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Don’t Fall Into These Retirement Planning Traps!
January 19, 2021
Considering the complexity of retirement planning, it’s no wonder many people make mistakes along the way. But mistakes made early in your working years are one thing; you do have several decades to make up for any missteps. But as you round the curve and enter the home stretch of retirement planning, it pays to be extra vigilant.
In particular, avoid these common traps as you enter the last decade or so of your career.
Treating your home equity like a checking account.
You probably receive regular reminders of your home’s equity and opportunities to borrow against it from your mortgage company. It can be tempting to tap into those funds for lifestyle upgrades, renovations, and more. But every time you do that, you add more time to your mortgage repayment term. If you hope to retire debt-free, home equity loans are not the way to go.
College tuition woes.
You understandably want the best for your kids. But explore every possible option for funding college, rather than agreeing to loans or retirement plan withdrawals. There are many ways to pay for college tuition, but you’re solely responsible for your own retirement savings.
Taking on your children’s debts.
And on that note, avoid co-signing loans with your children or anyone else who asks. In the event that the other party cannot repay their debt, you will get stuck with those payments. You could be set back years in your retirement planning process, or get slapped with hefty bills after you retire.
Keeping up appearances.
Continuous lifestyle upgrades can become addictive. Try not to worry about what your friends and neighbors are achieving, and focus on your own goals. Yes, they might drive fancier cars or enjoy more exotic vacations, but you’ll probably end up better prepared for retirement.
Leaving yourself vulnerable to emergencies.
None of us can predict the future, but we can prepare for the unexpected. In the event of a medical emergency, everyone needs a healthcare directive and a will prepared by an estate planning attorney. And if you haven’t yet established an emergency savings account, start stashing away emergency funds.
Leaving money on the table.
There’s no one-size-fits-all plan for retirement that works perfectly for everyone. Plenty of opportunities are available to suit your situation, but you might not know about them until you investigate. Schedule regular appointments with us as you continue planning for retirement, and we will help you identify all of the options that fit your needs.
As a business owner, safeguarding your enterprise against unforeseen events is crucial for long-term success. Life insurance offers several strategies to protect your business, ensure continuity, and provide financial stability during challenging times. Two primary methods are buy-sell agreements and key person insurance. Buy-Sell Agreements A buy-sell agreement is a legally binding contract that outlines the procedure for transferring ownership if an owner departs due to death, disability, or retirement. Funding this agreement with life insurance ensures a smooth transition and financial security for the remaining owners and the departing owner's beneficiaries. Types of Buy-Sell Agreements Cross-Purchase Agreement: Each owner purchases a life insurance policy on the other owners. Upon an owner's death, the surviving owners use the policy proceeds to buy the deceased owner's share. This method is often suitable for businesses with a few owners. Entity Purchase Agreement: The business itself owns life insurance policies on each owner. If an owner passes away, the business uses the proceeds to buy back the deceased owner's share, redistributing it among the remaining owners. This approach is typically preferred for businesses with multiple owners. Key Person Insurance Key person insurance is a policy that a business takes out on essential employees whose loss could significantly impact operations. The business owns the policy, pays the premiums, and is the beneficiary. If a key person dies or becomes disabled, the policy proceeds can be used to: Cover the costs of finding and training a replacement. Offset lost revenue resulting from the key person's absence. Reassure clients, creditors, and investors of the business's stability. This strategy is vital for businesses where certain individuals are integral to success, such as top executives, lead developers, or primary sales personnel. Additional Strategies Beyond buy-sell agreements and key person insurance, consider these life insurance strategies: Collateral Assignment: Use a life insurance policy as collateral for business loans. In the event of the owner's death, the lender is paid from the policy proceeds, preventing financial strain on the business. Executive Bonus Plans: Provide key employees with life insurance policies as part of their compensation package. This not only offers them personal financial protection but also serves as an incentive for retention. Deferred Compensation Plans: Promise to pay key employees a certain amount at retirement, funded through life insurance policies. This ensures the business can meet its obligations without affecting cash flow. Implementing life insurance strategies is essential for business owners aiming to protect their enterprises from unforeseen events. Work with us to explore your life insurance options and we can help your business remain resilient and continue to thrive.
Term life insurance provides coverage for a specified period, such as 10, 20, or 30 years. If you outlive your term policy, the coverage ends, and no death benefit is paid to your beneficiaries. As you approach the end of your term, it's essential to evaluate your current financial situation and consider options to maintain life insurance coverage if needed. Options to Consider Annual Renewable Term: Some term policies offer an option to renew annually after the initial term expires. While this allows you to extend coverage without a medical exam, premiums typically increase each year based on your age, making it a potentially costly option over time. PROGRESSIVE.COM Policy Conversion: Term-to-Permanent Conversion: Many term policies include a conversion feature, allowing you to convert your term policy into a permanent life insurance policy, such as whole or universal life, without undergoing a medical examination. This option can provide lifelong coverage and build cash value, but premiums will be higher than those of the original term policy. NEWYORKLIFE.COM Purchasing a New Policy New Term Policy: Applying for a new term life insurance policy can be an option, especially if you're still in good health. However, premiums will be higher due to increased age, and you may need to undergo a medical exam. Permanent Life Insurance: Alternatively, you might consider purchasing a permanent life insurance policy, which provides lifelong coverage and accumulates cash value. This option is generally more expensive but offers additional benefits. Exploring Alternative Coverage: Final Expense Insurance: Designed to cover end-of-life expenses, such as funeral costs and medical bills, final expense insurance offers a smaller death benefit with more affordable premiums and may not require a medical exam. Guaranteed Universal Life Insurance: This type of policy provides coverage for a specified age (e.g., up to age 90 or 100) with lower premiums compared to whole life insurance, focusing primarily on the death benefit without significant cash value accumulation. Take Action Now As your term life insurance policy nears its expiration, assess your current financial needs and health status to determine the most suitable course of action. Consulting with an insurance professional can help you navigate your options and select the best solution to ensure continued financial protection for your loved ones.
