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Pre-Retirement Insuring

We seek stability in retirement and that means setting up insurance early to get that stability as part of a preretirement planning process.

Why do we seek more stability in retirement?  Because we have fewer options in retirement:  we may not be working and we have less time to correct financial mistakes.  Instead of saving money we might not need for decades–when we’re older, we’re older now and need that money now.  That makes us less tolerant of volatility.  In fact, we seek the opposite of volatility:  we seek stability.

Insurance can help us achieve more stability.  Insurance is used in Medicare (to help each American avoid financially catastrophic expenses, in retirement income (for more reliable streams of income), and to curb the risk of long term care expenses depleting our assets.

Insurance takes on a much more important role when we age.

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How can you use insurance with retirement income planning?

Cash value life insurance as a retirement income plan is an option for retirement income because loans may be used as tax-free income which can help stretch one’s income resources.  As long as the policy has sufficient cash value so it does not lapse, no taxable event is triggered.  The loans do not have to be repaid.

What Is An Annuity?

Annuities are another type of  life insurance product and may be an effective way to transfer the risk we don’t want in retirement to the insurance company.  Insurance companies are good at managing risk and offering stability.  People pay a lump sum for an annuity which then pays them over a long period of time, backed by the financial strength of the life insurance company.

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How much of my medical expenses will Medicare cover in retirement?

Beyond private insurance (an employer-sponsored medical plan or another private insurance plan), there are two Medicare choices as we enter retirement; Traditional Medicare and Medicare Advantage.  Americans are generally eligible for one of these, if no longer participating in an employer plan, at age 65.

Traditional Medicare will generally pay about 80% of your medical expenses.  A monthly charge for Medicare Part B is deducted automatically from one’s Social Security retirement income benefit to pay for Traditional Medicare.  Additionally, people often purchase what’s called a Medicare supplemental insurance policy to cover the bulk of the remaining 20%.

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Another option is to choose Medicare Advantage.  Medicare Advantage is operated by a private medical insurer that is selected by Medicare.  No premium is deducted from your Social Security benefit (leaving you with more benefit to spend each month).  Medicare Advantage covers nearly all of your medical expenses so you don’t need to purchase supplemental coverage.  However, you are limited to the medical facilities and personnel within the HMO.

The significant benefit, regardless of which plan one chooses, is that Medicare–either plan–generally costs significantly less per month than the private plan you were paying for up to age 65.  That alone may reduce your monthly expenses by hundreds of dollars.  Lower expenses, lower stress.

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Medicare Does Not Cover Long Term Care

Long term care is another type of expense generally encountered in retirement.  It’s different than medical care and coverage is different and separate.  Long term care is a condition expected to last at least ninety days, making it different than a medical condition from which you might be expected to recover.  Long term care insurance covers long term care.  Medicare covers medical care.

Generally, long term care is needed in your 80s so if you seek coverage that coverage is purchased in your 50s or 60s.  One needs long term care to perform activities of daily living or because of a cognitive impairment.  It should be noted that a family member often serves as a caregiver but even though that family member may not charge for his/her services, the caregiver sacrifices earning and promotion opportunities, lifestyle, etc.

Whether it’s retirement income, medical expenses, or long term care, retirement may last many years and it’s likely individuals may need help achieving financial stability.  Insurance is a way to provide each individual and his or her family with financial stability through the financial participation of large numbers of individuals.

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