Retirement planning and life insurance seem related, but did you know they’re often paired together in one policy? A Life Insurance Retirement Plan (LIRP) is an alternative retirement investment that combines your life insurance policy with a source of funds for your retirement expenses.
The idea behind a LIRP is that if a person puts extra money beyond the minimum into a long-term life insurance policy, they can use that money or take out a loan against it. The key is the extra investment in the long-term life insurance policy. Term life insurance policies don’t have the same value; it has to be a life insurance policy.
How Does a Life Insurance Retirement Plan Work?
When making a premium payment on a cash value life insurance policy, a portion of the extra value goes into a tax-deferred, investment-like savings account that grows over time. Each individual’s policy and premium make the exact value of a life insurance plan different for everyone.
Once a person has invested in their life insurance account for a LIRP, they can use their money by withdrawing from it like a savings account or taking out a loan against it. When people use the cash value of a LIRP for a loan, they can use the money they receive as tax-free income while in retirement.
An issue for people with a high net worth or high living expenses is that they receive enough income from sources like 401ks in retirement that they enter a higher tax bracket. People often find themselves spending at such a rate that they find they are now within a higher tax bracket and are receiving penalties. In that case, people will choose to take out a loan against their life insurance because of the tax-free benefits.
Another factor is that both the loan and cash value option are not restricted by the same retirement age as a 401k or IRA. People below the threshold of 59 years old are not taxed for their loans against LIRPs.
Keen insights from professionals can make the difference between a comfortable retirement and settling for one you can afford. If you’re a high earner and want to know if a LIRP is right for you, get in touch with Matador Insurance.
Why Choose a Life Insurance Retirement Plan?
Nowadays, the more security you can find in retirement, the better. In the past, the market has destroyed retirement plans, and investments thought to be safe turned out not to be.
In uncertain economic times, a LIRP provides an alternative to market-backed retirement strategies. A life insurance retirement policy will not degrade; they provide a minimum of growth that ensures that money is safe regardless of the circumstances.
Beyond the security against the market, hedging yourself from tax rates increasing so that you can have safety from future tax hikes is another simple benefit of a life insurance retirement policy. As taxes rise, the tax-free loans against LIRPs are unaffected, relieving you of the fears and worry of higher taxes eating up your retirement funds.
The real benefit of investing in a life insurance retirement policy is the medical security you get from investing in life insurance. The long-term care benefits and the benefit from the policy itself provide a real-world value. The life insurance plan will take care of someone if they fall ill and ensure the policy value is given as planned.
As the final part of the LIRP, the death benefit outlined in the policy is paid tax-free to the recipients in the insurance plan. These plans offer considerations, and often the policy benefit is made available early so that there are no financial problems for the family when the death of a loved one occurs.
The loans taken out against the life insurance policy are taken care of upon payment of the death benefit. The tax-free benefit that’s paid to the beneficiaries is equal to the policy amount, minus the amount taken out in loans as a LIRP.
The experts at Matador Insurance are here for your retirement questions. In minutes they can help you understand your options and talk through a retirement plan that suits you. Everyone’s life insurance policy is different, coupled with existing 401k or other investments, and there’s a lot to consider when talking about a life insurance retirement plan.
If you’re receiving 401k contributions from your company, you may be better off investing in a 401k for the short term and then contributing to a LIRP later on. Every situation is unique, but there’s no situation where Matador Insurance can’t advise you. Reach out for a consultation today; proper retirement planning is something you’re never too early for.