annually from her 403(b), with slightly larger withdrawals during the first three years to cover health insurance before Medicare begins.
Because her withdrawal needs are minimal, she might face required minimum distribution (RMD) issues later on. I plan to assist her with Roth conversions prior to her turning 73 to alleviate that problem.
At present, her investment portfolio is very conservative:
15% in high-yield savings
50% in bonds
35% in equities
Since she doesn't need to depend heavily on her investments for income, I believe she can take on more risk. I ran Monte Carlo simulations, and in every scenario, reallocating more of her portfolio into equities enhances her long-term outlook. Am I overlooking something? My primary goal is to ensure she has a secure and enjoyable retirement. She insists on a simple lifestyle, but I want her to seize every opportunity to enjoy life.
There’s also a secondary consideration. I'm 41 and have been significantly disabled since contracting COVID two years ago. Living in a high-cost area, I have $350,000 saved for retirement that I can access without penalties due to my disability. My investments are predominantly in equities, and I’m at ease with the market volatility.
I receive $2,000 monthly in disability benefits but am currently spending $3,000 per month from my savings. This expenditure is likely to decrease if I get approved for Social Security Disability Insurance (SSDI) within the next two years.
I would appreciate your insights—am I missing anything regarding my mom's asset allocation or my financial situation?
Peyton asks (at 23:15 minutes): I'm a previous caller whose parents took out a life insurance policy for me when I was seven. They covered the premiums until I secured my first full-time job, at which point they transferred the policy to me. In my last call, I asked for advice on what to do with the policy since I do not have dependents. You suggested donating it, and I decided to name an organization that both my parents and I value as the beneficiary. Since it was funded by both their money and mine, I wanted to honor them.
Recently, I spoke to a friend whose husband proposed doing something similar for their future children. This made me reconsider. My parents used the policy as a savings tool for me, but is this an effective approach?
For new parents—assuming they are already saving for education—does purchasing a whole life insurance policy provide a good means of passing wealth to their children? I understand there is much debate surrounding whole life insurance, so I’d like to hear your views. How does it compare with the various methods parents can use to transfer wealth?
Jeff asks (at 43:09 minutes): We want to maximize our finances before my wife leaves her job—what steps should we take? We are a family of five living in Colorado, with children aged 3 to 10. I am 46, and my wife is 39.
Our monthly expenses amount to $12,000, and our household income is $290,000—though that will decrease by $90,000 once she resigns. We believe we can manage this, but we want to ensure we’re making sound decisions both before and after her departure.
One concern is that too much of our money is tied up in pre-tax accounts, which could result in a significant tax burden during retirement. I have $2.3 million in a 403(b)/401(a), all pre-tax, along with $66,000 in a Roth IRA. My employer provides a 10% match, and since they lack a traditional IRA, I have been performing
Kimmy is concerned that her mother's retirement portfolio is invested too cautiously. Should she recommend taking on more risk?