Once retired or planning to retire, you’ll need to determine how you will pay your expenses when you no longer receive a regular paycheck. You may also want to consider how to cut costs in retirement.
Many retirees find themselves spending more money on vacations and entertainment after they retire. After all, you finally have time to do what you want, and you should enjoy your retirement years.
So, what are some of the ways you can cut costs in retirement? You might choose to downsize your home or move to a less expensive area, thereby reducing your mortgage payment and possibly freeing up capital that you can invest. If possible, it’s always a good idea to pay off interest-bearing debt, such as credit card debt, to increase the amount of money you have available to you monthly. There’s also the option of selling one of your cars if you don’t think you’ll need it.
An often-overlooked way to cut costs in retirement is to examine your insurance costs. What are you paying for, and do you need it at this time in your life?
Do You Need Life Insurance Once Retired?
Years ago, when your family was young, life insurance was critical to maintaining your family’s lifestyle should you no longer be around. You needed it to provide cash flow to a dependent spouse and children, pay off liabilities like a home mortgage or college tuition, and, if desired, guarantee an inheritance to your beneficiaries. Not having sufficient life insurance was dangerous, living life with blinders on and simply praying for the best.
But now, if you have accumulated enough assets, your children are on their own, and your liabilities are paid, life insurance may no longer be necessary.
Is Disability Insurance Necessary Once Retired?
During their working careers, many people (particularly business owners) invested in private disability insurance. Disability insurance provides individuals with a revenue stream that replaces the loss of income should they become sick or injured and unable to work. Note that this is different than government disability programs.
Considering your disability insurance may be a moot point, as most disability insurance policies end at 65 years of age and may require you to be working to qualify. Often, those policies that do pay for older policyholders charge expensive premiums. Therefore, if you plan on retiring soon, it may make sense to terminate a private disability insurance policy.
What Insurance Policies Do You Need in Retirement?
So, now that we’ve established you can possibly cut costs in retirement by eliminating life insurance and disability insurance, let’s discuss the insurance policies that you need to keep in your retirement years.
Health Insurance. Health insurance is expensive, but it’s probably the most important insurance policy to pay for as you age. While you become eligible for Medicare at age 65, you may also need to pay for Medigap insurance to cover the gaps in costs that Medicare does not pay for.
Car Insurance. If you plan to continue to drive, you’ll need to maintain your auto insurance policy.
Home Insurance. Whether you own or rent, you’ll want to keep paying for homeowners’ or renters’ insurance to protect your personal property.
Umbrella Liability Insurance. Umbrella liability insurance pays for losses when your auto and homeowners’ policy limits are exhausted. We recommend keeping this insurance, and if you don’t have it, speak with your financial planner to discuss if it’s right for you.
Long-Term Care Insurance. Long-term care insurance is a policy that many Americans don’t carry but should as they get older. It is estimated that 52 percent of people turning age 65 will need some long-term care services in their lifetimes. Yet, only about 11 percent of this population carry long-term care insurance.
Health insurance does not cover custodial care (whether it is for home care or care provided in a nursing home or assisted living facility). Annual premiums run high but not as high as custodial costs, which can range from $3,000 to $12,000 a month depending on the level of care and where you live. These costs, which can last for years, can wipe out a family’s savings. Owning long-term care insurance pushes the risk onto the insurance company, allowing your savings to be used by your spouse or passed on to heirs.
Retirement should be a time of enjoyment. However you choose to spend your days, you’ll need to determine how to pay for retirement, and cut costs in retirement. Analyzing your insurance portfolio is a great place to start, as your insurance requirements may be very different than they were in the past. Be sure to reach out to your financial planner if you need guidance on your insurance portfolio or wish to discuss how to cut costs in retirement.