Life Insurance: What Kinds, and How Much?

by North of Boston

I am wondering if I could call upon the wisdom of The Totebag regarding a question I have about my life insurance. I would also be interested in having a general discussion about life insurance. It’s not the most thrilling topic, I know, but it’s one that I imagine is on the minds of many of us.

Like many people, I bought term life insurance before my first child was born. When I was expecting my second child, I increased my coverage (from $700,000 to $1,000,000). There was no in-depth analysis that went into choosing those amounts – I just sort of did a rough, back-of-the-envelope estimate of what seemed sufficient. I am now nine years into a 20-year policy, and happily, I am still alive and well (knock on wood).

My insurance agent called me the other day to point out that my term policy is convertible to permanent (whole-life) insurance for one more year. Not surprisingly, he extolled the virtues of permanent insurance, and encouraged me to consider converting part of my term policy to whole-life

In the past, I would have dismissed this suggestion out of hand. Whole-life insurance is expensive, and I’ve always assumed that the dollars spent on it would be better invested elsewhere. But now I’m wondering whether whole-life insurance could be a decent part of a diversified financial portfolio. My husband and I have significant exposure to equities in our retirement accounts, so maybe the unspectacular-but-steady returns of a whole-life policy might provide a good complement to those investments. Down the road, in our old age, he and I could borrow against the cash value of the policy if we needed to, essentially giving us another source of tax-free retirement funds (in addition to a couple of Roth accounts that we have). If we didn’t end up needing the cash value, we could leave the policy, intact, to our kids.

Is there any merit to these ideas, or are they just the sales pitch of an insurance agent who is looking to earn a big commission?

Totebaggers, would you ever think about adding permanent life insurance as part of your financial portfolio? More generally, what kind of life insurance do you have? How much do you have? What were the factors that you considered in deciding what kind and how much insurance to buy? Do you feel you are adequately insured, or is adding insurance on your to-do list for the new year?


127 thoughts on “Life Insurance: What Kinds, and How Much?

  1. Timely post – this is very much on my to-do list!

    Do most people have umbrella insurance? We don’t but are considering it.

  2. Like NoB, I just have a million on me, 20-year term that will expire before I’m 50. $300k on DW.

    I’m interested to hear about the investment benefits of whole life.

  3. ssm – Yes to umbrella. It’s a couple hundred dollars per year. I “paid for it” by dropping the comprehensive and collision coverage on the older cars, and upping some of our deductibles, to keep the annual costs flat.

  4. We have a term 20 year policy that we added when our oldest was born – $350K on me and $1m for DH (although I think he has an additional $400K through work). We need to up the policy on me since DH would have to hire a full time nanny for many years if something were to happen to me. We do have an umbrella policy (through DH’s work). When the 20 year policy runs out I hope to have enough assets to not need to get another one (so 12 more years of saving and investing).

  5. We have $ 1 million on me, and $4 million on DH, although his is stair-stepped through a couple different policies, so the amount decreases over time as the policies expire. Both of ours will fully expire when we are mid-50s, so kids will be launched and house paid for.

    I do not know much about whole life insurance, but a friend of ours who is an insurance agent once told us – “If I can get you to remember nothing else, remember this: never buy whole life.” I could not for the life of me tell you his reasons.

    We have umbrella insurance. We also have disability insurance. We do not have long term care insurance.

  6. We have $1.7M each in term, and I want to increase that to $3M.

    I have a whole life policy I bought between college and law school. At the time, it was a place to save money that did not count as an asset in financial aid – I don’t know if that’s still true.

    I have kept the policy, but the premium on it for $100k coverage is the same as the premium on the other $1.7M.

    NoB, is it a level term policy? IME, that is likely your best bet, as long as the term is long enough for you to pay off the mortgage and launch your kids. Whole life policies have very high commissions, which is why your guy is pushing it, and are most valuable as a form of forced saving, especially if your kids may qualify for aid.

    Dollar for dollar you will probably be best off keeping the level term and taking a whole life policy on your kids when they are old enough if it is still not counted in aid – the life insurance component of the policy will be cheaper for them than for you, and you do not lock yourself into a low return vehicle only to discover in ten years that little North’s college started counting the cash value in its aid formula.

    We have a $3M umbrella policy, which I highly recommend if you have babysitters, landscapers, or other people’s children in your house. I think we pay $700/year for it.

  7. Great post, NoB! I am woefully uninformed about life insurance, so I look forward to comments from the smart finance types. I get some insurance through work and have a policy that my grandparents bought for my brother & me many years ago. SIL was telling me over the holidays that they learned that policy is underperforming so they are trading it in for something else, so I’m wondering if I should do the same. She was having a lot of trouble with approval & cost because of medical issues, but my brother is getting a credit for being super healthy!

  8. We have ~$1 million term on DH through work and almost nothing on me. (his choice) Our focus has been on high disability coverage for him, rather than life insurance, since the chance of being disabled is so much higher than the chance of death, and being disabled is expensive. (Being dead is cheap.)

    What are the return rates on whole life insurance right now? Without knowing that, it’s impossible to know whether it’s a good investment.

    Given that I’ll probably live a long life, and if I don’t I’ll get cancer and not care about leaving nothing behind, I’m comfortable not having whole life insurance. An amount that sounds high now won’t be that much in 50+ years when my genetic analysis suggests I’ll kick the bucket.

    If we had a different family situation, I would worry more about insurance. Since my Mom won’t need long term care (her great aunt is 104 and my great grandmothers and grandmothers all lived into their 90’s), my Dad has enough money to help any of us through a truly rough patch like having a spouse disabled or die.

    Milo, thanks for the umbrella insurance comment. I’ve been thinking about that and figuring it would be essential once the boys start driving. Mr WCE has no interest in insurance/finance stuff so I get to make the decisions.

  9. We have umbrella insurance. I am a big fan of it — it is very inexpensive relative to the coverage that it provides.

    Lark, interesting that you heard the negative comment from the insurance guy about whole-life. One reason I am asking about whole-life is that in the past year or so, I have come across (in my professional life) a couple of different guys who have pretty high-level careers in finance. I noticed that both of these guys have prioritized (1) paying off a primary home and a vacation home, and (2) buying considerable amounts of permanent life insurance (the kinds that build increasing cash value over time). They had way less exposure to equities than I would have expected. I found myself wondering if they knew something about the stock market that I didn’t.

    Re. disability insurance, when I was in BigLaw, we had a great policy (it would have replaced 60% of my income, tax-free). But I had a private disability policy as well. I’m really glad I had the private insurance, because when I left BigLaw, my employer-provided disability policy went away, but I still had my private policy (I can keep it up to age 65, as long as I keep paying the premiums). This was great, because when you’re starting a business (as I was), it’s hard to qualify for a disability policy (since private insurance is based on your income, and often your income is low the first few years of your business).

