This month’s diary topic is life insurance for retirement, followed by personal updates, in case anyone is interested in retirement life from a real person. Since it’s vacation season where we live, I’m combining the June and July diary entries into one summer entry.
When we retired we gave up a few benefits that were previously provided by our employers but which are not covered by our retiree benefits.
One of those lost benefits was ample life insurance coverage of several times our annual salary.
My husband’s retiree benefits include modest coverage equal to a year’s salary, so now we are considering whether we need coverage on me and additional coverage on him.
Since all of our expenses come out of our savings, we want to be smart about what we spend. The first question is “Do we really need life insurance for retirement?”
In effect we are self-insured for life insurance, since our current income wouldn’t necessarily change and we don’t actually need life insurance right now.
But when we switch to Social Security as our primary income source, the surviving spouse would lose about half of the combined income. That’s when we might need life insurance for retirement, to cover the lost income.
The least expensive type of life insurance is called term life, as opposed to universal or whole life. For our requirements (low cost, long term), 20 year term life insurance is what we’re considering.
But the question is whether to buy it now and lock in the rate for a level term of 20 or 30 years, or whether to wait and buy it when we’re older and actually know that we need it. The risk of waiting is that health problems might develop that would put the premiums out of reach, if available at all.
The next thing to figure out is how much life insurance for retirement we need. We would need to provide for replacing income for one person’s social security benefit for as long as 30 years. One way to think about it would be to find out how much an annuity would cost to replace 20-30 years of income, and then purchase coverage for that amount.
On the other hand, it is possible that when we are eligible for Social Security, our retirement savings could still be capable of providing the same income we were getting before we became eligible for Social Security. If we are fortunate, then we might not need to protect the social security income with life insurance.
You can access a term life insurance calculator to see an estimate at the TIAA-CREF website. The AAA website also has a quoting feature. The scenarios I used there gave similar quotes to the TIAA-CREF website, but from various companies. (Here's a profile of TIAA-CREF)
The best life insurance company will be the one with the strongest insurance financial ratings by companies such as AM Best, Moody’s, and other companies that specialize in financial and insurance industry analysis and rating. Ratings of A+ Superior and Aaa indicate the strongest companies.
After comparing the costs of life insurance for retirement, researching the companies, and double checking the budget, we are considering $200,000 and 20 year term life insurance. Near the end of the term, we can decide if we need to renew or if we can cancel coverage all together.
Our retirement has evolved from quiet and uneventful to busy and full of life. In early July, our family spent a week in a beach house near Charleston, SC. The highlight of the week was the wedding ceremony of our son and new daughter-in-law, in a little courtyard beside the beach.
There was another major transition for us during that week; our daughter, son-in-law, and grandson are now living with us while their house is on the market so they can move nearer to us and their relocated jobs.
So now we have a 4 year old spending days with us and there’s never a dull moment. He is so much fun, but also a big responsibility.
My husband and I try to take turns so the other can have some time for individual activities.
It's a very good thing we didn't decide to downsize right away or we wouldn't have this wonderful time to be part of his day to day life.
The markets have been up and down over the past few months, but our accounts are holding up well, so far. We used a couple thousand dollars extra for vacation from our regular bank savings. Nothing much new to report here. All is well.