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Insurance, Like Annuities, Helpful for Retirement

In “Three Insurance Policies That Could Help Pay for Retirement,” Jennifer Nelson discusses the benefits of annuities, permanent life insurance, and return of premium term life insurance.  Fox Business published the Insure.com article which stresses that you should first contribute all you can to your 401k plan and other tax benefit plans until you have maxed those out.  Most people underestimate the importance of insurance and don’t even know how it could help boost your retirement planning.

Annuities are a wonderful retirement supplement because they can fill the gap between your other investments and the money you will need coming in to fund your lifestyle.  One of their main benefits is that the taxes are deferred until you start receiving your income payments.  At that point, you are taxed at the rate of your particular tax bracket.  Variable annuities allow you to grow your money tax-deferred in accounts similar to those of a mutual fund, but they also offer guarantees like GMIB’s and GMWB’s for an added cost.  Indexed annuities are another good insurance option that help to limit your losses, although you may not get as large of gains as you could with other annuities.

By opting for a GMWB, you insure that you will receive income payments as long as you live, even if you deplete the money in your account.  Good markets typically offer 5 to 6% annual returns, so your payout can increase if your account value does.  Many annuities offer death benefits to your heirs and allow you access to your money after a surrender period of 6 months to 7 seven years.  Guaranteed growth and withdrawals are excellent insurance company benefits that take away your market risk while still allowing you to participate in the upside of a bull market.  Of course, annuities are not the best product for every retiree, but they are a good insurance product to look into to supplement your Social Security and any pension income.

With permanent life insurance, you build up a cash value in your account.  You can then take loans against that cash value, especially useful if you retire at a young age and can’t access other more traditional retirement money.  Taking a loan against the account reduces the future death benefit, but it can really help high earners who don’t have access to any more tax-deferred ways of saving.  There is also a special kind of term life insurance called return of premium term life insurance.  If you are still alive at the end of your term, you get all of the premium money you paid in back.  But it costs much more than a traditional term insurance policy would cost.  If you are looking for different ways to fund your retirement, insurance policies like annuities might be the way to go.

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