Because whole life insurance policies accumulate cash value over time, people often use them as a kind of investment vehicle. Unlike term life insurance, which expires after a certain number of years and therefore does not guarantee a payout, whole life insurance covers the policyholder for life. As such, you can borrow against it or even make regular withdrawals once the account has a balance. Before you purchase such a policy to include in your retirement plan, though, it’s wise to review the advantages and drawbacks of using the cash value to fund your lifestyle. 

Pros & Cons of Withdrawing From Life Insurance

People are often surprised to learn that their income tax obligations don't necessarily end when they retire. Withdrawals from most investment accounts — including those designed specifically for retirement — are taxable, including IRAs and 401(k)s. Some Social Security retirement benefits are also taxable. Withdrawals from whole life insurance policies, on the other hand, aren’t. Reducing your total tax burden is perhaps the greatest advantage of using life insurance to subsidize retirement. 

While this is certainly a major benefit, financial advisors don't usually encourage clients to fund 100% of their expenses with whole life insurance. At the end of the day, the returns on these policies tend to be lower than they are on other kinds of investment accounts. Even if the higher tax burden on other accounts balances out the lower return on your whole life insurance policy, diversification is always wise. 

Other Ways to Fund Retirement 

For optimal financial security, it’s advisable to use multiple methods to fund your retirement. Some of the most reliable ways to cover expenses upon leaving the workforce include cash savings, pensions, annuities, retirement accounts, and real estate equity. Social Security benefits are also available upon reaching the age of 62. 

To learn more about subsidizing your retirement with a whole life insurance policy, turn to Nicole Gumm Groseclose Insurance Solutions. Based in Clifton Forge, VA, this independent agent is proud to serve clients throughout Bath, Covington, Fincastle, Lexington, Roanoke, and Waynesboro. With more than 16 years of experience, Nicole knows how to help clients secure comprehensive policies at affordable rates. To discuss your retirement planning goals, reach out on her website or call (540) 968-1569.