As you look toward retirement, you might be wondering: how much insurance do I need to minimize risk and maximize my budget? Knowing how much (or what kind) of insurance you need is always a topic of discussion no matter what season of life you’re in. However, it’s especially critical for retirees to hone in on what their “ideal” insurance coverage looks like.
Let’s Talk Life Insurance
Many retirees believe that, because they’re retired and don’t have very many (if any) dependents, life insurance is no longer something they require. This might be true for some people but, as is the case with almost all things financial, it depends on your unique situation.
Life insurance can act as a buffer against any debt you owe in case you pass away, or it can replace income coming in from a side hustle or part time job. In other cases, life insurance can protect a spouse or children who aren’t financially independent from you. In these cases, rather than viewing life insurance in a traditional “income replacement” way, you might want to look at how much you’d want to provide your loved ones with, outside of your other assets, after you pass away.
Life insurance coverage as a retiree can help to cover outstanding medical costs, or the cost of a funeral and burial in the event that you pass away. Although nobody likes to think about the worst case scenario, life insurance can help provide the funding to get your loved ones through an already challenging time. The last thing you want is to leave them to make difficult financial decisions about your arrangements while they’re mourning.
Finally, life insurance can act as a unique legacy building tool for retirees. For some, gifting life insurance to a charitable organization is an option if they’d like to have donations be part of their estate planning.
Many retirees aged 65 and older qualify for Medicare. However, if you retire early, there are other health care options you’ll need to consider. In some cases, your workplace may have an ongoing healthcare option for retirees. Alternatively, you might consider COBRA coverage. In most cases, though, when you don’t qualify for Medicare yet - your best option is to find health care coverage either through a spouse who is already employed, or through the healthcare marketplace provided by the Affordable Care Act. This is only true if you can’t access health care through your employer because you have fully retired and are no longer working.
When you do qualify for Medicare, there are even more things to consider. If you don’t enroll for Medicare Part B and Part D when you become eligible at age 65, you could be subject to penalties. It’s wise to talk through your insurance options in retirement with a financial planner who can help you find the best solution for your individual medical needs and budget.
You might also want to look at long term care or disability insurance as a retiree. While it’s not ideal for everybody, it might make sense if you are planning to retire early and will need to wait several years for Social Security benefits to kick in.
Insurance as a Financial Planning Tool
Looking to life and medical insurance, many retirees use their insurance coverage as a way to build out a death benefit or “nest egg” for family and heirs. This is largely because insurance is a good way to transfer wealth and assets to your heirs without having tax implications. Knowing your options, and how much coverage you need to adequately protect your spouse, family, or heirs, is a critical component in your financial plan.
Discussing how insurance can fit into your financial strategy with a fiduciary financial planner ensures that you’re getting honest, valuable information you need to make the best decisions for you. This is something that Wisely Advised helps our retiree and pre-retiree clients with regularly, and I’d love to walk you through what options could work for you. Let’s schedule a time to talk today!
Tony Velasquez is the Founder and Managing Director of Wisely Advised an Illinois Registered Investment Advisor. Wisely Advised provides comprehensive financial planning and investment advisory services to both individual and business clients. You can learn more about Tony and his firm here.
Tony Velasquez runs Wisely Advised, LLC a full-service Registered Investment Advisory Firm offering comprehensive financial planning and investment advisory services to individuals, families, and businesses.
Whether it's traveling, being at the beach, or at his family's ranch in Texas, Tony loves enjoying time with his family and friends.