4 Ways Life Insurance Helps With Retirement Planning | Senior Finance Advisor (2024)


October 3, 2018


October 3, 2018

Life insurance is often seen as an ‘extra,’ rather than an essential part of retirement planning. Learn why life insurance should play an important role in your financial plan to not only help you recover from financial risks and unexpected costs, but also help you reach your long-term goals and give you financial peace of mind.

There are many misconceptions about life insurance. Most people view life insurance as a preventative measure to help protect families from the loss of a spouse during working years. The reality is that life insurance has the potential to be so much more in terms of retirement planning. Christopher Graham, Financial Services Professional with NYLIFE Securities LLC, comments:

“Life insurance as a tool has so many different uses. It can supplement for peoples’ unique needs, whether to protect income and assets on the risk management side or to earn tax-deferred growth and provide a tax-free cash value on the investment side. Generally, there is a lack of knowledge around life insurance and how it can help families—I would say more often than not people need some education.”

As America is reaching retirement age in record droves, it’s important to learn and take advantage of the many retirement opportunities available, including life insurance.

Financial Protection Is Important

Life insurance plays an important role in any financial plan by not only helping loved ones recover from financial risks and unexpected costs, but also by increasing their chances of reaching long-term goals and golden years quality of life. Since life insurance is based on age, health and occupational hazard, the earlier you get life insurance, the better – as the plan will be less expensive when you are younger as you are considered ‘less risky.’

Many seniors today are not prepared for retirement for a multitude of reasons, including the recession, caregiving, other financial priorities, to name a few, and life insurance could help provide some financial cushion in retirement. Here are a few ways life insurance can enhance your retirement plan:

1. Income Protection in Retirement

Protection from an untimely death is important for any long-term financial plan. When a spouse passes away, the surviving spouse often struggles to make ends meet. This is the traditional perspective of why life insurance is needed to ensure there is enough money to replace loss in income or Social Security benefits. Graham notes, “If you lose a spouse and you lose $2M in human capital, or the amount of income determined by that person’s paycheck accumulation over time, life insurance kicks-in to help a family and provide peace of mind.”

2. Keep Retirement Savings on Track

Many Americans find themselves playing catch-up on their retirement savings as retirement approaches. A 10- to 15-year term life insurance policy for both spouses prior to retirement protects the savings plan in case unforeseen events happen. The premiums for this term policy are typically inexpensive, so there’s not a huge financial burden on the couple. A policy that converts into a permanent policy, such as a convertible term policy, helps protect insurability if health changes.

3. Improve Investment Asset Allocations and Returns

Interest rates are close to historical lows and bonds and CDs are not as attractive of an investment for retirees today. Insurance provides another option as a safe investment to balance retirement portfolios. For example, a whole life policy as a bond substitute for bonds is an option to provide returns of 3 to 5 percent, without the risk. Every person and portfolio are different, according to Graham, and an insurance services professional can help you figure out what formula makes the most sense for your own unique situation. He notes:

“Life insurance planning needs to be in sync with investment allocations and returns. I’m a holistic planner, and I believe that clients’ portfolios and life insurance needs should be planned together. I practice ‘macro aspect perspective’ that bundles both sides together to get statistics to tell their financial situation and help to inform goals for short-term and long-term planning.”

4. Manage Your Taxes

There are tremendous uses of life insurance in a retirement income plan because of the preferential tax treatment that life insurance receives. For example, when structured right, life insurance can provide tax-deferred growth, tax-free cash flow and a tax-free death benefit. Tax-preferential treatment in life insurance allows you to have greater flexibility over which dollars to use during retirement, and depending on the type of life insurance, can also provide a non-correlated asset to the portfolio for more diversification. For individuals in higher tax brackets, tax-preferential treatment of life insurance can be beneficial. Graham discusses:

“The way life insurance is viewed in the country is very positive as it takes a huge burden off the country’s resources. The IRS favors insurance plans and there are many tax benefits to people who take advantage of life insurance benefit plans. For retirees, tapping into cash value income tax-free can be a great way to supplement a retirement income plan.”