    If anyone here is thinking about quitting work to be a SAHP, my understanding is that it is pretty much impossible for someone who has no income to qualify for disability insurance. So you might want to get a private disability policy while you are still working, that will be based on your current income, so that you have it in place when you stop working. IMO, disability insurance can be every bit as important as life insurance.

  10. Milo, you are the living example of someone who should not buy whole life :)

    – You save (more than) adequately on your own
    – You qualify for excellent rates on a 30 year term policy
    – Your kids will be launched in 30 years
    – Your heirs will have no trouble paying your funeral expenses
    – You are unlikely to let your term policy lapse
    – Your kids aren’t getting financial aid

    Whole life insurance may be a good choice if
    – Your rate on a term policy long enough to launch your kids is poor (pre existing condition or had your kids late)
    – Your employment looks good for the next 10-15 years but not later, and/or you plan to retire before your kids are independent
    – You will want insurance after your kids are grown because your heirs may not be able to pay your final expenses (prepaying the funeral home may be cheaper than the insurance though)
    – You are preserving assets from the financial aid office

    Basically, if you think you can pay the higher premiums for a while, but your long term ability to do so is iffy, then whole life can help you because the cash value can pay your premiums later.

  11. We just upped our term policies (brand new 30 year ones, I believe) to 900k each (highest we could get without tipping the budget scales). Insurance and investments are two arenas where I know next to nothing. So, I hope to follow the conversation here to learn…

  12. We have several different term policies on my husband. They expire at various times and are through different insurers. None on me.

    We have a $1m whole policy. It is expensive. I researched these a lot and the only reason we have one is because my husband’s work will pay the premiums so it is like a 50% off price tag to us since that this gets added to income for tax purposes. At a 50% discount, the one we got made sense, but generally I really do think they are a pretty big rip off but a nice commission for the agent. And every year when the bill comes, I am annoyed.

    We have an umbrella policy and disability but no long term care ins (or any plans to get it).

  13. Interesting NOB on the disability insurance. I have mine through work (and I have used it for every maternity leave) but I hadn’t thought about not having it when I leave the workforce.

    NOB I think your comment on the finance guys is like my experience with people who work in real estate. They have very modest (for their incomes) homes but then maybe have a vacation home or two. I know a few people who work in commercial real estate in Atlanta and they bought their homes for less than $500K or in one case $100K (because it was 25 years ago) but make $1m+ per year. I just assumed it was to not be so heavily invested (both career and home wise) in one asset class.

  14. We have umbrella insurance. I am a big fan of it — it is very inexpensive relative to the coverage that it provides.

    Just a thought: My understanding is that it only makes sense if you substantial assets that aren’t protected. If you live in TX, FL for example in a $2 million house and have $5 million in IRA/401k then even if you only have 500k in liability and you get sued for $7 million the plaintiff will in all cases settle for $500k as all your assets are exempt in bankruptcy.

  15. Sky — Yes, my term policy is level term. It is totally plain-vanilla.

    I am very pro-insurance, but my DH is very anti-insurance. For years, he resisted getting life insurance, even though I wanted him to get some. He finally got a policy when his mother moved to our town. I told him that if he died, he needed to leave me some money to pay for his mother’s upkeep, because I have my doubts that his siblings would step up to the plate in that regard. He grudgingly bought himself a $500,000 SBLI term policy after I put him on that guilt trip. :)

  16. We have 1.75m on me, 500k in whole, rest term (mix of expiry dates), plus whatever I get through work. DH has 750k term, plus whatever he gets through work. We both also have private and work provided disability insurance and no long term care insurance.

    NOB – all the investment related reasons you noted are why I have some whole life. It’s now been long enough that the dividends significantly knock down the premium.

    I have to look at our home owner’s insurance to see what it covers. I believe it covers accidents in the home, like if our nanny fell. At the time, we also paid insurance for her as our employee.

  17. Sky – thanks for the analysis. I thought that there may be some tax/estate advantages to whole life that I’m not entirely clear on.

    My in-laws love insurance. They had insurance against the possibility of me not showing up to my wedding (due to unexpected deployment–I don’t think there’s a cold feet clause).

  18. I have a whole life insurance policy. It is small, so I also have a small term policy. As a creep closer to this milestone bday, I realize that some of our term policies will stop in this upcoming decade. I was also taught to “never” buy whole life or an annuity. These are very general statements that people follow that can be misleading.. There are appropriate times to buy certain coverage, and there are a small number of situations where a whole life policy might make sense. In our particular case, we bought a small whole life policy because we use it as an investment. It diversified our cash investments. The rate that was offered with the product was much higher than any possible interest rate in the market at that time. Playing Monday morning quarterback, it was a great decision because interest rates have barely budged in ten years.

    I still don’t think that we have the right amount of coverage for long term care. I got some great ideas from posts we did here in prior years. I discussed with DH, but he is not a believer. He wants to pay it our of our savings instead of paying very high premiums for long term are that might not cover everything.

  19. WCE, unless you have a relative who would be willing to move in with Mr. WCE and raise your kids, you need a level term life policy – 20 years minimum.

    Here’s why:
    Nanny: $30k/year for the 5 years until Baby WCE is in full day school = $150k (around here more like $250k)
    Housekeeper (bc only a martyr would watch your kids and clean your house): $5k/yr * 10 years, when your kids would all be old enough to do it or at college = $50k

    My DH would also be spending extra on food and camp for the kids – probably another $10k for us, $5k for you, * 10 years = $50k

    You may not care what they do after you die, but if you take out a $500k level term policy as a nonsmoking 40 year old woman, that’s maybe $30/month, or less, and their lives are a lot easier.

  20. We have $2M umbrella; costs $200/yr. Get it. We got it at $1M when we put up a big swingset in the (unfenced) backyard. Upped it to $2M when the oldest got his drivers license.

    Life Insurance:
    – We bought some whole life on DW when we were very young; it might be for $100k face. Now the premiums are really low in our scheme of things so we keep them in force. I’m hopeful that when our youngest is out of college I can convince DW to drop that and we can take the cash value to do something useful with.
    – DW: that $100k, another $100k of term, + $50k from work
    – Me: $100k “universal”, $650k private term that expires in 4-5 years, $400k term from work.

    DW is probably underinsured in the scheme of things…but there are also non-insurance retirement and non-retirement funds in her name that equate to about 10x annual salary so that concern is mitigated

    Again, for me, similar situation…highly liquid invested funds mean we’re largely self insured if one of us is hit by a bus.

  21. NO WHOLE LIFE. If you want a different kind of insurance, look at variable universal life or some of the newer products. Don’t go to anyone who works for Northwestern Mutual or Prudential or any of those other product-pushing places. Go to an independent insurance agent who will get quotes from all the different insurance companies.

    We have $2.5M on DH and $1.5M on me, 10-year term. I got my policy when pregnant and having health issues, so it is more expensive than DH’s despite having lower death benefit. For reference, DH’s policy is $625 per year. I expect to get a better/cheaper policy with more coverage, either in a year when we renew for another 10-year term, or in 11 years when they expire for good.

