Insure Your Lifestyle
As a Wealth Strategist the number one question I get from people approaching retirement is, “How much do I need to retire?” And far too often we are not having the “What’s my number?” discussion early enough in the financial planning process. Real Estate has been a proven strategy to grow wealth, but you still may be unpleasantly surprised at how little income it will provide in your golden years.
Google “Safe Withdrawal Rate” and you will see research indicating you should not be withdrawing more than 3 or 4% of your assets in any given year in retirement. It’s shocking how little income this is. If you are worth $2M at age 65 you can safely only withdraw $80K a year to live on. And even then, there is only a 90% chance that you will not outlive your money. It’s safe to say that taxation and fees can easily eat up an additional 25% of that income leaving you with only $60K a year.
While you may have much of your wealth in real estate now, in retirement you will want to have a more conservative approach. The problem is fixed income yields are low and equity can be volatile. Waiting for a depressed real estate market to rebound may not be an option if you need the funds to live on. You may not feel as comfortable with the same level of debt you currently have once you’re in your 70s. And managing several rental properties in your golden years may not be the retirement you envisaged.
There is a way, however, to generate greater income. Along with building up your income property portfolio I always recommend clients invest in Permanent Cash Value Insurance as well.
What is Permanent Cash Value Insurance?
Permanent cash value insurance is a life insurance policy that has not only a death benefit, but also an accumulation account within the policy. Each time you make a premium deposit, part of the money goes toward the cost of insurance, and part goes into this separate account. Because the funds grow ta-free within a policy and can be accessed tax-free via a policy loan or bank collateralization of the policy, you can get tremendous value from the policy during your lifetime.
Both the death benefit and the cash value can grow over time, with the cash value equalizing the death benefit, typically at age 100. The cash value is there in retirement to protect you against unforeseen situations, but it can also be accessed in the early years for investment purposes and can be a great tool for businesspeople and real estate investors.
With this strategy you can have your cake and eat it too. The investment you make in the insurance plan can be accessed to get more properties down the road. Just like you likely refinanced your principal residence and pulled out money for the deposit on your first investment property, the same can be done with your Permanent Cash Value Insurance Policy. Use the cash values for the down payment on future property purchases, or to pay down mortgages so properties have greater cash flow.
It’s a mistake to think that once you are no longer working you don’t need life insurance. In retirement insurance protects the assets that are providing your income. A retiree with permanent insurance can safely access a much greater income from their wealth than a retiree without Permanent Cash Value Insurance.
Many real estate investors are reluctant invest in this approach because of their focus on building up their real estate portfolio. But using this wealth strategy will not impede the growth of your Real Estate Wealth – in fact it can enhance it. The funds you invest grow tax sheltered and can be accessed via a loan to purchase more properties.
Without Permanent Cash Value Insurance, you’ll need to take a lower income so that you have the safety net in case something goes wrong. With Permanent Cash Value Insurance however, you can allow your wealth to provide a much greater income.
What could go wrong?
You will likely be retired for 20 to 30 years, and it won’t all be smooth sailing. Permanent cash value insurance can help you deal with the following complications:
Death - How will your family continue to build a real estate portfolio and provide for your children’s education if they aren’t able to qualify for mortgages? Permanent cash value insurance will help them continue saving without your income.
Depressed Real Estate Market - Right now, your plan may be to sell off a property for income in retirement. But what happens if real estate markets have a major pull back and the income it will provide is much less than expected? You can rely on the cash value in your policy for income while the real estate market recovers.
Extended vacancy or a non-paying tenant - If you run into an extended vacancy or a problem tenant who isn’t paying rent – the income you need to live on – you can go to the cash value in your policy instead of being forced to sell some other asset. When you have permanent cash value insurance with guarantees, you already have a huge proportion of your wealth in one of the most conservative assets around. As a result, you can have a greater proportion of your other wealth in less conservative assets like income properties or equities. You don’t need to lock up money in bonds with poor yields. Because you have permanent cash value insurance, you can weather the volatility of more aggressive assets.
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