Dear Liz: I am a retired, debt-free veteran who is 68. I am grappling with whether I should continue to pay premiums of $25,000 annually for the next seven years on an indexed universal life policy. I bought it based on advice from a local financial advisor who is not a certified financial planner but who is supposedly acting as a fiduciary on my behalf.
I am single (divorced for some 30 years) and have no dependents. I receive pensions from the military and the federal government. I currently have a broad-based index fund investment portfolio through a discount brokerage and in seven years I expect to receive annuity payments for the remaining years of my life from an insurance company.
I think it would be more in my best interest to take those premiums and put them into my federal Thrift Savings (TSP) account’s Roth option and just wait until my RMD comes up in four years. What do you think, ma’am?
Answer: The phrase “supposedly acting as a fiduciary” is worrisome. Advisors are either obligated to act in your best interests or they’re not. The ones who are not fiduciaries could recommend expensive or underperforming investments because those investments pay higher commissions, not because they’re the best fit for the client.
Indexed universal life policies are expensive, complex and too often pushed on people who don’t have a need for permanent insurance. That sounds like you, since you don’t have anyone who is financially dependent on you. It’s hard to see how spending another $175,000 on premiums makes sense.
There could be tax and other financial consequences from simply stopping your payments, however. Please find a CFP who is familiar with permanent insurance to help you review this policy and your options, which could include surrendering or modifying the policy. (CFPs are required to be fiduciaries when they’re giving financial advice.)
You can find fee-only financial planners who work on an hourly or project basis through the Garrett Planning Network. Other resources include the National Assn. of Personal Financial Advisors and the CFP Board’s consumer website, LetsMakeAPlan.org.
You won’t, by the way, be able to contribute anything to your TSP retirement plan now that you’re retired. But you can work with your CFP to find other ways to invest or spend the money you save.
Dear Liz: In all the back and forth over the best way to help adult children buy a home, you neglected the obvious answer, which is not to do it at all. Adults shouldn’t expect handouts from their parents.
Answer: That’s certainly one perspective, but one that ignores the soaring cost of buying a first home and the benefits of transferring wealth between generations.
Many younger people could afford a mortgage payment but struggle to save a down payment while juggling high rents, rising living costs and student loan debt. As home prices climb, homeownership moves further and further out of reach. Help from parents can allow adult children to buy sooner, start building equity and potentially accumulate more wealth over time. A “handout,” as you call it, early in adulthood can make a much bigger difference than an inheritance received decades later.
Of course, many parents aren’t in a fortunate financial position to help their adult children. Others help at the expense of their own finances, or in ways that keep their kids financially dependent.
If the parents are willing and financially able, though, assistance with a down payment can give their children a huge head start toward building wealth in an increasingly tough housing market.
Got a question about money? You can submit it here.
Liz Weston, Certified Financial Planner®, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
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