    WCE, I agree that you need some life insurance – $500K to $1M should not be that expensive and you need to cover taking care of the kids if you are not there.

  22. We need to up our coverage. We had this conversation a year ago. I had to make it plain to DH that if something were to happen to him, money wise I would be fine looking after the kids, but his parents would have to be the responsibility of and go live with his siblings. He at some level was in denial of this.

  23. “WCE, I agree that you need some life insurance – $500K to $1M should not be that expensive and you need to cover taking care of the kids if you are not there.”

    I give it a 99% chance that Mr. WCE’s parents would sell their house and move in down the street. This would be supplemented with Social Security Survivors’ Benefit payments to their kids.

  24. Sky, I definitely thought we needed insurance on me when we had 3 kids two and under. Fortunately for Mr WCE, I didn’t die.

    Costs are a lot lower here, and Baby WCE already has full time childcare, even though she goes only part-time. Boys would go to before/after school care for a couple more years if I died now, but that’s not a huge expense. Mr WCE thinks he could handle the housework/grocery shopping. I suspect he’d have the housekeeper come weekly and he might cut back to 3/4 at work for awhile to focus on family. The family would eat a lot more canned soup, fish sticks and canned fruit, because I am the one who cares about healthy food. So, yeah, $100k extra over time, but that can come out of savings that will otherwise pay for college, and that doesn’t factor in social security to the kids.

    I think where I’m different than other Totebaggers is that I view “launching” the kids as a Want rather than a Must. I can’t talk about finances or college planning with most friends, because they aren’t saving at all, and if they were to save more, I’d recommend money in the 401(k) over saving for college. Not that they would care about my opinion.

  25. Milo, we don’t have any sets of grandparents, and Mr WCE’s mom is already helping to raise the other grandchildren due to divorce so she doesn’t even visit. Mr WCE is sad because we have never gotten away since having kids and it’s our 15th anniversary. My Dad might cover for a weekend when Baby WCE is older but he’s in the Midwest.

  26. Milo – but why take the chance? I am speaking as a risk-averse lawyer here. Why not cover the eventuality that any caregiver will get too elderly or disabled etc.? Why not pay off the mortgage and pay for everyone’s college while you’re at it, if it’s affordable? As a risk-averse worrywart, I GLADLY pay for not having to worry about money if my spouse dies.

  27. One of my favorite topics! Unfortunately I’m in meetings most of the day. Definitely get an umbrella policy. Years ago I was living in a no-fault state. There was a local story of a teenage driver that hit and killed a pedestrian (pedestrian was not crossing at the crosswalk). The pedestrian’s family sued the driver’s family. The driver’s family was ordered to pay something like 5 million dollars. They had to file for bankruptcy. With an umbrella, the family would have settled for the total on the umbrella policy, instead of suing for more and forcing bankruptcy.

  28. Ohhhh,

    One highlight is Lincoln’s new Perfect Position Seats – inspired by private jets and high-end office furniture – that can adapt up to 30 ways. The patented design allows the seat to adjust to an individual’s body shape and weight for optimal stretch and comfort, and includes massage, heat and cooling features.


    Effortless assistance for the daily commute is available with optional adaptive cruise control, which can automatically slow Continental in stop-and-go traffic – resuming speed when traffic clears.

  29. WCE, we haven’t gone away either – if it didn’t involve cross-country flights, we could trade long weekends :)

  30. “maybe the unspectacular-but-steady returns of a whole-life policy might provide a good complement to those investments”

    Probably not after you do the comparison taking into account the expenses.  IMO whole life is appropriate for very few situations, including sophisticated estate planning or in cases where it serves as the last-resort means to force savings.

    As far as its value in hiding assets for qualifying for college financial aid, it doesn’t usually make sense.  It’s very expensive life insurance to use as a means to maybe qualify for a few thousand dollars or a college loan.

    Better to spend your money on a 529 or other savings.

  31. The reason term life is so cheap is that death is so improbable, thanks in large part to good medical care. Back to the original post topic, I think disability insurance deserves more attention than life insurance. Mr WCE’s employer just reduced default disability so our insurance costs went up because I wanted to keep his previous 70% coverage.

    Another death vs. disability factor is retirement savings. If I die, Mr WCE has my retirement savings, which would cover his additional costs plus some of college. If one of us is disabled, our retirement savings are still hard to access.

  32. L — But I thought policies like universal, variable-universal, etc. were risky, because the value of the policy will fluctuate with the investments you make. If you decide to put the investment component of your policy in the stock market, for example, if the market tanks, the value of your policy is going to go down, too. With whole-life, by contrast, there is a slow but steady guaranteed increase over time. Am I wrong about that?

    I find it hard to keep up with all of the products that the insurance industry comes up with. One new thing that I have heard about are hybrid life/long-term-care policies, but I haven’t had time to research them.

  33. NoB – I went back and checked and it is just universal life – not variable – that I am thinking of. These are usually best for the super-wealthy clients for estate tax liquidity. For example, clients who are heavy on real estate (say $10M in real estate and the same in liquid) and will need to pay a lot of estate tax, and want to both reduce their taxable estate and give heirs additional liquidity. I have one client with approx. $900K in annual premiums for the universal life, and that comes with $35M in coverage.

  34. I am in agreement with WCE on life v. disability insurance. We don’t have life insurance, for some of the reasons that WCE mentions.

    However, DH has an independent, very generous disability policy. I have a less generous one through work. We have a $1M umbrella policy. This conversation is making me consider increasing it to $2M, as DS will start driving shortly.

  35. I have one client with approx. $900K in annual premiums for the universal life, and that comes with $35M in coverage.

    That must be one hell of a commission on that policy.

  36. I attended a meeting this week for parents of incoming 7th graders to discuss the changes for next year. I could barely believe that I have a child that is almost is a teen, but time does seem to be flying. This post is a timely reminder that insurance isn’t stagnant and it does have to be adjusted for other life events such as babysitters or young drivers. We have increased the umbrella and home insurance after Sandy. The cost was minimal for the additional umbrella, and I think it is worth it for peace of mind.

  37. WCE, you’re right about the odds of death being a lot lower than disability. But since I helped our neighbor whose spouse died without life insurance last summer, I’ve had quite a bit of time to think about it.

    Atlanta, please keep your disability policy – I’ve kept mine. If you’re going to be out of the workforce for several years, anything can happen, and even if you are not disabled you might get disqualified from buying it by the time you return to work. Plus the costs of child care don’t go away if you are bedridden rather than dead.

  38. We have term policies for both of us, but nowhere near the levels that some of you are quoting. We are a dual-income couple without a huge remaining mortgage and an only child who is in grade school already. While we are not “self-insured” yet, I don’t see how we would possibly need over $1MM if one of us died. We have enough coverage to pay off the mortgage and make sure that either of us can continue to pay for the rest of private school without the other’s income. 15 years from now, I hope to be “self insured”.

