Living older, living poorer – unless you
have a 160-year-old solution
By Martin F. Lowenthal
The United States has the world's highest number of centenarians, yet just over half of those aged 55 or older have less than $25,000 in retirement savings, and 14% of boomers have no retirement income at all (“Bankers Life,” 2014).
The U.S. has more centenarians than anywhere else in the world, with 18 per 100,000, according to the Census Bureau (2010). And it’s creating nightmares about end of life care. John Shoven of the Stanford Institute for Economic Policy Research points out that you cannot finance a 30-year retirement with a 40-year career. But as Shoven’s colleague, Martha Deevy, director of financial security at the Stanford Center on Longevity says, “that’s exactly what we’re trying to do. You’ve got to work longer. You’ve got to earn more.”
But saying that, is easier than achieving it. Ageism is a real obstacle to experienced oldies either staying in the workforce or accessing new jobs.
Stanford suggests that for many American families, “financial disaster is just one setback away.” Research by the Employee Benefit Research Unit agrees, saying 163 million Americans, between the ages of 25 and 64, face a retirement shortfall of $4.13 trillion (2014).
All of this is happening while the world is still locked into its worst recession. McKinsey researchers warn in a recent edition of Harvard Business Review that, “The rate of global GDP growth is set to decline by 40% from 3.6% a year between 1964 and
2012 to only 2.1% over the next 50 years. Health-care spending already accounts for 10% of GDP in developed economies.” By 2030 there will be 1.3 billion people older than 60 in the world and the capacity of even superpowers to care for them will be diminished (2015).
What many don’t seem to realize about whole life insurance, is that it’s not just about death, it’s an affordable premium payment that helps you to live your life better with less risk and more certainty. The ethos behind whole life insurance is to value life, and enhance life too.
When you invest money in stocks and bonds if the market goes down 25% it has to rise 33% for an investor to break even, few can afford such risk with all of their
retirement savings. It is too risky to expose 100% of your savings to risk based assets that are subject volatility. Whole life insurance is a financial shock absorber because it is the only asset that goes up by contract every year and can never go down. Those who buy whole life insurance when young may see those payments become a smaller part of their income as their wealth increases, because whole life insurance premiums are
contractually level and fixed.
Yet research by Employment Benefit Research Institute (2014) shows that while the average American spends around eight hours a year making vacation plans, less than a third devote that time to retirement planning. Here’s 30-seconds that could change your life:
Traditional advice is to save and invest in retirement accounts by placing some of that money in the stock market and hope you have enough money when it’s time to retire. Today, we know that with qualified retirement accounts, you’re locked out of your
money until you retire. If you need money before retirement for an emergency or almost any other reason, you pay significant penalties and taxes.
An IRA, a 401(k), a 403(b), or pension is funded with before tax money and when you withdraw the money, all of it is taxable1 (money in any of these qualified accounts can also be annuitized). The cash accumulation in whole life insurance2 is tax
advantaged, which means that your cost basis (cumulative premiums paid into the policy) is taken out first, tax free, and then the gains in the policy come out as loans, which are also tax free. One caveat is that if the policy lapses or is surrendered, loans may be considered taxable. Whole life insurance cash values are also not correlated to what the stock market does (high volatility), and its cash values accumulate tax deferred.
During the great recession, while most investment products went down, whole life insurance went up. Those who owned whole life insurance were able to access its cash value instead of accessing money from a declining stock market. This enabled depressed markets to recover without draining it even further.
Whole life insurance cash value is available to you for any reason, perhaps a medical emergency, to pay off college, or a leaky roof, on favorable terms without penalties. Under the “waiver of premium” rider, the insurance carrier will pay the premiums if you are considered totally disabled. The life insurance death benefit protection remains intact and your cash values continue to grow.
The biggest risk to living well is living much longer than any of us planned. The Wall Street Journal recently reported, “There are no historical periods in the United States where comparable low bond yields and high equity valuations have occurred
planning ignores market valuations. As a result, it may offer a misleading guide … Investors today who hold a typical conservative portfolio of 40% stocks and 60% bonds cannot safely rely on withdrawing 4% a year and still making their portfolio last 30 years… such investors run a 50% chance of running out of money before they die.”
Retirees with permanent whole life insurance have flexibility to consume their other assets, which means accessing both principal and interest. They may do this by
annuitizing some of their retirement assets, and/or doing a reverse mortgage. All the while, the whole life death benefit continues growing at a higher rate than its cash values, providing a powerful legacy for the remaining spouse. The growing cash value is also available to use for living expenses once other assets have been depleted or consumed providing a replacement source of income to offset longevity risk.
For over 150 years in the United States, whole life insurance the staid, trust-worthy workhorse of the insurance industry has stood firm as stock markets have lifted and crashed, and as interest rates have risen and fallen. While those who have invested in financial fads have seen their bottom-line wiped out, those with solid whole life insurance policies have watched their wealth grow and their sense of certainty for a productive and happy old age increase.
1 Guardian, its subsidiaries, agents and employees do not provide tax, legal or accounting advice. Consult your tax, legal or accounting professional regarding your individual situation.
2 Whole life insurance is intended to provide death benefit protection for an individual’s entire life. With payment of the required guaranteed premiums, you will receive a guaranteed death benefit and guaranteed cash values inside the policy. Guarantees are based on the claims-paying ability of the issuing insurance company. Dividends are not guaranteed and are declared annually by the issuing insurance company’s board of directors. Guardian has paid a dividend every year since 1868. Any loans or withdrawals reduce the policy’s death benefits and cash values, and affect the policy’s dividend and guarantees. Whole life insurance should be considered for its long term value. Early cash value accumulation and early payment of dividends depend upon policy type and/or policy design, and cash value accumulation is offset by
insurance and company expenses. Consult with your Guardian representative and refer to your whole life insurance illustration for more information about your particular whole life insurance policy.
3 Waiver of premium rider incurs an additional cost.
4 Reverse mortgages may not be used for the purchase of securities or insurance products. Neither Guardian nor its subsidiaries issue reverse mortgages.
* Martin F. Lowenthal, MS (Investment Management), CLU, CLTC is a financial representative for the Bulfinch Group in Needham, MA. He has three decades of experience in financial investing and management. http://www.martinlowenthal.com
FOR FURTHER INFORMATION call 781-292-3151 or email at
martinlowenthal@bulfinchgroup.com
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 an indirect, wholly-owned subsidiary of Guardian. The Bulfinch Group is not an affiliate or subsidiary of PAS or Guardian. Life insurance offered through The Bulfinch Group Insurance Agency, LLC, an affiliate of The Bulfinch Group, LLC. The Bulfinch Group, LLC is not licensed to sell insurance. 2015-5529. Exp 5/17
