Integrating Whole Life Insurance into Retirement Income Planning
This research compares retirement income strategies with and without whole life insurance for pre-retirement households who are planning ahead for how to best position their assets for retirement. One strategy considers the permanent death benefit supported through whole life insurance to be integrated into a retirement income plan by helping the retiree to justify the decision to buy an income annuity and to overcome the behavioral hurdles that lead to the annuity puzzle. This can also allow the retiree to purchase a life-only single life annuity that offers the most mortality credits to the risk pool and therefore offers the highest payout rate to the owner. The second strategy uses the cash value of whole life insurance as a volatility buffer to help manage sequence risk in retirement. Cash value does not experience downside risk for capital losses in the face of rising interest rates. It is guaranteed to grow and can provide a temporary resource to supplement retirement spending rather than being forced to sell portfolio assets at a loss during poor market environments. We find that whole life insurance can provide a foundation to allow the household to spend more in retirement and still be able to provide a bequest, or to increase spending even further.
insurance, life insurance, whole life insurance, retirement, retirement income planning, financial planning