How to Insure Your Retirement Like You Do Your Car (Almost)

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Roll of money in a nest
Alamy
You can insure your home and car from disasters and accidents. Life insurance essentially protects your family from the loss of your income should tragedy strike. You can't insure your retirement accounts in the quite same way, but there are a few tried and true strategies that can safeguard them.

1. Continue Saving for Your Retirement Even During Your Golden Years

There is no rule that you have to stop investing when you hit your golden years. One of the best hedges to outliving your retirement assets is to continue investing even when you reach retirement age. While there are mandatory age distributions from 401(k) retirement plans and traditional IRAs, you can continue to make investments in other assets during your retirement.

"With increasing life expectancy and retirements that could last for decades, investing may be a necessity for many retirees, says J.J. Montanaro, a certified financial planner with USAA. "If you just look back at the last 30 years, a dollar has lost nearly 60 percent of its purchasing power to inflation. Investing offers a way to combat that loss of purchasing power. The key is to develop a plan that will allow you to achieve what you want to achieve without causing chronic insomnia."

2. Work Longer

While some Americans must continue to work during retirement because of a lack of savings, others simply want to work and enjoy the social aspect of working during retirement.

Mitch Anthony debunks the old concepts of retirement in "The New Retirementality." "A longer work life means continued engagement as well as continued paychecks," he says. "The day you cash your last paycheck, the price of everything begins to matter. Why enter a shrinking economic reality sooner than you need to?"

Retirement today looks very different than it did decades ago, and that isn't necessarily a bad thing. The real problem is getting over our preconceived notions as to what retirement means in today's economy and society.

3. Invest in Passive Income Strategies

Many financial experts believe that you need several buckets of income to supplement your retirement. For example, you could have a pension, income from real estate, Social Security and an annuity to help replace the income that you had before you retired.

"Typical retirement planning is that you work like a dog for 40 years, save up and spend from principle until you exhale your last breath," says Todd Tresidder, financial mentor and author of "How Much Money Do I Need To Retire" and other books. "If you flip that upside-down and -- rather than amassing a big pile of assets -- save assets that produce cash flow in excess of your expenses, we then eliminate risks. We create perpetual income."

Retirement is a euphemism for old-age financial independence. The core of financial independence using passive investments is that you create cash flow from investments that exceed your expenses and only spend the cash flow, not the principle balance. A passive income requires minimal input from you after you invest in it to start.

4. Invest in Annuities

An annuity is essentially an insurance product. You trade a lump sum for equal monthly or yearly payments when you invest in an annuity. For example, a $1 million lump sum payment to an insurance company could provide you with more than $40,000 in yearly payments for you and your heirs the rest of your lives. (Of course, details vary.)

"Annuities shift risks from you to the insurance company," says Tresidder. "Retirement planning as it's commonly practiced today is nothing more than self-insurance, where you are accepting most of the risk. Using annuities shifts market risk, actuarial risk and longevity risks from you to the insurance company."

There are many benefits and several drawbacks to annuities. They may provide higher yields than traditional pension plans and other retirement options, but they also leave no assets for your heirs when you die.

5. Hedge Your Investments

My father-in-law retired after working as an executive for decades at a large, national bank. In addition to his pension, he held a lot of company stock that he received as options. After the financial crisis in 2008, his stock and dividends took a severe hit. The stock has recovered, but my in-laws endured several rocky years.

You can use option strategies to protect your stock positions in many cases. An option gives you the opportunity to sell or buy shares of stock with contracts at a future time at a set amount of money, instead of relying on the fluctuations of the market. If you don't feel comfortable with options, you can enlist a financial planner to hedge your retirement investments.

6. Get Professional Help

It never hurts to get professional financial help if you are worried about your retirement accounts and if you will have enough saved for retirement. It has never been easier to find qualified financial planning -- fee-only, commissioned-based, or even by the hour for giving advice without creating a financial plan.

Insurance companies do not offer retirement portfolio insurance, but there are ways that you can hedge against calamity with your retirement accounts.

Should there be insurance for your retirement accounts? Should insurance companies offer this type of insurance coverage just like they insure your car or home? Would you buy retirement insurance?

