Retirement Planning Through Insurance

A Insurance Article Contributed by Deepak Cutting

Role of Insurance in Financial Planning for Retirement;

Insurance is an important consideration for retirement. Retirement planning is necessary so that you can enjoy spending the money saved during your working life without having to fear that your funds are depleting too fast. Factors that impact your retirement plans are your anticipated life span, inflation, health care costs, taxes etc. Your plan should include provisioning for unexpected expenses also.

You could choose to take your Provident Fund/ IRA/ 401(k) in one lump sum or annuities it, thereby receiving that amount in regular installments.

To cater to your retirement needs you could also buy an annuity, which is a product offered by life insurance companies, to provide periodic income either for specified number of years or throughout life.

When you retire from your job, you must decide what to do with the money you've put aside for retirement. You may choose to take your money - pension, IRAs or 401(k) - in one lump sum, leave them in a retirement account, or annuities it - that is, have it paid out to you in regular installments.

The decision of which source of your saving is to be tapped when and by how much, must be taken after due consideration to your overall financial strategy. An annuity, a product offered by life insurance companies, is a convenient option for regular income on retirement.

Should you decide to take your retirement benefits in one go, check the Income Tax liability that may arise from such lump sum receipt of money. You could collect your dues and deposit them in one IRA, where the money can continue to grow and you control it. If you have invested in Mutual Funds, you can withdraw to the extent required and let the remaining money stay invested. If your money is in the traditional IRA, you will pay taxes on your drawings only, If you are making an investment such as buying a second home, a lump sum drawing also makes sense.

When you draw all funds due to you as a lump sum, you have to worry about managing these funds so that they last you through your life. You don't want to constantly liquidate your capital to pay for your expenses. Many retirees invest in bonds and live off the interest. Here, Income Tax reduces the net income and inflation will diminish the value of the corpus.

Investing in Annuities, a Product of Insurance Companies

Investing a part of your retirement dues in Annuities, available from insurance companies, is another option. You could either ask your employers to pay installments direct to the insurance company or pay the insurance company from the tax-deducted proceeds of your retirement dues.

Types of Annuities

There are two types of Annuities that insurance companies offer. The Deferred Annuity allows your investment to grow tax deferred for some time, before being converted by the insurance company into payment to the annuitant. Immediate annuities require the insurance company to commence payments within about a year of purchase.

Should you wish to begin receiving payments immediately on retirement, you could ask your employer to pay some of your dues to the insurance company and arrange an 'immediate' annuity. The remaining of your funds can be put away in bonds.

Purchasing Life Insurance

As this stage in your life, investing in term insurance policies is not such a good option since premiums move higher when your term insurance policy comes up for renewal. Cash value insurance must be continued since it provides security to your spouse in the event of your death. The premium here is incapable of increasing with age.

Long Term Care Insurance

Such an insurance cover is necessary to give you the medical benefits and ability to deal with chronic and nagging ailments associated with ageing.

Home Insurance

Do not terminate this insurance cover once you have paid up the home loan. You still need protection from fire, theft and other calamities.

Auto Insurance

Remains equally important after retirement. It becomes cheaper since most insurance companies offer discounts to mature drivers.