End-of-Year Life Insurance Checkup: Time for a Review?

Joshua Potts

As the year wraps up, it's natural to reflect on what has changed over the past 12 months. The holiday season, combined with the open enrollment period, is a great time to reconsider your life insurance needs. Life's twists—expected and unexpected—can make old policies obsolete. Your priorities and responsibilities might have shifted without you even realizing it.

Let's explore why it's essential to reassess your life insurance annually:

  • New Job, Promotion, or Retirement: Changes in employment can impact financial planning and life insurance needs.
  • Getting Married or Divorced: Significant life changes like these often require adjustments to your policy.
  • Welcoming a Child or Grandchild: Growing families mean added responsibilities and potential changes in coverage requirements.
  • Buying a Home or New Financial Obligations: New financial commitments might necessitate re-evaluating your coverage.
  • Health, Income, or Financial Goals Changes: As these aspects evolve, so should your life insurance strategy.
  • Adjusting Beneficiary Designations or Estate Plans: Keep these critical elements current with your life situation.

By ensuring your coverage matches your current circumstances, you'll gain peace of mind. As the end of the year approaches, consider taking a proactive step to schedule a quick coverage review. It's an easy and supportive process that can make a significant difference.

 Should Retirement Funds Go Toward Current Needs?

With current economic challenges such as record inflation and a looming recession, many people are experiencing financial stress. The average credit card debt per household was $9,000 in early 2022, and the temptation to dip into retirement savings to manage financial situations is high. While using retirement funds may offer temporary relief, it is vital to understand the risks and explore alternatives.

Consider the Alternatives

Balance Transfers:  Moving debt to a lower-interest account can significantly reduce your interest payments. Look for balance transfer offers with low or 0% introductory rates to ease your financial burden.

Budget Cuts:  Assessing your spending and identifying areas to cut back can free up funds. Common areas include dining out, subscription services, and entertainment.

Debt Consolidation:  Consolidating multiple debts into a single loan may result in lower interest rates. This approach simplifies payments and can reduce the overall interest paid.

Hardship Loans:  Some financial institutions offer hardship loans at lower interest rates for those facing temporary financial difficulties. These loans might be a better option than withdrawing from retirement accounts.

Understand the Tax Penalties

Withdrawing retirement funds early often leads to paying income taxes and a 10% penalty, particularly with 401(k) accounts. Other retirement savings, such as IRAs and Roth IRAs, also incur similar fees. The immediate financial relief may not outweigh the long-term costs.

Long-Term Impact

Using retirement funds too early can have severe long-term consequences. You lose the opportunity for tax breaks and interest accrual, which can significantly support your retirement in the future. The compound growth of retirement savings is essential for building a secure financial foundation for your later years.

While tapping into retirement funds might seem like a quick fix for current financial woes, the long-term consequences can be damaging. Always explore alternative solutions and consult a financial advisor before making any decisions. Protecting your future financial security should be a priority.

If considering dipping into your retirement savings, seek professional financial guidance to understand all your options. Taking steps to protect your future financial security is crucial.