I love you, honey. If I die, you'll be rich.
My wife and I were recently talking about what she should do with the proceeds from my life insurance if I were to die tomorrow. We're in Europe right now, and everyone is pretty on edge about civilian-targeted terrorist attacks. I realized that I have been building up a pile of what I call "I love you money" for years, but I've never put together a plan for my wife to act upon in the unfortunate even that I die early.
In this post, I am laying out my plan for my wife. This post will provide a framework for her to follow that will have her and my children's needs covered for the rest of her life, and hopefully longer.
I want to also write a little about what "I love you money" is, and why it's important. If you don't have a plan to leave behind buckets full of "I love you money," then hopefully this post will get you off of your ass and get your loved ones protected.
We all have to die sometime?
We don't like to think about it, but at some point we all die. We hope it happens late in life, but we also know that that might not be in the cards for some of us. This became painfully clear last week.
My wife and I were in Berlin, Germany on the day that terrorists killed over 31 people at the American Airlines check-in desk at the airport and in a subway in Brussels.
This scared us, because we are scheduled to fly American Airlines out of the same Brussels airport in two months. Our flight is at a time that would put us right in front of that desk at exactly the same time that those bombs went off.
We were scheduled to stay in Brussels for about 5 days before our flight, and we would be traveling through the Maelbeek metro station at least a few times during that stay. As of now, we're still going.
While in Berlin, there were also some news reports coming out that ISIS has a significantly larger group of cells spread across Europe, and that Berlin is squarely in their cross-hairs. That made for an uncomfortable wait in a crowded train station a few days later.
Although the analytical part of me knows that the chance of dying in a terrorist attack is 1 in 20,000,000, it's still jarring.
Now let's get really scared. You and I have a 1 in 470 chance of dying in an automobile accident. The terrorist attack got us thinking. However, dying in a car accident is what should get us acting.
I might die, you might die, and chances are, several of the people reading this post WILL die prematurely due to a car crash.
Now is a great time to make sure we have a sufficient stash of "I love you money," to care for our families should we perish.
It's also a good excuse to ride your bike and stay out of a car as much as possible.
What is I Love You Money?
I love you money is that pile of money you put together for your loved ones that they can use to get their lives back together should you die. It's money that says "I love you" to your family beyond the grave.
My wife is a stay-at-home mom (SAHM). She currently earns no income. Of course, that doesn't mean she doesn't contribute to our finances. We actually save more money per year with her staying home than she would make if she were working. I consider that very valuable, and so does she. That's not even considering the value she provides by being there for our children whenever they need her.
However, if I died today, she would immediately lose the family's entire income.
If I died today, I want my wife to continue doing the job she currently does. I want her to have the freedom to continue to stay home, and to keep her and my children's lives moving along as normally as possible.
So I have built a pile of "I love you money" that should allow her to do just that.
You don't need a high net worth to have I Love You Money
As regular readers know, we don't have a huge net worth right now. Most of our net worth is also tied up in the house and retirement accounts that are difficult to get into without penalty before the age of 60.
Even with very low net worth, my wife would still be rich if I died tomorrow.
You can make sure your loved ones are rich, too, for very, very low cost. Buy term life insurance.
I have a 20-year, $500,000 term life insurance policy that I started when I was 30 years old. If I die before I'm 50 years old, my wife will receive half a million dollars, completely tax free.
We pay less than $30 per month for this policy, and we would probably pay a little less if I wasn't overweight when I first took out the policy. I've dropped that weight since, but you can't really go back without opening a new policy, and now age starts to become an issue.
If you don't have a significant net worth, and particularly if you have a family, then you need to stop reading this silly little blog RIGHT NOW and go buy a term life insurance policy.
Go hereright now! That's NOT an affiliate link, it's just who I used to buy my term life insurance. SelectQuote will get you a low-cost term life insurance policy, NOT one of those scam life insurance "investment" products.
You want TERM life. You pay for 20 years. You die, your beneficiary gets money. You don't, the insurance company gets to keep all of that money.
Bascially, I'm investing a total of $7,000 over 20 years to absolutely insure that my family is provided for if I die. That's a GREAT deal.
If it's just two of you with no kids, $250k is plenty. If you have kids, and especially if one of you stays home, then $500k on the "bread winner" is a minimum. It's cheap and definitely worth it.
I feel like a bad-ass knowing that if I died, my wife is set for life! She won't be living on a yacht, but she'll be able to carry on the same lifestyle she has now.
What says "I love you" more than that?
Hey honey, I love you. Here's some flowers.
Or, hey honey, I love you. And if I die you won't have to worry about money. Ever.
Both will get you laid. One will make you fucking awesome.
I love you money: My wife's net worth if I die
Let's look at my plan for my wife. The table below shows you what will happen to her net worth if I accidentally stepped in front of a tram later this evening. (I haven't been inside a car in 2 months, so that significantly lowers my chances of dying in a car crash!)
As I talked about in a previous post about our net worth, we have about $360,000 worth of assets and a $160,000 mortgage.
I love you, honey. You have no non-mortgage debt.
I have a $500k term life insurance policy, and a smaller policy provided by my employer as a benefit.
