A couple of months ago, I posted my Ultimate Early Retirement checklist. (#1 on Google if you search that term by the way. Although, I’m probably the only one who will ever Google those exact words…) One of the items on my checklist is life insurance. However, some readers objected that life insurance might not need to be on the list due to the following reasons.
- If you’re retired and don’t have any earned income, then you don’t need to replace that income.
- If your net worth is high enough, then you don’t really need life insurance. As a couple, life will presumably cost less when one person passes away. You shouldn’t need life insurance if you’re already comfortably living on your nest egg.
- If you don’t have a dependent, then you probably don’t need life insurance.
These sound like valid points to me, but I still think I need life insurance. It’s been over 2 years since I visited this topic and our situation has changed somewhat since then. It is a good idea to review everything to see if I still need life insurance.
Life Insurance Recap
I had a hefty life insurance policy with my old employer. When I left my full time job in 2012, all that coverage went away. I figured that I still needed a little life insurance and signed up for a 20 year term life insurance policy. I’m paying $24 per month for a $250,000 policy. The policy will help pay for any immediate expenses and help replace my self-employment income. My goal is for my family to maintain their lifestyle if something happens to me.
In 2013, I made about $1,500 from self employment. The good news is that I’m doing a better 2 years later. I’m making about $3,500 per month in 2015.
My current self employment income: about $3,500/month
Social Security survivor benefit: $1,961/month for RB40jr up until 18 years old AND $1,961/month for Mrs. RB40 until our kid is 16 year old.
It looks like the Social Security benefit can still replace all of my income up until our kid is grown up. That’s great news for the family.
Primary home mortgage: We owe about $235,000.
Mrs. RB40 can sell off our rentals and use the proceeds to pay off the primary home. She does not want to be a landlord. The process of fixing up the rentals and selling them off can take several months so the life insurance payout would come in handy during that time.
College: $100,000 to $350,000?
RB40jr has about $43k in his 529. He can use part of the social security benefit to add to his 529 until he’s 18. Mrs. RB40 can also use part of my retirement fund to pay for Baby RB40’s college if needed. RB40jr might have to live at home and go to a local college for the first 2 years if money is tight.
Mrs. RB40’s early retirement plan
Here is the big change from 2 years ago. In 2013, Mrs. RB40 wasn’t planning to retire early because she liked her job. She enjoyed working and contributing to the society. However, she has seen my quality of life improved immensely and she wants a piece of it, too. We’re working on it and she should be able to retire early by 2020. If I pass away, then life will be more complicated and she might have to go back to work. Can our budget handle this change?
Expense: $4,500 per month
Current income: ~$8,200 after tax from all sources.
- $5,000 – Mrs. RB40’s income after taxes and deduction
- $2,000 – Joe’s take home after taxes and deduction
- $800 – Dividend portfolio
- $400 – Rentals, P2P lending, and other sources.
Our passive income is a little low right now at just $1,200 per month. It looks like Social Security benefit will be able to fill the gap, though. Social Security benefit will provide about $4,000/month and that should be enough to help pay the bills. When the benefits run out in 2029, then Mrs. RB40 can turn on the tap from our retirement accounts.
Life insurance will be helpful
It looks like life insurance would still be helpful for us.
- Income replacement – We should be okay on this front. Social Security benefits can replace my income until RB40jr is grownup. After that, Mrs. RB40 can withdraw from our retirement accounts.
- Immediate expenses – This is where the life insurance policy would be helpful. We have some cash cushion, but it could run dry pretty quickly with all the things that need to be done. Fixing up the rentals and selling them could take quite a few months. The funeral expense will probably cost more than I imagined. Mrs. RB40 will probably need to hire an accountant and other professionals to sort out our finances. She will have to figure out what to do about my website and other investments. If she is still working full time, she will have to figure out childcare arrangement. There are just a lot of things to do and I want to give her the time she needs to make good decisions without worrying about money.
All in all, I think the $250,000 policy is perfect for us at this time. It’s not a huge amount, but it’s just enough to tie the family over so they can keep going. When Mrs. RB40 retires, we’ll have to see if it makes sense to get life insurance for her, too. We’ll deal with that in a few years.
If your kids are on their own and your retirement is covered, then you might not need life insurance. Everyone need to sit down and figure out their own needs.
Do you think you need life insurance after you retire?
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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