MONEY MANAGEMENTFrom the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®
INSURANCE GUIDELINES FOR SOON-TO-BE-RETIREES
(August 4, 2005) — Retiring from work does not give you a reprieve from your financial responsibilities. Retirement marks the entry into a new stage of life with different financial challenges. Obtaining the right kind of insurance coverage can help you meet those needs. For this reason, the Virginia Society of CPAs recommends that you take the time before you retire to review your insurance policies to be sure you have the right type and level of coverage. Here is a rundown of what you should consider.
Funding health insurance
You become eligible for Medicare when you reach age 65 — but Medicare does not cover all health care expenses. For more complete coverage, you need to purchase a Medicare supplement (Medigap) policy. Each standard plan provides a different set of benefits and fills different Medicare coverage "gaps.” The costs for these policies also vary depending on the benefits.
Medicare does not become effective until you reach 65. So if you’re thinking about retiring early, you will need to pay for your own health insurance until that time. Your former employer may provide medical benefits, particularly if you retire as part of an early retirement package. The coverage may not be as comprehensive, but it’s likely to be the least expensive option. Unless, of course, your spouse is still working and you can be covered under his or her workplace plan.
Another alternative may be to extend your former employer’s group coverage through COBRA. COBRA is the federal law that entitles you to continued coverage in a former employer’s group health plan even after you leave the job. The coverage will cost more than when you were working, since you will be paying the full monthly premium plus a 2 percent administration fee. And, in most cases, COBRA coverage is available for just 18 months.
Should you require coverage beyond 18 months, you can try to qualify for a group policy, perhaps through your alumni association or a trade or professional organization.
Keep homeowners’ and auto insurance policies current
Your need for homeowners’ insurance doesn’t change when you retire. In fact, for retirees who travel or plan to be away a lot, it could be more important than ever. If cost is a factor, you may be able to save money by raising the deductible.
Will you be driving fewer miles in retirement? Check with your insurer to see if you qualify for a rate reduction. You may qualify for a discount if you take a state-approved driver safety refresher course.
Need for life insurance may lessen
As you approach retirement, your life insurance needs may be less important than when you were working full-time. If your children are grown, your mortgage is paid off, and you have sufficient cash resources to cover all final expenses and burial, you might consider reducing or even eliminating the term life insurance you have. Some retirees do maintain coverage to meet the family’s liquidity requirements and avoid having to sell securities at a loss to generate cash for burial or estate taxes.
Long-term care insurance protects assets
When you were employed, you probably carried disability insurance to protect your income in the event you were unable to work because of illness or injury. When you retire, you have no paycheck to protect. But becoming disabled could still pose a significant drain on your assets.
That’s where long-term care insurance can help. Long-term care insurance can help you manage the cost of lengthy illnesses without jeopardizing your nest egg. However, keep in mind that the older you are, the more expensive premiums become and the greater the risk you won’t qualify due to deteriorating health.
Consult a CPA [and a CERTIFIED FINANCIAL PLANNER™ professional].
Retirement is not the time to skimp on protecting your assets, nor do you
want to be over-insured. A CPA [and a CERTIFIED FINANCIAL
PLANNER™ professional] can review your overall financial
plans and assess
your insurance coverage.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
Lifetime Financial Planning, Inc.
Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional
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208 South King Street, Suite 201, Leesburg, Virginia, firstname.lastname@example.org
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