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4 Ways Permanent Insurance Helps Retirement

There is a common mantra echoed throughout the financial community that “you won’t need permanent insurance in retirement.”

Because you have been such a responsible saver and a prudent investor, it’s probable that you won’t need any permanent insurance product once you start taking retirement income.

However, below are 3 powerful reasons why you may want some permanent life insurance for retirement allocated amongst your portfolio even though you may not necessarily need it.


#1: Permanent Life Insurance as a Risk-Buffer in Retirement

Permanent life insurance is completely uncorrelated to the stock market. It has a unique growth methodology where you get to participate in the insurance company’s underwriting profits including profits they make from their other non-permanent life insurance products. Not only that, but there is a contractual growth rate on your cash value guaranteed to you throughout the life of the entire contract even if there are no profits.


So with a block of permanent life insurance, you have some form of bedrock at the base of your portfolio.


If there is a market crash and you have a block of assets allocated to permanent life insurance during retirement, you could take your immediate income needs from your policy, thereby allowing your stocks and mutual fund accounts to heal. Otherwise, in a down market, you must redeem significantly more shares of your stocks or mutual funds to meet your ongoing standard of living.


Once consumed, these shares can no longer participate in the next market rebound. If you could only wait until the market recovered or better yet achieved new highs, you could redeem far fewer shares of your stocks or mutual funds to produce the exact same income. Picture yourself with a pool of assets immune from the crash inside of permanent life insurance so you can still enjoy an uninterrupted standard of living during these years while your stock portfolio licks its wounds.


#2: Permanent Life Insurance as a Tax-Buffer in Retirement

Many high-income-earners are unaware that the tax-treatment of permanent life insurance is very similar to a Roth Account, only without all the barriers to entry. Because there are no high-income limitations and no $5,500 annual maximum on contributions, permanent life insurance is often called “the Roth of the rich.”

So although you may not need any permanent life insurance during retirement, you will probably want it for its tax treatment.


Here’s why:

Most of your other sources of retirement income will be taxable in some way, shape, or form. None of the following are immune from Uncle Sam:

  • Rental Real Estate

  • Taxable Brokerage Accounts

  • Tax-Deferred Annuities

  • Social Security

  • Deferred Compensation plans

  • Retirement Accounts IRAs, 401(k)s, Profit Sharing Plans, Defined Benefit Pensions, etc.

Imagine withdrawing amounts from your taxable sources right up until you reach those really ugly tax-brackets and then supplementing the rest of your desired lifestyle using permanent life insurance's tax-exempt distributions.


The more that tax rates rise for the wealthy, the more you will wish you had assets allocated to permanent life insurance. Even if some alleged “tax reform” occurs in the future, remember that there will be gravity for the pendulum to swing back the other way. You can either proactively prepare or react and adjust.


#3: Permanent Life Insurance for its Death Benefit in Retirement

Once informed about the unique tax and risk-management characteristics of permanent life, the death benefit is often the least appealing feature for clients. However, you shouldn’t discount the utility of a permanent death benefit in the context of retirement planning.


Here’s what I mean:


If you knew that you had a guaranteed accounts-receivable that your spouse and children would receive tax-free at your death, wouldn’t you increase your consumption of retirement assets during your lifetime?


Of course you would!


The existence of a permanent death benefit allows you to more aggressively spend down other assets in your portfolio. Even if you fully exhaust your other accounts shortly before life-expectancy, there would be so much available cash value inside your permanent life insurance policy for retirement income. Not to mention you would have an even bigger tax-free death benefit to replace the part of your nest-egg you consumed.


What if you got chronically ill or critically injured?


Statistics show that one out of two retirees will need some sort of “Long-Term Care” whether in a facility or in the comfort of their own home.


Did you know that certain permanent life insurance policies have special riders or policy stipulations that allow you to legally access the tax-free death benefit for these reasons even though you haven’t died?


#4: Permanent Life Insurance as a Better Holding Tank for Pre-Retirement Liquidity


Everyone needs to keep a certain amount of safe and liquid reserves, especially on the way to retirement.


If you’re a real estate investor or business owner, you probably have considerably more money in cash than you have invested in the market. Even for W-2 employees, the rule of the thumb is to have somewhere between 6-12 months of expenses in cash.


That way you can tap your reserves without worrying about any kind of losses. Usually, when cash is truly king, the sky is falling everywhere else.


Keeping 5 or 6 figures parked in cash creates a lost opportunity cost, meaning you’re costing yourself all the growth you’re NOT earning on that money.


What if you used permanent life insurance as the receptacle for your safe and liquid reserves instead?


What if you kept enough in your checking account to manage your month to month expenses, while your longer-term reserves were compounding safely inside in a permanent life insurance?


Did you know that the 2 biggest banks in America each have over $20 Billion


Dollars of their customers’ deposits invested in permanent life insurance policies taken out on their key executives?


They know the contractual guarantees of life insurance are the only way to simultaneously keep money liquid and grow it without taxes or market risk.


Let’s not forget too, that being liquid at the right time can substantiality boost your retirement savings. Think about all the opportunities you could have capitalized on if you were highly liquid following the crash of 2008. What you wouldn’t do is cash out stocks that lost 50% to buy depressed real estate or vice-versa.


Maybe if your cash equivalents actually got some kind of decent growth rate (like it can in Whole Life insurance), you wouldn’t mind keeping more of your assets safe and liquid. There would be no need to press in good years since your permanent life insurance wins every year, and no need to worry when the sky starts falling again.


Imagine the positive impact on your retirement if you had all your assets working for you all the time, even your safe and liquid cash… or cash value rather. You would be well-positioned to capitalize on timely opportunities whenever the sky starts falling again, without a lost opportunity cost while you wait.


Most people overlook the unique utility that permanent life insurance can provide to clients wanting to maximize their net-spendable income throughout retirement. Permanent life insurance rare growth methodology and favorable tax treatment make it the ideal complement to a diversified portfolio of retirement assets.



Matt Barks

Managing Partner/Founder





Two Economic Powers Approach


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