Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make smarter financial decisions. Reyna Retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:40] Speaker B: Well, the Rolling Stones said, time is on my side. Yes it is. But were they right? We all know that we have a set amount of time here on this earth and Fegley takes into account that they know that too.
And you have access to all kinds of life insurance with your job at the Fed, you've got basic life insurance A, B and C. I want to talk to you a little bit today just about basic, because if you've ever seen anything I've ever put out before in terms of videos on here, it's that you know that I'm a very great advocate for keeping basic life insurance because after age 65 and being retired, you get to keep 25% of your salary forever as a death benefit and you don't pay for it. So that's a huge thing because time is not necessarily on our side and we need to plan. What do they say? Start with the end in mind. So you need to understand what your options are with basic. Okay, so fill in the blanks in your mind. Basic is one year of your annual salary. So the way they do basic life insurance or the way they calculate it, they take your annual salary, they round it up and they add 2,000. So in this example, if you make a 72,500, then they're going to round it up to 73, add 2,000 and then your total basic life insurance is $75,000. So if I pass away, how much money is my family going to get just from basic life insurance? Hmm. If you said $75,000, you are correct. But the trick of that is they get every stinking dollar of it. Because what is the tax implication on life insurance proceeds to your beneficiary?
There is not. They don't pay tax on life insurance. That's a tax code 7702 that was drilled into me by one of the one of the gentlemen I used to work with. Tax code 7702 allows for life insurance proceeds to be non taxable to the Beneficiary.
And that is huge because isn't Uncle Sam all up in your grill everywhere else? Absolutely. And so this is a huge thing. You got to remember. People say, oh, life insurance, they think, Ned Ryerson from Groundhog Day, right, Like block, block, block. Oh, NED Ryerson. No. Life insurance is one of the most unsung heroes of financial planning, I will tell you that for sure. And also, life insurance has long since been the tax shelter of the wealthy in terms of legacy planning and generational wealth. Now, when you look at basic life insurance, you see your salary, which is correct, and you've got three choices when you retire.
And let's take this example. If you're retired and over 65, if you retire before 65, you will still have some additional cost, but it's very minor. It's only the current cost that you have already, which for the majority of you, if you're anywhere 100,000 and less, you're paying around 20 or 30, maybe as high as 40, $40 a month on this. Okay.
Usually 20 or $30 a month. So for a hundred, for 100% of your $75,000, if you're already retired and, and over 65, you're going to pay one hundred and sixty eight bucks a month for $75,000 of coverage forever.
Call somebody and get a quote on whole life insurance for $75,000 and see what the price is.
I bet this beats it because this is permanent. Think two parallel lines, coverage and dollar amount premium. They are going to be the same for that duration of time, which is forever, number one. Number two, you can keep half of it. Now imagine 56 bucks a month for whatever half of 75,000 is. What is that? 32,5 is 32 grand of life insurance for 56 bucks a month. Sign me up twice. I would say, now how much is it if I only keep 25% of it? Well, jokes on me. I already told you that cost is going to be absolutely nothing. You pay nothing to keep a quarter of your salary forever as a death benefit. Now I got a guy says, hey, looks like the government got you buried for free. And that's about right.
This is one of the, this is the reason I'm a big, huge, massive fan of everyone keeping basic life insurance. Even if you bought other coverage, even if somebody said, hey, buy this other coverage and do a pension maximization. Well, you got to remember, pension max sounds like a fun plan. But if you don't leave a survivor benefit, your spouse will be able to keep health insurance. If they need it. So you got to remember things like that and look at all sides of the spectrum. So at a minimum, even if you have no family, no kids, no wife, no nobody, at least do this because somebody will help offset that cost.
Now, while you're working, you have a provision. Basic life insurance has a provision. They passed a law back in the 90s called the living Benefits act and that says that if you get the bad news and you've got nine months or less to live, you can file a claim. This is the phone number. Now, I hope this doesn't apply to anyone watching this, but maybe you know somebody who may have got the bad news and they are dealing with something terminal and they're all, they're. They have had a nine month or less to live, what you call it diagnosis.
Please share this number with them. All they have to do is make the phone call, show the proof from the doctor and then a form. Then they'll have an F8. Essentially they will send them a pre filled, usually FE8, which is just a standard form for making that claim. And I myself have walked about six people through that. I've done this long enough to have some pretty interesting stories. I've had people live way longer than nine months. And when you do, what do you got to do? Nothing. Enjoy life. You win. They don't ask for the money back is what I'm getting at. But this is a lump sum of what your salary is to you, tax free because of this diagnosis.
So this is some things that a lot of people didn't know about. You got access to money if something happens that is so significant. We had somebody come to our meeting who had already been, who had just been diagnosed stage four lung cancer and was about to empty out his TSP because in order to pay the house off and things like that for the family, when he found this out, he goes, what? I was about to pay tax and a penalty because he's under 59 and a half, obviously to get access to this, to sort of plan for the family stuff. But now he says, oh my goodness, I don't have to do that now. Now I can, I can, I have access to this dollar amount. Now. He may still grab from tsp, but it won't be as much.
Now, many of y' all may know my husband, same thing. He had stage four colorectal cancer three or four years ago. He's in remission, but he had an outside life insurance policy that had living benefits that actually paid him a dollar amount, a percentage of his life insurance because of that cancer diagnosis. Now living benefits is only for terminal from Fegli, but there are outside coverages that that I had actually written him the policy because we can do this if you need. Reach out if you have questions on this for living benefits, but he had that type of plan so there are many ways to get access to funds by simply taking a step and protecting yourself with different things things if you haven't reached out to have a meeting yet, go right ahead. You can text me at 850-450-6500. I have myself and an entire team that can help you with any of these things and clarify what you currently have, how it's going to change your retirement, how much it's going to cost, and maybe some additional things that might help offset some of the things you may deal with in the future. We'll talk to you soon and happy retirement.
[00:08:12] Speaker A: Thanks for listening to Reyna Retirement With a strong commitment to ethical standards, Raina works hard to find the right solution for each individual or family who reaches out for advice. To contact Reyna directly, call 850-450-6500. That's 850-450-6500 or to reach the team at American Federal Benefits Consultants, call 1-800-872-8857. That's 1-800-872- 8857. You can also go online to upload americanfederal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the federal government or any state government. The terms CSRs, FERs, FELI, and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal Benefits Consultants, agents, consultants, or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
