Insure a Great Retirement

You can't plan for everything. But with some foresight, you can plan for the important things in life.

The basics of retirement planning are pretty simple. Put aside part of everything you earn, and then invest it. If you save enough and invest well, by the time you're ready to retire, you should have enough to live without the income from your job.

The problem is that things don't always work out that simply. So how can you deal with the surprises that threaten to trip up your plans for retirement? Here are a few pointers on common situations that people face.

Loss of income
Clearly, if something happens to you that threatens your paycheck, the first thing on your mind probably won't be how to continue saving for a retirement that may be decades away. For singles without children, it's probably most important to have adequate health insurance coverage to pay the expenses of an unexpected illness or injury.

But for those with families, things can be tougher. High costs of living in many areas make two jobs an economic necessity for many families. If you're depending on having both of those paychecks, any disruption to either stream of income can leave you unprepared, forcing you to eat into your savings and jeopardizing your future plans.

The right combination of insurance policies can help you solve that problem before it strikes. If your partner dies, having enough life insurance will let you pay your living expenses on just your salary. In the event of a serious injury that prevents you or your partner from working, short-term or long-term disability insurance in conjunction with your health coverage can give you the cash you need to make ends meet.

How much do you need?
The main question is how much to get. You'll find plenty of rules of thumb to help you come up with a quick answer. For instance, with life insurance, some advisors recommend multiplying your salary by seven and then choosing that amount as your death benefit.

In order to get the most benefit from insurance, however, you have to take a closer look at your particular situation. Depending on your spending habits, the size of your family, and the changes your death would force your surviving partner to make, answers can vary widely. The real key is to provide your family with enough protection to give them the widest flexibility in rebuilding their lives without you. Facing the grief of your loss will be tough enough without tough financial decisions to make at the same time.

Also, ask at work whether you have any coverage. Many employers include group life insurance as a benefit. Some also use corporate-owned life insurance strategies that may offer additional coverage. After beginning in the 1980s, the practice grew to cover huge numbers of employees at companies like Wal-Mart (NYSE: WMT), Disney (NYSE: DIS), and Procter & Gamble (NYSE: PG). More recently, though, successful IRS challenges against Winn-Dixie (Nasdaq: WINN), American Electric Power (NYSE: AEP), and Dow Chemical (NYSE: DOW) have led employers to use these strategies more selectively.

Dealing with disability
For disability insurance, it's tougher to find a perfect solution to replace all your income. You generally can't get more than 70%-80% of your pre-tax income in benefits. The essential aspect is to make sure it will continue providing income as long as you need it. For most people, that means a policy that will pay you until you would have retired. In addition, you may be eligible for Social Security disability benefits.

Even then, you'll have to be careful to treat those disability payments the same way you would handle your paycheck -- save part of it every month, and prepare for the time when those payments stop.

In planning for retirement, you need to use a strategy that will work if everything goes well. But you should also be prepared for potential problems. Life and disability coverage can go a long way toward ensuring your successful retirement.

© 2007 Universal Press Syndicate.