Skip to main content

Fitting Life Insurance into Your Retirement Plan

All Your Options for a Financially Secure Retirement

When it comes to planning for a financially secure retirement, most people focus on aspects such as their investments, retirement savings accounts, home equity, Social Security, and other assets that they’ll depend on to support their income needs in this phase of life. Too often, the role that life insurance plays in a retirement plan is overlooked. Below are a few questions to ask yourself concerning life insurance and retirement planning as you begin to consider whether you have the right coverage for your current situation and your long-term goals.

How might premiums fit into your retirement budget?

One of the biggest adjustments that retirees must make once they leave the working world is learning to live on a fixed income. There’s a tricky balance that comes with not overspending but also being sure that you enjoy all the hard work you put into saving for your golden years. For many retirees, this means creating a budget to make sure that they’re staying on track so that they’re not putting their financial security at risk. Because of this, it’s important to be sure that you consider how your life insurance premiums may factor into that budget.

While it may be tempting to deem life insurance as a want rather than a need, it may be a wiser move to instead factor it into your budget as a priority expense so you can be sure your policy will remain in effect as a safety net for your family should something happen. Remember that you have options, too. There are some insurance policies that offer a cash value option where you can use the cash value of the policy to pay the premiums and then no longer make premium payments out of pocket. Educate yourself on what’s available so you can find the best fit.

Have you experienced life changes that have shifted your priorities?

Did you purchase life insurance early in life with the goal of providing for your young family members, like children or grandchildren, who may need help paying their way through college or paying off their house? Decades later, as you enter retirement, ask yourself whether those family members still need that kind of financial support. Even if they still do, is there a better way to support them with a different type of asset you’ve built over the years? The bottom line is, if you’ve purchased your insurance a while ago, you may find that the policy you bought is one that no longer supports your priorities and goals.

Additionally, if your life insurance was purchased for a specific term, you may want to begin considering what you’re going to do once that period elapses. Whatever the case may be, it’s a good idea to revisit your policy and think about whether it’s still the right policy for you. If you’ve taken on additional debt or still have loved ones who are struggling financially, perhaps it’s smart to hold on to it. But if things have changed enough that a new policy may be a better option, now is the time to take care of changing your insurance.

Did you purchase your life insurance through your place of work?

Research shows that more than half of Americans have term life insurance through their place of employment. If this is the case for you, you may no longer have access to that benefit once you retire, so if you’re interested in having insurance, now is a good time to investigate your options. Some companies allow you to convert your coverage to an individual plan, though keep in mind you may lose your subsidized premiums when you do so. If this is an option you want to pursue, make sure you give yourself and the insurance provider plenty of notice to make the transfer. Otherwise, take the time now to shop around for a new term life policy that adequately meets your needs.

Do you want to prioritize leaving a legacy?

As you consider fitting life insurance into your retirement plan, think about whether you’d like to leave anything to your heirs. Leaving a financial legacy behind for your loved ones is something that feels meaningful for many people. Outside of leaving bank accounts or other assets, life insurance can be a great vehicle to carry out this goal, with the bonus of allowing you the freedom to use your other assets to support your own lifestyle in retirement without feeling like you’re spending the grandkids’ inheritance.

Are you worried about creating a financially secure retirement?

One of the biggest fears retirees have is outliving their money; a fear that isn’t hard to understand in the face of longer life spans, earlier retirements, and skyrocketing healthcare costs. Combined with a volatile market that can severely impact your financial security should there be a drop in the markets around the time you retire, it’s normal to worry about how your financial security will fare throughout your golden years. Having the right life insurance policy, however, can provide you additional peace of mind.

If you’re worried about outliving your retirement savings, you might want to consider purchasing whole life insurance rather than a term life insurance policy. A whole life insurance policy not only provides financial benefits for your beneficiaries should something happen to you, but it also allows for the policyholder to build cash value in the savings component of the policy. With whole life insurance, you can tap into your policy for a tax-free withdrawal or loan, while the cash value of your contract continues to grow uninterrupted. And, since the cash value accumulates at a tax-free, consistent, and predictable rate, you’ll be able to plan out your cash flow more easily, while also avoiding the stress of market volatility.

Final Thoughts on Fitting Life Insurance into Your Retirement Plan

Even though the primary purpose of life insurance is to support your loved ones in the event of your passing, there are ways that it can also support your needs and goals in retirement. Even if you end up never needing to use the benefits that come with your policy, having one in place can provide peace of mind in knowing that it’s there should you need it. It can be confusing to sort through all the different options that are available to you when it comes to purchasing life insurance, so it may be beneficial for you to work with a financial advisor you trust to ensure you’re making the best choice for your unique situation and your financial and family goals.

At Paces Ferry Wealth Advisors, we provide a holistic approach to retirement planning coupled with a comprehensive understanding of all the facets that go into making a strong retirement plan. If you would like to talk to one of our advisors about how you can best incorporate your life insurance into your broader retirement plan, contact us today.

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).  This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.