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. Secure Your Future: Life Insurance vs Retirement Accounts
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. Secure Your Future: Life Insurance vs Retirement Accounts
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. Secure Your Future: Life Insurance vs Retirement Accounts
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. Secure Your Future: Life Insurance vs Retirement Accounts
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.
Sure, here’s an article comparing life insurance and retirement accounts, formatted with subheadings and SEO in mind:
Life Insurance vs Retirement Accounts: Which is Right for You?
When it comes to planning for the future, there are a lot of options to consider. Two of the most popular ways to save for retirement are through life insurance and retirement accounts. While both options have their advantages, there are some key differences to consider before making a decision.
What is Life Insurance?
Life insurance is a type of insurance policy that provides financial support to your beneficiaries if you were to pass away. There are two main types of life insurance: term life insurance and permanent life insurance.
- Term life insurance: This type of policy provides coverage for a set period of time, typically 10-30 years. It is usually the more affordable option, making it a popular choice for younger individuals who may not have as many financial obligations.
- Permanent life insurance: This type of policy provides coverage for your entire life and typically includes a savings component that can grow over time. While it is generally more expensive than term life insurance, it can provide more long-term benefits.
What are Retirement Accounts?
Retirement accounts are specialized investment accounts designed to help you save for retirement. There are several types of retirement accounts, including:
- 401(k): This is a type of retirement account offered by employers. Employees can contribute a percentage of their income and may receive matching contributions from their employer.
- Individual Retirement Accounts (IRAs): These accounts are available to individuals and can be opened at most financial institutions. There are two main types of IRAs: traditional and Roth. Traditional IRAs allow you to deduct contributions from your taxable income, while Roth IRAs offer tax-free withdrawals in retirement.
Pros and Cons of Life Insurance
- Provides a death benefit to beneficiaries if you pass away
- Can offer additional benefits like cash value accumulation and tax-free withdrawals
- Offers flexibility in choosing coverage and policy terms
- Generally more expensive than retirement accounts
- May not be necessary if you don’t have dependents or significant financial obligations
- Limited investment options
Pros and Cons of Retirement Accounts
- Offers tax advantages, including tax-deferred growth or tax-free withdrawals
- Can provide matching contributions from your employer
- Offers a wide range of investment options
- Penalties for early withdrawals before age 59 1/2
- Required minimum distributions (RMDs) starting at age 72
- Limited flexibility in terms of contribution limits and investment options
Which Option is Right for You?
Ultimately, the decision between life insurance and retirement accounts will depend on your individual needs and goals. If you have dependents or significant financial obligations, life insurance may be a good choice to provide financial support in the event of your death. If you are looking to save for retirement and take advantage of tax benefits, retirement accounts may be the better option. In many cases, a combination of both options may be the best approach to achieve your financial goals.
Whether you choose life insurance, retirement accounts, or a combination of both, it’s important to have a plan in place for your financial future. Consider your goals, financial obligations, and personal circumstances before making a decision. By taking the time to plan and invest in your future, you can ensure that you’re on track to achieve your financial goals.