    I don’t know what is even meant by “launching”? Down payment on a house for the child? Supporting a child through their 20’s if they want to be an artist? Paying for many years of graduate school? I’m not prioritizing that in my financial plan if we are both alive! Maybe these are my “middle class values” showing. :)

    Now the umbrella policy is something that I have never seriously considered and probably should. Going to do some research.

  39. “Launching” to me is avoiding loans during undergraduate, serving as a backstop for medical expenses during college and, if we can afford it, graduate school, and helping to afford things that have long term career benefit. For example, the guy over the wall supplied room/board/airfare so his son could “volunteer” with Doctors Without Borders in support of his [successful] MD/PhD program application.

  40. There are also some graduate schools that require parental contributions if you enroll before age 30 – e.g., the one I attended.

    If your parents decline to contribute or to fill out the forms, the school assumes they could have paid full freight and offers no grant aid, only loans.

    You can get around this in certain circumstances, like if you are already married with kids and a home of your own when you start, but not easily.

  41. We don’t have an umbrella policy. My oldest can get his permit in four months. I need to get on this.

  42. I’ve mentioned before here that one of the main forms of life and disability insurance that I have is a working spouse. DW has similar coverage.

  43. I finally got around to getting term life insurance when I was pregnant with my second. I had gestational diabetes and found out I was uninsurable. I tried not to think too hard about what that meant – no one would take my money because my risk of dying was too high.

    Obviously, I survived the delivery. I got insurance shortly after, baby weight be damned. I wish I had understood to get a 30 year term when I was 25 and had no health history.

  44. Our umbrella coverage is very similar to Fred’s. We pay almost $200/year, and this is a good reminder to me to check the coverage amount; it’s either $2M or $3M. Now that DS is driving (with his permit, no license yet), we may want to increase that.

    I first got an umbrella policy for $1M when I bought my first house.

  45. Before kids, DW and I had limited life insurance– we figured that if one of us died, the other could be self-sufficient. Our previous jobs did provide us with free coverage of 1 year’s salary, as well as an accidental death benefit of the same amount.

    When we had kids, we got term coverage, some of it through a group plan through our employers, and some from an insurance company. When the first kid arrived, we got enough coverage to pay off the mortgage plus about $250k. When firstborn started private school, we upped that to add enough to pay their tuition.

    Over time, our life insurance needs have gone down as we’ve paid down our mortgage and paid most of the kids’ tuition, and we’ve also accumulated assets, so we’ve let most of our term coverages lapse.

  46. IIRC, a condition of our umbrella policy is/was that we had to have the highest available auto insurance liability coverage ($500k), which we had anyway. So that makes the incremental coverage to $1M or $2M a much smaller step up. What I do know is that going from no umbrella to $1M was a pittance (<$100/yr) and the second $M was between $100-$150/yr.

  47. Finn – re: working spouses – I didn’t find that at all comforting during the financial crisis when DH was laid off and my job was not assured. I think we re-upped our insurance – making sure it was not dependent on employment – after DH found work again. A jumbo mortgage, two babies and an unemployed spouse makes you re-think things.

    We are probably over insured (at least on me) but hey, if DH and the kids don’t have me around, at least they can live (somewhat) comfortably.

    Can we go back to talking about hair and coloring books?

  48. We have the option of buying additional life insurance thru work and it can be either term or universal life. I’ve always been of the “buy term” mentality, but I actually read the premium notice that came with our annual enrollment package and learned that the universal plan has lower premiums (about 18% less) than the term. It was this way in 2015 also. I have not checked farther back, but at least I’m paying less this year than previously.

    And I forgot the baseline $50k of term I get from work and the $50k we opt into for DW thru my employer in addition to all the other stuff. So we’re actually probably ok on life ins.

  49. We were probably over insured during the years our kids were growing up, but now we’ve reached the point where we don’t need much if any life insurance. But two comments that came up made me think that the desire to continue to support our kids into their 20s or beyond and the expense of caring for our elderly parents may be issues that make some folks continue to carry life insurance well beyond their “child-rearing” years. I know one couple well into their 60s who still carry life insurance expressly for these reasons.

    “There are also some graduate schools that require parental contributions if you enroll before age 30”

    Interesting. I’m not familiar with this policy.

  50. I bought a $1M term policy on me a couple years back after discussing on here. I wanted enough for DH to pay off any debts (including house) and have money for childcare for DS.

  51. ” I know one couple well into their 60s who still carry life insurance expressly for these reasons.”

    That’s got to be fairly expensive.

    “Can we go back to talking about hair and coloring books?”

    Powerball jackpot is over $1 billion.

  52. “re: working spouses – I didn’t find that at all comforting during the financial crisis when DH was laid off and my job was not assured.”

    Imagine if you weren’t employed when your DH was laid off.

    A working spouse as a form on insurance was more DW’s idea than mine. When she was expecting firstborn, we discussed the possibility of one of us being a SAHP, but she was pretty adamant that we should both work, so that if one of us became unemployed, we’d still have an income stream and medical coverage. We figured that we could live on one income, although that might require putting the kids in public school.

  53. “Powerball jackpot is over $1 billion.”

    Jerry Hall and Rupert Murdoch just announced their engagement. I guess there are various ways to “plan” for financial security.

  54. Completely agree Finn. We both plan to continue working. I didn’t ever really consider not working given the stage of life I was in when I met DH. Now I grumble about retiring early or going part-time, but the plan is to always have some form of employment.

  55. To me launching would mean fully funded undergrad. I would include in this a semster abroad. DH has more stringent guidelines so I don’t think he would agree to semster abroad being included in the cost. He would also want to think about grad school and funding first home. He would not be opposed to an interest free loan to the kids for grad school and first home (but he would be worse than the bank in making sure payments were made on time).

  56. I know of a few people at my company whose requests for long-term disability were rejected. One woman ended up leaving the company even after she had just received a big money prestigious research grant – she gave it back. Her husband found another, higher paying I believe, job to compensate for the lack of second income and they moved. She still doesn’t work.

    So if your employer is going to leave you out in the cold like this, would having your own personal disability insurance be the solution? I have mild paranoia about getting hurt and getting screwed by my employer since I know there is precedence there.

  57. To me, college funding isn’t the responsibility of the parent. If you can afford it, that is great. Otherwise we can help out as we are able, and there are loans, etc.

  58. We figured that we could live on one income, although that might require putting the kids in public school.


  59. Right. My law school told you what your parents were supposed to pay, and if they didn’t pay, you could borrow that amount. If your parents refused to even fill out the forms, the school assumed that they could have paid your tuition and expenses and you had to borrow the full cost – no grant aid.

    My reading of the Harvard Med School policy is that if your parents don’t provide the information then you can’t access any loans through the school either.

    It was an issue for my friends with divorced parents, especially if the divorce decree had required payment of college costs by one parent who now had a younger set of kids with the second spouse.

