My objective here is to make your heirs completely indifferent (from a financial perspective) to how long you live. You could then be completely honest with them about your estate plans. You could remove much of the anxiety on their part about when they'd get their inheritance and how much. It would take some of the tension out of Thanksgiving dinner.
Here's the formula: Annuitize just enough to cover your spending. In this case (single male, 70) you'd hand over $1.3 million to annuity sellers and have $700,000 (plus earnings thereon) set aside for heirs. You could buy more annuities with it if your living costs went up. You'd be exempt from federal estate tax.
For a couple the arithmetic is a little trickier. Let's say Sam, 70, could live on $8,000 a month; Pam, 67, would need $9,000 if widowed. Together they are comfortable with $11,000. To calculate the correct annuity purchases, start with what we'll call the merger savings in this household. That's the sum of their separated costs ($17,000 a month), less their together costs ($11,000). This $6,000 is the income they need from a two-life annuity, one paying as long as either is alive. In addition, Sam gets a $2,000-a-month policy on his life only, and Pam gets a $3,000-a-month solo policy. New York Life will let them have all three contracts for just over $2 million.
