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Q: I am a 74-year-old man with a $40,000 life-insurance policy. I have been paying on it for 21 years and it has been building surrender value as well.

My current annual report reveals “guaranteed assumptions” of a death benefit of $40,000 for nine more years and a current surrender value of $13,000 — declining to zero at the end of the nine years.

In addition to the “guaranteed assumptions,” there is another column labeled “current non-guaranteed assumptions” (these may be changed by the insurance company).

It shows the death benefit of $40,000 running through age 84 and a current surrender value of $14,100 that will increase to $22,000 at the age of 84 and $44,000 at age 94.

I can’t get a good feeling from the insurance company regarding the guaranteed assumptions vs. the non-guaranteed assumptions. I am wondering if I should seriously consider redeeming the policy for its surrender value in the near future.

A: The real question isn’t what your cash value is earning. It is whether you still need to protect someone else by providing $40,000 in the event of your death. If not, continuing the policy is reduced to a speculation about dying young vs. dying old.

Unless you can name someone who will truly need that $40,000 death benefit upon your demise, the cash value of the policy is really a savings account set up to assure the insurance company that it will receive its annual premium plus the equivalent of a daily lottery ticket purchased for your beneficiary.

You might have a better use for the money.

My wife and I live comfortably on a military retirement, Social Security, and income from stocks, CDs and two rental houses. We can add significantly to our savings each year. We have no debts, live on a cash basis and pay off two credit cards monthly.

Next year, we must plan to start withdrawing from IRAs, a SEP and the 403(b). Since we don’t expect to need the withdrawn mandatory funds for our day-to-day living expenses, can we roll those funds into our Roth IRAs?

A: Quite a few people would like to do that, but the regulations don’t allow it. To move money from an IRA or other qualified plan to a Roth after age 70½, you must first take your required minimum distribution (RMD) and pay taxes on it.

The best alternative is to reinvest your after-tax RMD cash in a tax-efficient or tax-deferred investment. Broad equity funds such as the Vanguard Total Stock Market ETF (ticker: VTI), Schwab Multi-Cap Core ETF (ticker: SCHB), Fidelity Spartan Total Market Index Fund (ticker: FSTMX) or iShares Core S & P Total U.S. Stock Market ETF (ticker: ITOT) are good low-cost candidates.

You’ll have a modest taxable dividend income, but otherwise little or no taxes to pay until you sell part or all of the investment.


Copyright 2013,

Universal Press Syndicate