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Life Insurance in Retirement: Do I Need It?

Life insurance is often thought of as something for younger investors–a way to take care of your children once you’re gone. By the time you’re retired and your children are out on their own, you don’t need life insurance anymore, do you?

Well, you might.

Will You Earn Any Income?

If you’ll be earning income during retirement (through part-time work or running a business, for instance) and somebody other than yourself will be dependent upon that income, you will need to have life insurance to provide for them in case of your death.

Similarly, if you have a pension and somebody else is dependent upon that income, you’ll need to carry life insurance–unless, of course, the dependent is your spouse and your pension provides a surviving spouse benefit that’s sufficient to cover his/her needs.

How Much Insurance Do You Need?

The goal of owning life insurance in retirement is obviously to provide enough money to allow your spouse or other dependent(s) to continue their lives without having to undergo a decline in standard of living. In many cases, the simplest and safest way to achieve this goal is to plan to buy a single premium immediate annuity that will replace the lost income.

For example, imagine that you have a pension that pays $40,000 per year, but will only pay $20,000 per year to your spouse after your death. In that case (assuming your spouse is the only other person dependent upon this income), you’d want to have enough life insurance to cover the purchase of an annuity paying $20,000 per year for the remainder of your spouse’s life.

  • Possible exception: If you think your spouse’s expenses will be significantly lower than your combined expenses, you can get away with somewhat less life insurance.

It’s worth noting that (whether you plan to buy an annuity with the insurance proceeds or not) the amount of insurance you need will decrease over time as the remaining life expectancy of your spouse–or other dependent–decreases.

In Summary

If, by the time you retire, the overwhelming majority of your financial assets are in the form of cash or other investments, then (estate planning aside) you probably won’t need life insurance during retirement.

If, on the other hand, you’ll be earning an income during retirement, and somebody else will be dependent upon that income, life insurance will be an integral part of your retirement plan.

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  1. I have found that under normal circumstances it may be more prudent to obtain insurance for yourself rather than let your pension provider insure you. For Example (and I am completely making up numbers):
    If you have an insurance on your life ONLY for 50,000….or Joint Life or in your example Joint (50%) for 30K…..the math may work out that you take the 50K and use a part of the 20K to buy a life insurance policy and that amount should provide enough to spend that more than the 30K.

    Obviously it is a case by case situation but just a thought.

  2. Interesting, I hadn’t thought about the possibility of needing it once my son is grown and out on his own, but it does make sense to keep it if your income would need to be replaced. Like everything else, it depends on the situation. Hopefully our expenses will be so low that life insurance would be unnecessary.

  3. We do need life insurance in retirement. In this age of financial turbulence and instable economy, insurance can be a great tool to safeguard us from any financial calamity.

  4. Accountant Marketing says

    Make sure to talk to a financial advisor before you buy any insurance. Insurance agents may not always have your best interests in mind. But quality insurance should always be a part of anybody’s financial plan.

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