When planning your retirement, you're probably not thinking of life insurance as an alternative to things like a 401(k), IRA, or a traditional investment portfolio of stocks and bonds. But life insurance can provide a great deal of financial flexibility and tax advantages that these other options may be missing.
The best retirement strategy is to have a balanced portfolio, and thanks to increasing market volatility, permanent life insurance is a safe, steady product that can balance out riskier elements such as stocks and bonds.
Let's take a look at how life insurance stacks up against traditional sources of retirement income.
Permanent Life Insurance vs. Traditional IRA / Qualified Plan
With life insurance, you get a list of flexible financial features including:
- YES: tax-deferred accumulation in your cash value account
- YES: tax-favored withdrawals from that account
- YES: tax-free death benefit
- NO: contribution limits
- NO: penalty tax for early withdrawal (as long as your policy is funded over time, and not in one lump sum)
- LIMITED: market risk
Now, let's take a look at what a traditional IRA or qualified plan has to offer:
- YES: tax-deferred accumulation
- NO: tax-favored withdrawals
- NO: tax-free death benefit
- YES: contribution limits
- YES: penalty tax for early withdrawal
- YES: market risk
With life insurance, you're getting more tax advantages without contribution limits. You're also limiting your market risk, which is a good thing when electronic trading can send the stock market down a few hundred points at a moment's notice.
Of course, the most important benefit of all is the financial security and peace of mind you're giving your loved ones.
Have questions? Give me a call or send me an email today!
Note: Policy loans and partial withdrawals may vary by state, reduce available surrender value and death benefit or cause the policy to lapse. In most cases, policy loans or partial withdrawals won't be taxable as long as you limit your withdrawal to the amount of premiums you've already paid. Consult all policy documentation or your agent for details.