By: Julie Cole
Planning for retirement includes making many important financial decisions for you and your loved ones. Decision making about your post-career finances includes a review of your life insurance needs as well as your income needs and your overall retirement expenses. Here is a list of things you should consider prior to making any decisions about the need for life insurance and the amount of life insurance:
1) Burial expenses– If you haven’t prepaid or don’t have cash funds designated for burial, then you should have an adequate amount of life insurance to pay for these expenses.
2) Mortgage debt – If you still have a mortgage when you retire, then you need life insurance to pay off the mortgage. According to the National Center for Policy Analysis, baby boomers are house rich and savings poor. Previous generations of retirees had their mortgages paid-off before they retired. There are several reasons for this, including the boomers liberal attitude toward debt, the lower down payments that allowed for larger loans and longer-terms. The housing crisis has left many new retirees with mortgages that are greater than their home’s value. The American Association of Retired People (AARP), reports that in a 2010 survey of households that have one or more retirees in the home, 49% still have a mortgage loan.
3) Other debt – Over the last 35 years, Americans have been living beyond their means and pushed debt to unprecedented levels. Retirees accounted for about ¼ of the $11.4 trillion in credit card and consumer debt at the end of July 2012, according to the Federal Reserve Bank of New York. That’s nearly double the amount of debt that retirees held in 1999. Life insurance may be the only means of paying off these debts that otherwise will burden the surviving dependents.
4) Inadequate retirement savings – According to an article in the Wall Street Journal, the typical American household nearing retirement has less than ¼ of what they need to maintain their standard of living in retirement. Fidelity Investments recently issued a set of guidelines for retirement savings. If you are leaving your job at age 67, you should have retirement savings equal to 8 times your ending salary. Pre-retirees have been concentrating on paying off the debt they accumulated in the last 20 years rather than saving for retirement. These households that acquired the mentality that “debt is OK” are now being forced to retire because of health issues or an unplanned layoff. Without adequate life insurance these retirees may leave their loved ones with crushing debt and inadequate assets and income.
5) Inadequate retirement income– If you have set up your retirement income and pension payments so that there will be little or no disruption in your beneficiaries receiving those funds, the amount of life insurance you need may be minimal. However, if you anticipate there may be some difficulty in your dependents living comfortably on a reduced income, life insurance is the best bet for minimizing money-related difficulties you will leave behind. Decisions regarding life insurance affect your beneficiaries immediately, as they bury you, and down-the-road when they struggle to maintain their standard of living. Think first about whether your spouse, children, or grandchildren will experience financial hardship as a result of your death before you make any decisions about your life insurance needs.