The One Risk That Could Wipe Out Decades of Retirement Savings
What if the biggest threat to your retirement isn't market crashes or inflation, but the one risk you haven't properly insured against?
I recently met with a client who shared something that stuck with me. While traveling abroad, he had a serious medical emergency that couldn't be treated locally. As he was being transported back to the US, facing uncertain odds, he told me the one thing that gave him peace was knowing his family would be financially protected no matter what happened.
Can you say the same thing right now?
I help pre-retirees and small business owners organize their finances so they can make confident decisions about their dream retirement and here's what I've learned: insurance isn't just about protecting what you have today, it's about ensuring the retirement you've planned for actually happens.
Why Insurance Is Different From Every Other Investment
Insurance is the only part of your financial plan where you want the insurance company taking your premiums to win. Think about that for a second. With your investments, you want the market to go up. With your savings, you want interest rates to rise. But with insurance, you're hoping you never need to use it.
That might sound backwards, but it's exactly why insurance works so well as a risk management tool. The peace of mind it provides makes most premiums an easy decision, because you're not just buying coverage, you're buying certainty in an uncertain world.
Here's what most people don't realize: the average cost of long-term care can easily run $100,000 per year or more. If you need care for two or three years, you're looking at bills that could exceed your entire retirement savings at that point in your life. This creates what I call a "negative legacy". This is where your surviving family has to reach into their own pockets to keep you comfortable while maintaining your dignity.
The Essential Coverage Every Pre-Retiree Should Evaluate
Obviously, you need health, home, auto, and personal property coverage. But there are several types of insurance that become critical as you approach retirement that many people overlook.
First, umbrella liability insurance. If you've built significant assets, you need protection that matches. A million-dollar umbrella insurance policy might cost you a few hundred dollars a year, but it protects everything you've worked for.
Second, disability insurance that actually works for you. Most employer-provided disability coverage only pays if you can't do any job. That means if you're a surgeon but you could theoretically work at a grocery store, they won't pay benefits. You want "own occupation" coverage that pays if you can't perform your current job.
Think about this: you're far more likely to become disabled during your working years than you are to die. Yet most people have life insurance but skip disability coverage. That's backwards thinking.
Third, consider long-term care insurance while you're still healthy enough to qualify and it fits your budget. This is where that negative legacy risk gets addressed. The key is to buy it before you need it and when premiums are still reasonable.
Your Insurance Strategy Needs Regular Maintenance
Most people buy insurance and then forget about it. Your insurance needs change as your life changes, especially as you approach retirement.
Start by reviewing your beneficiaries. You don't want life insurance benefits tied up in your estate when your family needs immediate liquidity. Make sure beneficiaries are up to date and properly designated.
Next, find an independent insurance broker, not an agent who only represents one company. Agents can only show you products from their carrier. Brokers shop the market to find you the best coverage at the best price.
Have your financial planner review your current coverage against your actual risk exposure. You'd be surprised how many people are over-insured in some areas and under-insured in others, paying higher premiums than necessary while leaving gaps in their protection.
Special Considerations for Business Owners
If you own a business, there's an additional layer of insurance planning that's critical for your retirement and legacy security.
If you were to die today, is there a succession plan in place to help your family either run the business or sell it for fair value? Consider buy-sell agreements funded by life insurance. This guarantees your family gets paid fair value for your business interest.
Key person insurance protects your business if you or a critical employee becomes unable to work. And disability insurance becomes even more important for business owners. If you can't work, there's no revenue.
Take Action: Organize Your Insurance Strategy
The goal isn't to insure against everything, it's to insure against the risks that could derail your retirement or burden your family. When you're ready to organize your insurance strategy as part of your complete financial picture, grab the free Financial Plan Organizer below. It includes a comprehensive insurance section to help you document and review all your coverage.
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Frequently Asked Questions About Risk Management & Insurance:
Q: How does insurance affect retirement planning?
A: Insurance serves as the foundation of retirement risk management, protecting against catastrophic events that could wipe out decades of savings. It shifts financial risk away from your family and onto insurance companies when protection is needed most.
Q: Should I review my insurance coverage before retiring?
A: Absolutely. Your insurance needs change significantly as you approach retirement. You should review beneficiaries, assess coverage gaps, and ensure your protection matches your accumulated wealth and retirement income needs.
Q: What insurance risks do pre-retirees need to consider?
A: Key risks include long-term care costs (potentially averaging $100,000+ annually), disability that prevents earning income, and liability exposure from accumulated assets. Many pre-retirees are under-protected in these critical areas.
Q: What insurance strategies help mitigate retirement risks?
A: Essential strategies include umbrella liability coverage, own-occupation disability insurance before retiring, long-term care protection, and regular policy reviews with independent brokers to optimize coverage and costs.
Q: How do business owners address insurance when selling or exiting?
A: Business owners need buy-sell agreements funded by life insurance, key person coverage, and comprehensive succession planning. These tools ensure families receive fair value and business continuity is maintained.
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Integritas Financial is lead by Ryan Kaysen, a certified financial planner™ based in Charlotte, NC.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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