"Don't Die With This" (Day 9)

"Don't die with this".  I heard that from a company employee talking about one of their insurance products.  I found it refreshing, because usually a company wants a customer to keep a policy forever.  I wrote about that a few days ago so I'm not going to rehash it now, but if you want to read it,  just click this link for last week's "Follow the Money" post.


One of the things I complain about is people complaining about something without working toward a solution.  This is part one.  I will also discuss solutions in another post.




Unfortunately, way too many people die with too much tax-deferred money.   I have seen the same thing happen over and over again.  To the point that whenever I get an email from an insurance company talking about the huge amounts of tax-deferred money that's going to be passed on in the coming years, I always think, "Damn!  I should have been a boat salesman!"  Make sense?  No?  Let me explain.




Here is the pattern I see repeatedly:  person follows "expert" advice and puts everything he or she can into an IRA and/or 401(k).   They work like crazy until they and/or their spouse is eligible for Social Security and/or Medicare.  Then they quit their job.  They don't want to withdraw any of the money they saved because they would have to pay taxes on it.   So they scrape by on Social Security, worrying about money, thinking of their retirement savings as something that they will use to cover nursing home costs and/or pass on (almost always to their kids).




Then when they hit age 70 1/2  they start taking RMD's (Required Minimum Distributions), which isn't a whole lot in the first few years, but the percentage required goes up each year.  They pay the taxes, but let everything else sit there.  Then eventually they either go to a nursing home or die.  What happens then?  Most commonly, if they go to the nursing home, they spend through their money, then go on Medicaid if the money runs out.  How much enjoyment did they get out of it?  None.  If they are lucky enough to die either without having to go in a nursing home or before the money runs out, then that's where I think, "I should have been a boat salesman!"  Because from what I've seen, if two 60ish year-old kids inherit the money, at least one of them buys a boat.




Nothing wrong with buying a boat, if done the right way, but what happens time and time again is they "get a deal", make an impulse buy, and since they don't want to have payments, pull out the money to pay off the boat.  Then the tax bill comes.  The withdrawn money is taxable, piled on top of their earned income tax liability (usually when in their peak earning years, with all their tax deductions grown up and out of the house), and they withdraw more money to pay the taxes, which adds to next year's tax bill.  They repeat until the money is gone, which doesn't take long.


Who wins in this scenario (besides the IRS)?  Not the person who saved up all this "retirement money".  They didn't use it for retirement.  The one who now owns "a hole in the water you fill with money"?  Maybe.  But the big winner is the boat salesman.  So "Don't Die With This!".  At least not until I open a boat dealership.