Beyond 401(k)s and IRAs, one investing plan is underestimated | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Creating a retirement savings plan is complicated. That’s one reason so many people in the U.S. don’t have one. They don’t have IRAs or 401(k)s and perhaps believe their Social Security benefit will be enough to support them after they retire.

It won’t.

Fifty-three percent of retired Americans said they expect they will need to use Social Security to pay for necessary expenses, according to 2024 survey from Bankrate. Among those 60 and older, 69% said they will be reliant on Social Security benefits, with 47% saying they expect to be “very reliant.”

Having retirement savings in IRA and 401(k) accounts will bridge the gap, but there is one more piece of the retirement puzzle many financial advisors recommend: life insurance.

💰💸Don’t miss the move: SIGN UP for TheStreet’s FREE Daily newsletter💰💸

Plenty of personal finance experts agree life insurance is the cornerstone of a solid financial plan. It provides financial security to dependents, can bridge gaps in retirement income and, can serve to assist with wealth transfer for clients for people who want to pass down some of their wealth.

Western & Southern Life recently interviewed 1,009 Americans, equal numbers of policyholders and non-holders. The demographic split was 15% Gen Z, 54% millennials, 24% Gen X, and 8% baby boomers. Gen X and millennials were the most likely to own a life insurance policy, while Gen Z had the lowest coverage rate (36%), but they also had the most interest in acquiring a policy.

The company notes a significant gender disparity also existed, with men being more likely than women to possess a policy (56% vs. 45%). The income disparity between policyholders ($67,395) and non-holders ($44,102) might suggest that financial constraints could play a role in coverage decisions.

While most people associate life insurance with death benefits, some policies – whole and universal life, for example – accumulate cash value over time.

“Our study highlighted the limited number of Americans who fully understand the extent of life insurance’s benefits – including the potential to boost earnings during post-retirement stages,” said Troy Brodie, Senior Vice President, Western & Southern Life, in an exclusive interview with TheStreet.

A solid retirement savings plan includes IRAs, 401(k) and life insurance.

Shutterstock

IRAs and 401(k)s are relatively easy to set up but other assets are more complicated and expensive

Cost is a commonly perceived hurdle to buying life insurance. The Western & Southern study found that, especially among Gen Z, the perception is that life insurance is just too expensive.

“However, many people are surprised at the actual cost once they better understand the many options for acquiring the valuable protection,” Brodie says. He also notes many Americans underestimate the costs of maintaining a household when a loved one dies.

“Many Americans rely solely on employer-provided life insurance without knowing that it often is not adequate to cover all of the long-term needs,” Brodie says. “Lack of knowledge about policy types and uncertainty over how to choose the right coverage also contribute to fewer Americans acquiring life insurance. Another significant barrier we see is that life-insurance terminology can be confusing. That tends to be more prevalent with younger customers.”

More on retirement strategies:

How to calculate how much you need in retirement savings

Choosing the right type of life insurance requires an assessment of personal financial goals, dependents’ needs, and long-term obligations. An important differentiation is term life insurance, which offers a specific period of coverage and typically costs less than permanent life insurance.

Permanent life insurance encompasses whole and universal life insurance policies that deliver lifetime coverage with a cash value feature.

Brodie advises meeting with a professional who can review current and future financial goals and project future expenses—such as a mortgage, college tuition and retirement funds— and then help determine the most appropriate policy.