Personal Retirement

Insuring for a More Secure Retirement

Insuring for a More Secure Retirement
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There are four fundamental interconnected financial behaviors that determine your ability to achieve your targeted retirement outcome: Earning, Spending, Investing and Insuring (ESII).TM As life events shift and alter your course, you must continually reprioritize and balance these behaviors while maintaining a focus on your retirement target. Use this framework to develop financial plans and course-correct as your life inevitably changes.

In this paper, we discuss the Insuring behavior, and how it serves to protect against life’s uncertainties and help you keep your retirement plans on track.

Of the four financial behaviors, insuring is the least understood and appreciated. It is critical to helping you achieve your desired retirement outcome. Insurance in its many forms is an expense on which individuals hope never to collect, but when needed, they are glad to have it. The idea is to protect against potential financial impacts that threaten financial wealth well-being and the ability to earn an income. That means paying an affordable rate during the prime working and even retirement years to insure against future unexpected events.

An often overlooked risk-management and wealth-building tool, the kinds of insurance available to individuals and businesses are numerous. Those with the potential to make attaining targeted retirement outcomes easier are:

  • Property. Inspired by the 1666 Great Fire of London, which destroyed more than 13,000 buildings,* property insurance reimburses for loss or damage to home, its contents, cars, boats, etc., due to fire, theft, weather, flood or other hazards.

  • Liability. insurance is often paired with property insurance and protects by paying for injury or damages the policy owner inadvertently inflicts upon others or their property. For example, if an individual is at fault in an auto accident, liability insurance helps pay for the medical expenses, loss of income and other damages to other parties resulting from the insured’s role in the accident.

  • Life. insurance offers protection to loved ones who are financially dependent on you. It pays to the named beneficiaries when you pass away. It is available in two forms, term and permanent. Term life has a lower cost than permanent. It pays a stated death benefit for the term of policy. When the term is up, the policy has no further value. Permanent life insurance in the form of whole life or universal life policies has higher premiums than term life, because it incorporates an investment component that over time can accumulate “cash value.” Unlike term life, permanent life remains “permanent” as long as premiums are paid up. The cash value can be borrowed against and used as a source of tax-free retirement income. Permanent life can also be used as a vehicle for estate planning to facilitate tax-favorable transfers of your assets.

  • Disability. insurance may replace income when you are injured, sick and unable to work. Coverage is typically designed to cover 60% or 70% of your income.

  • Health. insurance pays medical bills when you become injured or ill. Since the Affordable Health Care Act became law in 2012, this type of insurance in America is evolving rapidly. While many more Americans are covered, employer-sponsored plans are passing more of the costs and responsibilities onto employees. This requires you to become more knowledgeable about the insurance and the plan options available to you.

  • Long-Term Care (LTC). insurance picks up where health insurance leaves off. It covers a portion of the ongoing costs of your daily nursing and home health care until recovery or death. The costs of LTC can easily range from $100 to $250 per day or more depending on the level of care you need and in what part of the country you reside. Without this kind of insurance, those expenses can quickly erode or eliminate what was once considered adequate retirement savings. There are tragic cases in which one spouse requires care, depletes the couple’s savings and passes on, leaving the second spouse destitute.

  • Annuity. insurance, which comes in many forms, may protect the principal amount of the investment or guarantee a certain amount of income for a period of time.

When financial situations change, your insurance must change also. The older the person, the more likely LTC insurance is needed. As family and assets grow, life, disability, property and liability insurance become much more important.

Life, disability and annuity insurance provide earnings protection. Health, LTC, property and liability insurance protect savings and investments. All contribute toward protecting your ability to achieve your desired retirement outcomes in the face of uncertain life events.

Where and How to Purchase

Life, health and disability insurance are often offered as part of an employer’s benefits package. These kinds of policies benefit from group pricing and are often partially subsidized by the employer. As a result, they can be less expensive than when purchased as an individual. However, they lack portability, meaning when employment terminates, so does coverage. The COBRA Act of 1986 requires employers to extend certain policies temporarily after termination at the full cost of the policy — a stop-gap measure to allow individuals time to seek coverage from either a new employer or an individual policy.

All insurance types are available to individuals through insurance companies and the agents who represent them. These policies come in many varieties and can be tailored to individual situations. Insurance firms provide coverage independent of one’s employer.

Insurance Guidelines for Every Decade

Insurance Guidelines for Every Decade

* Museum of London, “The Great Fire of London and the Invention of Insurance,” by James Read, August 21, 2015, and Fire of London Infographic by Sarah Madden, September 2, 2014.

This information is general in nature and not intended to constitute tax or estate-planning advice. Please consult your tax or estate-planning advisor for more detailed information on these issues and advice on your specific situation.

BNY Mellon Retirement personnel act as registered representatives of MBSC Securities Corporation (a registered broker-dealer) to offer securities, and act as officers of The Bank of New York Mellon (a New York chartered bank) to offer bank-maintained collective investment funds as well as to offer separate accounts managed by BNY Mellon Investment Management firms.

BNY Mellon Investment Management is one of the world’s leading investment management organizations, and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management service and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular investment, strategy, investment manager or account arrangement. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. The Dreyfus Corporation and MBSC Securities Corporation are subsidiaries of BNY Mellon. ©2017 MBSC Securities Corporation, 225 Liberty Street, 19th Fl., New York, NY 10281.