Working Funds: 3 Ways to Cash in on Life Insurance for Retirement. The good news is that you don’t have to die to use your life Insurance. Life Insurance for Retirement isn’t suitable for everyone but can be a big boost for those who maximize the potential benefits of Cash Value Life Insurance.
Here’s how to put the new policies to work for you, such as life insurance to fund your retirement. Hopefully, you finally stop asking, “Should I keep my life insurance in retirement?”
By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™
Life Insurance For Retirement: Financial Planner Outlines How
Old school insurance: You die, your beneficiary gets your death benefit. A prime example is the free $50,000 term policy you may get from work. To be expected, you have to die to use it, which is all right and good for your beneficiaries. But for you?
Not so much.
In contrast: Newer kinds of life insurance policies offer several benefits that you can use while you are still breathing . . . think cash value, living benefits, and lifetime income options. It may sound wild, but you could even retire from your life insurance policy.
I’m not pitching any specific product or company here but merely hitting the highlights. Of course, not all companies or all policies will offer the same benefits, and you’ll probably want some advice from a savvy financial planner who keeps up to date on what is available. (Fair warning: not all of them do.) But the suitable life insurance riders (additional added benefits) can provide more options than you may have previously imagined, increasing your odds of coming out ahead financially while you’re still among the living.
Here are my three favorites:
Option 1: RICH PEOPLE ROTH –
I basically call the cash value on permanent life insurance a “Rich People ROTH” because it’s most useful for people who make too much money to use a regular Roth IRA or for those who have already maxed out their other retirement accounts and want to save more money tax efficiently.
If you set up the policy properly, you could save any amount you want into the life insurance policy, and the cash value would be treated like a ROTH. That means your contributions not only grow tax-free but come out tax-free, too. The bottom line is you are using Life Insurance for retirement income.
Extra Credit: If you are self-employed and make over $280,000, you should check out the Rich Person Pension.
Option 2: LIVING BENEFITS –
There are many health-related living benefits and riders that can be added to policies at different insurance companies. The three most common benefits cover Terminal Illness, Chronic Illness, and Critical Illness coverage. Other policies may come with benefit that cover Long Term Care costs (also often covered by the Chronic Illness rider) I won’t bore you will all fun diseases and ailments that may be covered. Thbenefits that cover Long Term Care costs (also often covered by the Chronic Illness rider). I won’t bore you with all the for years with a chronic illness versus simply passing away too soon (which has some definite downsides too).
No one buys insurance hoping to get sick but rather to diminish the potential for financial devastation that can occur if you do, particularly later in life. Since health insurance can’t do it all, these living benefits will help you have more options to cover costs that can grow exponentially. This coverage will mean that life insurance protects your other income during retirement.
Option 3: PERSONAL PENSIONS –
You can also strategically use the cash value as a personal pension. Some policies will have a “lifetime income rider.” If you plan ahead and stash enough cash into the policy, you can essentially create your very own pension that comes out to you tax-free—literally taking tax-free income from your life insurance for retirement.
The LGBT Life Insurance Picture
As a community, LGBT people tend to be underinsured at a greater rate than the rest of the country. However, the new options in today’s life insurance policies may make them a better fit for both the coupled and the single. I bought my first policy long before I met my handsome husband. Life insurance can be a great way to play catch up for those behind retirement savings.
Also, as life expectancy has increased, premiums have decreased. I’ve reviewed several policies sold in the 1980s and got lower premiums. Not to mention better coverage on a new policy, even with my client being nearly 30 years older. This means that even old policies may deserve a review.
Most of us hope to die peacefully in our sleep – preferably after a lovely meal with lots of carbs and wine – when we are 100+ years old. I wish this for myself, and I want to this for my husband, and I wish it for you. Meanwhile, since there are no guarantees, a good life insurance policy can make the best of the uncertainties that are part and parcel of being alive.
Related: How Much Life Insurance Do You Need?
Live for Today, Plan for a Richer Tomorrow. Protect Your Future with a Life Insurance Policy in Los Angeles.
DAVID RAE, CFP®, AIF® is a retirement planning specialist with DRM Wealth Management. He has been helping people reach their financial goals for over a decade. He is a regular contributor to the Advocate Magazine and Forbes.com Huffington Post and is an in-demand guest on all the major TV stations. For more information visit his website at www.davidraefp.com
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Connect With David Rae, Financial Planner LA
David Rae, CFP® AIF®
President / Founder DRM Wealth Management LLC
1(323) 905-4380
david.rae@financialplannerla.com
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