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Managing your finances in retirement can be surprisingly tricky. After all, in 2021, the average income for individuals 65 and older was $55,335 per year, according to the Bureau of Labor Statistics (BLS), while average expenses totaled $52,141 annually. This narrow margin between the average retiree’s income and expenses leaves little room in the budget for unexpected costs.
Yet, retirement often brings a host of unforeseen expenses. From unanticipated healthcare needs and surprise home repairs to family emergencies, these unexpected costs can quickly derail even the most carefully planned retirement budget. But while it may not always be possible to set aside funds for every potential expense, there are ways to prepare for these financial curveballs.
One of the most effective strategies is ensuring you have the right types of insurance coverage in place. Proper insurance coverage can help mitigate the costs associated with unexpected events and protect your hard-earned retirement savings. But there are a lot of different coverage options to consider. So, what types of insurance play a crucial role in safeguarding your retirement funds against unexpected events and financial challenges? Below, we’ll break down what you should know.
Find out how the right long-term care insurance policy can help protect your retirement funds.
6 insurance options to protect your retirement
Here are some of the key insurance options that can help protect your retirement savings:
Long-term care insurance
One of the biggest potential threats to retirement savings is the cost of long-term care. As we age, the likelihood of needing assistance with daily activities increases. And, long-term care insurance helps cover the expenses associated with longer-term care, whether it involves a nursing home, assisted living facility or in-home care.
Without this coverage, retirees may deplete their savings rapidly to pay for the long-term care they need, potentially leaving their spouse or loved ones in financial jeopardy. After all, the cost of a private room in a nursing home averages about $100,000 per year right now — and the cost of long-term care is only expected to increase in the future.
But if you have the right long-term care insurance coverage in place, your policy can help pay. In turn, this type of policy can preserve your retirement assets and provide peace of mind.
Learn more about the long-term care coverage options you have in retirement.
Medicare supplemental insurance
Healthcare costs are often one of the largest expenses in retirement, making adequate health insurance coverage crucial for protecting your retirement savings. And while Medicare, which is the federal health insurance program for people who are 65 or older, can provide substantial coverage, it doesn’t cover all medical expenses.
This is where Medicare supplemental insurance, or Medigap, comes into play. Medigap policies are sold by private companies and can help pay some of the health care costs that Original Medicare doesn’t cover, such as copayments, coinsurance and deductibles. Some Medigap policies also offer coverage for services like medical care when you travel outside the U.S.
There are 10 standardized Medigap plans, labeled A through N. Each plan offers a different level of coverage, allowing you to choose based on your needs and budget. And, it’s important to note that Medigap policies are standardized and regulated by state and federal law, meaning the benefits are the same for any given plan letter, regardless of which insurance company sells it. You can start comparing your Medicare supplemental policy options online here.
Life insurance
While life insurance is often associated with income replacement for younger families, it can play a significant role in retirement planning and protection as well. As you enter your later years, life insurance can serve multiple purposes beyond its primary death benefit.
For example, if you have a pension that doesn’t include survivor benefits, life insurance can provide ongoing income for your spouse after your death. For those with substantial assets, life insurance can be used to pay estate taxes, ensuring that your heirs receive the full value of your estate. Or, if you own a business in retirement, life insurance can fund buy-sell agreements or provide liquidity for estate taxes.
And, there are a few different types of life insurance options to consider if you’re retiring. One is term life insurance, which provides coverage for a specific period, usually 10-30 years. It’s generally less expensive but expires without value if you outlive the term. There’s also whole life insurance, which provides lifelong coverage and often accumulates cash value over time. The cash value can be borrowed against or withdrawn from, providing a potential source of emergency funds in retirement.
Final expense insurance, also known as burial insurance, is another option and is designed to cover end-of-life expenses, relieving your family of this financial burden.
It’s worth noting that you may also be able to add a rider for long-term care coverage to certain types of life insurance policies. This can be particularly valuable if you’ve been denied standalone long-term care insurance due to health issues. These hybrid policies typically allow you to access a portion of the death benefit to pay for long-term care if needed. If you don’t use the long-term care benefit, your beneficiaries still receive the full death benefit.
Annuities
While not traditional insurance, annuities are insurance products that can provide a guaranteed income stream in retirement. In turn, annuities can help protect against the risk of outliving your savings, known as longevity risk.
There are various types of annuities to consider in retirement, including:
- Fixed annuities, which provide a guaranteed payout
- Variable annuities, which offer the potential for growth based on investment performance
- Indexed annuities, which provide returns based on a specific market index
Each type has its pros and cons, so it’s important to carefully consider your options and consult with a financial advisor before purchasing an annuity.
Travel and international medical insurance
Many retirees look forward to increased travel opportunities after they stop working, but there can be numerous opportunities in which you face financial losses related to traveling. That’s where travel insurance can come in handy. This type of coverage can help protect against financial losses from trip cancellations, medical emergencies abroad or lost luggage.
For those planning extended trips or considering retiring abroad, international medical insurance might be worth considering to ensure access to quality healthcare wherever you go. These policies typically offer worldwide coverage, allowing you to seek treatment in any country, including your home country in many cases.
And, unlike travel insurance, which is for short trips, international medical insurance can provide continuous coverage for months or years. Many insurers will also offer tiered plans, allowing you to choose the level of coverage you need. Options might include outpatient care, dental and vision coverage and alternative therapies.
Identity theft insurance
As more of our financial lives move online, the risk of identity theft increases. And retirees, who are often perceived as having more assets or being more vulnerable to scams, can be prime targets for cybercriminals. But identity theft insurance can help, as it’s designed to cover the costs associated with restoring your identity and repairing your credit if you become a victim of identity theft.
The bottom line
Insurance plays a vital role in protecting your retirement funds and ensuring financial security in your golden years. The right mix of insurance products can shield you from a wide range of risks that could otherwise derail your retirement plans. However, insurance needs can vary greatly depending on individual circumstances, including health status, financial situation and retirement goals. So, it’s important to regularly review your insurance coverage as you approach and enter retirement, adjusting as needed to ensure you have adequate protection without overpaying for unnecessary coverage.
