Remember when there was a field trip or something in school and we need a parent or guardian to sign a permission slip? Maybe we knew they’d sign.... maybe we’d have to wait to catch them in a good mood. But there was nothing like handing that thing in the next day and knowing we were about to get out of school and have a fun day.
What if we needed a permission slip to have fun in retirement?
We spend so much time working to get to retirement, but have you ever really thought about what life looks like once we finally get there? I mean, sure, we’ve all thought about not working...maybe some travel, sitting on a beach or mountain range somewhere. But how will our cash flow in retirement? How will we spend our money we just spent decades working for?
That’s what I want to explore here: how will we spend our money when we retire? And does owning permanent life insurance give us the permission to spend money differently? (Spoiler alert: I think it does.)
Most people retire with a lump sum of money - maybe it’s made up of a 401(k), an IRA, some investment accounts like mutual funds or ETF’s, some cash - and that’s what they have to live off for the rest of their lives. Now let’s say they’ve gotten to that point, they have what they believe to be enough money to live off in retirement, kids are through college, mortgage is paid off... do they NEED life insurance at that point?
No. They don’t need it anymore. The reason they had life insurance all those years no longer exists.
But I believe it’s exactly at that point that they’ll most WANT life insurance.
Let’s examine it a bit: So, there’s this couple with their money saved up - every dollar representing years of hard work. Let’s say they have a million dollars. That couple might come to someone like me and ask how to manage their money now that they’re no longer working. And among the first questions I would ask them is, “how long does the money need to last you?”
But there’s no answer to that question, right? We have no idea how long we will live. We just know that our money needs to last us some indeterminate amount of time. And if we are committed to someone, that money needs to last not just one lifetime, but two.
Since we don’t know how long it has to last, we generally take the money we just spent decades busting out butts to earn and we essentially lock it up. We say that we will conservatively invest the funds, but that we won’t touch the principal, we will just live off the interest. Because if we touch the principal we might run out of money before we die - and that is the biggest fear of the vast majority of our clients in retirement. So, in our example, that couple retires with a million dollars, and they would put it into a relatively safe investment and live off of whatever earnings it makes - let’s say 4% annually. That’s $40,000 per year.
Now a million bucks or $40K per year might be the number you want to get to, or it might not. But the concept applies no matter what. So now we have that $40K per year. Now what? What’s that spend like? Let’s say that the $40K is enough for us when we retire at, say, age 65. We’re able to enjoy life with that money - have some dinners out, maybe travel to see family... but what happens as the years go by? How will that money spend at age 70? Five years later will it have the same purchasing power?
No, of course not. There’s inflation. And stuff just costs more. When I met my now wife 20 years ago, we didn’t have iPhones, HD, DVR, Hulu, Amazon Prime, Netflix.... I couldn’t have spent my money on that stuff if I wanted to. It didn’t yet exist! And now those things represent hundreds of dollars in bills a month for me. So, life gets more expensive. But in this example, we are living off the same amount of money. That same $40K. Every year.
I distinctly remember as a kid going to visit my grandparents in Florida. When my grandma wasn’t cooking, we would go out to dinner. At 4:30pm. I would ask my dad why on earth we were going out at that ridiculous hour. You probably can guess why. “The Early Bird Special.” My grandparents were living off a fixed income, off the same amount of money every year. So as the years went by, they had to find ways to make that money stretch. Eating for half the price at 4:30pm was just one of many concessions they made.
When you live off the same amount of money every year, you have to make sacrifices. Think about it: every year is just a bit worse than the one before it.
And that’s the retirement almost everyone we know is signed up for.
But is there another way? What if that couple knew that the day one of them died, that million dollars would get replenished? What if there was a bucket of money sitting over in the corner just waiting to refill the surviving member of that couple’s account?
That bucket of money is where permanent life insurance comes into play.
What if instead of locking that million dollars up and living off the interest, we actually spent the money down? We’d still invest it safely and earn 4% per year, but we would also dip into the principal. On purpose. So maybe in year one instead of taking out just the $40K earnings, we take out $55K - almost 40% more cash to spend! Why couldn’t we spend our money like that?
We could. But if we did spend our money down, we’d run the risk of leaving our significant others or our kids with no money at all. For many of us, that’s simply not an option.
But it would be an option if we had a permanent death benefit. We would have the permission to spend our assets down, secure in the knowledge that the permanent death benefit would replenish the funds when we die.
Actually, spend the money we just worked decades to earn? Have more cash flow while we’re alive to enjoy in retirement but still leave the same amount behind? It’s possible. If we make permanent life insurance a part of our overall portfolio, such that we retire not just with a 401(k) and IRA and cash and investments but also a permanent life insurance policy and the cash value it provides, then yes, we have the permission to spend our money down.
The one key to remember though is this: we don’t get to decide to be the person with the permanent life insurance when we are 65 and ready to retire. We have to decide to be that person earlier in life.
The permission slip is there for us to enjoy in retirement. And we don’t even need to catch mom or dad in a good mood to get it.
Robert Angel, Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Strategies for Wealth is not an affiliate or subsidiary of PAS or Guardian.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. 2019-91351 Exp. 12/21