  60. Our life insurance really is not that expensive, on balance. Mine is $410/year, and DH’s is approx. $800. Disability insurance is significantly higher, and I find that pretty painful though don’t dispute the importance of it. (I don’t have any.) For the peace of mind if something happened to one of us, the life insurance seems like a bargain. But, like Milo’s in-laws, I prefer to be over-insured.

  61. For those with young kids, you might want to consider term life for short terms, perhaps in the 5 to 15 year range, and also laddering of policies.

    Many of you will see your life insurance needs go down over time, as you pay down your mortgage, accumulate assets, and the time horizon for which you rely on insurance to cover the needs of your kids gets shorter. Depending on how many kids you have, and how far apart, you could see your life insurance needs largely go away in 15 to 20 years, especially if you have a 15 year mortgage.

    I remember the rates being much lower, for a given amount of insurance, for a short term, especially when you are young, e.g., covering yourself from ages 30 to 35.

    If you belong to any professional organization, I suggest you see if they offer group rates.

  62. College requirements etc. are discussed so often on the Totebag that this holiday, I was talking to the kid of a relative who did get a full ride to state flagship. Now, this kid comes from a high school where very few go on the college, so she really stood out (oft discussed on Totebag). She wants to go to medical school and her lack of loans is a good thing. When I confidently opined that she would require both a high GPA and great MCAT scores for a good medical program – she was looking at me intently (no doubt wondering how I came about this info).

  63. “going part-time, but the plan is to always have some form of employment.”

    One of us going PT was considered, because we figured it would be much easier/more likely to ramp from PT to FT than from SAH to FT.

  64. “both a high GPA and great MCAT scores for a good medical program”

    An MD friend recommends to wannabe-MD kids she knows that they not go to a top top undergrad school. She thinks that going to a lesser school and getting a high GPA (big fish in small pond) provides a better chance of med school acceptance than going to a better school and not getting as high a GPA (smaller fish in bigger pond).

    Any thoughts? Agree? Disagree?

    Of course, there is a third option, which she seems to ignore: go to the top school and get a high GPA.

  65. I know of a few people at my company whose requests for long-term disability were rejected.

    By the company or their insurers? From everything I’ve heard be it personal disability policy or company disability policy, getting it and staying on it is practically a full time job.

  66. We each have variable universal life policies as part of our portfolio ($2.5MM for DH and I, and $1MM for the kids), but they are not for everyone. They are attractive for us because as 1% W2 employees, we don’t have many tax advantaged options for stashing our money, and these act as a supplement to 401K, IRA etc which are already maxed out. We will likely borrow from the kids’ VULs to cover some college costs or to help launch them in one way or another. DH and I each have another policy that has a long term care rider that for us made more sense than long term care insurance. I wouldn’t buy any of these vehicles from an insurance agent. At minimum work with an independent broker. We use our financial advisor who manages the investments within the VULs as a component of our overall portfolio, and he shopped around to find the best policies for us. We also carry a big umbrella liability policy because of our rental properties.

  67. “To me launching would mean fully funded undergrad.”

    I think of launching in terms of leaving the nest, i.e., self-sufficient and living independently of parents.

    One “failure to launch” stereotype is the boomerang kid who returns home after completing undergrad but not not finding a good job.

  68. We also recently purchased LTD insurance because what we get through work didn’t seem like enough. So, I guess we carry a lot of insurance.

  69. Anon, please share as much as you feel comfortable about the VUL policy with the LTC rider.

    I think my parents had something similar, which they also purchased through their financial advisor. IIRC, they put down something like $50k each, and when my mom died without needing LTC, her estate got back more than that.

  70. I’ve never heard about parent contributions for grad school, but I think it’s crap. These “kids” are now adults. Harvard or any school shouldn’t have the right to continue to strong arm parents of legal adults to pay for a graduate education. There are so many other obligations that they might have including their own retirement, younger kids, elderly parents, increasing medical costs etc etc. We saw some friends this weekend that have a young child. She wasn’t planned, but it happened and they’re thrilled. They will be 61 and 63 when she graduates from college.

  71. We also have LTC insurance, but we mitigate the cost of that by having a long waiting period, sort of like having a very high deductible. IIRC, our waiting period is 2 or 3 years, the longest option on our plan.

    We figure we can cover that many years from savings, selling assets, and retirement accounts. Our family histories include relatives who lived for many years in LTC, and that’s what we’re insuring against.

  72. “Harvard or any school shouldn’t have the right to continue to strong arm parents of legal adults to pay for a graduate education.”

    Well, they’re not. They’re just saying that they don’t believe your kid when she says that she’s poor and needs grants. When I first read Sky’s comment, I thought it was horrible, too. But if they didn’t have that policy, then it’s hard to imagine any 25-year-old who couldn’t claim that she would be getting no parental support.

  73. FWIW, it started at my alma mater when the scion of a very famously wealthy family applied for aid on the grounds that his assets were locked up in trusts and he was independent of his parents…or so the story went.

    I can’t remember who it was, but it will come to me sometime next week :)

  74. “Ghaaasp!”

    Actually, when we determined life insurance needs when the kids were first born, I did not include tuition. I figured public school was good enough for me, so it would be good enough for them.

    DW, OTOH, grew up in the same neighborhood where we live now, and was adamant about the kids not going to the local intermediate school. SIL, who also grew up in the same neighborhood, similarly sent her kids to private school for intermediate and HS.

    But once the kids got into private, I saw how much better a fit it is, and we increased our insurance requirements to include that.

  75. ” the scion of a very famously wealthy family applied for aid on the grounds that his assets were locked up in trusts and he was independent of his parents”

    Seems like loans would’ve been appropriate.

  76. Medical and law schools expect parental contributions????? Wowsa.

    Back when I went to grad school, my father told me that if they didn’t offer me a full TA position, it meant they didn’t really want me. And indeed, I did attend grad school fully funded by first a TA position, later an RA position. As did my husband. I do understand there are lots of non-research masters programs out there which do not have TA/RA positions, but a lot of those assume the employers are paying.

  77. ” the scion of a very famously wealthy family applied for aid on the grounds that his assets were locked up in trusts and he was independent of his parents”
    Back when I was an undergrad, I had a workstudy job in the scholarship office of our school of education. I read applications for scholarships from foreign students all the time. I always remember one of them, from the Phillippines, which included the comment that “although the value of our land holdings makes my family seem very wealthy, the reality is that the land is on another island and is held by Muslim rebels and is not accessible to my family”.

  78. Medical and law schools don’t really do grants in the first place. Loans you can get, sure, but they’re not in the business of paying students to attend. So it does make a certain amount of sense that they’d want to reserve whatever limited amount of actual grant aid they offer for the 20-somethings coming from a genuinely needy background, not those who are temporarily poor because they’ve just left the family nest.

  79. GB,

    Does it matter?

    Yes, if the problem was that they were denied by their employer’s insurer then having a company policy or your own policy wouldn’t matter as the insurer wouldn’t pay out in either case.

  80. ““By the company or their insurers?”
    I’m not sure. Does it matter?”
    Yes. Some companies have HR manage their short duration disability claims. As you can imagine, it isn’t always the best idea, as they are not experts.

