The idea of retiring and running out of money can be scary, particularly for someone who’s not prepared. But you know what’s scarier?
It’s the fact that there’s no hard formula to help you know how much money you need to prepare for retirement. You can start saving as early as your 30s or your 40s yet you still can’t be sure.
However, saving up is still better than having no savings at all, right?
This is where a life insurance fits in.
A lot of people think that life insurances are only important in protecting the family in the loss of the breadwinner. In reality, life insurance can offer more as long as you’re able to pick the right type and utilize it in your retirement income plan.
It can protect your income, give peace of mind to your family and help you manage your taxes. It can also help increase your family’s chances of achieving dreams and long-term goals.
Now, you’re probably wondering: How do I utilize life insurance for my retirement planning?
Below are some tips to help you out.
Go for term insurance
Term life insurance is generally the least expensive type. And that isn’t just because of its required out-of-pocket expenses but also the coverage you can get for what you pay for.
It doesn’t involve any investment and is a mere protection in the case of untimely death. It’s set for a certain amount of time, ranging from 10 to 30 years.
It’s ideal in two way:
First is that it can provide your family with financial protection should you pass away before you saved enough money to secure their future. Another reason is that it gives you more space to create financial security.
Since its cost isn’t that high, you’ll have more extra money to build your emergency fund or make an investment.
Now, here’s the thing.
Although term insurance isn’t as expensive as other insurances, getting one may still be tricky. You need to have an idea on how long a term you need to buy. You should also consider how long it will take you to financially secure your family as well as your age. Starting past the age of 65 won’t be the best idea.
Start building an emergency fund
An emergency fund refers to the amount of money you stash away just in case life throws a financial surprise at your way. It should be enough to cover at least 3 to 6 months’ worth of expenses. If you have an irregular income or work, you may need to save more.
Now, why build an emergency fund?
It’s a good way to make sure you don’t end up with debts in case your family’s expenses increase or your income gets reduced. It can also help you avoid paying for higher interests, like with your credit cards, in the event that you don’t have work to pay for them.
You see, when you’re in a financial emergency, you’ll be forced to stop your retirement contributions. And if you accumulated a lot of debts, it can take a long time before you can get back on track.
As to how you can start building your emergency fund, start with something reasonable. Setting 3 to 6 months’ worth of expenses can be a tough goal to meet and if you’re not able to achieve that, it can greatly discourage you. So, instead of aiming for the biggest goal right off the bat, break it into smaller goals that you can reach in just a few months. It can be as small as $25 or $40 a week as long as you’re regularly saving up.
Keep track of your retirement savings
You wouldn’t want to spend the rest of your years prior to retirement working extra hard to catch up on your savings, right?
So, to avoid that, take a step back and a good look at where you currently stand. Review your investing strategy every now and then. There are also a lot of online tools you can use to evaluate your shot at having a comfortable life after retirement. Utilize those tools to ensure that you’re on the right track or if you need to make adjustments in your strategy.
Get a long-term disability insurance
Don’t wait for a serious injury or disability to stop you from working before you consider getting one. Ideally, you should get this insurance at the same time you are building your emergency fund.
Although Social Security offers disability benefits, the thing is it’s really hard to qualify for those benefits. In addition to that, the benefits you can get from it may not be enough to support your household’s expenses.
Remember, you won’t be able to save for your retirement if you don’t have any form of income.
Is Utilizing Life Insurance for Retirement Planning Effective?
In theory, this strategy sounds like the best idea. However, before you actually commit to any program or policy, it’s important that you weigh your options carefully. Take note that committing to a program is a lot easier than finding a way out. There are policies that can bind you for up to 15 long years.
If that idea doesn’t appeal to you, there are other ways you can fund your retirement savings. You can open and fund a Roth or traditional IRA. You can also max out your 401(k) first or your health savings accounts before you consider using a life insurance as a form of investment.
In case you are really decided to take this route, there’s nothing wrong with that, too. Just make sure that you work with a specialist who can help design a policy that can meet your needs, increase the amount you have in your pocket, and minimize the fees you have to pay.
The Bottom Line
Saving up for retirement is a necessity. It’s a good way to make sure you or your family can have a comfortable life once you can no longer work.
Utilizing life insurance as a way to prepare for retirement is a good option but take note that this strategy won’t work for all people. Remember, you are the only one who can decide on what and will not work for you.
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