The expectation of living longer is now more likely to cause people to delay retirement than previous generations, according to a new study by the Center for Retirement Research at Boston College. The results “suggest a statistically significant relationship between an individual’s subjective life expectancy and his expectations of when he’ll retire,” according to the study.
Researchers found that people ages 50 to 61 who expect to live to at least 75 are more likely to stay in the workforce than people in the past who had shorter expected lifespans. Whether working longer in life because they needed more money for a longer retirement, or because they’re healthier during their working years and can continue to work, those who expected to live to ages 75 or 85 had an 8 percent to 24 percent increase in probability of working up to their full retirement age of as high as 67, the study found.
That leaves more people working later in life to support themselves and possibly their families, and the need to fund a longer retirement. Term life insurance policies that people bought while in their 40s and 50s may need to be renewed when they hit their 60s if they plan to work longer than they once thought they would.
Everything you thought you knew about insurance needs at retirement is changing.
How much longer will you live?
According to figures from the U.S. Social Security Administration cited in the study, in 2012 the average 65-year-old man was expected to live to almost age 84. In 1980, the average lifespan was nearly 80.
But living longer doesn’t mean you’ll be able to work longer in life. As the Boston College study points out, factors that it calls “shocks” can arise. They include a new diagnosis or acute medical episode, job loss, unexpected death of a spouse or parent, or the need to care for a loved one.
Life insurance needs in retirement
For some people, there may no longer be a need for life insurance when they retire. They may have have a large enough retirement portfolio, their children have moved out, their spouse doesn’t rely on them for income, and they have long-term care insurance.
When buying a life insurance policy, especially a term policy at an early age to replace income and future retirement plan contributions in case of a premature death, it’s smart to consider that you may not have enough money by age 65 to retire and should have a 30-year term policy, says Rick Kahler, a financial advisor.
“When purchasing a policy the future cash flow stream needs to be taken into consideration,” Kahler says.
Prices go up with age
Someone in their 40s or 50s who doesn’t expect to have enough money at age 65 to retire may want to buy a 30-year term policy to protect them so that at age 60 they don’t have to buy a very expensive 10– or 15-year term policy, he says.
The high expense of term life insurance when older may encourage younger workers to buy longer term policies if they expect to work longer in life.
Jeff Root, co-owner of DigitalBGA, recommends to his clients who are in their 20s or 30s that when buying term life insurance, they choose a convertible policy to get the most coverage for the least amount of money.
“Exercising the convertible option before the policy expires lets a client reap the benefits of lifelong coverage at a time in his or her life when affordability is less of a problem,” Pinney says. “That way, clients don’t have to worry about outliving their term, but they also don’t have to worry about a permanent policy’s higher prices while they’re starting out, buying a home, or starting a family.”
Buying a 10-year term can be another way to afford term life insurance, because it can be the cheapest policy, and then do it again in 10 years. However, that could cost more in the long run, especially if your health has declined and you’re either declined for coverage or the policy costs more because of the increased health risk.
When a permanent policy may be best
While term coverage is best if you won’t need life insurance after a certain time, a permanent life insurance policy may be best if you’re going to work later in life and don’t have a big enough retirement account to meet your family’s financial needs.
“If coverage is needed for a period of more than 20 years, that need is normally met more cost effectively using a permanent policy,” says Rob Drury, executive director of the Association of Christian Financial Advisors. “A participating, dividend-paying, whole life policy will normally be self-funding at around the 12- to 15-year point, and universal life products can be leveraged even more efficiently.”
Rising life expectancies — and how to pay for them — may encourage more people to work longer in life, but it doesn’t necessarily mean they think they have enough insurance. That’s especially true later in life.
A 2013 study by the LIFE Foundation found that consumers 65 and older are less likely to believe they need more insurance. It found that only 17% of respondents 65 and older believe they need more life insurance.
While more than seven in 10 in this age group own life insurance, only about half believe they need it.
Many were concerned about having enough money for retirement, with 44 percent concerned about it, and the same percentage concerned about paying for long-term care services.
If you’re going to work longer because you expect to live longer, you may also want to think about having life insurance to support your family later in life.
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