Of course, it must be a properly designed plan with the right company. Not only is it possible, but it is a brilliant strategy to add to your overall retirement planning.
Let’s explore why you would want a Whole Life policy now for retirement later:
- WL is completely uncorrelated to the stock market.
- You receive contractually guaranteed growth throughout the lifetime of the policy.
- You participate in the insurance company’s profits. While this is not a guaranteed rate, the strongest companies (which are the only ones we use) have paid a dividend every single year for over 150 years!
- You can borrow against the cash value of your policy to finance all the major purchases (i.e., education, weddings, travel, home repairs, etc.) in your life before turning on income.
- You can use the cash value in your policy to supplement income along with other retirement income sources – such as a pension, 401K, even Social Security
We believe that high cash value WL is an essential piece of your retirement foundation for the reasons listed above – and many more!
If there is a market crash, you can take immediate income from your policy and let your equities recover. If you take money from an equity-based retirement account (such as a 401k or IRA) during a market downturn, it will reduce the amount of principal that future returns will be based on. This can be particularly troublesome in the early retirement years.
During accumulation, the average rate of return over time is what most people focus on, but if you start to draw down on your money, the sequence of returns becomes very important. A retiree who faces a bear market in the first few years of retirement has substantially less money than if they experience a bear market at age 90.
We know for a fact that the market goes up and the market goes down; we just do not know when it’s going to do what. That is why it is essential to diversify with options protected from volatility – options like high cash value whole life insurance and annuities.
There are also tax advantages when you use the cash value for income, and you have different options to consider.
- You can take a partial surrender from the cash value up to the amount you paid out of pocket without paying taxes. Then, if you want, you can borrow against the growth portion, as explained below in option 2.
Once you take a partial surrender, that money cannot be returned to the policy, so it is essential to understand how this will affect your policy. If you want to make sure that you do not reduce the death benefit amount, you need to weigh putting that benefit at risk, but it is an option.
- You can borrow against the cast value – which, like option 1, is not taxable
You will pay interest on the amount borrowed, and your cash continues to grow. The great thing about this option is you decide if, when, and how much you want to pay back.
As you can see, your whole life policy can serve many purposes. It is not just a legacy for your loved ones but also a bank to finance major purchases or supplemental retirement income.
Some people feel like they have enough in retirement savings and that they don’t need to worry about additional reserves – but the old saying “Cash is King” could never be truer. Cash IS king when the market gets dicey, but if your cash reserves are sitting in the bank and not growing – you are not treating the king very respectfully! Even if you are not sure you want or need a WL policy for retirement income, it is still the ideal place to store long term reserves. A WL policy is the only place where your money is liquid and can grow, guaranteed, safely – without market risk or having to pay taxes on the growth.
Smart people know that Whole Life is a vital and ideal component to a sound, diversified retirement strategy.