Hank Coleman is the publisher of the popular personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter @MoneyQandA.


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19 Comments

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MR NUSSBAUM

I am sorry but I dont agree with these ideas. Annuities stink you lend them your money and it takes over 20 years to get it back unless you die and lose it all. As for investing I dont want to or need to because I saved enough and lowered my expenses. Would rather enjoy my retirement than think about investments or work. IT IS TIME TO PLAY AND HAVE FUN. NO WORK.!!!!!

July 07 2014 at 4:57 AM Report abuse rate up rate down Reply
scottee

why can't we insure people like we do cars? portability across state lines, pick and choose the coverage that applies to you? everyone has to have a basic policy?

July 06 2014 at 8:46 AM Report abuse rate up rate down Reply
Brian Sun

Down the line, I'd like to not spend too much on expensive home & auto loans, which eat up my retirement savings. I've been using Credit Sesame to optimize my financial situation to hopefully achieve this goal.

July 03 2014 at 6:33 PM Report abuse rate up rate down Reply
Dan

I guess I'm just lucky or something but I've been setting aside about half my income since retirement to invest without affecting my lifestyle at all.
I don't go to Vegas or anything so I'm not silly that way, but we are maintaining our lifestyle. I'm sorry others haven't been so fortunate. Like a lot of people, I'm just blundering my way along through life and have made some reasonably good decisions. It's hard for the average person to decide what's best for him financially.

July 03 2014 at 5:43 AM Report abuse rate up rate down Reply
1 reply to Dan's comment
Valerie

@ Dan --- It is not difficult for the average person to become financially literate. Anyone, who is willing to put in the time to read and learn about finance and investments can do that. Also, the simplest financial strategies are the ones that give the best results.

If, however, you hate reading books, prefer to watch a lot of TV, and take advice from others who are just barely scraping by and living from month to month --- then, yes, you are probably going to lose money on your investments and become one of those embittered people who rant that the "stock market is just a big casino and the little guy can't win".

July 03 2014 at 5:10 PM Report abuse rate up rate down Reply
lnm3921

I've heard annuities being blasted as an investment strategy for retirement. If the insurance companies fails, you really have no government protections like you do for a pension plan and it's really more about the person selling it to you getting commissions.

That said, I guess anything is a risk. Will your stocks tumble when you need the 401K income preventing you from retiring? Will your pension plan be solvent. Will your social security pay what it owes you. There is nothing you can be sure about.

As for working when you're older that assumes you don't get laid off, aren't forced into early retirement or can find a job at all after you get passes sixty. Age discrimination is out there.

July 02 2014 at 4:28 PM Report abuse +2 rate up rate down Reply
rrob.smythe

Need true financial advise, seek out Dave Ramsey.

July 02 2014 at 4:03 PM Report abuse rate up rate down Reply
1 reply to rrob.smythe's comment
rrob.smythe

Mybadd , advice.

July 02 2014 at 4:04 PM Report abuse -2 rate up rate down Reply
mily469

invest, invest, hedge? lose, lose, lose. they are designed exclusively for that today. but you are supposed to pretend in the olden days myth today, they don't.

July 02 2014 at 9:35 AM Report abuse +2 rate up rate down Reply
1 reply to mily469's comment
merstockgto

Invest you must if you want to get ahead like I have since 1980.

July 02 2014 at 2:54 PM Report abuse rate up rate down Reply
2 replies to merstockgto's comment
mily469

exactly my point. are you aware that it is right now 2014 and the rules that applied to financials then do not exist anymore?

July 02 2014 at 4:10 PM Report abuse rate up rate down
ted_wilson7

mily469
exactly my point. are you aware that it is right now 2014 and the rules that applied to financials then do not exist anymore?******* Do you realize that no matter what the rules are you don't have two nickels to rub together, so no one cares what you think ?

July 02 2014 at 10:11 PM Report abuse -1 rate up rate down
jdykbpl45

Hank the yank is shilling for annuities. Another Huff puff promotion piece!

