Do Retirees and Empty-Nesters Need Life Insurance?
May 13, 2020Living in Retirement
Now that the kids are out of the house, you should be shifting your focus on retirement. Since your money isn’t going towards feeding, clothing, and supporting your children (hopefully), you should be figuring out the best way to maintain your quality of life once you retire.
One of the biggest variables in this scenario is the fact that it’s impossible to know how long your money will have to last. Whether it’s 20 years or 40 years can make a huge difference, particularly if you’re not earning money from various investments.
With that in mind, we want to discuss how retirees (and soon to become retirees) can use insurance to help provide for their health and well-being well into their golden years. You don’t want to be left in the lurch because you failed to plan. Here’s what you can do:
Regardless of your circumstances, getting a life insurance policy is always better to do sooner rather than later. While there are still options if you decide to do it just before or after you’ve retired, it’s advisable to apply for insurance when you’re younger and healthier. Plus, it will be less expensive the younger you are.
Nonetheless, life insurance policies are designed to provide financial protection and stability for your loved ones. Even if your children are living independently and making families of their own, there can be many different expenses that you don’t want to pass on.
Funeral costs, mortgages, and other debts can derail your family’s lives if you’re unprepared. Also, if you leave a spouse behind, his or her pension benefits could be greatly reduced upon your death which could severely impair his or her standard of living.
If you’re still relatively young, then you have many different options when it comes to life insurance. Term life insurance can last for a predetermined amount of time (i.e., 20, 30 or 40 years), while permanent insurance such as Universal Life or Whole Life insurance could last for as long as you live. You’ll want to talk with your financial advisor to figure out which option is best for you and your family.
There are some of retirement age who believe that even though they can see the need for additional life insurance, they feel that, at their age, they are too old to purchase it. This is not the case. While the premiums will be higher than if they had purchased it when they were younger, it may be available to them and it can be shown to make financial sense when one considers the rate of return of the premiums paid compared to an alternate investment in creating the death benefit.
Know Your Retirement Income Options
If you are one of those fortunate to work for a company with a defined benefit pension plan, you will retire enjoying a monthly cheque. If you have a spouse, it is important for you to discuss with your employer the income and survivor benefit options. Pick the one that is most appropriate for your circumstances. For example, if your spouse is considerably younger than you, don’t immediately choose the income option that provides you the highest amount of monthly income without considering what your spouse will live on afterwards.
If your retirement is to be funded by your RSP or RRIF, then consider how long the funds need to last. Many people retiring today, fear that they will outlive their retirement savings. Life annuities may be an answer but with the low interest environment, they are often discounted as a viable option.
Don’t overlook, however, the comfort that a worry-free regular monthly income can offer. Some retirees will say that they wished that they had started their retirement planning many years before they did. Under these circumstances, hopefully there is another source of retirement income such as non-registered investment plans, inheritances, large equity in the home or re-entering the work force. Also, in these situations, life insurance could be vital in making sure the surviving spouse has adequate income. With that in mind, don’t cancel any life insurance upon retirement without considering all the options.
Long-Term Care Insurance
Whether it’s an illness, advanced age, or something else preventing you from being independent, the cost of long-term care (at home or an assisted living facility) can be extremely expensive. This type of coverage helps avoid making withdrawals from your investments which are meant for retirement. Without it, your retirement funds will be depleted much more rapidly which doesn’t bode well for your surviving spouse.
The problem in Canada is there is only a couple of companies still offering this type of coverage. So even if you are young (and that is the best time to buy Long Term Care coverage in any event), get it while it is still available.
Although you hopefully won’t have to endure this kind of care during retirement, having long-term care insurance may be a smart idea to protect you and your family if the worst happens.
Bottom Line – Be Prepared
No matter which route you choose, you want to have confidence and peace of mind in retirement. If your finances are not in order, then you could be facing some harsh realities during your golden years impacting your ability to reap the rewards of your hard work. Having insurance can help ensure that your retirement is spent in comfort.
*These articles are not intended to provide specific professional advice. Rather, the information provided is for general reference purposes only.
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