You don’t need life insurance in retirement (April 2021)
Prior to retirement, many financial planners would logically surmise that, if you are a breadwinner, you need life insurance in the event you die prior to having amassed the amount of wealth necessary to carry your surviving spouse through retirement. It is also logical to advise that a non-breadwinner own life insurance to cover the economic and emotional impact on a family with children still living at home. Both have a value, which a life insurance underwriter would refer to as their Economic Life Value (ELV). However much of your ELV you choose to insure will determine the lifestyle you leave for your family and the amount of wealth they can create in your absence. If you’ve already reached retirement, and you’ve already built up the necessary assets, then they will provide for your lifestyle and the legacy you leave behind sans any life insurance. End of story, right?
Well, maybe not. In retirement, your assets can ‘die’ due to a market downturn, taxes increasing, a health event, etc. You may want to own ‘asset insurance’ to insure that neither your lifestyle nor your legacy will change when one of these events occurs. Asset insurance is based on how much you have in assets rather than on your ELV as in the case of life insurance. Most planners would argue that you’ll have more money for retirement if you don’t buy ‘expensive’ life insurance that lasts your whole life (i.e. asset insurance). And the numbers may bear that out in many cases. But that begs the question as to what your goal is as you enter retirement: Do you want to have more wealth for retirement OR do you want to have the ability to spend and enjoy more wealth in retirement? In laymen’s terms, would you want a bigger pile of money generating less income or a smaller pile generating more? What about control? Do you want to be out of control when it comes to the world around you: market fluctuations, tax law changes, inflation, etc. or do you want to be in control?
There are 3 things everyone wants when building their retirement plan: 1) Maximum income, 2) Peace of mind: to know they can’t outlive it, and 3) Legacy: for a spouse, children, grand-children, charity, etc. If all you have are assets, they have to perform all 3 jobs. That puts a lot of pressure on them and subjects them to the full impact of the outside world. It also creates a lot of work and decision making for you as to how to position those assets to do all 3 jobs all the time under constantly changing circumstances. If you own assets plus asset insurance, the assets only have to perform job #1. The asset insurance covers jobs #2 and #3 and helps to buffer the impact of the outside world. This takes pressure off of your assets and enables them to provide you with more income than in the assets only approach.
So again, given the choices: 1) bigger pile, less income, out of control or 2) smaller pile, more income, in control, which would you want? As I stated in the title, you don’t need life insurance in retirement. But depending on how you answered that question, you may want asset insurance.
Have a wonderful weekend and enjoy those May flowers coming our way!