Life Insurance for Empty Nesters: Smart Pre-Retirement Planning Tips
As your kids grow up and move out, your financial priorities shift. The mortgage may be nearly paid off, college tuition is hopefully behind you, and you’re thinking about retirement. But what about life insurance? Do you still need it? Let’s break it down.
Do I Still Need Life Insurance After My Kids Move Out?
For many empty nesters, the original reason for buying life insurance—protecting dependents—has changed. But that doesn’t mean coverage is unnecessary. Life insurance can still help cover outstanding debts, provide income for a surviving spouse, and support estate planning goals. If you’re in your peak earning years, pre-retirement life insurance planning is about protecting what you’ve built.
How Much Life Insurance Do Empty Nesters Need?
The answer depends on your financial picture. If your spouse relies on your income, you may need enough coverage to replace your last years of earnings. If you have significant savings and minimal debt, you might reduce coverage. And if your retirement isn’t fully funded, life insurance may still make sense until you’re across the finish line. Consider your remaining obligations—mortgage, healthcare costs, and retirement plans—before making changes.
Do I Need Life Insurance for Estate Planning?
When I started in financial planning, the estate tax exemption was $625,000 per person so many people bought permanent life insurance to replenish the assets used to pay estate taxes. Today’s exemption is almost $14 million ($28 million for a couple), so few people need this anymore. It can still be useful in some circumstances, but for most people this isn’t a concern.
When Should You Reduce Life Insurance Coverage Before Retirement?
If your financial obligations have decreased and your retirement savings are strong, you should be able to reduce your coverage. Many empty nesters adjust coverage either by reducing death benefits or letting policies lapse. Replacing policies you purchased when younger can be more expensive in your later years but is an option if you still need the coverage.
Essential Life Insurance Tips for Empty Nesters Planning Retirement
- Review your beneficiaries—make sure they reflect your current wishes. I’ve seen policies that list parents and ex-spouses, which can cause huge problems.
- Evaluate your debts—if you still have a mortgage or loans, keep enough coverage to protect your spouse.
- Consider long-term goals—life insurance can help leave a legacy or cover estate taxes. For example, if you leave a large IRA to charity, you can replace that with life insurance for your heirs.
What Happens to My Life Insurance When I Retire?
Life insurance will continue as long as you pay the premiums. If you have a term policy, the level term period may expire during retirement making it too expensive to maintain. Some retirees choose to keep coverage for final expenses or to leave an inheritance. Others drop it if their savings are sufficient.
Practical Example
Imagine a couple in their late 50s. Their kids are independent, the mortgage is nearly paid, and they have solid retirement savings. They decide to reduce their term coverage to cut costs and free up cash for travelling.
How Do I Update My Life Insurance Before Retirement?
Start with a policy review. Contact your insurer or financial professional to discuss options like converting term to permanent (which will be more expensive), adjusting coverage amounts, or exploring new policies that fit your retirement goals. You can also make changes to permanent policies to reduce the costs and keep them active longer.
Is Life Insurance Necessary for Empty Nesters?
Not always—but it’s worth a careful look. Your needs have likely changed since you first bought the insurance, and your coverage should reflect that. Life insurance isn’t just about kids; it’s about protecting your spouse, your assets, and your peace of mind.
Bottom Line: Empty nesters should take time to reevaluate life insurance coverage as part of financial planning for retirement. A thoughtful approach ensures your policy matches your goals for retirement and beyond.
This column is prepared by Rick Brooks, CFA®, CFP®. Brooks is an owner and senior financial advisor at Blankinship & Foster, LLC, a wealth advisory firm specializing in financial planning and investment management for people preparing for retirement. Brooks can be reached at (858) 755-5166, or by email at rbrooks@bfadvisors.com.
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