Obtain Retirement Income That Beats Inflation With Whole Life Insurance

When it comes to budgeting for your retirement income, whole life insurance can be very beneficial. This may go against the grain of advice you get from investment salespeople, but I believe we have shown over the last ten years that whole life insurance serves as an excellent retirement income source that not only functions as such, but also does the job exceptionally well.

How Does Whole Life Insurance Help People Make Money?

It’s possible that you have seen whole life insurance proposals, or what we refer to as “illustrations,” where a static income figure for a range of years, say from your mid-60s to your mid-80s, was shown. Perhaps you said to yourself, “Hey, that’s cool.” I can use this life insurance policy to fund my retirement and collect X dollars annually.”

It’s rare for folks to actually do that, though.

Retirees typically use their assets to produce the necessary income and stop there.

In this regard, whole life insurance is not any different. Therefore, even though an insurance may be able to provide a specific amount of revenue, most users often use a lower quantity.

Additionally, there is a benefit for taking less money out of a whole life policy that will pay off later in life. Let’s examine an illustration.

The income outcomes for a 40-year-old man who buys a whole life insurance policy and makes annual contributions of $30,000 until he reaches 65 are displayed in this ledger. He starts drawing on the full life policy for retirement income at age 66. The ledger above is a sample of the entire book, which details the maximum income he might have earned between the ages of 66 and 100.

As you can see, he can make a respectable $72,561 annually with his complete life insurance coverage.

However, what if the beneficiary of this entire life insurance policy doesn’t require the $72,561 in income? What if, once retirement starts, he just requires $40,000 a year?

Here, we can see that during the first ten years of retirement, he may raise his income to $100,577 year if he uses his whole life insurance policy to fulfil his $40,000 in income demands. At current dividends, this increased income is sustainable until he is 100 years old.

By selecting this method, he would generate around 15% more income from his policy at age 100 than if he took the maximum amount—$72,561 annually—starting at retirement and continuing until he reached age 100. The approximate price difference is $375,000.

Income From Whole Life Insurance Is Sure To Improve

There’s no magic here, some of the astute readers may be thinking to themselves. After all, I can achieve the same goal of increasing my income in the future if I have $1.4 million in stocks and bonds and I take out a little portion of that amount as retirement income. I would answer, “Yes, theoretically,” to this.

As you can see, stocks and bonds may have comparable outcomes. This behaviour is also present in the hypothetical stock/bond portfolio that we may model using a static rate of return, as this exercise will undoubtedly demonstrate. However, there is a small but significant distinction: whereas bonds and stocks are intended to perform certain functions, whole life insurance is not.

With time, whole life insurance will get better. That’s what the contract promises to do. With a complete life contract, every year you reach a non-guaranteed result; the ensuing guaranteed components improve for every year after that. Thus, whole life insurance functions by promising a better income capacity in the future in exchange for a smaller income now.

Conversely, stocks and bonds can only achieve this goal if the rate of return continues to be positive. The way that stocks and bonds play out in this scenario also depends on the timing—or, perhaps more accurately, the sequence—of returns on the investment. You may have retired with an income that no one would consider too high. It is possible that a market correction may occur, bringing your account balance dangerously near to the point where you need to adjust your safe withdrawal rate. This is a common occurrence these days, and it will prevent you from taking more withdrawals following years of lower income.

Whole life insurance, however, is not the same. When it comes to whole life insurance, there is no “correction” occurrence. Whole life insurance proceeds mostly undisturbed in the interim when markets retreat. Large economic influences now have the ability to affect the life insurance dividend’s overall direction. This unfolded for us about from 2009 till the present. The Federal Reserve’s ongoing monetary “easing” raised interest rates to a new level, which eventually affected whole life insurance dividend payments. However, that took a while to happen, and the majority of whole life policies that pay dividends still have a competitive advantage over other savings plans with comparable risk profiles.

Nevertheless, it would be a mistake to ignore the unhindered advancement that whole life insurance policies are intended to provide. Reducing your whole life insurance policy’s payout today does not mean giving up the greatest amount of money you can get. The contract’s guaranteed features are the main factors that influence this attribute, even in the event that the dividend declines.