Minimize risks of retirement

Fri Feb 26, 2010 2:26pm EST
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By Linda Stern

WASHINGTON (Reuters Life!) - Retirement is full of risks. There's the risk of sickness and needing expensive care, or of running out of money or of being divorced or widowed.

The problem with many retirement plans is that they try to treat all of these risks with a single solution -- save more money or buy an annuity.

"There are multiple risks in retirement, and it's wise to insure against each of them, to the extent insurance vehicles are available and affordable," says Frank Todisco of the American Academy of Actuaries.

Here are some of the risks that can occur in retirement and some ways to insure against them.

-- You may not have enough money to afford your lifestyle. This is the first risk everyone talks about. The best way to prepare for it is to save. You can also protect yourself against this risk by delaying retirement and the start date of your Social Security benefits.

Cultivate the skills and contacts that could net you part-time income after retirement. Do the lifestyle analysis necessary so that you know how much of your current way of living you could give up. Sometimes the only 'insurance' you need is the flexibility to know you could downsize and still enjoy life.

-- To address the need for extensive healthcare there is long-term care insurance. Policies have improved from their early days, and premiums now are tax deductible. But shop carefully. Some policies cover only nursing home costs. Others also cover care at assisted living facilities and at home. Most policies require you to have some physical or cognitive problem that makes it necessary for you to get help with the activities of daily living. Policies also have different rules about how long they will pay, how much they will pay, and whether their benefits will rise with inflation.

-- Long-term care insurance will not pay your rent every month if you live to be 98 and are still healthy and somewhat self-sufficient. To insure that you'll not run out of money over a long, long life, many advisers are starting to recommend a product called "longevity insurance."   Continued...