Previously we discussed
how Life Insurance can help plan for many life’s challenges; death,
disability and retirement. It’s obvious
that Life Insurance provides a lump sum amount of capital. Yet sometimes people overlook the concept that
Life Insurance can provide retirement income.
Here’s how it would work.
I am in not saying that Life Insurance provides ALL the money one would need for a
steady stream of retirement income. Rather
I consult clients to use Life Insurance as a SUPPLEMENTAL SOURCE OF RETIREMENT
INCOME. This source can
be used to supplement what I call the three-tiered approach to retirement
planning; Social security, Company sponsored retirement plans such as a 401(k)
or your own IRA, and your own savings plans.
There are three forms of
Life Insurance policies that can help you accumulate the necessary capital to
supplement your retirement. They
are Whole Life, Universal Life and Index Universal Life. We will differentiate between these plans in
later articles but for now let’s just concentrate on the basics.
Life Insurance accumulates
money on a tax-favored basis. It operates much like your 401(k) and an IRA
because all gain is TAX-DEFERRED. You
will not receive a 1099 statement every tax year. In addition, you can also withdraw your money
on a tax-free basis. This can help offset
the money that you withdraw from a 401(k) and an IRA because those two vehicles
are completely taxable.
In addition, the money accumulates on a guaranteed basis. Keep in mind that the current dividend does change but every year the interest rate is set, it is guaranteed for a certain period of time, usually one year.
There is one last benefit from cash value Life Insurance. Everyone is aware of market volatility. This past January, the market fell off by
10%. Imagine you are withdrawing money
every January. Such a withdrawal would
hurt your portfolio because you are redeeming more of your capital. Instead of withdrawing money from the account
that’s losing, consider withdrawing from the Life Insurance policy. Most all companies offer such flexibility.
Next we will show you how to handle a disability through Life Insurance.