When I was in my teens, I remember getting advice from my favorite uncle that I should buy life insurance while I was young because the premiums would be very low. He took me to his savings bank where he had opened up a savings account for me years before. He introduced me to his banker, who sold me a whole-life policy. He explained that I not only had an insurance policy in the event of an untimely death, but I also had a built-in savings plan within the policy. I still have that policy today, fully paid up. Of course, I thought in those days that a $15,000 policy would make my future spouse and kids filthy rich. For a kid who was working in his uncle’s store for 75 cents per hour, that seemed like a lot of money. Today, we would be lucky if that would pay for the funeral expenses.
Years later, I became a little more sophisticated in my financial planning. I obtained term life insurance with a face amount adequate to provide for my wife and children in the event of my premature departure. The savings realized by buying term insurance versus whole life was added to our long-term savings and retirement investments. Now the kids are fully grown and on their own. The retirement funds are looking a bit better these days with the more recent stock market improvements. So, how much life insurance do we still need?
Working with my financial planner, we calculated a target amount for how much I would need in my retirement funds that would provide for Sue and me to continue enjoying our retirement years here at Sun City as well as our funeral expenses and final arrangements. Our plan is that as the retirement funds grow, I reduce the amount of life insurance so that when you add the face amount of the insurance to the planned retirement fund amounts, together the retirement target goal is met. That way, if something should happen to me, the proceeds from the life insurance would offset the shortage in the retirement funds.
As we approach retirement, our plan is to drop the insurance. Of course, this sounds too simple. What about the kids? Don’t we want to provide some inheritance for them? What if we encounter health problems down the road? Shouldn’t we tuck something away for that or get some long-term healthcare insurance? Folks are living longer these days; will we have enough funds if we live longer?
These questions and others are good ones to consider as you make your retirement plans. You may want the assistance of a financial planner. Financial planners can provide sound advice on the amounts of life- and long-term care insurance as well as investment alternatives for your retirement funds.
Keep those letters coming, folks. Send your questions and ideas to: The Frugal Forum, P.O. Box 693, Huntley, IL 60142, or by email to: thefrugalforum@gmail.com.
