Save. Diversify. Guarantee!
We’ve all received the advice to “save for rainy days” and “don’t put all of your eggs in one basket”. Today, more millennials are discovering how to add a layer of security to their saving for retirement strategy, by utilizing financial tools that will guarantee a better, more secure retirement. For decades, these tools have been successfully used by wealthy individuals and now millennials and GenX-ers are becoming more and more familiar with these accessible, smart ways to cushion their future life. These tools not only provide more flexibility in HOW and WHEN you can use your retirement funds, they can also offer solid guarantees.
Popular retirement instruments:
- Traditional Retirement Accounts & 401(k)
- Roth IRA
- HIGH cash-value life insurance
- Annuities
In this article we’ll focus on the lesser-known tools used for retirement planning.
As some of the traditional retirement tools have certain income and contribution limitations as well as minimum withdrawal age set by the IRS, savvy millennials are turning to alternative, more flexible financial tools like high cash-value life insurance (IUL & whole life) and annuities specifically designed to supplement retirement savings.
HIGH Cash-Value Life Insurance
This is a new asset class, different from the traditional retirement tools yet similar in the way it can supplement future retirement income while having increased liquidity. If set up right, certain life insurance policies can grow equity in the form of cash-value, which can be withdrawn as loans against the death benefit. These “loans” don’t have to be paid back as long as the policy stays in force. A good strategy is to contribute into the cash value growth until your planned retirement age, then withdraw funds from the cash value periodically to supplement your available retirement funds. There are no minimum or maximum age limitations, no restrictions on how much you may withdraw from your cash value and no “loan” qualifications to worry about.
How does the cash value grow in your life insurance policy?
Because portion of the premiums paid on this type of policy is considered “overpayment” for life insurance purposes, the insurance company will utilize your funds and return a dividend creating a continuous cycle of growing interest. The power of compound interest will grow your cash-value by adding “interest to interest” while offering two main components usually missing from other retirement tools: guarantees and protection.
- Guarantees included in your retirement strategy with a cash-value life insurance: You’ll have a minimum guaranteed growth in your cash value which will grow your cash value when the market trends are moving up, while ensuring you’re not losing your funds when the market is down. This “upside potential with downside protection guarantee” is unique to this financial tool, that’s why it has been used by savvy investors to add flexibility and diversification to their retirement strategy. Additional layers of guarantees can be added to protect against loss of income due to major illnesses or accidents that can stop your contributions to your retirement funds. Ask us how you can guarantee your contributions to retirement funds even if your income stops due to an illness, accident, etc.
- Protection of your funds is built-in the cash-value life insurance plans and is the main pillar of the life insurance contract. This is not a regular “you gotta die to get paid” type of life insurance, instead you can take advantage of the LIVING BENEFITS of a cash-value life insurance in a multitude of ways: benefits paid to YOU if you get sick, retirement contributions can continue even if you lose your income.
Below is a list of potential LIVING benefits you can receive if you have a cash-value life insurance:
- Policy loans: Borrow against the cash value of the policy, often at a low interest rate, without needing a credit check. The policy serves as collateral, and the loan doesn’t require repayment if there’s enough cash value to cover the interest.
- Withdrawals: Take funds from the policy’s cash value, potentially tax-free up to the amount of the premiums paid. Withdrawals above the total premiums paid may be subject to income tax.
- Partial surrenders or partial withdrawals: Take out a portion of the cash value while keeping the policy in force. These may have tax consequences and can affect the death benefit.
- Use as collateral: Utilize the cash value as collateral for a loan from a bank or financial institution, often at favorable terms.
- Policy dividends: If applicable, receive policy dividends that can be taken in cash, reinvested, or used to pay premiums.
- Estate planning: Utilize the policy as part of an estate planning strategy, taking advantage of its tax-deferred growth and potentially tax-free death benefit for beneficiaries.
- Supplement retirement income: Use the cash value as a source of supplemental income during retirement, especially if other income sources are limited.
- Long-term care funding: Use riders that allow the acceleration of the death benefit to cover long-term care expenses, such as nursing home care or in-home assistance, if the insured becomes unable to perform certain activities of daily living.
- Critical illness benefit: Receive a lump-sum payment upon the diagnosis of a critical illness specified in the policy, helping to cover medical expenses and other costs associated with the illness.
- Terminal illness benefit: Obtain a portion of the death benefit if diagnosed with a terminal illness, providing financial support during the final stages of life.
- Waiver of premium: Ensure that if the policyholder becomes disabled or unable to work due to injury or illness, the insurance company waives future premium payments, keeping the policy in force without the insured having to make payments.
These benefits can significantly enhance the overall value of a cash-value life insurance policy, providing financial security and flexibility during the policyholder’s lifetime.
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