Retire to Costa Rica!

Considering its sprawling beaches, breathtaking rainforests, and endless sunshine, Costa Rica is a dream come true for retirees. Relaxing in a tropical paradise is certainly an excellent way to spend your golden years. Unfortunately, though, it’s also an expensive one. Without the right strategies and proper planning, your retirement dreams may never materialize into reality. What you may not realize, though, is that life insurance can actually double as an investment vehicle to help you achieve your goals for retirement. Whole life policies accrue cash value over time, and policyholders can withdraw from this amount without eroding the value of the purchased death benefit. With regard to retirement planning, investing in a whole life policy is one way to augment your retirement income down the road.

IRAs & 401(k)s

Some of the most popular retirement planning vehicles are IRAs and 401(k)s, both of which are alternatives to investing in a whole life policy. To illustrate the benefits of life insurance as a retirement planning tool, let’s first examine the benefits of a traditional retirement investment, a 401(k). Our example assumes a 40-year-old male who contributes $15,000 per year to his employer-sponsored 401(k), is in the 35% tax bracket, and plans to retire at age 65. Assuming an 8% annual return on investment, a 1% sales charge, and a 1% annual management fee:

• At 65, he will have $992,785 in his retirement account. The after-tax value of this amount is only $776,560.
• Investing the annual tax savings of $5,250 would yield $347,475 under the same assumptions.
• He can withdraw $140,662 of taxable income every year for six years.
• After six years, his account will run out of money.

Life Insurance

By contrast, life insurance is a much more viable and lucrative retirement planning solution. Preserving all of the assumptions in the previous example and using a variable universal life policy from a top carrier instead of a 401(k), the same client would end up with the following retirement scenario:

• He would have a tax-free death benefit of $783,333.
• By age 65, the policy would have grown to $1,127,072.
• The client could make withdrawals of $140,662, income tax free, as policy loans every year for 20 years.
• By age 85, the client would still have $1,091,409 in his policy and a $1,474,059 death benefit.