Pension to Insurance - earlebird.com

When interest rates are as low as they can go, conceptual selling—selling what a product does, not what is it—is vital to insurance/annuity agents. Consider this concept: selling agents are “educating” their clientele about the notion that the U.S. tax system is broken, and tax rates must rise to pay for our ballooning debt.

What are these salesmen proposing to American seniors? They’re telling post-55 clients to liquidate their pensions and IRAs, pay the taxes, and buy a life insurance policy with the account balance. I’m not saying it’s a terrible idea; but what makes these agents think tax rates can go any higher? And, guess what, if the government ever needs money badly enough, what makes you think lawmakers won’t seek revenue via tax-free life insurance death benefits? If you ask me, that tax-free death benefit will not last forever, and is not an inalienable right for life insurance buyers. With one presidential stroke of a pen, its tax-free status could be modified or eliminated. I give it a generation until all tax-free loopholes are partially closed.

As noted, cashing in retirement accounts to buy a life insurance policy has merit if you already have enough liquid assets to live comfortably. But, how long are you going to live?  To 80? 90? 100? The longer you live, the worse the decision to purchase life insurance. I love when Americans purchase life insurance, but internal policy fees for older ages get higher with each passing birthday.

No one knows what the future holds, so be wary of agents pushing forecasts and theories. Giving up your retirement nest egg for a tax-free death benefit for your beneficiaries seems like a risky venture.  If you can buy it when you’re healthy, and you die young, then it makes some sense. If you can’t (or don’t) make that commitment, then pass on the purchase.

I’ve answered readers’ questions below.

What tips can you give on saving for retirement?

It’s simple. Save and keep saving until it hurts, control and monitor expenses always, and invest with a long-term compass. That’s not too difficult, right?

I own two annuity contracts that have been taken over by other insurance companies. Should I be concerned?

No, it’s called survival of the fittest. The insurance industry has too many companies for the amount of profits it generates, therefore, you will continue to see fewer and fewer insurance companies in existence. It breaks my heart, but it’s a sign of the times.

I live in New York and my agent said I can buy a better policy if I sign the application in New Jersey. Should I do it? 

This is such a tough question but I will make it simple: unless you own a home or reside part time in a different state, please don’t go outside of your state of residence to buy a policy underwritten by an insurance company. Maybe you should be asking why New York isn’t selling this particular policy.

Why do I have to take a five- or 10-year payout from my existing annuity contract to receive my account value and avoid any penalties? 

Amen, brother. It’s called Smoke and Mirrors Life Insurance Company of America. Some insurance companies promise you accumulation values but make you earn them by taking a payout with virtually no interest paid to you during that payout period. That’s how they recoup higher yields or bonuses paid to you in the past. My advice is to avoid these types of contracts and do your research before buying any annuity contract.

Pay-it Forward:

Your post-grad should know today’s jobs are temporary. Don’t believe you will be at your current company for more than five years. If an industry slowdown transpires, expect a pink slip. Conversely, if a better job opportunity comes along, feel free to take it. Loyalty no longer exists, so plan for it. Get as much experience and paid education as possible, and always keep an eye open to future opportunities. Think of your job as a paid internship.

Check out this great post for some information on the best cash-back credit cards.

Earl E Bird

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

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