Whether you’re planning on retiring next year or you’re relatively new to the workforce, you probably understand the importance of saving for retirement.
In a time when most companies have done away with the pension plans of the past, relying only on Social Security to fund your retirement would likely mean you wouldn’t have enough money to pay for the ideal retirement life you would like to live.
If you’re diligently setting aside funds each month for your retirement, congratulations! You’re taking an important step toward helping realize your dreams and goals.
For many people, saving for retirement can be a nerve-wracking experience. Setting aside funds in bank accounts, CDs and treasury securities will generally mean your savings are safe against loss of principal. However, the growth potential in such savings vehicles is limited. Because of this, traditional retirement accounts are often instead invested directly in the stock market – in individual stocks and bonds – or in mutual funds.
When stock markets are performing well, investors are happy. However, there are no guarantees for most investment products and, of course, individual investment products can suffer losses. The stock market as a whole can also go through prolonged “bear market” periods where investment performance is less than optimal.
So, if you’ve invested your entire retirement savings in investments that can fluctuate wildly, the risk of losing what you’ve worked so hard to set aside might outweigh the potential reward of high returns. This may be more true the closer you get to retirement age.
That’s where retirement insurance products come into play. When you choose a product designed to offer some protection for your retirement income and assets, you don’t have to worry about what the market is doing.
Two products often used for retirement protection include annuities and indexed universal life insurance policies . Both of these are life insurance products. However, they differ from products like term life insurance in a number of key ways.
When you purchase an annuity as a retirement product, you can make contributions and additions to your account over time, just like you would with any other type of investment vehicle. This is referred to as the “accumulation phase.”
The funds you invest in an annuity grow tax-deferred, so any taxes you own on the growth of the account won’t be due until you take money out of the annuity. Most people are in a lower tax bracket during their retirement years than during their working years, so this deferred taxation can result in savings.
Fixed annuity products also offer a guaranteed interest rate, so there’s no need to watch the financial news every day and worry about the performance of your retirement account.
When you retire, you can then “annuitize” your annuity contract. When you do this, you can no longer contribute to the contract. However, annuitizing a contract essentially means you’re turning your accumulated value into a regular income stream.
When you get to the point of annuitizing an annuity contract, you will generally have several options from which to choose, so you can make a choice that will best meet your needs, and the needs of your loved ones.
Purchasing an indexed universal life insurance policy is similar to the process of buying any other kind of life insurance: you’ll be asked to provide certain information about your health history and the cost of insurance will be based on your attained age when you apply, your health history, and the amount of life insurance you’re buying.
Rather than a plain life insurance policy designed to do nothing more than pay a death benefit to your beneficiaries when you become deceased, an indexed universal life insurance policy includes both a death benefit amount and a cash value component. Your cash value account, to which you can make additional payments at any time, can be tied to a market index so you have the upside potential that comes from investing in the stock market, without the financial risk.
In addition to giving retirees and those saving for retirement comfort knowing their entire retirement portfolio is not at risk of market loss, using retirement protection insurance products can provide other benefits.
First and foremost, when you use an annuity product for a portion of your retirement savings, you are creating a guaranteed income stream either for a period of years or for the rest of your lifetime. Knowing you will have a fixed amount available to you every month can help tremendously with budgeting and paying regular, fixed monthly expenses.
That steady, reliable payment can also enable you to feel more free to live the lifestyle you want to live without worrying about running out of money during your lifetime. You won’t have to second-guess taking a vacation or making a major purchase if you want to do those things.
With indexed universal life insurance policies, you’re not only getting the benefits that come from knowing your loved ones will be taken care of financially when you die because of the policy’s life insurance component; you’re also building a cash value account within your insurance policy – cash that can be used for any purpose you want or need it for.
If you’re considering an annuity product, the best time to buy it is generally before you reach retirement age. Most types of annuities are considered ‘guaranteed issue’ policies, so your age or health status won’t have an impact on your application.
However, understand that annuity products can come with surrender charges over a period of years, so it’s important to make sure you understand how withdrawals at various points in the early years of the contract are treated.
Underwriters evaluating applications for any type of life insurance product, including indexed universal life insurance, will consider the applicant’s age and health history when determining whether or not to approve and issue the policy. The younger and healthier you are, the more attractive an IUL policy may be, as your premiums may be low enough so that you can fund a healthy cash value account at the same time you are paying for life insurance protection.
Don’t fall for the misperception that choosing an insurance product with guarantees means you have to give up the opportunity for growth. When you use an annuity or a cash-value life insurance product as part of your portfolio for retirement savings, you can truly have the best of both worlds: a level of risk that will allow you to sleep well at night no matter what the market is doing, and the chance to continue growing your assets.
Deciding to take advantage of the retirement protection you can get through annuity products and indexed universal life insurance products could be a smart decision. When you choose products that are designed to give you insurance protection for your retirement savings, you’ll also be getting valuable peace of mind knowing that whatever the stock market does, your nest egg is protected.
As a truly independent firm, Symmetry Financial Group works with more than 30 well-known insurance carriers so we can offer a variety of products to our clients. This means we’re not selling you the products that are best for us – we can help you find the insurance and annuity solutions that are best for you and your family.
To learn more about how these insurance products work, and to discuss whether they make sense for your personal situation, contact one of the knowledgeable life insurance agents at Symmetry Financial Group today at (877) 285-5402, or contact us online .
