• Peter Newman, CFA

Don’t Miss Your Boat: Plan for Insurance Changes Before Retirement

Updated: Oct 5


As you near retirement, bring yourself peace of mind knowing what you've built is protected.

Aah retirement, the nirvana and reason you are working so hard today. In this upcoming chapter of your life, your focus will shift from career goals towards self-determined purpose or even a cruise if Covid subsides. 


You’ve probably considered what you will do to fill your time and the expenses associated with the activities on your bucket list. However, there are expenses you may have overlooked. As you enter your final stretch before retirement begins, give yourself an insurance audit to make sure you are prepared for the unexpected.


This article covers four types of insurances you should consider and why.


Consider health & supplemental insurance.

For many of us, despite our best efforts, our health will decline as we age. This can add up to substantial medical bills after you have left the workforce. If you plan to retire before age 65, you should consider the cost of health insurance between the time you stop working and your eligibility for Medicare begins. The premiums can be shockingly high (around $10,000 to $14,000 a year), and you should identify a source of funds to cover this cost. 


At age 65, you are eligible for Medicare. However, don’t be fooled into thinking Medicare is low cost. For the average adult, Medicare requires supplemental Medigap insurance and other insurances. This can typically run $7,200 a year (or more) per adult by the time you add in premiums and deductibles. 


Too many individuals don’t realize their health needs could change dramatically as they age. So while you may help avoid some expenses by making healthy choices now, it is wise to prepare. Make sure funding Medicare and supplemental insurances are part of your overall financial plan. Plus, consider adding a Health Savings Account (HSA) to your financial plan to take advantage of its triple-tax savings.


Consider long-term care insurance.

Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and support in their remaining years. You may never need a nursing home or home care services, but in the event you do, long-term care (LTC) insurance protects your assets when your healthcare costs spike.


Long-term care insurance is private insurance that covers nursing home care, assisted living care services, and any costs associated with home care should you require it. It works as a supplement to Medicare or Medicaid, which typically only cover medical-related activity.


Long-term care is costly and Medicare only covers a limited nursing home stay after hospitalization. And if you are under the impression Medicaid will be available to you in the event you require long-term care, think again. To qualify for long-term care benefits through Medicaid you must have very low income and virtually no assets. 


The ideal time to consider purchasing a long-term care policy is between age 45 and 60. If you wait until you are older or ill, the policy may be unavailable or too costly. Contact your insurance agent to compare plans and see if your life insurance policy offers a rider.


You can also consider self-insuring, meaning you take what you would be spending on premiums and investing those funds instead. By self-insuring, you have the flexibility to spend your money how and when you want. Plus, if you never end up needing long-term care you can use your savings for other medical costs or just for living expenses. However, by self-insuring you also take on some risk. Will you have the discipline to save and invest the premium you would otherwise be paying for long-term care insurance? Will you have the discipline to earmark that money for medical expenses? As with any investment, market risk is a concern as well. You’ll be assuming the risk that the money will grow and be there when you need it most. Your financial planner can help you assess the self-insurance option.


Consider life insurance.

If your wealth has grown substantially during your working years, your need for life insurance may decline or be eliminated during retirement. However, there are situations where you may need to maintain or even increase life insurance during retirement. 


Here are some examples:

  • You’ve started a business and taken on debt or significant financial risk.

  • You’re invested in real estate and have a significant mortgage balance.

  • You’ve remarried to a younger spouse and would like to provide financial support.

  • You had children later in life who may need ongoing financial support.

  • Your retirement savings are not sufficient to adequately care for your heirs.

  • You’re very wealthy and would like insurance to pay your estate tax bill.


It is a great idea to include a comprehensive review of life insurance when you speak with your financial advisor about retirement planning.


Learn more about life insurance in There's a Global Pandemic. Should I have Life Insurance? and Who Should Be My Life Insurance Beneficiary.


Consider liability coverage for home & auto policies.

If you are liable for a home or auto accident, claims against you for medical bills or other expenses can be substantial. You don’t want your assets put at risk, which is why it is a good idea to review your liability coverage.


Personal liability is optional coverage available on your homeowners and auto insurance policy. It covers you against lawsuits for injury or property damage that you or a family member causes to other people. Liability coverage pays both the cost of defending you and for the damages a court rules you must pay up to the limit established with your policy. For example, most policies provide a basic limit of liability of $300,000, but this amount can be increased for additional premium. You should buy enough liability coverage to protect your net worth. 


To make an assessment with your financial advisor, consider whether property or investments you own are worth a great deal more than the limits of liability on your current insurance. If the answer is yes, you should consider protecting yourself further by adding an umbrella policy proportional to your wealth.


The cost of umbrella coverage depends on how much liability coverage you carry on your basic homeowners policy and the kind of risk you represent. For example, purchasing a $1 million umbrella policy could be as little as $150 a year in extra premiums if you only own one home and are a low risk driver. This cost could inflate to $300 or more if you also have a lake cabin, ski boat, and sport vehicles because of your exposure to risk. Ask your insurance agent or financial advisor to solicit multiple quotes.


Final thought.

To help you figure out the best way to care for your family and cover serious risks, discuss these questions with your financial advisor:

  • How much debt do you have now and what debt do you plan to take on in the future?

  • Is there a steady income stream available for your family if you were to pass away?

  • What is your net worth?

  • What are my other liability risks?


Peak Wealth Planning recommends a comprehensive review of your insurance coverage at least 10 years before your planned retirement. Schedule a free consultation today to begin achieving peace of mind.


You may also be interested in reading:

Three Reasons to Get a Health Savings Account (HSA)

How Long Will My Money Last in Retirement?

Prepare for your Retirement on a Fixed Income

Three Questions about Planning and Paying for Alzheimer’s Care


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About the Author

Peter Newman is the president of Peak Wealth Planning. He offers financial planning, investment management, retirement income, insurance and estate planning advice. Peak Wealth is a fee only financial advisor based in Champaign, Illinois.

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