Tax-Free income
Using life insurance as a retirement strategy is a different approach than using a traditional tax-deferred plan (e.g., 401(k), TSP, 403 (b), IRAs, etc). While both options have their advantages and disadvantages, here are some advantages of using life insurance as a retirement strategy instead of a 401(k):
Tax Free Income
Unlike a traditional tax-deferred plan (e.g., 401(k), TSP, 403(b), IRAs, etc), the income generated from a life insurance policy is tax-free.
No Required Minimum Distributions (RDMs)
With traditional tax-deferred plans, the policyholder is required to take RMDs starting at age 72, which can affect their tax liability and retirement income. With a life insurance policy, there are no RMDs, which can provide greater flexibility in retirement planning.
No Market Risk
With a life insurance policy, the investment risk is borne by the insurance company, not the policyholder. This means that even if the stock market or other investments perform poorly, the policyholder’s income stream is likely to remain the same.
Death Benefit
In addition to providing retirement income, a life insurance policy also provides a death benefit to beneficiaries. This can be an important part of estate planning and can provide financial security for loved ones.
Retirement Income
A stress-free retirement income strategy can be accomplished with an annuity. It is a contract between the annuity holder and an insurance company. Here are some advantages of using an annuity versus a withdrawal strategy from a traditional retirement account:
Guaranteed Income Stream
An annuity provides a guaranteed income stream for life, regardless of market fluctuations. This can provide peace of mind in retirement, knowing that you have a reliable source of income that won’t run out.
No Market Risk
With an annuity, the insurance company assumes the investment risk, not the annuity holder. This means that even if the stock market or other investments perform poorly, the annuity holder’s income stream remains the same.
Protection Against Longevity Risk
An annuity can provide protection against the risk of outliving your retirement savings. With a withdrawal strategy from a traditional account, there is always a risk that you will run out of money if you live longer than expected.
Tax-Deferred Growth
An annuity can provide tax-deferred growth, meaning that you don’t have to pay taxes on the investment gains until you start receiving income from the annuity. With a withdrawal strategy from a traditional account, you may have to pay taxes on the investment gains each year.
Flexibility
An annuity can offer a variety of payout options, including lifetime income guarantees and death benefits for beneficiaries. This can provide greater flexibility than a withdrawal strategy from a traditional account, which typically involves selling assets to generate income.
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