Atlantic Capital Management

Atlantic Capital Management (128)

Tuesday, 15 October 2013 00:00

Financial Security for Longer Life Expectancy

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These days, Americans are living longer, healthier and more productive lives. Thanks primarily to advances in medicine, healthcare, and overall quality of life, average life expectancy has risen steadily and dramatically over the past 50 years. Forty percent of retirement-age men will live to be at least 85, and fifty-three percent of women that age will live to be at least 88. Overall, the average life expectancy in the United States is now 78.6 years, up from 69.7 years in 1960. Retirees and seniors living longer, healthier lives would appear to be a good thing for everyone involved, right? Not so fast, my friends. Without planning properly for it, living long into your “golden years” could quickly go from something you’ve dreamed about to a complete nightmare…particularly if your money dies before you do!

As we’ve discussed in previous articles, planning for your family’s financial security is a multi-faceted endeavor. From investments to insurance, the probability that you (and your spouse and children) are going to live longer adds a few new wrinkles to that planning process. Below are some suggestions for maximizing your financial security for a longer life expectancy.

Re-think “retirement”: It should seem fairly obvious that the longer you live in retirement, the more money you’ll need to…live in retirement! If you’re approaching traditional retirement age, you may want (or need!) to consider ways of forestalling living off of your retirement savings. For example, can you re-career or work in a more limited capacity for several years beyond traditional retirement age to supplement your income? Can you adjust your investment strategy or portfolio to maximize those additional years spent in the workforce? If you’re a younger investor, can you adjust the scope of your investment strategy, or your career arc, or both, to take into account working longer into your “retirement” years?

Plan for the long, long haul: With the help of a certified financial planner, map out a plan for a retirement period that lasts well into your 80s, and perhaps even into your 90s. Strive to understand the implications of long life expectancy on the principal balance of your nest egg; your goal should be to formulate a plan which allows you to live off a reasonable income stream for as long as you can before spending down the principal balance of your investments. Remember that time, in this instance, works just as easily against the value of your portfolio as it does in favor. Although we don’t mean it negatively in this sense…plan for the “worst-case scenario!”

Consider “longevity insurance”: Like a private pension - longevity insurance is another option for retirees seeking to turn their savings into a steady income stream throughout retirement. Unlike other strategies, annuities can offer a guaranteed income stream that will last as long as you and your spouse live if set up properly. With an immediate fixed annuity, you “buy it, set it and forget it.” As long as the insurance company remains solvent, annuity owners generally get a check for the same amount every month – they can even set up payments to last as long as they live, so that the longer they live, the more valuable the annuity becomes. They can also be set up to continue to pay to the surviving spouse in the event of death. Consider diversifying your investment strategy to include fixed-income annuities as part of your “worst-case scenario” planning.

 

Friday, 27 September 2013 00:00

The Basics of Life Insurance

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Once you understand where you are financially (see my last two articles on Net Worth and Cash Flow), you should consider protecting your family. Purchasing life insurance is a solid financial decision. However, because every family’s circumstances are different, choosing the best policy requires some planning and research. There are some basic questions you can answer that will help get the process started: Why purchase it? How much do you need? Which type best fits your needs? Which companies offer the best policies? Let’s take a look at each of these questions below.

The most common use of life insurance is to ensure family stability after the insured has died. Life insurance policies can also be used to pay for funeral expenses, estate taxes, charity or the transfer of a business. There are many uses for life insurance; think about how you want your life insurance policy to work for your specific situation to determine how much and what type to use.

When purchasing life insurance to protect the family, carefully consider the projected annual living expenses of the survivors. If you have children at home, factor in the amount of lost income needed to sustain the household. For example, survivors usually need immediate help paying off the big bills such as the mortgage, expected college costs and other family expenses. Adding up these costs will give you the amount of insurance the family needs. These calculations should be done for each spouse to ensure that both have a death benefit sufficient to protect the survivor and family. Quick financial recovery from the stress of the death of a spouse leaves the survivor debt free and able to make an easier transition into the new life circumstances. Of course, a large number of variables will come into play here. Look holistically at your circumstances to best determine how much coverage you should purchase.

Life insurance policies are available as permanent or term. Permanent life policies typically pay a fixed amount upon death, and normally contain an investment vehicle that allows the cash value to grow, tax-deferred, over the life of the policy. You pay a fixed premium for the policy for as long as you own it. Term life policies don’t include an investment vehicle; they simply offer varying levels of coverage based on age, health, and desired monthly premium. With term life, you’re paying purely for protection.

Simply put, permanent life insurance is expensive and term life insurance is cheap. There are many other investments to choose from, so it’s not necessary to buy life insurance that does both. The goal is to provide indemnification (protection) in the event of a death. For family protection term policies provide the most protection for the least cost.

There is no shortage of companies selling life insurance. Fortunately, there are agencies which rate those companies on things like financial strength and willingness to pay claims. Stick with companies which get top ratings from Standard & Poor’s and A.M. Best.

Answering these basic questions should give you enough of a head start to have an informed conversation with an agent or financial professional about your exact needs, and the types of life insurance products available to match them.

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