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