THE MOST COMMON RETIREMENT MISTAKE
In retirement you will have two options:
- You can invest assets for income – which we have seen can be a losing proposition OR
- You can trade assets for income – purchase a life annuity.
When investors are asked to give their opinion on annuities they usually say, “They suck!” You give the insurance company your money and if you die early you lose all that money. Retirees are notoriously unwilling to trade their hard earned assets for guaranteed income through the purchase of a life annuity.
It’s crazy that everyone loves the defined benefit plans still available to teachers, police, firefighters etc. But they don’t want to write a check to the insurance company for a life annuity that provides the same thing because they are afraid if they die tomorrow they will have made a huge financial mistake. But what is a Defined Benefit Plan? It’s trading your asset (savings) for income (pension). What do people love about their Defined Benefit Plan? - The guaranteed income.
And quite frankly, the commissions on annuities are not attractive to financial planners either. It is less than the commission on a typical mutual fund and once the annuity is purchased the future income for the advisor disappears. There is little incentive for an advisor to recommend this important strategy. And only insurance licensed professional can recommend or sell annuities anyway. So if you are working with a bank or mutual fund representation it is not even something they can speak to you about.
Why am I talking about purchasing a retirement annuity now when you’re not retiring now? Because thinking this doesn't matter now is a mistake.
The permission slip for you to buy the annuity in your retirement is to purchase Whole Life Insurance now. Annuities work even better in retirement when you have the life insurance to offset the asset loss at death.
I want you to imagine yourself right now in retirement. In one scenario you have an investment portfolio invested in stocks and bonds. In the second scenario you have permanent whole life together with an investment portfolio. In this scenario you have a ton more options and safety.
- You can borrow against the value of your home, create tax free income knowing the death benefit of permanent insurance will replace the debt at your death so your family once again has the asset to spend and enjoy
- You can invest your portfolio into a life annuity which will give you a greater guaranteed income while you live and the safety of knowing that if you die prematurely the insurance will replace your capital
- If real estate or stock markets are depressed, you can access the cash value in your insurance policy and wait for markets to recover
- You can spend down your RSP assets to age 80 (instead of trying to make it last to age 90 or 100 because you don’t know how long you will live) knowing the value of your guaranteed permanent insurance will only increase in value
The problem with most financial plans is that they are routed in Probability Based Planning. A Monte Carlo simulation that predicts with a high degree of probability … but not guaranteed certainty that you will not run out of money.
As we saw in our previous article … depending on how markets perform … you can easily run out of money even when using the “Safe Withdrawal Rate.”
Would you get on a flight with your family that after various simulations had a 95% chance of not running out of fuel? Or would you prefer the flight that had zero chance of running out of fuel?
With a Safety First Plan a combination of annuities and Permanent Whole Life Insurance with Guaranteed Cash Values eliminate the risk of running out of money. And when is the best time to invest in Permanent Whole Life Insurance? The answer is always the same. Now while you are healthy, insurable, and you can maximize the tax free growth time you still have.