Protecting your income past age 65

The Problem:

·         When protecting income, what usually comes to mind is protecting our loved one’s, in particular young families, through the purchase of life insurance.  This is typically the solution to protecting  income since final expenses, mortgage protection, college education, income replacement are all needs for spouses and dependent children. 

·         Many parents, wanting the best for their families, have also sought to provide their children the opportunity to go to college by helping their children financially.  Although this limits the college financial aid loan repayments awaiting the graduate, this strategy often succeeds at the expense of saving for their own retirement.

·         Income replacement for the 60 something’s is easily overlooked.   The death of an income earning spouse can still cause the household to suffer a real economic loss.

·         This working spouse provides income for current needs, contributions to retirement plans accounts, and provides other benefits such as healthcare, that may be lost with the death of the worker.

In order to make up for a reduced retirement savings, whether due to a lack of planning, or market declines, workers are now planning to retire at an older age.  The expected retirement age of many workers has gone up as has life expectancy. Please see the below table with information from the CDC.    

Exhibit 1: Historical Data for Remaining Life Expectancy at Age 65

	Male	Female
1950	12.8	15
1960	12.8	15.8
1970	13.1	17
1980	14.1	18.3
1990	15.1	18.9
2000	16	19
2010	17.7	20.3
SOURCE: Center for Disease Control
http://www.cdc.gov/nchs/data/hus/2011/022.pdf

The Solutions:

The life insurance industry has seen the evolving of their life insurance company product portfolio’s.  The longer life expectancy, and newfound needs for insurance protection have created some new products, with new applications for customers.  Term life insurance, generally associated with the needs of younger generations, is now commonly used as a solution to protecting the income needs of the 60 somethings.  

If insurable, purchasing a 10-15 year term life policy, can be a cost effective solution.  In many cases, a permanent (whole life or universal life) can be combined with a term policy to provide both short and longer term protection needs.

Although the best solution for a guaranteed death benefit will always be life insurance, some people cannot pass the underwriting requirements. This is where some unique annuity legacy strategies can provide the desired death benefit, and can be a positive addition to your planning.

With many annuities, a death benefit rider can be added at the time of application. Although there is usually an annual fee for this benefit, it can provide for the life of the policy, an annual growth rate that can be left to the beneficiaries. The fee is taken out of the accumulation value, and not the actual death benefit amount.

In addition to guaranteed death benefits, it is also possible to leave an income stream to your beneficiaries as part of your overall legacy plan. This benefit can provide an income to a surviving spouse for the rest of his or her life. 

-Ken Jones, IEN Risk Management