The Baby Boomers get credit — and blame — for how they changed work, society, and pop culture over the years. Now, with 10,000 Boomers turning 65 every day through 2030, this powerful generation is well on its way to redefining how we plan for retirement, including the role life insurance can play.
Three major forces are driving the changes. First, the obvious. People are living longer. According to the Social Security Administration, a 65-year-old can expect to live 19 to 22 more years, on average, and one in three will live into their 90s. Compare that to 1960, when a 65-year-old man would live an average of 13 more years.
Second, not only are people living longer, they’re also more active and in better overall health. As a result, retirement is becoming less about exchanging work for leisure at age 65. Instead, 44% of workers now envision phasing into retirement, transitioning into part-time work, entrepreneurship, and even encore careers at age 65 and beyond.
Finally, financial concerns are the third and perhaps the most significant reason why retirement today looks different now than in past generations. Boomers are heading into their retirement years with more debt and dependents than ever before. As of 2016, the median consumer debt for households headed by someone aged 65 or older was 4.5 times higher than in 1989. And 59% of Boomers who are parents report they are financially supporting children between ages 18 and 39, citing reasons like college costs, student loan debt, and a tough job market for recent graduates.
It’s financial responsibilities like these that are prompting many retirees and pre-retirees to rethink their life insurance needs. Whether you’re 30, 60, or even 80, if you have people who would be financially impacted if you pass away, life insurance can be an essential element of your financial plan.
Life insurance for the over-50 crowd
The good news is life insurance is more available and affordable than ever. Even 80-year-olds and people with a range of health situations have options for coverage.
When choosing coverage, a crucial decision is whether term or permanent life insurance is the best fit for your needs.
- Term insurance is for when you have a temporary need for coverage of anywhere from five to 30 years. Say you still have several years left on a mortgage and want to make sure your family isn’t burdened with paying off the house if you pass away. In this case, a 10- or 15-year term insurance policy might be the most cost-effective way to cover your needs.
- On the other hand, if you have a more permanent goal, e.g. you want to leave something to your heirs when you pass away or want to make sure there is money to take care of a special needs child who will always need care, a permanent insurance policy, like whole life or universal life, could be a better fit. As the name suggests, permanent insurance is meant to be around for the rest of your life and will eventually pay a death benefit as long as you keep paying the premiums.
While a permanent policy may sound great, a term life insurance policy is much cheaper than a whole life policy, even when you’re purchasing it at age 60 or 70, so it’s important to buy only what you need.
Here’s an example: We recently helped a 60-year-old client purchase a life insurance policy to provide coverage, in the event of his death, for the 15 years remaining on his mortgage. A 15-year, $500,000 term life policy made the most sense for his situation. Because he was in good health, the premiums were $180 per month. If he had purchased a permanent policy, the cost would have been over $500 per month.
Here’s another example: A client preparing for retirement had a pension that would only pay while he was alive. If he passed away and the pension payments stopped, his wife’s monthly income would decrease dramatically. In this situation, a permanent policy was the right option, because he wanted to ensure that, no matter how long he lived, at the time of his passing there would be funds to help replace his lost pension income for his wife so she could continue to be independent. A 20-year term policy might have gotten the job done, but they wanted to be certain. In the event his wife passes away before he does, the death benefit will go to his children. In this case, a term policy would have been cheaper, but it would not have accomplished their goals, so the permanent policy made sense.
You have some options to look into
When considering permanent life insurance, it’s always critical to dig into the policy details to understand the benefits and costs that are guaranteed vs. what’s dependent on asset returns or the insurer’s dividends. When you’re living on a fixed retirement income, these types of surprises can be financially devastating.
In addition, many permanent life insurance policies offer optional riders that enable you to tailor the coverage to better fit your needs. For example, a long-term care rider that allows you to use some of your death benefit to cover nursing home costs might be worth adding if you don’t already have long-term care insurance.
Here’s the bottom line. As you define your retirement, don’t overlook the role life insurance can play. And, more importantly, don’t assume that it’s too late to get the coverage you need at a reasonable price.