Life Insurance Blog | Efinancial

Do You Need Life Insurance During Retirement?

  

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Once you’ve reached the golden years of retirement, many stop and wonder if they need to continue paying life insurance premiums. Financial planning professionals are divided on the issue, but life insurance can have many uses, even if you are no longer working.

Most people use life insurance as income replacement, so that if you pass away, your dependents don’t have to worry about your income suddenly disappearing. If you’re retired, your steady income from work is gone, but that doesn’t mean you don’t need life insurance. A life insurance policy can cover many things besides lost income.

 Debt

If you are leaving behind any sort of monthly payment, such as a mortgage, hospital bills or credit card debt, your loved ones left behind could be on the hook to continue paying off the debt. This is particularly true with mortgages. You don’t want your loved ones to not have a home any longer after you pass away.

Funeral Arrangements

Funeral costs are becoming increasingly more expensive. If you don’t have enough money set aside or readily available to pay for a funeral, consider taking out a small life insurance policy that can cover those costs.

 “Death” Taxes 

If you have a large estate or leave behind a significant amount of money, your heirs could have to pay “death,” or estate taxes. A life insurance policy could help cover the cost.

Living Expenses

Even though you are retired, your family still probably has living expenses such as food at home, eating out and transportation, among other things. If you help with those expenses and know you don’t have enough saved to leave behind for your dependents, a life insurance policy can help maintain the same standard of living.

No matter what stage of life you are in, a life insurance policy can be a good financial tool to ensure your loved ones are financially stable, even when you’re gone. Life insurance rates can be low enough that paying them monthly is not a burden. Visit us today and get a free life insurance quote.

Are you planning on purchasing life insurance for retirement? Why or why not? Share below. 

Life Insurance Coverage and Retirement: Why It's No Time to Let Your Coverage Lapse

  

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Many people dream of retirement and the point in their lives when they can let go of many obligations they have carried during their working years. The house is paid off, the kids are out of college and you can finally cancel that term life insurance coverage. Wait, what was that last one?

Many retirees make the mistake of canceling their life insurance policies once they enter retirement citing any number of reasons. They're now "self-insured" through savings and investments. Their kids are grown and no longer need the safety net of life insurance coverage in case they die. However, retirement is not the right time to let your life insurance coverage lapse. Let's break down some of these myths surrounding retirement and life insurance.

"I'm Self-Insured"
A common reason for retirees to allow their life insurance to lapse is because they have become "self-insured" through their savings and investments. They assume they have enough money to cover their living expenses throughout retirement and then have enough left over to cover end of life costs, any outstanding medical bills and leave a small legacy to their heirs or to provide income to a surviving spouse.

However, several studies have found that most retirees haven't saved enough for retirement or haven't truly calculated how much their retirement will cost. The most recent news says retiring baby boomers will need at least $240,000 saved for their medical costs alone.

Funeral costs are quite high as well. The average funeral or memorial service costs about $10,000. That sum can really take a bite out of your savings. Additionally, many of today's retirees have found themselves paying for their parents' memorial services as well if their parents didn't save enough or had high medical costs. You want to save enough for your spouse's services as well, so really, you need to have at least $20,000 saved up. Life insurance is a way for your family to cover these expenses should you pass away.

"My Kids Are Grown"
In our younger days, we have life insurance to protect our families and children in case we die. But in retirement, our kids have grown up, moved on and started lives of their own and they don't need help from their parents anymore. So why have life insurance?

Sadly, today's empty nesters are often finding their nest isn't so empty after all. The weak economy has sent many young adults back home to their parents as they struggle to find work. A recent report from the Pew Research Center found that three out of 10 young adults between the ages of 25 and 34 have moved back home for a period of time. Young adults today are taking longer to get established, get married and have children of their own and in the interim, they are turning back to their parents for help and assistance.

"Social Security Will Take Care of My Spouse"
Will it? We have all read the news about the stability of Social Security and concerns about benefits once the wave of baby boomers begins to retire. Social Security survivor benefits and your spouse's benefits might not provide enough income in retirement. Additionally, if you were to die unexpectedly, the benefits would have to last that much longer further affecting your spouse's income during retirement.

