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Retirement Planning > Retirement Investing

Climbing down the retirement mountain

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In my last post, I talked about comparing retirement to not only climbing up the mountain but also safely back down. Your clients work hard their whole life to accumulate money (climbing up the mountain). However, when they are ready to climb down (enter retirement), are they feeling confident? Or are they afraid they will run out of money?

What if I told you that the traditional thinking of having a large dollar amount of money saved may not be what really matters most? If you utilize your retirement money with whole life assets, you may be able to maximize your income streams. Are you shaking your head at me? Let’s look at an example.

Suppose your client has built up $2 million in retirement assets and withdraws a safe 3 percent indexed to CPI. He knows that, at this percentage, he will have enough for 30-35 years in retirement. But what happens if he needs extra money for an unforeseen medical expense? He’d also like to leave a legacy to his grandchildren, but if he outlives his assets, he doesn’t have any money to leave them.

Now imagine this scenario. At retirement, he puts $1 million in retirement accounts and uses the other to buy a whole life insurance policy. Because he owns the whole life assets, he trades the first $1 million for an income annuity, which provides him with guaranteed income that cannot be outlived. The whole life asset is left for use in the event of market volatility, unplanned expenses and legacy for his heirs.  

See also: Legacy planning with annuities

Even though his traditional assets might be smaller, he can use more of them by drawing a higher distribution rate, (compare 7-10 percent to 3 percent), because he has covered it with a death benefit that is guaranteed. The income annuity, of course, stops at death and the remaining funds are kept by the insurance company. However, the death benefit from the whole life insurance policy is there to cover any outstanding expenses and leave a legacy to his grandchildren.

If you’ve never thought about utilizing this strategy to help your clients, I challenge you to have a second look. Help your clients enhance their retirement income by using both retirement assets and whole life insurance assets.

*All guarantees are subject to the claims paying ability of the issuing insurance company.

**All numeric examples listed are hypothetical and provided for explanatory purposes only. These examples are not intended to represent typical cost or performance.  

For more from Jeffrey Smith, see:

Retirement savings: It’s not about the account balance

How to revolutionize your clients’ thinking about retirement

Helping your clients understand their life value


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