Many companies and institutions offer retirement options that are based on how much you want guaranteed during your lifetime and how much you want to continue on to your spouse. Given good health and the proper use of life insurance, you can often have your cake and eat it too.
The scenario usually goes something like this. You retire from XYZ Corp and the maximum retirement income you can collect is $7000 per month. Option 1 would give you the full amount until you die. After your death none of the income would continue to your surviving spouse. Option 2 might provide you $5000 per month until you die and at that time your surviving spouse would receive half of the income, $2500 per month, for the rest of her life. Option 3 would provide $4000 per month while you are living and the full $4000 would continue on to your spouse upon your death.
Using life insurance can allow you to take more of the benefit now and upon your death, the life insurance would provide an income that would replace the lost or lower spousal benefit. That scenario could work like this. Say you decide to take the full $7000 retirement. To supplement that you purchase a $750,000 20 year term policy. Let’s say the policy has a cost of $2000 annually, less than $200 per month. If you die the retirement income will disappear completely, but your spouse can purchase an annuity with the $750,000 that will provide them a guaranteed income for life.
So, instead of foregoing $2000 a month in retirement income while you and your wife are still living, the time when you have the greatest need for income, you spend $200 a month to insure against the loss of retirement the income.
There are those who would argue that you should use permanent insurance, whole life or universal life, for this so that you can’t outlive the protection. But consider a couple of mitigating items. First, if $750,000 is needed to guarantee your spouses a lifetime income now, 20 years from now your assets will likely provide protection enough. Second, the cost of purchasing a permanent policy large enough to accomplish the task would probably render it less than cost effective. If there is some concern about that period after 20 years, put the bulk of your insurance in term and buy a small permanent policy for that period beyond the term.
This post is somewhat dated. Life insurance underwriting is changing and evolving continually. For more updated information check out some of the key word links. If you have a specific question or topic you need information for do a search. If you don’t find the answers you need contact me and we’ll make sure you get the information that is important to you.