You have worked hard, supported your family and realized some of your dreams. Retirement is about enjoying the fruits of your labor and pursuing new dreams and ambitions, not worrying about whether you'll have enough money. Hang on to the peace of mind you had in your working years and maintain your life insurance coverage through retirement.

Long-Term Planning and Social Security: Be Prepared When Aging In to Social Security

  

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When we first begin to think about and take steps towards retirement, Social Security and financial planning, we often think about what we want to leave behind for those we leave behind. With the current issues surrounding Social Security, it's best to start planning sooner than later.

Originally intended to provide "senior citizens" with income continuation after retirement, Social Security now includes benefits like survivor's benefits and disability benefits. Currently, the retirement age at which you are entitled to full social security benefits is between 65 years and 67 years of age, depending on when you were born. Many people consider collecting Social Security benefits early, as young as age 62, however, collecting retirement benefits early will reduce the monthly benefit received by as much as 30 percent. Although often done out of economic necessity, early receipt of Social Security retirement benefits can have a long term negative effect on income continuation and the quality of a person's life after retirement.

Great care should be taken in financial planning as it relates to Social Security. Social Security benefits should not be the sole safety net upon which you rely once you stop working, especially if you intend to leave money to loved ones. For example, survivor's benefits will likely be insufficient to provide financial security to your dependents and cover the costs of final expenses after you pass.

As a supplement to Social Security, life insurance is the key. Life insurance remains one of the safest and most cost-effective vehicles available for financial security for you and your family. Not only does life insurance provide the necessary monetary resources to protect the assets in your estate, it offers you the peace of mind that comes with knowing you have done all you can to take care of all you have built, achieved and/or attained during your lifetime. Purchasing adequate life insurance should, therefore, be a key component of your financial planning.

So who needs life insurance? You do if:

• There are people in your life who depend on you financially;
• Your dependents do not have the immediate wherewithal to be self-sufficient if you die;
• You expect your property to fall into probate (which can take months) and you have no other cash assets to which your heirs have access before probate is settled;
• You expect your estate to owe significant amounts of debts and/or taxes;
• You have a business and intend for it to continue after you pass away-will your inheritors have access to sufficient cash to continue to run the business;
• You anticipate that your estate will be required to pay substantial estate taxes and you don't have a liquid source of the assets to pay those taxes.

Suffice it to say that if you determine your Social Security retirement benefits and/or investments are not sufficient to meet your desires or the needs of your estate, life insurance should be a part of your financial planning. It makes sense no matter how old you are.

Innovative Small Business Retirement Plans Proposed by Prudential

  

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“Multiple Small Employer Plans” Could Provide Access to Retirement Plans for 78 Million Uncovered Workers

Nearly half of America’s workforce — some 78 million workers — lack access to a workplace-provided retirement savings plan.  Now, Prudential, recently ranked No. 2 among FORTUNE® magazine’s ‘World’s Most Admired Companies’, is recommending that Congress support a simple yet effective new solution.

According to a white paper released this week by Prudential Financial, more than 30 million of those uncovered employees work for a business that has fewer than 100 employees. Prudential is advocating a new solution, the Multiple Small Employer Plan (MSEP), to meet the retirement savings needs of these workers by enabling small employers to join together to offer a single retirement program.

“We believe that all working Americans should have the opportunity to participate in a workplace-sponsored retirement plan. MSEPs would bring additional choice to the small business end of the market, allowing small businesses to choose the option that best meets their objectives and the needs of their workforce.”

Small businesses face significant barriers to providing their employees with workplace retirement plans, including administrative burdens, cost, and complex fiduciary responsibilities.

Prudential’s white paper, Leveraging Multiple Small Employer Plans to Close the Retirement Coverage Gap, an array of enhancements to today’s multiple employer plan (MEP), which could serve as the foundation for the MSEP. While MEPs enable groups of employers to join a single 401(k) plan sponsored by an affinity group or similar organization, the MSEP could further help workers build and achieve a secure retirement through the inclusion of automatic enrollment and contribution escalation, investment defaults, and investor education.

By allowing small employers to pool their resources, Prudential believes MSEPs would increase small employers’ purchasing power, reduce administrative burden, and provide a stepping stone on the path toward implementing a more comprehensive plan.

Prudential’s white paper highlights the components of the proposed MSEP, discusses their potential for improving retirement plan access for employees of small employers, and outlines the legislative and regulatory actions required to facilitate adoption of MSEPs.

