Guiding your life’s biggest financial moments

Personal Finance

How life insurance fits into a retirement plan

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Congratulations, you have reached your golden age! Or maybe they’re just on the horizon. Either way, the end of the working age marks a critical time for reviewing finances and understanding how to make sure your money is working the best for you.

This process includes examining your investments, home equity, and other assets to determine if they will be able to support you for what could be a decades-long retirement. Near retirees often overlook the role life insurance can play in retirement planning.

Retirement is a major life event that could potentially change your life insurance needs. Answer these questions to decide if you have appropriate coverage for this next stage of your life.

More than half of American consumers have work life insurance. Once you stop working, you may no longer have access to this employer benefit. Not all retirees need life insurance, but if you want or need a policy, it’s worth considering your options.

Some plans allow you to convert your group coverage to an individual plan, even if you no longer have access to subsidized premiums. If this option interests you, it is important to contact the insurer within 30 days of your departure. Plus, this might be a good opportunity to shop around for another life insurance policy tailored to meet your current and future life insurance needs.

Many consumers purchase life insurance to provide financial protection for young family members, often choosing a policy that can help survivors pay off a mortgage or cover future school bills. Decades later, the mortgage can be paid off (or almost), and the children are long out of school.

If you were also successful in building your wealth during this time, with 401 (k) contributions and other savings, or if you received an inheritance, you may no longer feel that you need to purchase the insurance that you originally purchased. If you have a term life insurance policy that has been underwritten for a specific period (10, 20, or 30 years), this might be the time to review both the amount of coverage and the remaining term of the policy. On the other hand, if you have incurred additional debt or are concerned that your surviving loved ones may have financial hardship after your death, it may be a good idea to keep an existing policy. Additionally, if you have purchased a policy with an accumulated cash value, you may be pleasantly surprised at the many ways that this policy can be of benefit to your retirement.

Either way, now is a great time to review what you have and how you might be able to use existing policy coverage and features for your retirement.

One of the adjustments that many new retirees face is learning to live on a fixed income, making sure they don’t spend too much in the first few years, but also doing their best to take advantage of the nest egg that they have spent their life building up. If you and your financial professional have decided that life insurance is right for you, it’s important to make sure you factor your premium payments into your retirement budget.

We also see many retirees from full-time jobs or careers pursuing some form of work or income-generating activity. Nearly half of Americans between the ages of 60 and 75 say they plan to work part-time after retiring from full-time employment, according to an AAG survey. This can also be factored into your budget considerations.

Viewing your life insurance premiums as a need rather than a desire and budgeting accordingly can ensure your policy stays in place when you or your family need it. Some policies offer the option of using the cash value of the policy to pay premiums, which means you no longer have to make out-of-pocket payments.

Longer lifespans and earlier retirements can extend the retirement period to three decades or more. As health care costs continue to rise, it’s no wonder that fear of running out of money in retirement is one of Americans’ top financial fears. Despite still strong investment markets, volatility issues are common, especially in times like retirement, when you are likely dipping into invested assets. The right life insurance policy can create an additional tax-deferred accumulation option that can be accessed as an additional emergency fund in retirement or as a source of additional income.

A permanent life insurance policy can create cash value that you can use or borrow if you need the cash. And if acquired early, it can also be a way to save for retirement with a tax deferral. This might make sense for people who have already maximized traditional retirement plans. Life insurance policies offer some flexibility that 401 (k) and IRAs do not, including no minimum distribution required, and can often have minimum guarantees.

In addition, some insurers are now offering life insurance policies with an additional feature to help pay for long-term care and other medical expenses, one of the biggest expenses retirees face.

Sharing your time and creating memories with your family is one way to leave a legacy for them after you leave, but some people also want to leave a financial legacy to loved ones or a charity close to their hearts. Life insurance can help you achieve this, by providing funds that can go directly to your beneficiaries, usually tax-free and without probate.

Having life insurance in place to take care of your wealth goals can give you more freedom to spend your assets while you’re alive.

While the primary goal of life insurance may be to keep your loved ones safe, it’s important to understand the role it can play in retirement planning as well. You may never use your life insurance in your golden years, but knowing it’s there can give you extra peace of mind, especially in these uncertain times.

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