July 02 2014 at 9:02 AM Report abuse +7 rate up rate down Reply
1 reply to jdykbpl45's comment
mily469

but, but hp is liberal you say too!!! guess that is a wrong assumption by many.

July 02 2014 at 9:36 AM Report abuse -2 rate up rate down Reply
1 reply to mily469's comment
dopey.obamite

Like the assumption there are no lib hedge funders or evil wall st. bankers?

July 02 2014 at 12:30 PM Report abuse +3 rate up rate down
dollibug

I am not sure these days who I can trust with giving me advice on financial matters. As for annuities, I do think they can be a good thing for some people. My husband worked for a company who was bought out and he was given a choice to take early retirement due to a *grandfather cause* that was in place. We did a lot of research on this and decided which one to take. This has worked out very well for us so far. These payments will continue for the rest of his life and for my life as well, as this was the plan which we selected. So far we have not had any issues with this at all.

I do think it is sad when people do NOT research any and all options that is offered to them before making a decision for their retirement years. A person should do their math and figure out how to stretch the money as far as they can and still live comfortable. It is sad the we, the people, have put our *trust and money* with our government who has *mismanaged* it. The government should indeed be held accountable for the money which DOES NOT BELONG TO THEM IN THE FIRST PLACE.

July 02 2014 at 7:28 AM Report abuse rate up rate down Reply
Valerie

Yet another internet blogger writing an article loaded up with bad advice.

Annuities are one of the worst financial choices you can make. Relying on a pension (if you even have one) is risky.

Planning to work longer usually isn't YOUR choice to make. Your employer will be the one making this choice. Or, if you are self-employed, the economy will dictate what you do.

Hiring a "financial planner" to hedge and/or recommend your investments is a good way to go broke. Most financial planners don't have a good understanding of the products they recommend. Ask that "financial expert" to show you his/her investment portfolio --- and you will usually discover that they don't even have one. Or, they will start throwing out excuses "why" they don't want to reveal what they are invested in.

Do you REALLY want to follow "investment advice for retirement" from an internet blogger??? I bet you don't.

July 02 2014 at 6:51 AM Report abuse +8 rate up rate down Reply
1 reply to Valerie's comment
lnm3921

I agree with alot of what you say but what isn't risky? You can lose money in investments, in your 401K plan, and pretty much anything you rely on for retirement. Then so much of it is taxed when you withdraw it.

If you have a pension at least the PBGC guarantees it up to I think $60K per year while an annuity may only be as good as the insurance company is able to avoid going out of business.

I do think it's a joke when people bank on being able to work after age sixty. You become a target for layoffs. You make too much and could be more costly healthwise. It's really scary for many who haven't saved enough and will need to keep working. Trying to find a good paying job when your older is not easy or assured.

July 02 2014 at 4:36 PM Report abuse +1 rate up rate down Reply
1 reply to lnm3921's comment
Valerie

@ Inm3921 --- Your points are valid. I particularly agree with your comment on working after age 60. Nobody who thinks "I can work as long as I want to" ever seems to give any thought to the possibility of major illness, catastrophic accidents, or job loss.

Also, the personal finance field is packed with newly minted "financial advisors" who are so inexperienced that they are not really qualified to advise anyone on financial matters. The best financial advisors limit their clients to wealthy people who have $500,000 (or more) investment portfolios.

If you are an average working person who wants to know how to get started investing, you will be shuttled off to that 20-something individual (with the ink still wet on a new bachelor's degree) in the back office cubicle. It is highly likely that this "financial advisor" is deep in debt, has never experienced a stock market crash and doesn't own stocks in any form --- but still thinks four years of sitting in a college classroom is enough "knowledge" to dispense financial advice to others.

In answer to your question about risk -- yes, you are correct. There is risk in all investment choices. Which is all the more reason to read extensively and learn all you can about the various financial choices before you make any cash commitment. Then you have to evaluate your own personal tolerance for risk.

Obviously, no one is going to make much financial progress with all their cash in a bank savings account, because inflation will eat you alive. On the other hand, no one should have all their money in the stock market, either. In between those two extremes is a big range of choices with varying degrees of risk.

July 02 2014 at 5:57 PM Report abuse rate up rate down