Whole life insurance can play an important role in your retirement income planning. This statement might go against the grain of advice you see offered by investment salespeople, but I think we’ve displayed ample examples over the past decade that whole life insurance not only works as a retirement income tool, but it accomplishes the task extraordinarily well.
But there’s something else we haven’t spent much time telling you about. Something “baked in” to whole life insurance that puts it in a strong position to deal with rising costs in retirement.
How Do People Generate Income With Whole Life Insurance?
Perhaps you’ve seen a whole life insurance proposal–we often call them “illustrations“–and in this proposal, you saw a static income figure spanning a period like your mid 60’s to your mid 80’s. You might have thought, “hey, that’s cool. I can retire and then receive X amount of dollars every year from this life insurance policy.”
But the truth is people rarely ever do that.
In general, retirees use their assets to generate the income they need–and that’s it.
Whole life insurance is no different in this respect. So while a policy might be capable of producing a certain amount of income, most people tend to use some number less than that.
And taking less money from a whole life policy comes with an added benefit for later in life. Let’s look at an example.
This ledger shows the income results for a 40-year-old male who purchases a whole life policy and contributes $30,000 per year to the policy through his age 65. At age 66, he begins using the whole life policy for retirement income. This ledger shows us the maximum income available to him from age 66 to age 100–the ledger above is a snippet from the full ledger.
As you can see, he can produce up to $72,561 per year with his whole life insurance policy, which isn’t bad at all.
But what if this individual doesn’t need $72,561 in income from his whole life insurance policy. What if he only needs $40,000 per year when retirement begins?