The Search for Security at Retirement

  

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A recent survey reported in investmentadvisor.com found that those at or nearing retirement “expressed significantly lower levels of financial comfort, greater concern about further market declines, and higher interest in guaranteed income streams for retirement” than one year ago.”

Where once “the ability to make decisions about how money is invested, diversified, and allocated” was held as the most important factor, now it is the safety and sustainability of a “guaranteed payment stream” above all else.

One such product for creating that kind of stability for retirement is the Annuity.

In the U.S. an annuity contract is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner in several ways. The defining characteristic of all annuity contracts is the option for a guaranteed distribution of income until the death of the person or persons named in the contract. Perhaps confusingly, the majority of modern annuity customers use annuities only to accumulate funds and to take lump-sum withdrawals without using the guaranteed-income-for-life feature.

Annuity contracts in the United States are defined by the Internal Revenue Code and regulated by the individual states. Variable annuities have features of both life insurance and investment products.In the U.S., annuity contracts may be issued only by life insurance companies, although private annuity contracts may be arranged between donors to non-profits to reduce taxes. Insurance companies are regulated by the states, so contracts or options that may be available in some states may not be available in others.

How would an annuity work for those who are at or close to retirement age?  For example, suppose a husband and wife, both 65 years old, have saved $1,000,000 saved for retirement but have an income need of $45,000 annually. “In order to guarantee this income for both their lives in an immediate annuity they would need to deposit $647,946, leaving $352,054 to further invest or save for possible inheritance.”  If the same couple was interested in a cost of living increase of 3% on this immediate annuity, they would need to deposit $872,622. This would leave them with a 4.5% income guaranteed which increases by 3% annually while keeping $127,378 available for emergencies.”

A common income strategy for annuities is to determine the fixed expenses you will have during retirement and the figure for the required deposit into the immediate annuity. This gives retirees an income guarantee for their fixed expenses and allows them to stay in the market with remaining assets to act as their longer term inflation hedge.

Obama plan would ensure companies establish employee IRA accounts

  

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Under the proposed federal budget plan from the new Obama administration, employers that don’t offer a retirement plan would be required to enroll their workers in a direct-deposit IRA account.

This requirement is one step in Obama’s goal of creating a system of automatic workplace pensions apart from Social Security. Employees at businesses that do offer retirement plans would be automatically enrolled in them, with the ability to opt out if they choose. The automatic enrollment feature would significantly increase the number of low- and moderate-income workers who save for retirement, according to the Obama administration.

About 75 million workers – most of them working for small businesses – lack access to an employer-based retirement plan.

Under the Obama proposal, small businesses that don’t offer retirement plans would not be required to contribute money to their workers’ IRAs, but they would have to set them up and link them to their payroll systems. Opponents claim that will cost some money and pose an additional burden for small businesses. Your future is on the line.

‘It won’t happen to me’ keeps life insurance in the dark Down Under

  

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A study in Australia points out that “wealth protection” has improved in that country thanks to record levels of personal debt and prosperity.

Consumers insure assets to protect themselves from losing them. Buying a house goes hand-in-hand with home and contents insurance. Buying a car automatically makes you think of car insurance. After all, why work hard to buy things and then risk losing them, with no way to replace them?

But, when it comes to personal insurance, many are underinsured. The 2006 Mercer Financial Literacy and Retirement Study of 802 working Australians found 63 per cent of people who had a mortgage did not hold income protection insurance.

More than half of all respondents appeared confused about whether they had life insurance or not. The Aussies are asking thesemlves whether personal insurance is necessary? What if your job isn’t dangerous, you consider yourself fit and healthy? Well, it’s not so much the office paper cuts they need to worry about.

Consider these statistics:

Heart, stroke and vascular diseases kill 50,294 Australians annually (37.6 per cent of all deaths). Cancer affects one in three, and kills more than 36,000 people annually. And disability? One in three of us will have up to three months off work during our lifetime due to disability. One in two over 30 years of age will suffer asthma, cancer, heart disease, diabetes, injury, mental health or muscular/skeletal conditions.

Without good health, individuals may not be able to earn an income, meet repayments or provide for loved ones. It may also be a struggle to keep growing personal assets, for example contributing to managed funds, shares, or investment property.