  81. My SIL and husband, who have modest incomes for the local area, started their family at 40 and 45. They paid off their house as fast as possible, and paid up whole life insurance policies as well. Also contributed to keough, 401k, 403b, etc, depending on employment status. (This started quite a few years ago when the investment environment was different). They felt that there was a real chance one of them might not be around for college, or unable to find work in their 60s, but in any case having assets mostly tied up in that fashion meant that either the kids would qualify more easily for FAFSA based financial aid, or they could borrow against the policies for college costs. 529 plans don’t result in a state tax deduction in MA, so they are not all that popular here. So even though I never tried to run the numbers on their choice, it provided a lot of security for them and makes sense. However, they are the only people I know well enough to discuss finance who are both under 75 and not related to an insurance agent who have substantial traditional whole life policies.

  82. 5 Pm on the east coast, so I wanted to share about a new car that I was in today that seems like a great option for a car with a third row. My friend bought a Volvo XC90, and I went for a long ride with her today. She used to drive the Audi with that e third row.

    She couldn’t stop gushing about this car, and I have to admit that i really liked the car when I was in it today. I sat in all three rows, and I was comfortable. I was surprised that the car is comfortable because it doesn’t look like a mister like some of the much larger cars such as the Infiniti.

    It is more expensive than some of the entry level Japanese luxury cars, but so many features were well though out in this car. it is another option that is new for anyone looking for the a third row with AWD.

  83. “So if your employer is going to leave you out in the cold like this, would having your own personal disability insurance be the solution? ”

    Also, you could be laid off and no longer qualify for independent disability insurance. I might have to price out an independent policy, while I’m still healthy.

  84. Lauren – we looked at the 2014 XC90 and found it to be too small in both back seat rows so it got eliminated immediately. It was completely redone/relaunched in 2015 as a 2016 model (when we had already bought the Audi we got) and there is now substantially more room in the 2nd and 3rd rows. Maybe I’ll look at that, or the next size down, for my next car.

  85. Ok, I see the difference. I don’t know for sure, but I’ve always thought it was the employer who denied the request, so now I’m curious to know the truth.

  86. I went to law school a long time ago, but distinctly remember the financial aid materials explaining that they required parental information even for “independent” students in order to determine which applicants truly had no other resources to draw upon. If DS goes to law school, he will be full-pay unless he lands a scholarship deal from a school eager to buy good students. The kids already know from living with an academic that if a PhD program will not provide you with funding, you should look elsewhere.

    On life insurance — when I became a SAHP we increased my policy to cover the expenses of replacing my services (it really adds up, especially if you live in a high-cost metro area and the surviving spouse has a job with limited flexibility). When youngest DS learned to drive, I considered dropping the policy but decided to keep it to cover potential expenses associated with caring for my dad. He moved to a retirement community in our city a few years ago, and the rest of my siblings live elsewhere. The idea was that I would be nearby if something happened to him. I never thought about what would happen to HIM if something happened to ME because nothing was going to happen to me. But after my cancer diagnosis, I realized that my dad would have to move to a more expensive metro area if something did happen to me, because I could not expect DH to take on that responsibility. My dad has limited resources that are sufficient for this area but would get him a hovel in DC. So I have kept the insurance policy solely to enable him to move near my sibs if something happens to me.

    Fortunately, MIL has sufficient assets so that DH does not have to contribute to her expenses.

    But speaking of LTC insurance, DH’s parents purchased a policy at least 20 years ago. FIL died 3 years ago and the family is looking at assisted living communities for MIL, who has an early dementia diagnosis. I dug out the policy and discovered that it does NOT pay for assisted living expenses (which was confirmed by the manager of the assisted living place we checked out), but only for nursing home or 24/7 Alzheimer’s care. I never paid much attention to LTC insurance before now, but I’m glad that my parents didn’t sink tens of thousands of dollars into a policy that my mom could not have used and that my dad may never need.

    Anyone have a positive experience with LTC insurance? Anyone here buy it for themselves?

  87. Meme, I would love to know your thoughts on setting up college funds for grandchildren if neither income tax (because the accounts will be modest) nor maximizing financial aid are an issue. I’m thinking plain old custodial accounts instead of 529’s. We made most of our college fund investments before 529’s existed, and I have a vague distrust of them that may not be rational. I can trust the parents in this case to reserve the funds for college rather than other expenses, so could also consider accounts in the parents’ names.

  88. Finn, I don’t have all the details on hand, but the VUL with the LTC rider is like any VUL except that a portion of the death benefit (can’t remember the percentage) can be accelerated toward long term care costs. If you never need long term care, the death benefit remains intact until you die, and you still get the benefits of a VUL. We looked at LTC stand alone policies, but we’re really too young for them yet (in my opinion) and they are expensive considering you don’t know if you’ll need them (where, I know I’ll need life insurance eventually). Because we had the other VUL in place already, we chose the minimum coverage that offered the LTC coverage we were comfortable with. I can’t remember how much the death benefit is on those policies. There are also annuities and some other insurance products that have the LTC rider now. I think the annuity is similar to what you described for your parents in that you pay a lump sum up front.

  89. Scarlett, I agree with your reasoning on getting custodial accounts rather than 529 if tax and financial aid aren’t issues.

    I believe one advantage of the 529s is that you can maintain ownership and change the beneficiaries.

  90. “Anyone have a positive experience with LTC insurance? Anyone here buy it for themselves?”

    See my 3:01.

  91. Scarlett — If you’re setting up an account for a baby grandchild that you want earmarked for college, then by definition you have a pretty long investment horizon (roughly 18 years). Even if the amounts that go in are modest, over that time they will (hopefully) grow considerably. Why would you want that growth to be taxable rather than permanently untaxed?

    I have heard of well-to-do grandparents setting up custodial accounts (or trusts) for grandchildren rather than 529s in cases where the grandchildren’s parents are also well-to-do, and are likely to be able to fund college themselves. In cases like those, the grandparents want the funds they are setting aside for the grandkids to be available for non-education purposes as well as for education. But if you are specifically looking to fund education, why wouldn’t you do so through the tax-free vehicle?

    Regarding long-term care: DH and I have quite a bit of LTC insurance. LTC insurance was offered as a group benefit at my old law firm, so premiums were significantly less than they would have been if we had bought equivalent policies on our own. Unlike the group disability policy, the group LTC policy was portable, so as long as I continue to pay the premiums (which are still at the group rates), we’ll have the coverage. The policy covers home care and assisted living in addition to nursing home care. The benefit increases 5% each year (compounded). It’s expensive, but I think it’s a good policy, and the peace of mind that it has given me has been priceless. DH had a parent with ALS, and I had a parent with Alzheimer’s, and there’s nothing like having a very close relative with a long-term degenerative disease to make you realize the havoc that such a disease can wreak on one’s finances.

