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Senior Citizen's Guide

Life and Health Insurance

To many, retirement signals a period of downsizing. Whether or not that's true for you, it's important to recognize that when you retire your accumulated wealth is probably at its peak. Retirement nowadays can last decades, and age brings on many potential threats to your financial health. There are a number of steps you can take to ensure your money lasts as long as you do.


Think of an annuity as a do-it-yourself pension plan. You provide a lump sum of money to an insurance company and in return you get a guaranteed stream of regular payments for the rest of your life (or for some specified period). Broadly speaking, annuities come in two varieties, variable and fixed. Variable annuities include an investment component. If those investments do well, your payments will grow over time and your nest egg will be sheltered from inflation. Fees for variable annuities can be high, but they can be the right choice during periods when low interest rates make fixed annuities unattractive.

A fixed annuity is much simpler. Your lump-sum savings are translated into a stream of payments that does not change. The size of your payment is based on your age, prevailing interest rates and, to a certain degree, your gender. (Women live longer so their payouts are smaller). Some companies will allow you to customize an annuity agreement in certain ways at the time of purchase, such as by adding a cost-of-living rider or arranging for payments to continue until both you and your spouse die.

Ideally, you should commit only a portion of your retirement savings to an annuity and keep the rest in other types of investments, such as stocks and bonds that can grow over time and protect you from inflation. Having an annuity can give you the freedom to be a little bit more aggressive in your investment accounts, knowing you have a steady source of income to fall back on. If you decide later you want to increase your guaranteed payments, you can take an additional portion of your savings and put it into another annuity.

Life Insurance

It may seem counterintuitive that "empty nesters" need life insurance after the kids have left home. But some retirees still have dependents, such as disabled adult children. Many empty nesters also still have financial obligations, such as the mortgage on a home or second home that could become burdensome if a spouse dies or becomes disabled.

More importantly, if you died today, your spouse could outlive you by 10, 20 or even 30 years. Would your spouse have to make drastic lifestyle changes to make ends meet? Your death could reduce the Social Security benefits your spouse had been counting on. It also could bring on unplanned medical and funeral expenses and other costs. Life insurance coverage can preserve the retirement plan you worked so hard to put in place.

Life insurance also can ensure your estate will be passed on, intact, to your survivors. A policy's death benefit can help foot the estate tax bill from Uncle Sam. It also can provide a legacy for your children and grandchildren even if you use up most of your assets during your lifetime. For all these reasons, if you've been thinking about dropping your coverage, you may want to reconsider.

But what if you are retired or nearing retirement and you don't have life insurance? You may think that you'll no longer qualify due to your age or health conditions you may have. That's not necessarily the case. Americans age 60 and older are among the fastest growing markets for life insurance purchases.

Even if you're considerably older or coping with serious health challenges, there still may be an option for you. Final expense insurance is a form of life insurance that requires little or no underwriting, which means almost anyone can qualify. Policies are available in face amounts typically ranging from several thousands of dollars up to a maximum of $50,000 or $75,000 – much less than a standard life insurance policy. That's because these policies are only intended to cover final expenses and not longer-range expenses like ongoing living costs or college or retirement funding.

Final expense insurance typically comes in two varieties. Immediate full benefit policies, which pay the full face value upon your death, are generally available to people with no serious health concerns. Graded benefit policies provide limited benefits during the first few years and are available to people with serious health concerns. These policies can provide the peace of mind of knowing that your survivors won't struggle to pay for your funeral or be saddled with outstanding medical bills and other debts.

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