Capital Rention Method, to factor SS or no?

[asu47]

This is a hypothetical. I am studying for my CFP through Kaplan and this is apart of my plan I am building. I am going way to deep here, but not knowing the answer is driving me insane.

Scenario:
Couple, 37 years old 3 kids ages, 2, 8, 12.

I am supposed to use Capital Retention and each spouse is expected to receive 25k each (50k total) at FRA.

SS benefits will not kick in for either spouse until age 60, so I am confused if I am supposed to factor this in?

I am getting the jist it comes down to each planners technique, and just having a logical explanation of why you would factor it or not factor it.

So my question is, do you factor it in regardless or can you go one way or another, but just had reasoning behind it.

Not asking CFP questions, just asking what insurance people do with SS factor.

 

[DHK]

I'd only factor it in if the prospect brings it up. Considering Social Security "black out" dates from the time the minor is out of high school until the time the surviving spouse reaches age 62 for early retirement benefits (or survivor benefits at age 60)... too much work and too much to calculate for an "exact" need.


And I always start with the Human Economic Life Value of having the insured's income replaced by the earnings of a lump sum. Example: insured earns $50,000 a year. $1,000,000 @ 5% would generate $50,000/year of taxable interest and is generally the maximum insurance companies would issue. Interest rates are about 1%, so we can assume that it's going to be a "sinking fund" and eat away at the principal anyway at about 3.33% per year.

Anything less than HELV is normally called something else: "Mortgage protection", "Final Expense", "Just in Case College Fund", etc.

 

[asu47]

OK ya thats about where I stood. I have an insurance background and like I said I am looking way to deep, but my over analytical mind needs a conclusion. I could not even use the approach and just simply say 100k is not enough would suffice for the assignment.

 

[somarco]

DHK will probably agree, people buy life insurance on emotion, not logic and number crunching. All the fancy programs, charts, etc won't make a sale unless you connect with your prospect.

Assuming you are talking income replacement (vs estate planning, business planning, etc) and talking with a married couple, ask the decision maker (often the wife) how much she thinks she will need to survive when the husbands income is lost. Don't complicate it.

Then use what DHK suggested with a lump sum and income generated.