Building a solid, well-rounded financial picture becomes more important as you age and approach retirement.
Which investments should you make to make that happen? What should you steer clear of? Where does life insurance come into play? Is life insurance worth the money? We’ll answer these questions and more.
Life Insurance’s Role in Retirement Planning
Life insurance is a broad term that covers a variety of policies. All policies have some things in common, like premiums and benefits, but how those work differs.
Term Life Insurance for Retirees
Term life insurance is the best kind of life insurance for young and middle-aged adults. It provides the highest benefit for the cost, so it’s a good fit for individuals with dependents.
Term life insurance isn’t as good of a fit for people of average retirement age because term life insurance’s benefit ends when the term ends. It doesn’t have a lasting value. So, most retirees’ term policy will expire before their death.
Retirees may still find that a term policy is a good option when they’re early in their retirement, so it’s worth consideration.
Permanent Life Insurance for an Entire Life
Permanent life insurance is an excellent option for some seniors. It’s best to purchase this type of coverage in younger years and continue making payments throughout life. The longer you pay into your policy, the more cash value you’ll accrue.
This cash value can be one strategy for funding retirement. Some life insurance plans offer policyholders the opportunity to invest the cash value. While this is a benefit some people appreciate, it also carries some risk of loss if the investments perform poorly.
Remember that money borrowed from the cash value and not repaid will be taken from the death benefit. However, if your goal for a whole life policy is saving for retirement, drawing on the cash value is good.
A life insurance policy is an excellent way to ensure your beneficiaries have nearly immediate access to funds following your death. While an estate can sit in probate for years, a life insurance policy can be claimed immediately upon the insured’s death.
Guaranteed Issue Life Insurance for the End of Life
Guaranteed-issue life insurance, as its name implies, is a type of policy that you’re nearly guaranteed to get. In contrast, most life insurance policies require a medical exam and extensive health history.
These types of policies are the most expensive kind of life insurance. They’re most appropriate to provide a death benefit sufficient for funeral costs. Most people choose a $5,000 to $10,000 benefit, although many providers allow policies up to $25,000.
Tax-Advantaged Investment Accounts Funding Retirement
Planning for retirement should begin early in your career. In fact, having a solid financial plan in your 30s can help you avoid the stress of catching up.
Retirement accounts like 401(k)s and IRAs have tax advantages. The traditional versions allow contributions to be made pre-tax. The Roth version of these accounts allows withdrawals to be made tax-free.
Timing Tax Advantages in Anticipation of Retirement
Deciding between a traditional or Roth IRA or 401(k) depends on your current financial situation and the tax bracket you expect to be in when you retire. If you’re looking for a convenient way to avoid the higher taxes of a higher bracket, a traditional IRA or 401(k) is convenient.
If you’re in a low tax bracket, you may decide that a Roth IRA or 401(k) is a better option, especially if you anticipate a higher income in retirement.
Benefits of Employer Matching Programs Boost Retirement Savings
Some employers will match a percentage of 401(k) contributions. These matching programs could be a 10% match to a 100% match up to an annual limit.
If your employer offers matching, you have an excellent opportunity to take advantage of it. When you make your contributions, you essentially get free money from your employer. That helps you build your savings faster than you would on your own.
Precious Metals’ Role in Retirement Planning
Gold and silver are physical goods that have intrinsic value. They’re often considered a safe investment.
When the economy takes a downward turn, many people with retirement accounts start considering investing in precious metals. It is even possible to switch a 401(k) to a Gold IRA. There are pros and cons to this option, but it’s worth considering.
Pension Plans for Guaranteed Retirement Income
The Employee Retirement Income Security Act (ERISA) is a federal law that employers offering retirement plans must follow. But do ERISA regulations require all companies to offer a retirement plan? No, it does not. Instead, it regulates what employers who offer retirement plans can offer.
Many companies have no retirement program for employees, and employees must take charge of their own retirement planning.
Some employers choose to offer retirement plans, and they range from investment options to pension plans.
Perks of Having a Pension Plan
Pensions used to be fairly standard. Now, they’re only offered by a few employers, most of whom are government-related. Pensions are one of the best retirement options, and they’re a significant perk that can entice employees to join the workforce and remain.
Pensions don’t require employees to put money from their paycheck into their pension. Instead, they offer employer-sponsored continuing compensation after retirement. Sometimes pensions are 50% of an employee’s income, but they can be up to a full 100% of income.
Pension plans aren’t dependent on the stock market, so even when stocks perform poorly, pension plans pay out the same.
Downsides of Having a Pension
You might think you’re set for retirement if you have a pension plan. But if your pension provides 50% of your income after retirement, that may not be enough to retire with. So, be careful with your planning and supplement your pension if necessary.
Another issue with pensions is that once you and your spouse pass away, there is no benefit left for an estate. If you have a retirement account like an IRA and pass away, your IRA will still have its monetary value, which can be passed to heirs.
On the other hand, a pension ends when your life ends. Even if you pass away one month after retiring, your pension will be finished.
Preparing Now for Enjoyment in Retirement
Comfortable retirement doesn’t just happen. A comfortable retirement happens after careful planning and preparation. Insurance and retirement accounts should have a role in your retirement plan. If your employer offers a pension, remember that it is a perk worth a lot.
With the proper preparation, you can live your best retirement years and enjoy your well-earned rest from employment.
About author:
Melanie Musson writes and researches for the life insurance comparison site, QuickQuote.com. She’s passionate about helping others prepare for retirement and understand how life insurance can fit into those plans.
