How to Use Whole Life Insurance for Retirement

You might not be thinking about your life insurance policy on a regular basis, but there are certainly additional benefits to this policy that you may not know about. Aside from paying your beneficiaries money upon your death, it can also be used for retirement planning in NJ. Now this is more worth thinking about, isn’t it? 
Let’s explore how your permanent life insurance policy can be utilized as an additional source of income when you retire. 

Build Cash Value 

One of the main benefits of a permanent life insurance policy is its ability to build cash value. The cash value of a policy is the balance remaining after a portion of your payment has gone to the premium. Each month that you pay into your policy, some of the money goes toward the premium and some goes toward cash value. 

Over time, the cash value account grows and can be used as a source of income when it comes time for retirement. And as long as the amount withdrawn isn’t more than the amount you’ve paid in premiums, you don’t have to pay taxes on it either. 

Borrow from Yourself 

Another option that you have is to use your cash value as a loan. It’s essentially a loan that you’re getting from yourself so you don’t have to deal with anyone else or their terms. You don’t technically have to pay this money back, but it’s a good idea to do so because it accrues interest and won’t take away from your death benefit. But this can be a nice cushion if you plan to purchase a second home in Florida or pay off your mortgage.

Save on Income Tax 

There are some tax advantages to using your life insurance to fund your retirement. Let’s say that you have $50,000 coming out of your IRA account, along with $25,000 in Social Security. This full $75,000 would be taxable income. On the other hand, if you get the $50,000 from life insurance, you’re only taxed on the $25,000 from Social Security. 

Not only do you reduce your taxable income this way, but also you lower the tax bracket you’re in. This means you pay less taxes on the $25,000 from Social Security. The only downside is that whole life insurance is expensive to invest in. This is one of the reasons why we recommend starting these policies early. 

Start Planning for Retirement 
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So should you fund your entire retirement though a whole life insurance policy? Not necessarily. There are other vehicles you should invest in as well to build wealth. That said, we want you to know that permanent life insurance is one of the ways you can reach your retirement goals. To discuss your options for retirement planning in New Jersey, contact Leonard Financial Solutions today.