Building A Retirement Insurance Portfolio


Sample Retirement Portfolio

On March 1, I discussed a generic insurance portfolio plan for pre-retirees in the post, “Pre-Retirement Personal Insurance Portfolio .”  Today, I want to discuss a generic insurance portfolio for those who have already retired.  As I have said before, now that you are about to retire, your insurance needs will change.  You probably will need to make several changes.

Every person’s insurance needs are different.  It would be very presumptuous of me to pigeon-hole every person and attempt to make one policy meet everyone’s needs.  What you will find in this post is merely a sample of things for you to consider as you make plans to retire.  Any rates quoted are based on a person age 65 about to retire.  Your rates will vary depending on several variables.  This post is only meant to give you an idea of what you should be investigating.

LONG TERM CARE INSURANCE

Also known as LTCI, Long Term Care insurance is the insurance used to pay for your home health care, assisted living or nursing home expenses in your future years.  After you have looked at the probabilities of a future need for assistance and their accompanying costs, you may very well decide that LTCI is just as important during retirement as Life insurance was during your working years.

As you search the category you will see several posts on the topic of CLASS.  Unless you are younger than 59, I encourage you to ignore them.  CLASS is a plan for LTCI for people who will remain in the workforce for at least 5 years after the plan officially starts in the future.

Private LTCI is often the most expensive of all the types of insurance you need during retirement.  If you wait too long, it could easily be as expensive as all the other insurance products you need, combined.   Like life insurance, the younger you are when you purchase it the less expensive it will be.  If you are making financial plans for your retirement years, I highly encourage you to lock in a premium as early as you can.

MEDICARE B

Medicare B is the part of Medicare that pays for the largest chunk of your doctor’s bills obtained out of the hospital.  It limits how much your doctor may charge for each procedure and pays 80% of that figure after you have paid the annual deductible.

Medicare B is an optional program.  While Medicare A will cover the hospital bills of all Americans who have paid Medicare taxes during their working years and are qualified for free health insurance, Medicare B does require each participant to contribute a premium each month.  In many cases people elect to merely have the Medicare premium withheld from their Social Security retirement benefits.

Medicare B’s monthly premium is subject to change each year.  The premiums for 2011 are based on your taxable income for 2009.  You can get an idea of what you will be paying in the chart below.

Individual Tax Return                                    Joint Tax Return                                            Anticipated Premium

$85,000 or below     $170,000 or below $115.40
$85,001–$107,000     $170,001–$214,000 $161.50
$107,001–$160,000     $214,001–$320,000 $230.70
$160,001–$214,000     $320,001–$428,000 $299.90
above $214,000           above $480,000 $369.10

MEDIGAP

Medigap is also referred to as Medicare Supplement.  I try to use the term Medigap as often as possible to avoid confusion with the Medicare D, prescription drug plan.  It is also referred to as a Medicare Supplement.

Medigap was in the TIB Tip’s spotlight in January.  Just like LTCI you will find several articles about Medigap in the “Search by Topic” drop down menu in the category, “Medicare.”

There are 2 rules for Medigap of which you need to be aware as you shop.

1)       Except for Open and Special Enrollment periods when the approval of Medigap plans are guaranteed, Medigap plans are subject to medical underwriting.  Underwriting criteria is not as strict as it was before you retired but it will rule out people with severe medical problems.  The best bet is to obtain a Medigap when you first enroll in Medicare B during your Open Enrollment Period and do not cancel that plan until a new one has been approved if you elect to change companies.

2)      Although a Medigap plan is Guaranteed Renewable, meaning that an insurance company is not allowed to cancel your plan for health reasons, your premium is likely to adjust each year.  As long as you pay your premium, the policy will continue.

If the premium rises too much and your health has deteriorated to the point you cannot pass underwriting with a different insurance company, you may be able to switch to a lower cost plan with fewer benefits within the same insurance company.  Talk with your insurance agent of record.  He/she may be able to help you with that.  If your health is still good, you may elect to shop with a different insurance company.  If that is what you elect to do, once again, your insurance agent should be able to help you.

MEDICARE D

In 2006 the Medicare D program began to offer insurance for people with Medicare to pay for their prescription drugs.  The Medicare D program is similar to the Medicare B program in that it is optional.  It does have a premium associated with it.  The national average premium for 2011 was just a tad under $ 33.

Medicare D is overseen by the Centers for Medicare and Medicaid Services, aka CMS.  They are the ones who regulate the minimum standards plans must abide by.  However, Medicare D plans are sold and managed by private insurance companies.  Each company is allowed to modify their plans with more generous benefits but they must include at least the minimum benefits mandated by CMS.

Medicare D is also similar to Medicare B in that you may elect to forego the plan when you first retire, especially, if you are not taking any prescription medication or being treated for anything by a doctor.  That may sound like a good financial move when you first retire but it could very well be a case of being “penny wise but pound foolish.”  Both Medicare parts B & D charge a penalty along with the base premium if you abstain from the program when you are first eligible but join the program at some time in the future.  You could find yourself paying more premiums when you are bringing in less income.

Before you elect not to enroll in Medicare B & D think very, very hard about the potential consequences.

FINAL EXPENSE

During your employment years you may have needed much more life insurance than you do during retirement.  Unless your attorney has advised you to carry life insurance for estate planning needs, you may find that the only “need” for life insurance is final expenses.

A Final Expense life insurance policy, aka F.E., is designed to pay only for final expenses when you die.  It is not designed to pay off a loan, replace income or pay for the education of your children.  If you need that type of life insurance during retirement, contact your insurance agent.  I know, he/she will be happy to help.  If they are not, contact The Insurance Barn.  Unless you already have one foot in the grave and the other one in a puddle of oil, we ought to be able to help.

Final Expense life insurance is typically $ 15,000 of whole life insurance or less.  It is very possible that the large term life insurance policy you had during your employment years can be converted into a Final Expense type of policy.  If it cannot, your insurance agent should be able to help you find just the policy for you at a reasonable price, assuming you lock in your rate when you retire.  If you wait until later, the price gets astronomical the closer you get to age 100.  Many insurance companies will not even offer plans to people age 85 or older.

ANNUITY

Not everyone will need an annuity during retirement.  Annuities are instruments normally sold by insurance companies.  They are often used as an alternative to other fixed interest rate investments.

Annuities will guarantee a flow of income for the life of the annuitant or annuitants.  Since annuities are typically issued by life insurance companies, they also have some estate planning benefits that are not typical with other fixed interest rate investments.

When you retire, if your savings are in another type of fixed interest rate investment and you want to guarantee that your life savings will not evaporate during your life, you may want to investigate if an annuity fits within your retirement plan.

If you do not already have an insurance agent to help you with your retirement insurance portfolio, you may contact The Insurance Barn at (832) 767-8059.

If you have not started planning for insurance during Retirement, the first step is to sign up for our course on pre-retirement insurance planning strategies.  The course takes 3 weeks to review all of the lessons.  To take the free course, click the banner below.

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