  92. Scarlett – I have never had any use for LTC insurance. Some of the very early plans with no lifetime limits and a lump sum payment were incorrectly priced and paid out very well for their beneficiaries. Most LTC only plans today are very expensive for the amount of benefit that they will realistically provide, and you have to keep making the payments. The Life insurance products mentioned above with an LTC feature are all the rage and sound pretty good for those who pass the age and medical requirements. Finn’s policy with a long lead in time because his family tree has people who need that level of assistance for many years may make sense for him, but the usual 90-180 day delay period is more than sufficient for the potential beneficiary to die before collecting.

    When DH and I looked at policies, he was too old and had too many conditions for us to qualify as a package deal with unused benefits remaining with the longer lived spouse, which is usually the most favorable arrangement. I said to myself that I’ll just take care of him at home and there will still be plenty of money left after he passes for me to purchase my own care. That works fine if I don’t die or need my own care first, which I never considered, of course. I am in process of redoing my documents to make sure that there is a plan in place so that he gets rehoused quickly even if his child isn’t up to the task of facilitating the process and funds are made available with little delay.

  93. Scarlett – As for college funds, I give the parents some cash “for college” – I have no idea what happens to it. They are big savers, so I assume that it is in some sort of kid pot. One complicating factor is that both my son and his wife felt that going to college on a lockstep schedule was a waste, despite the Ivy League and prep school pedigrees of various members of the grandparent and ancestral generations. They really don’t want their kids to feel that they must follow a conventional path. However, they chose to live in one of the top three school districts in the state, those that are derided/avoided because of the concentration of those ethnic groups considered too striving/competitive/not-well-rounded. And the kids have good genes and are girls and there is a family safety net, more on DILs side than DS’s. So they can just wave hands and say, let them follow their heart, and the kids will never be bored or poorly educated in their top notch public school or have much risk of being unable to make a late entry into the commercial world.

  94. I have long term care insurance through Calpers. DH has it thru Prudential. Prudential has quit offering it. My mom got plenty of use out of her policy thru Calpers for the last 10 years of her life, first for in-home caregivers and then for the assisted living place. I’m sure that influences my opinion.

  95. LfB,
    I guess I just want more flexibility and control than 529’s seem to provide. And of course the fees are marginally lower if you buy the same underlying Vanguard investments on your own. Index funds don’t throw off much taxable income if you buy and hold, and if the yearly income is modest it doesn’t trigger the kiddie tax. The only issue is when it’s time to sell, and I managed to time the sale of our custodial accounts over a period of years to avoid most of the kiddie tax. But the amounts were relatively modest and I hope that our grandchild accounts will be more substantial. Keeping in mind that whatever arrangement we make for GC1 must be replicated for subsequent babies.

    However, our state provides a generous tax credit for in-state 529 contributions (which includes Vanguard funds), so that may tip the balance in favor of a 529 if only to maximize the credit, with the rest of the contributions going to a custodial account.

    These are first world problems that I am grateful to have.

  96. @Scarlett, that was NoB, not LfB — I’ve been buried under today. Umm, no pun intended.

    We are simple. Got my first term policy when I first had debt someone else could be responsible for (mortgage). Now we have term through IEEE — $1MM DH, $500K me (max spousal benefits are less), but I still have that original term and some extra coverage through work, so it ends up being about equal. We have always followed the Finn approach — no need for the “10x earnings” thing, because we could cover expenses on either income, so we just needed insurance to cover nanny, college, and maybe a little lost retirement savings.

    I guess I should cancel that term policy — the level-term period expired, so the premiums have been going up. I just have the fear that I’ll cancel and immediately get diagnosed with something awful. And since I don’t want to get diagnosed with something awful. . . .

    Otherwise, we have $2MM in umbrella and the max disability we can get (70%) — we both have subsidized through work but chose to buy up to the max. No LTC yet — too many things to learn, too few brain cells available to learn them with, too many higher priorities on the “need to get to” list right now.

    Of course, once I win $1.5B, it won’t be an issue any more.

    Really, really need that $1.5B, as work sucks right now. [yes, as usual, I am posting from work. and still have more to go. argh.]

  97. “nursing home residents in the highest quartile of net worth died six months sooner than those in the lowest quartile.”

    That reminds me of when we visited my MIL in the dementia wing of her nursing home near the end of her life. All of the residents seemed drawn to my son as they paced around the common area, with several getting very close to his face while speaking things that made no sense to him. As we were leaving, he put his arm around me comfortingly and said “don’t worry mom, I don’t think you’ll last very long at all when you get to a place like this.” I can only hope.

    On topic, we have a lot of life insurance, purchased when the kids were younger. I hadn’t even thought about the fact that we could start to cut back now.

    A relative of mine lost his SAH wife to cancer when their 4 kids were young. Grandparents helped, but four young kids are exhausting for older people, so were not an ideal solution. Being able to hire as much help as is needed, including take-out food, someone to clean and do things like laundry, run errands, etc, can help make an awful time less awful. That is what drove us to increase our insurance – the surviving parent shouldn’t have to even think about juggling finances while trying to keep life moving forward for everyone.

    I hadn’t thought about disability being a higher likelihood than death. I should probably double-check what our LTD policies cover. My BIL recently had a heart attack, and his ex-wife was messaging me through facebook telling me that he should be getting like $40K from AFLAC (and she wanted to make sure “their daughter” got a cut of it.) I am guessing that is through a LTD policy? I’m not sure how that works, but it ended up being less than his share of hospital costs.

  98. Scarlett, another option available to you is the Coverdell ESA. One advantage of that over a 529 is that it can be used for pre-college education expenses, e.g., private school tuition.

  99. Meme – I had to comment on this….
    “However, they chose to live in one of the top three school districts in the state, those that are derided/avoided because of the concentration of those ethnic groups considered too striving/competitive/not-well-rounded.”

    Some of our friends (Totebaggers of various races) seemed very laid back about schools when they had their first kid. They were in condos close to city centers and used to congratulate themselves on their urban lifestyle so close to parks, restaurants, kiddie play groups, walk to everywhere). When I used to talk to DH about school district, he declared that I was too concerned about it, none of our friends seemed similarly concerned. Lo and behold, after they had their second kids all of them slowly decamped to the top school districts, urban lifestyle forgotten. DH was surprised, but I said “I told you so”. Though the message is “follow your heart” the kids will be quite well educated and in case of girls (from what I have seen) almost all of them have married well enough to allow them the option of staying home to raise their kids.

  100. LTC insurance usually works best for those in the “middle class” if they can afford the premiums, but does not work for the poor or for the “rich”.  Once you’ve hit about 3 million in assets it usually makes more sense to self-insure.  Why?

    Most policies have caps, whether monthly or lifetime.  If I can afford to pay up to those caps, I’d rather take my chances rather than buy insurance.  Which leads to another point.  Compared to other types of insurance, the cost-risk-benefit analysis for LTC compares poorly to other types of insurance.  It’s expensive relative to the benefits.  Plus, as recent history shows, premiums may soar in the future as experience shows it’s a bad deal for insurance companies.  Then you have the issue of potential disputes, such as finding that your selected provider or method is not covered after years of paying premiums.

