Package Deals
James McGlynn | Jun 24, 2019
THE INSURANCE MARKET for long-term-care coverage has had a checkered history—and yet there’s an increasing need for LTC insurance among aging baby boomers. My advice: Forget the original standalone insurance products and instead focus on the new hybrid policies. What went wrong with the original standalone products? They proved to be underpriced. With policyholders living longer, insurers found themselves paying out more than anticipated. Policyholders also didn’t drop their policies as often as insurers expected—and the low lapse rate meant insurance companies had less chance to book profits while incurring no LTC expenses. In response, insurers dramatically raised premiums. This repricing led to a plunge in sales, scaring consumers away from all LTC insurance. Hybrid LTC policies, which twin a life insurance policy or a tax-deferred annuity with a long-term-care benefit, are the best solution I’ve found. They’re effectively high-deductible insurance policies. Let’s say a client buys a hybrid LTC policy with a $50,000 lump sum. The insurance company won’t have to pay out any of its own money until $50,000 of expenses have been incurred. Most hybrid policies are life insurance products that offer an LTC benefit, and that’s what I chose for myself. Why? A hybrid life policy provides greater LTC benefits per dollar invested. But if someone isn’t healthy enough to qualify for a life policy, the annuity might be worth considering. How does a hybrid life policy work? The LTC coverage is designed as an acceleration of the life insurance policy’s death benefit. These policies aren’t cheap—but they offer guarantees that standalone policies don’t. For starters, premiums should never increase. If policyholders change their mind and want a refund, they can get their lump sum returned. If they have LTC expenses, they can use a multiple of the original lump-sum payment for LTC expenses tax-free. Upon death,…
Read more » Fatten That Policy
James McGlynn | Sep 15, 2020
I WORKED IN THE investment department of three different insurance companies. But I never had any interest in buying a whole-life insurance policy. I knew term insurance was the best way to get the maximum death benefit for my premium dollars. Instead, as a mutual fund manager, I was always more interested in investing in the stock market. (That said, I didn’t invest in the first mutual fund I managed. Why not? I didn’t want to pay the 7% “load”—the upfront sales commission.) But my attitude toward whole-life insurance changed six years ago. In researching retirement income issues—and getting an insurance license along the way—I learned about “blended” life insurance. Many whole-life policies let you take the policy’s base coverage and combine it with a paid-up additions (PUA) rider. That way, you can design a policy that pays a lower commission to the agent and delivers better value to the consumer. Insurance agents can get commissions as high as 55% of the first year’s premium for selling a whole-life policy, whereas the commission on a paid-up addition might be as little as 3%. Result? If you add $1 to a whole-life policy using a PUA rider, almost the entire $1 gets added to the policy’s cash value. That’s a huge benefit. Most whole-life policies accumulate cash value very slowly, similar to paying down a home mortgage in the early years, when very little of your monthly payment goes toward principal. If you’re interested in whole-life insurance, be sure to ask your agent about blended insurance policies. But there’s a catch. In 1988, Congress changed the rules on life insurance to limit the premium amount that could be contributed to a policy in the first seven years, relative to the size of the death benefit. If you breach these legal limits,…
Read more » Lump It or Leave It?
