How much protection do you need?

I want to have money to retire on.  That is the plan.  But how much do I need?  And before I retire, I want to be sure my family is protected in case I die too soon.  The quandary is what if I don't live long enough and what if I live too long?  For the first, I need to figure out what I would not want my family to have to pay for if I were to go.  I heard about the DIME approach which I will share here. 

D is for debt.  How much debt do I have?  If I were to go, I would not want my wife to have to pay for that debt, so some sort of protection is order.  Fortunately I don't have a lot of debt. For an example, I will say I have $10,000 in debt, counting credit cards and auto loans.

The I is for income, or how much income would my wife need to get back to a normal life.  Typically, it takes about ten years to recover from a death.  If my income were $50,000, I would want her to have ten times that or $500,000. 

The M is for mortgage.  In my case, I have none.  If I had a home here, I would probably owe around $200,000.  In California, it could be more like $300,000 or $400,000 or even more. 

Finally, E is for Education.  If my kids were younger, I would want to set aside money for their education.  A state school costs around $15,000 a year.  For one child you need $60,000.  My kids are grown, but it would be nice to set aside money for grandkids. 

Putting it all together I would need:

D -   $10,000
I  - $500,000
M - $200,000
E -  $120,000 for two kids, be they my own or grandchildren. 

Total  $830,000.  A lot to set aside on my own.

My savings in my 401k would be taxable to my children as would my pension.  Assuming there is only 25% withholding, I would need well over $1 million in savings to protect my family.  However, a life insurance policy would pass to my heirs tax free, at least income tax free.  Congress is still playing around with the inheritance tax.  The last time I looked, the family would have to get over a million dollars to pay taxes.

I bought insurance for my wife with my sons as secondary, should we both go at the same time.  Surprisingly, only about 40% of Americans have any sort of life insurance, and most of them are underinsured.

Managing my debt allows me to buy less protection or at least have the protection go directly to my family instead of creditors.  Debt is another animal that will be considered later.

And then if I live too long, I have another issue.  What sort of protection did I buy?  Did it have any savings included?  That is something else to ponder as I continue my blog.