    Having a goal of maximizing assets for heirs may be one reason for wealthy people to buy LTC.

    These numbers are a few years old, but the principle remains the same.

    And that helps explain why the report from the Society of Actuaries suggests that those with savings of less than $250,000 may not want to buy private insurance, while those with assets exceeding $2 million may not need to.

    These are by no means hard and fast rules. For instance, wealthier people may still want to purchase insurance to preserve assets for their heirs. But, unless they face an unusually long period of care, they are probably able to self insure. Other research suggests that only 5 percent of those 65 and older will incur long-term care costs that exceed $250,000.

  101. “That is what drove us to increase our insurance – the surviving parent shouldn’t have to even think about juggling finances while trying to keep life moving forward for everyone.”

    That was my thinking too. It cost me a few hundred dollars a year for a $300,000 policy, and was (and still is) well worth it. Of course, it costs a bit more now, and when the term is up I will drop it, but it was one less thing to worry about.

    Finn, I will look into the Coverdell option. I would like to come up with a template that will work for future GC so that don’t need to keep reinventing the wheel.

    And then we can revise our wills, which I wrote after our first child was born and, shamefully for an attorney, never updated. The guardian provisions are no longer necessary (hooray). That was the hardest part and kept changing as our lives changed and other families grew or moved. We are the named guardians for a family with 5 minor kids (and 2 in college and 2 dogs). Fortunately, because the parents have 7 kids and 2 dogs, they never fly anywhere together. There will be plenty of insurance in the event that my services are required, but I don’t want to think about it.

  102. @MBT, the AFLAC policy is an accident or critical illness policy. Not a long term disability plan. The idea is that if you suffer any of the accidents or illness (stroke, heart attack, cancer are the big ones) you receive a flat amount. Totebaggers are not the market for this product. It appeals to people who don’t have a lot of savings, with the idea that it will help cover copays and deductibles.

  103. Since we often talk about real estate, retirement, boomers eating their young, etc., I wanted to relate an experience I had yesterday. I picked up the records for a volunteer treasurer job I have taken on. The outgoing treasurer is a bit older and I went by his house. He bought it 43 years ago for 40K in a modest section of the formerly normal middle class suburb between Newton and Wellesley. (Zillow says 600K today, but the lot is small so the teardown potential limited.) A 1200 sf split entrance, 3 br, 1 1.2 bath with an added rear deck, original 70s furniture and shag carpet, laminate floors in the kitchen, formica countertops. The taxes the highest expense, maybe 7500 a year. Dark as as the grave inside – tiny rooms with small windows. Each of the bedrooms can barely hold a double bed (not a queen). That is what a middle class family with 2 or 3 kids lived in back in the day – a house that wouldn’t even tempt as a starter today.

  104. Lemon – She retired at 67 with Social Security and, presumably, a reasonable pension, and has spent almost 20 years working for free at the museum.

    While it’s certainly possible that she would have very little cash, it really shouldn’t be a surprise to anyone that she had $1.7M.

  105. Lemon – all my teacher friends are so unassumingly frugal. I remember being 23 or 24 and living with my best friend from college who is an elementary school teacher. We went to the ATM before going out one night and I was driving so she handed me her ATM card to make her withdrawal and she had like $10K in her checking account. We made the same salary/paid the same rent obviously (although she may not have had student loans) but I barely had $1K to my name. I was completely floored. But all of my teacher friends are the same way.

  106. Milo,

    With the S&P returning 12.24% since 1952 (including dividends) she would have to save $12 a month for the past 64 years to end up with $1.7 million.

  107. Not to mention that she didn’t have medical expenses (union retiree benefits are very rich).

    @Atlanta, I wonder why that is? I too know several teachers who pinch pennies like it is a full time job. Clip coupons, shop at several stores for the week’s groceries, search ebay and craigslist for just about everything before buying new. I don’t have the mental capacity to even think that way.

  108. Except Rhett, I may have read something during the financial crisis that certain groups of public sector employees, maybe specifically in Detroit, did not pay into Social Security because of their pensions and therefore would get no payouts.

    One of DW’s teacher friends from college is not the frugal type. She’s the type who thinks that monthly car payments should be a constant, so as soon as the 60 months is up, that’s the point where you trade in for a new one.

  109. State govt employees in MA don’t pay into ss. The school teachers I know have modest, not Westchester pensions, roughly equivalent to above average ss payouts. The real problem for them is that any ss from non govt jobs is reduced to almost nothing by one of the various offsets. So you make out fine if you were career govt but if you are a career changer not so much. Fed employees today have to pay into ss, but many who are now retiring have the same issue.

  110. When I worked for a public university in CT, I was given the choice of paying into the state teachers pension fund or TIAA-CREF. I chose TIAA-CREF – far more portable

  111. Originally no state or local employees were included in SS, but the law was modified to allow government agencies to ask for inclusion for those hired after 1986 (and sometimes those hired before). Everyone hired after 1986 paid into and may receive Medicare.

    If the teacher takes a part time or seasonal job, they can often get the 40 quarters needed for the minimum SS benefit. Many teachers here do that or work part time in the early years of retirement.

  112. Lemon I’m not sure. My two good friends from college who are teachers are not outwardly frugal. They look very put together and nice and they never blink about sharing a check. They travel but it’s usually going to the beach with their parents type things. I think it’s more of an MMM type frugality, always looking for the most efficient use of their money. My old roommate married a guy who is a gambler and not great with money so I’m not sure what their financial situation is now.

  113. Sorry, should have added that at least around here, a lot of towns haven’t sought SS coverage so town employees don’t pay into the system or qualify for benefits based on town employment.

  114. I don’t think all teachers are frugal or pinching pennies. It doesn’t just depend on where you live, but it depends on your spouse/partner income when available and your overall personality. Even when I was earning enough on my own to afford anything in the supermarket, I looked for sales and clipped coupons. One of the famous lines in my house from DD is why do we always need a coupon? Of course, it is easier now because everything is on my phone, but some people just want to save money.

    I have teacher friends, and some are teaching because they got into the field long before they met their high earning spouse. A few actually love to teach and they teach, but they walk into school with their Chloe handbags. I just left the parking lot of my district’s middle school , and there are a decent number of luxury cars in the lot.

  115. I learned much of my frugality from my mom, a former teacher. She learned from her mom, a SAHM/entrepreneur, but also spent a lot of time in college, and just after college, with other teachers, dorming together and living in teachers’ cottages. They were not paid well and frugality was a necessity.

    Through college and her early years as a teacher (before kids), she got summer jobs (e.g., pineapple cannery) and paid into the SS system. As she neared retirement, she realized she wasn’t far from qualifying for SS benefits, so she took a weekend job with a retailer to qualify. Many of her teacher friends were in similar situations, and also took on part time jobs.

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