As the health crisis of COVID-19 subsides, many families will continue to live a simpler lifestyle as compared to before the pandemic. This may in part be due to continued anxiety about going out. Perhaps it is the convenience of staying in, or a combination of these and other factors. As a result of spending less, many retirees especially, may find cash accumulating in their bank accounts.

For example, a recent survey[1] reveals almost half of US consumers plan on cooking more at home after the pandemic than before. Cooking at home is cheaper. Food delivery to the front door makes cooking at home even easier. Virtual work from home eliminates the need for a Dunkin Donuts coffee stop (no offence to the Dunkin Donut lovers in New Hampshire!). Business lunches or happy hours with colleagues are no longer happening. All of this is saving families money and it is perhaps a healthier lifestyle, depending on who is doing the cooking.

A mere 7% of US consumers surveyed said they would be cooking less after the pandemic than before. Compare this to almost half who said they would be cooking more.

Deloitte consumer tracker survey

In addition, those surveyed said that following the pandemic they will not go back to their previous ways. They will be less likely to stay at a hotel, use public transportation, take a flight, or go to in-person events. This implies a lingering thrifty lifestyle with less spending. Do not expect to see people putting away their cookbooks and rushing out to eat, abandoning at-home dinners.

The New Normal: Spending Less-Saving More

For many retirees, eating in, traveling less, and skipping live events will be the new normal. As a result, they may be surprised to see the amount of cash accumulating in accounts. Those with qualified money or annuities may no longer need these assets for retirement. Yet many are forced to take income through required minimum distributions.

Here is an opportunity to create a tax-advantaged plan for their children, often the intended beneficiaries. This may be especially valuable when the “kids” are in their peak earning years and higher tax brackets than their retired parents. The IRS currently requires the adult child to take income following the inheritance of an retirement account, even though they may still be working. If the beneficiary is at a higher tax bracket, the tax bite could significantly reduce the value of the inheritance.

Leveraging Savings for Beneficiaries

Retirees that don’t need the income provided by annuities or IRAs may want to consider leveraging the tax benefits of life insurance to potentially increase the amount that will ultimately pass to beneficiaries. Investments in these retirement plans grow tax deferred until they are accessed. The tax rate on qualified plan distributions is based on the retiree’s income – keep in mind that New Hampshire does not tax income from retirement plans!

Many retirees are leaving these distributions accumulating in the bank at very low interest rates. Instead, the retiree can leverage these dollars using life insurance. The premium payments to the life insurance company create an immediate, tax-free death benefit that upon death, will be paid to the beneficiaries. 

Next, every retiree loves the idea of pension income – an income stream designed to last as long as you do. Indeed, many annuities have income options that provide pension-like, guaranteed lifetime payments. The guaranteed income may be the perfect funding tool for a life insurance plan. Gone is the concern about where next year’s premium payment will come from! The insurance company provides the income guaranty.

Leveraging Savings for Your Lifetime

However, this is not just about the beneficiaries! Depending on the plan chosen, there can be numerous other benefits of using life insurance for the retiree, too. It can include tax-deferred growth potential, tax-free distributions and no IRS income or contribution limits, and chronic illness and long-term care benefits. This may be the perfect time to reposition accumulating assets to provide for the potential and considerable expense of long-term care. In New Hampshire, for example, expect to spend $65,208/year for a home health aide and $127,750 for a semi-private nursing home room.[2]

There are many nuances to this type of planning.[3] We can help you explore how such a strategy may enhance the value of a retirement fund for the benefit of the retiree and their intended beneficiaries.

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[1] “Surprise Ingredients in the post-pandemic food story”  Deloitte Consumer Tracker Report

[2] Genworth Cost of Care Survey, 2019-2020;

[3] Policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. LTC benefits are optional and may involve additional annual charges. Annuity benefits are subject to the claims paying ability of the issuing insurance company.