James McGlynn | Dec 31, 2021
AS THEY APPROACH retirement age, workers sometimes get to choose between a monthly pension and a lump-sum payout. It’s a choice I recently made—one I researched carefully. In the end, I made an unusual decision that took a few extra steps. Let me start at the beginning. In 1984, I began working for American National Insurance Company as an investment analyst. I left the company in 1991, but still qualified for a small pension. Now, at age 62, I was offered three choices. I could receive a monthly pension of approximately $300 starting at 65, or I could take the pension earlier and receive a smaller monthly benefit, or I could take a lump sum of nearly $50,000. To start, I wanted to know if one offer was considerably more valuable than the others. To compare, I went to a website that provides quotes for immediate annuities. It turns out my company pension would pay more each month than an immediate annuity I could buy for $50,000, but not a lot more. Still, having an additional stream of monthly income sounded appealing. But there were other considerations. I’m already getting a larger monthly pension payment from another insurance company—Union Central, now part of Ameritas Life—where I worked from 1999 to 2015. [xyz-ihs snippet="Mobile-Subscribe"] I also plan to take Social Security at age 70, which will give me a healthy stream of inflation-indexed income. Finally, I’ve purchased three deferred-income annuities that will begin paying me income starting at ages 76, 80 and 85, respectively. Should I live until 85, I’ll be receiving guaranteed income from five different sources. Viewed from this perspective, another payment of less than $300 a month started to seem less significant. Besides, my old employer had announced it'll be acquired by another company. I didn’t want to monitor…
Read more » Your 10-Year Reward
James McGlynn | Jul 7, 2020
IF YOU’RE MARRIED, filing for Social Security can be confusing. But there’s one group who has it even worse—those who are divorced. In recent weeks, I’ve had a number of conversations with women who had no idea that they were even eligible for spousal benefits based on their ex-husband’s earnings record. (I also recently watched the television show Dirty John: The Betty Broderick Story, which gave completely erroneous advice on benefits for ex-spouses.) My hope: Someone reading this may learn that he or she is eligible for spousal or survivor benefits from an ex-spouse. A divorced spouse is eligible for Social Security spousal benefits if he or she was married for 10 years or more. Period. Being married for only nine-and-a-half years doesn’t cut it. Every divorce lawyer in the country should be aware that it’s worth delaying a divorce, so the marriage officially lasts at least 10 years. There are other mistakes and misconceptions among those who are divorced. The ex-spouse isn’t informed that you’re filing. The ex-spouse can’t prevent you from filing. As long as you’ve been divorced for more than two years, you’re aged 62 or older and your ex-spouse is at least age 62, you would be eligible for Social Security spousal benefits, as long as the marriage lasted 10-plus years. There are also misconceptions about when to file for spousal benefits. Unlike filing for Social Security benefits based on your own earnings record, where it often pays to delay to age 70, there’s no advantage to delaying spousal benefits beyond your full retirement age, which is age 66 or 67, depending on the year you were born. If you’re planning to receive only spousal benefits, because the benefit based on your own earnings record is modest, you shouldn’t wait to age 70, but rather file…
Read more » Fourth Time Lucky
James McGlynn | Aug 6, 2021
I HAD PLANNED a trip to Vietnam for 2020—which coincided with the start of the pandemic and got scratched. I naively rescheduled the trip for this summer. Unfortunately, countries that lack vaccines have been forced to lock down and keep out even vaccinated tourists like me, so that trip also got nixed. Ever the optimist, I rescheduled for Europe in July. This time, it was the delta variant and changing travel restrictions that ended my third international trip before it even began. I asked my tour group what my options were. The folks there mentioned four countries: Iceland, Croatia, Costa Rica and Egypt. I chose Egypt. The positive: There were very few tourists at the pyramids and the temples. The negatives, however, were numerous: wearing a mask on 10-hour flights, the risk of frequent flight cancellations, and COVID testing when both entering and leaving airports, even though I’m fully vaccinated. This last requirement was the hardest to understand. For my flights, I had to have a negative COVID result within 72 hours. I also learned that there are two types of test—the rapid antigen test and the less rapid but more accurate PCR test. The PCR test was required to fly through London on the way to Egypt. I paid $220 for same-day PCR test results to ensure I could board the plane. My daughter, who was accompanying me, was able to get her PCR test at no charge from her university. The testing went smoothly for us. But others in our tour group were forced to take more tests at the airport because their results needed to be within 48 hours of departure. Just before returning from Egypt, our tour group provided us with another COVID test for $150. The results were delivered to our hotel just three hours…
Read more » Roth While You Can
James McGlynn | Sep 30, 2021
NEWS OF ENTREPRENEUR Peter Thiel’s $5 billion Roth account, which was funded with PayPal stock, has motivated Congress to look at restricting the growth and size of Roth accounts. There’s talk of limiting Roth account balances to $5 million or $10 million. There are also proposals to limit both backdoor IRA conversions and so-called mega-backdoor conversions. The latter involves funding a nondeductible 401(k) and then immediately converting the money to a Roth. There’s even discussion of not allowing high-income workers to convert traditional IRAs to Roth accounts. In recent years, Congress has nixed Social Security’s file-and-suspend option and compelled beneficiaries to empty inherited IRAs within 10 years, rather than over their lifetime. But both changes were grandfathered, meaning those already using the file-and-suspend strategy and those who already had inherited IRAs weren’t affected. Presumably, it would be a similar situation with existing Roth accounts. The upshot: If Congress limits the ability to take advantage of Roth accounts in future, it makes even more sense to convert to a Roth today, while the door is still open.
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Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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