X-Message-Number: 20429
Date: Sun, 10 Nov 2002 23:54:06 EST
Subject: John D's question...and more insurance info.

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In a message dated 11/10/02 5:00:52 AM Eastern Standard Time, 

> How much capital do you have to save in a middle of the road savings medium
> to produce an income of $1000/year **after tax and after** re-investing 
> some
> of the income to keep up with inflation long term? I know this will vary
> between taxpayers' income levels, but assume someone with the US average
> taxable income.

Hello, John, and anyone else interested in this particular finance 

Our local banks in Florida, USA are paying 2.5% taxable on CD income.

The money market rate has just been lowered to 2.7% per year, also fully 

Let's up this to 3% for simplicity.

So, if you can get 3% taxable yield what is the lump sum required to generate 
one thousand dollars per year?  Is this a fair restatement of the question, 

There are basically just a few tax brackets in force right now, for most 
people.  Married filing jointly, if you and your spouse make less than about 
44,000 per year, you are in the 15% tax bracket, above this and you are in 
the 28% bracket.  And if you make a bunch of taxable income you can go up to 
the 39% bracket...

But for our purposes here let's say your EFFECTIVE net tax is 20% marginal 
tax bracket...that is 20% on the "last dollar" or any extra income you 
recieve that is taxable and reportable.

So, in order to net our $1000 per year, we need to gross before taxes $1200.  
At our 3% assumed guaranteed rate, we will need a lump sum of $40,000 (divide 
the 1200 by the interest rate of 3%, $1200 divided by .03 is $40,000.)

Obviously, if we increase our interest rate, or change the tax rate, this 
would change the amount required.  

And, if you wanted the money to grow WHILE you are taking out your $1200 per 
year, you will want to have a larger pot, or make better interest...

A more relevant question, of course, is this.  Does it make financial sense 
in most people's situation to use the financial leverage of life insurance to 
fund their suspensions?  

The answer in most cases is yes.  

Unless you are uninsurable, over age 85, or can't qualify for life insurance 
for some reason, the financial leverage makes sense.

You may be interested in some round numbers on cryonics life insurance policy 
I wrote recently.  The individual getting the coverage was a healthy 
nonsmoker, age 78.  He wanted $175,000 of coverage, to provide for both 
neurovitrification, full body suspension, and have an overage for standby 
costs and future suspension upgrades which may become available at additional 
cost over time.

The premium for this $175,000 of coverage was about $11,000 a year, for a 
limited pay whole life policy.  While 11 grand a year is a bunch of money, 
this will need to be paid for perhaps only 10 years.  

And, meanwhile, if Mr. X "dies", there is an immediate, tax free benefit of 
$175,000.  No questions asked, no waiting for probate, and the assets do NOT 
reduce any amounts going to Mr. X's family.  They are therefore much less 
likely to CONTEST his wishes.  

Meanwhile, the cash value is building in the policy.  The life insurance 
policy is accumulating money in the cash value at the surprisingly decent 
interest rate of 5.75%, tax deferred and creditorproof.  While he probably 
won't want to withdraw dollars from the cash value, this option is available 
to him.  So, he has simply repositioned dollars from one savings plan...A CD 
in the bank paying about 3 % which was fully taxable and subject to the 
predations of creditors...and a savings plan that pays a higher growth rate, 
tax deferred, and creditorproof.

Of course, there are some restictions on withdrawing the cash value of a life 
insurance policy, and there is an internal cost of insurance which reduces 
the cash value by the cost of this insurance.  

But, this is the ONLY savings plan that becomes '"self-completing" if he dies 
early.  He does not need to put 175,000 away immediately...the insurance 
company comes up with this big lump sum if he dies.  

The reality is that each situation is different and requires individuation.  
There is a reason why there are multiple flavors of ice cream.  

How would you answer the question, "What is the best vehicle to drive?"  You 
obviously would find out if the questioner is hauling bricks or little old 
ladies.  There is a match for Cadilacs, Chevys, Lincolns, and Hondas.  

Thanks for listening.  Sorry for the long post.

Warm Regards...I look forward to seeing many of you at the conference next 



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