Risk management is at the core of any investment strategy. However, it takes on heightened importance in retirement. Without the benefit of a regular paycheck, it could be difficult to bounce back from market downturns or costly emergencies. One sizable setback could impact your income and derail your retirement.
One of the biggest risks all retirees face is the threat of sizable health care costs. Fidelity estimates that the average married couple will spend $275,000 on out-of-pocket health care expenses in retirement.1 That figure doesn’t even include long-term care, which can cost thousands of dollars per month and may be needed for several years.
Fortunately, you can take steps today to reduce your risk exposure and protect your retirement. Below are three actions to consider. If you haven’t yet developed your retirement risk management strategy, now may be the time to do so.
Make changes to your coverage as your needs change.
Medicare is a valuable resource for retirees, but it doesn’t cover all health care costs. In its original form, it only covered hospitalizations. Over time, however, Medicare has been expanded to cover things such as doctor visits, prescription drugs and much more.
Medicare now offers a wide range of plan options to meet different needs and budgets, especially through the Medicare Advantage program. You may be overwhelmed as you analyze your options. After all, it’s difficult to predict how your needs may change in the future.
The good news is that Medicare lets you change your coverage once a year during its annual open enrollment period. During this time, you can make adjustments to your coverage or even switch to a different plan altogether.
Use the open enrollment period to analyze your changing needs and budget, and to make necessary adjustments to your coverage. For example, as you get older, you may find that you need more robust protection with lower out-of-pocket exposure. The enrollment period gives you the chance to make sure your coverage always meets your needs.
Consider long-term care insurance.
Long-term care will be a reality for many retirees. The U.S. Department of Health and Human Services estimates that today’s 65-year-olds have a 70 percent chance of needing long-term care at some point in their lives.2
Long-term care is usually provided either in a facility or in your home. Either way, it can cost thousands of dollars per month. Also, many seniors require care for many months or even several years. As you might expect, that level of care can quickly deplete your savings.
Long-term care insurance can be a helpful tool to cover some of the expense. With long-term care insurance, you pay premiums to an insurer, and then the insurer pays your long-term care costs should you ever need assistance. Most policies cover care provided either in a facility or in the home. Some even offer death benefits to your loved ones in case you don’t use the long-term care protection.
If you haven’t yet looked at long-term care insurance, now may be the time to do so. You can choose the coverage, premiums and other options that best fit your needs and budget. A financial professional can help you find the right policy for you.
Use your life insurance cash value as an emergency reserve.
Do you have permanent life insurance policies that have a sizable amount of cash value? You may be considering surrendering the policies and using that cash value to fund your retirement. Many people purchase life insurance when they’re young and have kids in the home. In retirement, though, life insurance may seem unnecessary.
You may want to think twice, however, before surrendering your policy. You can use that cash value as a reserve to fund unplanned emergencies. For example, you can take tax-free loan distributions from your policy’s cash value account. The loan has to be repaid, but the tax-free distribution could help you pay for long-term care or medical bills. If you don’t repay the loan before you pass away, the balance is simply deducted from the death benefit.
Ready to develop your risk management strategy? Let’s talk about it. Contact us today at Financial Solutions Group. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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