Empty-Nesters/Retirees
When the kids are out of the house and retirement is either on the horizon or has arrived, many people think about downsizing. Whether or not that’s true for you, it’s important to recognize that when you retire your accumulated wealth is probably at its peak. Retirement these days can last decades, and age brings on many potential threats to your financial health. There are several steps you can take to ensure your money lasts as long as you do.
Annuities
The demise of traditional pension plans means many retirees face the possibility of outliving their savings. Social Security is a safety net for most people, but it was never meant to be a full retirement plan. To make sure your money - and your lifestyle - will last as long as you do, consider purchasing a lifetime annuity. Think of an annuity as a do-it-yourself pension plan. You provide a lump sum of money to an insurance company and in return you get a guaranteed stream of regular payments for the rest of your life (or for some specified period).
Broadly speaking, annuities come in two varieties: variable and fixed. Variable annuities include an investment component. If those investments do well, your payments will grow over time and your nest egg will be sheltered from inflation. Fees for variable annuities can be high, but they can be the right choice during periods when low interest rates make fixed annuities unattractive.
A fixed annuity is simpler. Your lump-sum savings are translated into a stream of payments that does not change. The size of your payment is based on your age, prevailing interest rates, and, to a certain degree, your gender (women live longer so their payouts are smaller).
There is an annuity calculator at www.bankrate.com that will give you an idea of what kind of payout your can expect. Some companies will allow you to customize an annuity agreement in certain ways at the time of purchase, such as by adding a cost-of-living rider or arranging for payments to continue until both you and your spouse die. Ideally, you should commit only a portion of your retirement savings to an annuity and keep the rest in other types of investments, such as stocks and bonds that can grow over time and protect you from inflation.
Having an annuity can give you the freedom to be a little bit more aggressive in your investment accounts, knowing you have a steady source of income to fall back on. If you decide later you want to increase your guaranteed payments, you can take an additional portion of your savings and put it into another annuity. Keep in mind that annuities are not for everyone, and it is always wisest to sit down with your financial advisor who can guide you through the process and help you choose what’s best for your risk tolerance and retirement timeline.
Life Insurance
It may seem counterintuitive that empty nesters or retirees need life insurance, but some still have dependents, such as disabled adult children. Many also still have financial obligations, such as the mortgage on a home or second home, that could become a burden if a spouse died or becomes disabled. More importantly, if you died today, your spouse could outlive you by decades. Would they have to make drastic lifestyle changes to make ends meet? Your death could reduce the Social Security benefits they’d been counting on. It could also bring unplanned medical and funeral expenses.
Life insurance coverage can preserve the retirement plan you worked so hard to put in place and ensure your estate will be passed on, intact, to your survivors. A policy’s death benefit can help foot the estate tax bill from Uncle Sam and provide a legacy for your children and grandchildren, even if you use up most of your assets during your lifetime. For all these reasons, if you’ve been thinking about dropping your life insurance coverage, you may want to reconsider.
What if you’re retired or nearing retirement and you don’t have life insurance? You may think that you’ll no longer qualify due to your age or health conditions you may have. That’s not necessarily the case. Final expense insurance is a form of life insurance that requires little or no underwriting, which means almost anyone can qualify. Policies are available in face amounts typically ranging from several thousand dollars up to a maximum of $50,000 or $75,000—much less than a standard life insurance policy. That’s because these policies are only intended to cover final expenses and not longer-range expenses like ongoing living costs or college and retirement funding.
Final expense insurance typically comes in two varieties. Immediate full benefit policies, which pay the full face value upon your death, are generally available to people with no serious health concerns. Graded benefit policies provide limited benefits during the first few years and are available to people with serious health concerns. These policies can provide the peace of mind of knowing that your survivors won’t struggle to pay for your funeral or be saddled with outstanding medical bills and other debts. To find out more about life insurance and if you need coverage, use our Interactive Planner.
Long-Term Care Insurance
Long-term care insurance usually takes effect when you cannot perform at least two activities of daily living such as bathing, eating or dressing. The cost of this insurance rises as you grow older, but if you don’t have it and can afford it, you should consider it. The cost of home health care aide, an assisted living facility or a nursing home can quickly deplete your life’s savings. Medicaid, a government program, only kicks in once your assets are significantly depleted, and you may not get exactly the care you’re hoping for. To find out more about long-term care insurance and if you need coverage, use our Interactive Planner.
Source: Life Happens