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Cheap life insurance while balancing retirement needs


If you go back to the 1950s, life was good again after the war and the baby boom was settling into its stride. With an amazing number of children being born, this was also a boom time for the life insurance industry as parents worried about how their children would manage if one or both of them died young. Sadly, life expectancy in those days was not good. That meant everyone looked carefully at the bottom line. How much money would be payable in the event of death. Few people thought seriously about retirement because, truth be told, most seniors died fairly shortly after quitting work. If we fast forward to this century, there’s been a revolution in medical care and although life expectancy is not as good as in other developed countries, men and women now expect to live well into their seventies (if not beyond). Suddenly everyone is interested in retirement planning. When the regular source of earned income dries up, how will seniors manage on their savings?

During the good times, life should not be a struggle. Let’s assume you paid off the mortgage and all the major debts before you retired. Now you are no longer commuting to work, you can keep the same car going for another year or so. Unless there’s an emergency, you should be able to manage. Except there’s a danger in inflation. Most pensions pay out a fixed sum. Investments have been paying out a poor rate of return since interest rates collapsed during the recession. So the income coming in is fixed. But as prices for basic necessities keep on rising through the years, there will come a point when you cannot afford to pay for everything on your fixed income. This forces some difficult decisions. You could cash in some of the investments or take out a mortgage on your home. Except you were saving those strategies in case an emergency arose.

So the best answers lie in the annuity market. In an ideal world, you would have bought cheap life insurance with an option to switch to an annuity. This involves significantly reducing the amount of the cash value and treating that amount as buying a fully-paid-up annuity. This produces a monthly income to add to the original pension. As seniors, your children should be grown up and able to manage their own finances. This is a time for practicality. Reducing the cash sum or the final death benefits to create additional income is the ideal solution. Your children will prefer to find less waiting for them when you die as against the need to begin paying you a monthly sum to help cover all the bills. This means you should read the terms of any cheap life insurance carefully. You should aim for the right to defer the annuity. The longer you delay, the higher the monthly income you generate. If in doubt, discuss this with an independent expert.

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