How much time did you spend in your twenties thinking about life insurance? If you’re like most people, not much, if any. The exception is if you lived through an experience where your family did–or, sadly, didn’t–have the safety net of life insurance when it was desperately needed. These people know that when tragedy strikes, the last thing you want to have to think about is money. For the rest of us, we tend to put off life insurance until age starts catching up with us or we have enough extra cash for a policy.
However, Modern Life Insurance™ isn’t just about giving your loved ones the financial provision of a death benefit. It’s a nearly unparalleled asset when it comes to tax planning for yourself and your beneficiaries, especially if you have a pension or a substantial IRA. And with new products available, you have increased flexibility of use. In short, life insurance isn’t just about protecting your life; it’s about taking the pressure off your other assets in the face of uncertainties like tax hikes, healthcare costs, and a rising cost of living. With that in mind, let’s look at how you can benefit from whole-life insurance at any age.
Young Adults: Building a Tax-Advantaged Asset Early
There is no better time to buy Modern Life Insurance™, specifically whole life insurance, than when you’re young. Your policy premiums will be much cheaper than if you wait until you’re older, and with whole life insurance, you can lock in your rates.
Buying whole life insurance when you’re young also gives you more time to build the cash value of your policy. Remember, this is tax-deferred growth that can be accessed tax-free. Imagine being able to take out a loan from your retirement account at any time you needed to, with no tax implications! This is why we recommend using whole life insurance as a retirement saving alternative: Much like a Roth, contributions are made with after-tax dollars, but you won’t have the income restrictions.
Let’s say you experience a life-altering accident or medical emergency in your 40s. Suddenly, your peak earning years grind to a halt. If you have a whole life insurance policy with a long-term care rider, you can access up to 96% of the death benefit or face amount for chronic illness or care needs. Without it, you may have to drain your retirement accounts, sacrificing growth potential and incurring penalties. Or, let’s say you’re perfectly healthy, but housing prices continue to outpace your savings while rent costs are on the rise. You could take a policy loan to cover the down payment, and then redirect your house fund savings toward repaying your policy loan.
Pre-Retirees: Locking In Stability and Diversification
As you approach your 50s or early 60s, there’s a good chance you have two things: disposable income and a need to reduce financial risk. With retirement just around the corner, it’s time to start thinking about how taxes, market fluctuations, and RMDs will impact your income.
As mentioned above, having a pension and/or a sizeable IRA has its drawbacks, specifically when it comes to tax planning in retirement. Since your withdrawals correlate to the size of your account, aggressive savers often find that RMDs push them into a higher tax bracket, with ripple effects impacting the tax treatment of your Social Security benefits. And all of those increased taxes eat away at how much is left over for your daily living expenses, meaning you’ll have to withdraw more, which triggers more taxes, and so on and so on.
With that in mind, it simply makes sense to prioritize a tax-free income stream for your retirement years. Yes, you’ll pay taxes upfront, but in return, you’ll get a guaranteed asset to supplement your income without impacting your taxes in retirement. You can access the cash value early on without selling assets and use tax-free policy loans to minimize taxable Social Security and IRA distributions. You can also use your policy to bolster your income without increasing distributions during a market downturn. Diverse options equal greater income stability–something every pre-retiree can benefit from!
Retirees: Legacy Planning and Long-Term Care
Once you’re retired, premiums for Modern Life Insurance™ are quite a bit higher than they are for younger demographics. Is it still worth purchasing? Absolutely.
One of the greatest challenges facing retirees is running out of money during their lifetime, and long-term care needs are a significant factor. Without proper planning, long-term care needs could cost you over $120,000 per year, which Medicare doesn’t cover! However, a whole life insurance policy with an LTC rider can be used for these needs, preserving your other retirement assets for your spouse, legacy goals, or anything else you want to prioritize.
Now, let’s say you don’t end up needing long-term care. A properly planned Modern Life Insurance™ plan can be structured to provide a 100% return of premium. Alternatively, you can leave the policy in place to guarantee a death benefit to your spouse or other beneficiaries. This can be especially helpful if you plan to leave a portion of your IRA to your loved ones, as the death benefit can be used to cover the taxes and maximize the impact of their inheritance.
Why Wait?
As the old saying goes, “The best time to plant a tree was 20 years ago. The next best time is now.” The same can be said for whole life insurance! While it is a more expensive asset than other retirement savings vehicles, the tax-planning benefits and flexibility offered by Modern Life Insurance™ products are simply unmatched. If you’d like to learn more about how we’ve helped countless others put these strategies in motion, reach out or attend one of our educational events.
