, ,

Why Life Insurance is Necessary For Retirement

5111 398dc186b7b2d29af0740c870d001b7b 758x505 - Why Life Insurance is Necessary For Retirement

 

Many people do not view life insurance as an essential and vital part of a retirement income plan. They see life insurance primarily as a way to protect families from the early loss of a breadwinner during the working years. However, life insurance has the potential to be so much more if properly utilized in a comprehensive retirement income plan.

Thinking about financial protection and retirement can seem overwhelming, but as your life changes so does your financial situation. Unfortunately, many people do not fully understand nor appreciate the value and benefits that life insurance can represent as part of a retirement plan. Having the correct type of life insurance and the appropriate amount of life insurance coverage in retirement will accomplish multiple jobs. It can help protect your income, provide tax-free cash flow, help manage taxes, provide peace of mind to families, and even improve the total returns in a portfolio.  Here are a few strategic ways to utilize life insurance as part of a comprehensive retirement plan:

life insurance - Why Life Insurance is Necessary For Retirement

Keep Your Retirement Savings on Track

According to retirement income expert Curtis V. Cloke,  “In the 10 years leading up to retirement, many couples find themselves playing catch-up on their retirement savings. During this period, if one spouse dies, the surviving spouse could end up being severely short on retirement savings.” For this reason, Curtis recommends buying a 10- to 15-year term life insurance policy on both spouses prior to retirement in order to protect the retirement savings plan. Cloke notes that the premiums for this term policy could be very inexpensive, so it will not place a huge financial burden on the couple.

 

Improve Your Investment Asset Allocation and Returns

money growing  300x200 - Why Life Insurance is Necessary For Retirement

With interest rates close to historical lows, bonds and CDs are not an attractive investment for many retirees today. However, most people still need some safe investments and assets in their retirement income portfolio. Tom Hegna, a professional retirement planning speaker, author, and host of the popular PBS TV special “Don’t Worry, Retire Happy!”, suggests positioning life insurance as a substitute for bonds in a retirement income portfolio. “Right now bonds have very little upside. They are only paying in the 1 to 3 percent range. Yet the risk of holding bonds is very high. If interest rates rise, the downside risk to bonds could be 20-30 percent or more.” Hegna recommends that “retirees should consider a whole life policy as a bond substitute for some or all of their bond portfolios. The life insurance policy can provide bond-like returns of 3 to 5 percent without the interest rate risk of a bond.”

 

taxes 300x150 - Why Life Insurance is Necessary For Retirement

Manage Your Taxes

Russ DeLibero, who holds a PhD in Financial and Retirement Planning, notes that there are tremendous uses of life insurance in a retirement income plan because of the preferential tax treatment that life insurance receives. According to Dr. DeLibero, “When properly structured, life insurance can provide tax-deferred growth, tax-free cash flow, and a tax-free death benefit. The tax-preferential treatment provided to life insurance allows an individual to have greater flexibility over which dollars to use during retirement, and depending on the type of life insurance, it can also provide a non-correlated asset to the portfolio providing additional diversification.” With tax rates constantly changing, life insurance can also function as a hedge against future tax rate hikes. “The tax-preferential treatment of life insurance can be especially advantageous for individuals in a higher income tax bracket or as a hedge against a rising tax environment. As taxation rises, tax-free cash flow becomes more advantageous.” Tapping into cash value income tax free can be a great way to supplement a retirement income plan and, at the same time, help manage taxes.

Comments

Leave a Reply

Your email address will not be published.

Loading…

Comments

comments