Conventional wisdom suggests you don’t need life insurance during retirement. By this point, the children are likely grown and financially self-sufficient and you’ve amassed a sizable enough nest egg to make life insurance superfluous.
Or so the thinking goes. But before you dump your policy, it pays to take stock of your financial situation and carefully consider your long-term goals. Only then will you know if you’ve got enough insurance, or too little or too much.
“Sometimes life insurance makes a ton of sense to keep and sometimes it makes no sense,” says Bob Gavlak, a certified financial planner and wealth adviser with Strategic Wealth Partners Ltd., a registered investment adviser in Independence, Ohio. “Sometimes it’s a matter of getting a more appropriate insurance strategy in place, given that your goals, objectives and financial circumstances have changed.”
Among the factors to consider: how much you’ve saved versus how much debt you’ve accrued; your financial obligations; your income-replacement needs; your health and how long you expect to live; your tax situation; potential liquidity issues; legacy-planning goals; and charitable-giving desires.
Ideally, financial advisers recommend that people evaluate their future insurance needs a few years before retirement, to optimize the timing of any changes they want to make.
Doing heirs a favor
Consider the case of heirs. Some people choose to keep life insurance during retirement because the death benefits are tax-free to heirs. Others maintain it as another asset they can use to balance out the distribution of their estate to their heirs. Life insurance can also give a surviving spouse a financial cushion, and provide a greater sense of financial security while both spouses are still alive.
Sometimes people with assets that are difficult to liquidate quickly, like property, maintain life insurance so their heirs have cash on hand to pay the expenses that can pile up when someone dies. Hans E. Scheil, a certified financial planner and chief executive of Cardinal Retirement Planning Inc., a registered investment adviser in Cary, N.C., typically recommends that clients purchase at least $25,000 in permanent life-insurance death benefits. This will help cover the costs of a funeral, probate and executor fees and provide some income replacement, he says.
“When a person dies, the survivors need some amount of money right away,” Scheil says. “You’ll be doing a real favor to your family. It’s as much convenience as it is necessity.”
Health issues are another important consideration. Justin Halverson, founding partner at Great Waters Financial, an advisory firm based in Minneapolis, recently worked with a couple in their early 60s who had just retired. Each has a term life-insurance policy that will last well into their 80s. They don’t have long-term-care insurance and the husband wouldn’t qualify because of a pre-existing condition.