How to use life insurance for your retirement strategy

 The thought of retiring and running out of money can be frightening, especially for someone who is unprepared. But you know what's scariest?

It's the fact that there's no hard formula to help you figure out how much money you need to prepare for retirement. You can start saving as early as your 30s or 40s, but you still can't be sure.

However, saving is always better than having no savings, right?

This is where a life insurance fits in.

Many people think that life insurance is only important to protect the family in the event of the loss of the breadwinner. In reality, life insurance can offer more as long as you are able to choose the right type and use it in your retirement income plan.

It can protect your income, reassure your family and help you manage your taxes. It can also help increase your family's chances of achieving long-term dreams and goals.

Now you're probably wondering: how can I use life insurance to plan for my retirement?

Here are some tips to help you.

Choose term insurance

Term life insurance is generally the least expensive type. And it's not just because of his personal expenses, but also because of the coverage you can get for what you pay.

It does not involve any investment and constitutes a simple protection in the event of premature death. It is fixed for a certain time, ranging from 10 to 30 years.

This is ideal in two ways:

First, it can provide your family with financial protection if you die before you have saved enough money to provide for their future. Another reason is that it gives you more room to create financial security.

Since its cost is not so high, you will have more extra money to build up your emergency fund or make an investment.

Now, here's the thing.

Although term insurance is not as expensive as other insurance, getting one can still be difficult. You need to have an idea of ​​how long you need to buy. You should also consider how long it will take to provide financial security for your family as well as your age. Starting after the age of 65 will not be the best idea.

Start building an emergency fund

An emergency fund refers to the amount of money you put away in case life throws a financial surprise at you. This should be enough to cover at least 3-6 months of expenses. If you have an irregular income or job, you may need to save more.

Now, why create an emergency fund?

It's a good way to make sure you don't go into debt in case your family's expenses increase or your income drops. It can also help you avoid paying higher interest, like with your credit cards, in case you don't have a job to pay for them.

You see, when you are in a financial emergency, you will be forced to stop your retirement contributions. And if you've accumulated a lot of debt, it can take a long time before you can get back on track.

As for how you can start building your emergency fund, start with something reasonable. Setting 3 to 6 months of expenses can be a difficult goal to reach and if you are not able to reach this goal, it can be a great discouragement. So instead of aiming for the biggest goal upfront, break it down into smaller goals that you can achieve in just a few months. It can be as little as $25 or $40 a week as long as you save regularly.

See also: 5 financial emergencies everyone should be prepared for

Keep track of your retirement savings

You wouldn't want to spend the rest of your pre-retirement years working really hard to catch up on your savings, would you?

So, to avoid this, take a step back and take a good look at where you are now. Review your investment strategy from time to time. There are also many online tools you can use to assess your chances of having a comfortable life after retirement. Use these tools to make sure you're on the right track or if you need to make adjustments to your strategy.

See also: Top 4 tips to prepare your finances for retirement

Get long-term disability insurance

Don't wait until a serious injury or disability prevents you from working before considering getting one. Ideally, you should buy this insurance at the same time as you build your emergency fund.

Although Social Security offers disability benefits, the fact is that it is really difficult to qualify for these benefits. On top of that, the benefits you can get from it may not be enough to cover your household expenses.

Remember that you won't be able to save for your retirement if you don't have any form of income.

Is using life insurance for retirement planning effective?

In theory, this strategy seems like the best idea. However, before actually committing to any program or policy, it is important that you weigh your options carefully. Note that committing to a program is much easier than finding a way out. There are policies that can bind you for up to 15 long years.

If this idea doesn't appeal to you, there are other ways to fund your retirement savings. You can open and fund a Roth or a traditional IRA. You can also maximize your 401(k) or health savings accounts first before considering using life insurance as a form of investment.

In case you're really set on going this route, there's nothing wrong with that either. Just be sure to work with a specialist who can help you design a policy that can meet your needs, increase the amount you have in your pocket and minimize the fees you have to pay.

The bottom line

Saving for retirement is a necessity. It's a good way to make sure you or your family can have a comfortable life once you can't work.

Using life insurance as a way to prepare for retirement is a good option, but be aware that this strategy won't work for everyone. Remember that only you can decide what will not work for you.