Life Insurance and Retirement Planning Advice

Once upon a time, you could rely on Social Security and pension plans to cover the majority of your financial needs after you stopped working. But as more and more boomers are discovering each year, retirement can be elusive. That’s why most financial advisors recommend formulating and implementing a retirement strategy as early as possible. Here are four smart tips for retirement planning, starting with how life insurance can help secure your financial situation after you leave the workforce.

  1. Use life insurance to help fund your retirement. When the topic of retirement planning comes up, few people think about life insurance. However, some finance experts recommend investing in a life insurance policy as part of a sound retirement strategy. Permanent and term life insurance can both be helpful tools when it comes to financial planning for retirement.
  • Retirement planning with permanent life insurance. When you buy a permanent life insurance policy (e.g., a variable, universal or whole life insurance plan), a portion of your premiums go into a separate account that generates cash value alongside – or in addition to – your death benefit. Because you can technically borrow against this cash value, you could easily use it to partially fund your retirement. Just remember that any withdrawals will lower the policy’s death benefit unless they are repaid. And if you borrow more than the surrender value, your policy could lapse.
  • Retirement planning with term life insurance. Another way to incorporate life insurance into your retirement planning is to buy a term life policy. By providing coverage for a term period of your choosing (usually 10-30 years) rather than your entire lifetime, term life insurance can be considerably less expensive than a permanent policy when it comes to how much coverage you get for your money. The length of the term period you choose depends on how long you think it will take to amass enough savings for your spouse, and any other dependents, to live comfortably without you. Given its comparatively lower cost, term life insurance can be an ideal retirement savings tool in two ways. First, it provides a death benefit for your spouse to retire on if you pass away before accumulating enough savings for a comfortable retirement. Second, its low, fixed price allows you to allocate more of your disposable income toward additional retirement planning tools such as an emergency fund, long-term care insurance, and other investments. Because age and health play a major role in determining premium costs and whether you qualify for term life insurance, it can be difficult and costly to secure coverage past the age of 65. However, term life policies can often be renewed up to the age of 95.
  1. Put a tax-advantaged account to work for you. The IRS offers plenty of incentives for retirement savings through tax-advantaged accounts such as IRAs and 401(k)s. By enabling you to put a percentage of your income away before taxes are taken out, IRAs and 401(k)s can decrease your taxable income while automating your savings. The Roth version of the IRA and 401(k) requires taxes to be paid on contributions before they go into the account. Once you retire, however, withdrawals are tax-free. If your employer offers to match your 401(k) plan, make sure you contribute enough to take full advantage of the match. While the contribution limit is $18,000 in 2016, those in the 50-plus age bracket can contribute an additional $6,000 in catch-up contributions. If you don’t have a 401(k), a Roth IRA offers the same powerful tax savings with lower contribution limits. In 2016, account holders can contribute up to $5,500 to an IRA, while those over age 50 are allowed an extra $1,000 in catch-up contributions.
  2. Delay Social Security as you approach the age of retirement. Age 62 is the earliest you can begin receiving Social Security benefits. But the older you are when you file for Social Security, the greater your annual payment. So for every year you can delay receiving a Social Security payment before you reach the age of 70, your monthly benefit will increase – and the additional income can add up quickly. Pushing your retirement back by even one year could significantly boost your future Social Security income.
  3. When it comes to your portfolio, watch out for fees – and risk. Fees can take a big bite out of a retirement portfolio over time. Mutual funds need to earn returns well above their benchmark in order to justify their high costs, so be on the lookout for ones that aren’t earning their keep. And while stocks can yield big returns, they also come with a big risk: market volatility. To minimize your portfolio’s susceptibility to fees and reduce risk, consider sticking with a core group of index funds that represent a broad swath of the market. These could be funds with large-cap stocks, mid-cap stocks, small-cap stocks, or international stocks. Investors with a broadly diversified portfolio of index funds will likely outperform those who try to time the market, especially when it comes to downturns.

We recommend consulting a financial professional before making any major changes to your portfolio. To learn more about how a term life insurance policy can play a role in your retirement planning, click here or call 1-888-279-6192 to speak with a SelectQuote agent. Retirement planning advice and term life insurance quotes are always free and impartial.

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