Technically, if I died today, she'd get a few more benefits, because I have TWO travel insurance policies, one with my employer, and one through the US State Department. Those mostly cover repatriation of my remains and some other stuff, so I'm just going to ignore it here. Plus, I honestly have no idea what they cover and I'm too lazy to look it up.
From the table, my wife's net worth becomes $772,000 should I die. With a 4% safe withdraw rate, she could reasonably expect to pull around $31,000 per year from that stash forever, even including yearly cost-of-living increases.
Spending for a smaller family
Will this be enough for my wife to survive with her current standard of living? In the table below, I show you our current spending plan alongside how that plan would change with one less person in the mix.
Let's look at a few things here.
First, I have advised my wife to keep the house and pay off the mortgage, so that kills a big expense right there. I don't want her to ever have to worry about having a home, and I don't want her to have to significantly change my children's day-to-day lives if I die.
Losing a father will be horrible enough. I want as much stability as possible for both my wife and my kids. They need to stay in their home, in their schools, and surrounded by their friends. At least for a while. Maybe a few years down the road, my wife will want to downsize, or move just to help heal from losing me.
Obviously, she won't need to pay for life insurance on her dead husband. Another neat benefit of my death (morbid!) is that my student loan disappears. This is actually one of the reasons we didn't consolidate both of our student loans together. $330 per month saved.
Less water and less electricity (I'm the wasteful one when it comes to the thermostat) used per month, means lower bills. One less mouth to feed (and a BIG one) lowers that food budget. One less cell phone cuts the phone budget in half.
I left entertainment and dining out alone. I want my wife to start using her support group of friends, going out, and trying to have as much fun as she can when I'm gone. She'll need money for babysitting and going out.
I've also added some health insurance for her. My job is gone, so out go those benefits. She'll be making a VERY low salary consisting of capital gains and dividends, so she and the kids should qualify for as big a subsidy from ObamaCare as is possible.
She should be able to maintain exactly the same lifestyle for her and the kids with about $22,000 in spending per year. At some point, she may want to get a part time jobs, but in the next section we'll see why she wouldn't have to.
I love you money: Easy investing for life
My wife is no where near as interested in investing and finance as I am. She's not all too interested in beards, either. Gasp! When we were discussing this the other day, she wasn't so much concerned about the amount of money as she was with what the hell to do with it all.
I want everything to be as easy as is possible, and I want to keep as few "advisers" as possible between her and her money. So here are my instructions for her.
As I stated above, I want her to pay off the mortgage. This may not be the most fiscally bad-ass thing to do with a 3.65% interest rate, but it is simple and something that she understands. Pay off the house, and she doesn't have to pay a mortgage anymore.
I love you, honey. You never have to worry about a roof over your head. Ever.
Right now, $75k of her stash is tied up in one of my retirement accounts. It will be more as the years go on without me dying, but we're talking about me dying today. (Dude, this kind of sucks!)
I want her to leave that alone until she's 60. It's set to a pretty basic growth allocation that changes as she approaches 60 automatically. It's in a target retirement fund. That $75,000 retirement account will become $380,000 by the time she turns 60.
I love you, honey. I've gone ahead and funded your retirement.
She now has about $530,000 left from the life insurance and our other assets to invest. Again, I want this to be VERY simple for her.
She should go to Vanguard and open an account. She will place all of the money in that account and buy only 2 funds. That's it. Two funds will be her entire portfolio.
In fact, I want her to send this blog post to a Vanguard adviser, who should understand exactly what I'm doing here.
80% of my life insurance proceeds should go into VTSAX. This will have every publicly traded company in the United States of America working for her.
20% of my life insurance proceeds should go into VBTLX. This is a bond index fund offered by Vanguard.
That's the whole portfolio. She only has to buy TWO funds and she's done.
After this, I want her to instruct Vanguard to deposit $1,830 per month into her checking account. This will cover her monthly expenses, and with luck, will still allow the principle to grow.
I love you, honey. A magic money-making machine will pay your expenses forever, and you should have millions left over for the kids when you die.
You'll notice that there is a small gap between the 4% safe withdraw and her actually monthly expenses. About $500 per year.
This shouldn't be a problem. Even in a crappy market, she only has to get to 60 when she has another $380k to open up without penalty.
I also assume she will probably want to work at some point.
Peace of mind for less than $30 per month
I love you, honey. I had enough sense to cut back a latte or two per week so that you could be financial set forever if I should die.
Yeah. If that doesn't get you laid, then I don't know what will.
This whole post probably seems like an advertisement for term life insurance and Vanguard. Well ... it is.
If you have a low net worth and a family, then you NEED term life insurance to be a supreme bad-ass. Look at your spending and figure out what it would take to set your spouse up for life if you died.
When we get back to the states, we'll be getting a smaller term policy for my wife, too. Since if she died and I didn't, then my costs would go up due to child care.
You need to look at your numbers and figure out what you need. It's the easiest, cheapest, and fundamentally best way to say "I love you."
It kinda sucks thinking about dying. But it's absolutely awesome knowing that my family will be fine. A beard makes you bad-ass and awesome. Having a plan like this makes you a fucking hero.
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