April showers bring May flowers. The old saying reminds us that while rainy weather isn’t ideal, it usually leads to better days ahead. Of course, rainy days in your retirement strategy are a different story. An emergency or unexpected financial setback could disrupt your plan and limit your ability to enjoy a comfortable retirement.
Fortunately, there are tools you can implement to protect yourself from financial rainy days in retirement. One of them is life insurance. Yes, life insurance is primarily used as a protection tool for death, but that’s not the only thing it can be used for. In fact, it offers several benefits that could help you overcome a wide range of financial challenges in retirement.
Is life insurance a part of your retirement strategy? If not, it may be time to consider it. Below are three ways you can use life insurance to protect yourself from financial rainy days:
Death Benefit Protection
A wide range of risks could threaten your retirement strategy. There’s market volatility, inflation, health care costs and much more. Death is one of the biggest risks, however, because of the financial challenges it could create for your surviving spouse.
Life insurance helps your spouse and other dependents overcome those challenges. They receive a lump-sum, tax-free benefit that they can use to cover living expenses, pay down debt or fund the remainder of their retirement.
It’s natural to become more conservative as you enter retirement. However, many retirees make the mistake of eliminating risk altogether from their strategy. Often, risk-free investments also have limited growth potential. If you don’t continue to increase your assets throughout retirement, you may struggle to keep up with inflation or to fund your lifestyle.
Some life insurance policies offer cash value accounts that can grow on a tax-deferred basis. For example, whole life policies pay annual dividends. Universal life policies pay interest. Indexed universal life policies offer variable interest rates linked to the performance of a market index.
All of these policies offer downside protection. You can grow your cash value on a tax-deferred basis, but you’ll never lose money because of market volatility.
When you face a rainy day in retirement, you may need a little supplemental income. A life insurance policy can provide that extra income, and it can do so on a tax-free basis. You can always withdraw your premiums tax-free from your policy’s cash value. Premium dollars are distributed before accumulation, so your initial withdrawals are usually tax-free.
You also have the option of taking tax-free loans from your life insurance policy. These distributions can include either premium dollars or growth. The distributions have to be repaid, and that’s usually done as an add-on to future premium payments. If you pass away without repaying the loan, the balance is deducted from the life insurance policy.
You can use your life insurance cash value to generate regular, predictable, tax-efficient retirement income, or you can simply keep it as a rainy-day fund to cover unexpected costs and emergencies.
Ready to establish your life insurance rainy day fund? Let’s talk about it. Contact us today at First Fidelity Group. We can help you analyze your needs and implement a strategy. Let’s connect soon and start the conversation
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18673 - 2019/3/20
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