Even though Ed Slott, founder of IRAhelp.com, is an authority on IRAs and other retirement plans, he always emphasizes that permanent life insurance has significant benefits for long-term retirement planning. When compared to investing in taxable retirement accounts, the effects of the SECURE Act of 2019 only magnify these advantages.
I’ll go over a few aspects of permanent life insurance below.
Life insurance shields you from unanticipated future tax rates.
Payouts from permanent life insurance policies are not taxed.. If you don’t change your retirement accounts to Roth accounts, you’ll have to pay income taxes on the money you take out, and it’s likely that the tax rates in the future will be higher than they are now. You may also be subject to additional taxes, such as an increased tax of 3.8% on net investment income, depending on the size of the distributions from your retirement account. You can avoid the uncertainty of future tax rates and enjoy tax-free growth of the life insurance’s value by withdrawing funds from your retirement accounts on a regular basis and purchasing permanent life insurance.
Life insurance is not a cost but rather an investment.
Just as you wouldn’t think of investing in a retirement account as an expense, you shouldn’t think of life insurance as one. However, there is no stock market risk associated with investing in permanent life insurance.
Having life insurance gives people more control over their money.
When Congress wants to take more income taxes out of retirement accounts, it usually changes regulations in ways that hurt retirement account owners and beneficiaries. The SECURE Act’s recent regulations force beneficiaries to withdraw funds from traditional IRAs more quickly, increasing the government’s taxable income. When owners of retirement accounts are required to take required minimum distributions (RMDs), Congress decides. Permanent policyholders have control over whether they want to initiate loans or terminate life insurance coverage.
Leverage is a component of life insurance.
Many jobs can be accomplished with one dollar of premiums, and the outcome is guaranteed and tax-free. Life insurance can increase a retirement account’s initial investment by multiples, especially in the event of an early, unanticipated death.
Market risk is mitigated by life insurance.
It is true that retirement accounts may outperform permanent life insurance policies over prolonged periods of strong stock and bond market performance. However, when inflation is high, as it has been recently, both bond markets and stock markets can perform badly. Beneficiaries and investors who have retired in recent years face uncertain futures. Investors are now realizing that bull markets do not last forever and that a conventional 60/40 stock/bond portfolio does not always guarantee a secure financial future. In conclusion: Alternatives to a portfolio that only consists of stocks and bonds should be considered by people planning for a financially secure future for themselves and their beneficiaries. When planning for retirement, permanent life insurance should be taken into consideration.