Deciphering an Insurance Plan That Works for You

Unfortunately, many people do not fully understand nor appreciate the value and benefits that life insurance can contribute to a retirement plan. Having the correct type of life insurance and the appropriate amount of life insurance coverage in retirement will accomplish multiple jobs. It can help protect your income, provide tax-free cash flow, help manage taxes, provide peace of mind to families, and even improve the total returns in a portfolio.

When it comes to figuring out a plan that works for you, connect with a professional. Graham discusses:

“People are often scared of life insurance as they have many uncertainties about being too old or not healthy enough to qualify, questions about the cost, and not fully understand how the different offerings work. I recommend anybody of any age not be afraid to reach out to an expert. Ask friends who they’re working with or do research on agents in the area. It is very simple for us to get someone pre-approved these days – they just need to submit an application and the provider will schedule a time for a home-health exam.”

Is Life Insurance Part of Your Retirement Planning?

When it comes to preparing for the future it’s important to work with someone who has the foresight and proven experience to help you navigate life’s changes successfully. Whether you’re getting ready for retirement or looking to protect what you’ve worked for, an insurance agent can help.

About Christopher Graham

Christopher Graham is a Financial Services Professional helping individuals, families, and business owners to create, build, and preserve wealth. He is an Agent licensed to sell insurance through New York Life Insurance Company and may be licensed with various other independent unaffiliated insurance companies. Additionally, he is a Registered Representative of and offers securities products & services through NYLIFE Securities LLC, (Member FINRA/SIPC), A Licensed Insurance Agency.

NYLIFE Securities LLC offers a variety of products that can help clients meet a number of insurance and financial needs, including, but not limited to college funding, retirement, managing costs for extended periods of care and lifetime income strategies.

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As a seasoned financial services professional deeply entrenched in the world of life insurance and retirement planning, let me cut straight to the chase. The article you've shared, dated October 3, 2018, sheds light on the often underestimated role of life insurance in retirement planning. Christopher Graham, a Financial Services Professional with NYLIFE Securities LLC, provides valuable insights into the multifaceted uses of life insurance beyond the conventional notion of safeguarding against the loss of a spouse during working years.

Here's a breakdown of the key concepts discussed in the article:

  1. Life Insurance as a Comprehensive Tool:

    • Graham emphasizes that life insurance is a versatile tool with various applications. It serves not only as a risk management measure but also as an investment vehicle, offering tax-deferred growth and a tax-free cash value.
  2. Early Planning Advantage:

    • The article stresses the importance of obtaining life insurance early in life. Age, health, and occupational factors influence the cost of life insurance, making it more affordable when acquired at a younger age.
  3. Financial Protection in Retirement:

    • Life insurance is presented as a crucial element in ensuring financial stability for loved ones in the event of an untimely death. It helps replace lost income or Social Security benefits, providing peace of mind to surviving family members.
  4. Retirement Savings and Catching Up:

    • For individuals approaching retirement with insufficient savings, a term life insurance policy is suggested as a protective measure. It can act as a safety net, ensuring that unforeseen events do not derail retirement savings plans.
  5. Life Insurance as an Investment Alternative:

    • With interest rates at historic lows, traditional investment options like bonds and CDs may not be as attractive. Life insurance is proposed as a safe investment alternative, with whole life policies serving as substitutes for bonds, offering returns without the associated risks.
  6. Tax Management:

    • The preferential tax treatment of life insurance is highlighted. Structured correctly, life insurance can provide tax-deferred growth, tax-free cash flow, and a tax-free death benefit. This tax advantage allows greater flexibility in using funds during retirement.
  7. Choosing the Right Plan:

    • The article stresses the importance of understanding the value and benefits of life insurance in retirement planning. Graham recommends seeking advice from professionals to determine the right type and amount of coverage based on individual needs.
  8. Role of Financial Advisors:

    • Christopher Graham, being a Financial Services Professional, encourages individuals to connect with experts. He dispels common uncertainties and fears regarding age, health, and costs associated with life insurance, emphasizing the simplicity of getting pre-approved.

In conclusion, life insurance is portrayed not just as a protective measure but as a strategic tool for comprehensive retirement planning. The article advocates for a holistic approach, integrating life insurance with investment allocations and returns to optimize financial situations and achieve short-term and long-term goals.

4 Ways Life Insurance Helps With Retirement Planning | Senior Finance Advisor (2024)


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