It would be best to have a savings strategy regardless of when you retire.
Consider how you would protect your assets in retirement from unfortunate circumstances. It includes ensuring that you have long-term care insurance and an estate plan.
You should also invest in retirement accounts like a 401(k) or an IRA. These accounts typically have lower fees and higher returns.
Life Insurance
The cost of long-term care can drain a retirement nest egg. To help keep the potential costs under control, some people invest in a long-term care rider on a life insurance policy. These riders provide for an accelerated death benefit that can be used to pay for some or all of the policyholder’s long-term care expenses. A financial professional can help you decide if this option suits your situation.
Generally, the more you save for retirement, the less you’ll need to rely on guaranteed income sources such as Social Security benefits and pensions. Many experts recommend keeping about 80 percent of your pre-retirement spending. This rule considers your annual living costs, such as food, health care, housing, and utilities, plus a good entertainment and travel expenses allowance.
Some retirees rely on their former employers’ retiree health coverage, but companies have been steadily cutting these benefits and pushing more of the costs onto employees. People who don’t get these benefits are often forced to delay retirement until they reach age 65 when Medicare coverage begins. Private nongroup options for retirees are expensive and limited.
Long-Term Care Insurance
Long-term care insurance pays benefits if you ever need help with activities of daily living or need nursing home or home health care services. It can also cover respite care and hospice care. This type of care costs are high, and Medicare, Medicaid, and regular health or life insurance policies do not necessarily provide coverage. When saving money for retirement and insurance benefits, it is crucial to account for this expense.
There are four main options for paying for long-term care:
- Government assistance.
- Traditional long-term care insurance.
- Hybrid insurance, which combines life or annuity benefits with long-term care coverage.
- Personal savings.
Each has its pros and cons. The sooner you start saving for long-term care, the lower your premiums will be.
The type of policy you choose depends on your circumstances and health. If you purchase a traditional long-term care policy, you must decide how much coverage you need and how many years of protection you want. Consider your health and family history, especially hereditary conditions that could increase your likelihood of needing long-term care. You should also consider how much you can afford to pay for a policy and what type of riders you want, such as an inflation rider, which increases the daily benefit amount and policy maximum each year to keep pace with rising costs.
Disability Insurance
Disability insurance is designed to replace a portion of your income if you are injured or ill and unable to work. It is essential to understand that this type of policy does not protect your job or provide any benefits related to your job, unlike workers’ compensation.
Different types of disability insurance offer various benefits. Short-term disability (STD) policies typically last for a year or less, and long-term disability (LTD) can either cover you for a specific number of years (2, 5, or 10 years) or until retirement age (whichever comes first). It is important to note that LTD policies may come with a “waiting period,” which must pass before you begin receiving benefits from the insurance company. Waiting periods can range from 30 to 365 days, affecting your policy’s premium.
Disability benefits can help you pay rent or mortgage, utilities, out-of-pocket medical, and other daily living expenses. It can prevent you from depleting your savings or putting yourself into debt by covering the cost of these expenses. Having the right coverage is essential for a comfortable retirement. In addition, it is also a good idea to save as much as possible during your working years to ensure that you will have the funds to survive in retirement.
Annuities
The primary benefit of annuities is the ability to guarantee a lifetime income stream that will last for the rest of your life. It is vital for anyone worried about running out of money in retirement.
The other key feature of annuities is their tax-deferred growth potential. It is particularly beneficial for people who have already accumulated significant retirement savings and are looking to protect their investments from the impact of taxes.
These benefits can be further enhanced by adding annuity riders, which allow you to customize your contract and maximize its value. However, it is essential to consider whether a particular rider meets your needs before adding it to your annuity contract.
Research suggests a $240 trillion gap between retirement savings and the amount needed to fund a comfortable retirement. The solution to this gap may be found in a combination of permanent life insurance (PLI) and deferred income annuity with increasing income potential (DIA with IIP). When integrated into an investor’s plan, PLI and DIA with IIP provide a unique opportunity for legacy protection, savings growth, and guaranteed lifetime income without sacrificing future spending capacity or a substantial withdrawal penalty.