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MassMutual Analysis: Whole Life Insurance Can Help Supply Retirement Income, Preserve Equity Portfolios During Bear Markets

SPRINGFIELD, Mass., Aug. 27 /PRNewswire/ -- Retirees who are able to supplement their retirement income during economic downturns by tapping the cash values of their whole life insurance policies could have a secret weapon to keep their plans on track during future recessions, according to planning scenarios studied by Massachusetts Mutual Life Insurance Co. (MassMutual).

By drawing on the cash values of their whole life insurance policies -- and avoiding the sale of equities from their retirement accounts in a depressed market -- retirees could end up with more cash and a larger net legacy to their families at death, while still meeting their retirement income needs, according to MassMutual's analysis.

"With this strategy, retirees don't have to settle for liquidating assets in a down market or cutting back on their lifestyle choices," said Melissa Millan, senior vice president, MassMutual. "A retirement income strategy incorporating whole life insurance and an equity-based portfolio can tame a bear market by creating the flexibility needed to respond to changing economic conditions."

Dave Janca, a 48-year old small business owner in Orchard Park, NY, is using whole life insurance as a foundation for his larger retirement plan.

"It's nice to know you can access the cash if you need it as you grow older. Investments and other assets like your house may fluctuate, but the value of whole life insurance is predictable, it grows and it's there if you need it," he said.

Whole life insurance provides an income tax-free death benefit that can protect a policyholder's

income during working years, and ultimately assure a legacy to his or her family. A whole life insurance policy also provides guaranteed policy cash values and the potential for additional cash value funded with policy dividends (1). The policy cash values can provide a stable source of income that is not impacted by short-term market volatility such as that experienced during the current recession.

That recent volatility has trapped many retirees in a vicious cycle: they have been forced to supplement their reduced income from their equity-based retirement accounts by selling stocks, even though the market has been depressed. But that means their portfolios need to perform even better, in order to both replace the withdrawals and to continue to produce income. Furthermore, portfolio distributions are taxed as ordinary income at rates as high as 35 percent, depending on the retiree's tax bracket.

The process can eventually reduce savings dramatically, deplete them entirely and/or leave very little for heirs.

By contrast, retirees who purchased whole life insurance policies to provide a death benefit can better manage their retirement income distributions. By avoiding taking distributions from their retirement accounts during and following a negative market cycle, the account can more readily rebound from the downturn over time, according to MassMutual's analysis.

During the down and rebuilding years when retirees are not drawing income from their retirement accounts, they can supplement their income by tapping the cash value of their whole life insurance policies. This supplemental cash is income tax-free (2).

The strategy has the further benefit of preserving a retiree's ability to leave a legacy to loved ones when they die through the life insurance policy's death benefit.

"As people prepare future retirement income plans, they should be aware of this strategy and its effectiveness in taking the sting out of market downturns," said Millan. "Whole life insurance can help level off what otherwise could be a very bumpy ride."

The recession has depleted retirement plans for many Americans; but whole life insurance has proven to be a solid safety net for the Jancas.

"Some people view life insurance as separate from their retirement plan - just for emergencies or catastrophic situations. I consider it as part of my long-term retirement plan. I think it's a mistake to not have a broader approach," he said.

"I want to give myself as many options as possible for stable asset growth to be used either for retirement income or cash access as I grow older and retire," continued Janca.

As part of the company's commitment to bringing national attention to the importance of planning and saving for retirement, MassMutual is the exclusive national underwriter of Retirement Revolution: The New Reality((R)), a nationally broadcast special to premiere on September 15, 2009 on PBS. The program will feature deeply personal stories, new glimmers of hope and dramatic changes people are making to help achieve their definition of a successful retirement. The New Reality is the second installment of the Retirement Revolution((R)) series, which debuted last spring.

To hear how others have benefited from life insurance and to learn more about retirement income strategies involving whole life insurance, visit

About MassMutual

Founded in 1851, MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyholders. The company has a long history of financial strength and strong performance, and although dividends are not guaranteed, MassMutual has paid dividends to eligible participating policyholders every year since the 1860s. With whole life insurance as its foundation, MassMutual provides products to help meet the financial needs of clients, such as life insurance, disability income insurance, long term care insurance, retirement/401(k) plan services, and annuities. In addition, the company's strong and growing network of financial professionals helps clients make good financial decisions for the long-term.

MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives. MassMutual is headquartered in Springfield, Massachusetts and its major affiliates include: Babson Capital Management LLC; Baring Asset Management Limited; Cornerstone Real Estate Advisers LLC; The First Mercantile Trust Company; MassMutual International LLC; MML Investors Services, Inc., member FINRA and SIPC; OppenheimerFunds, Inc.; and The MassMutual Trust Company, FSB.

(1) Dividends are not guaranteed.

(2) Distributions under the policy (including cash dividends and partial/full surrenders) are not subject to taxation up to the amount paid into the policy (cost basis). If the policy is a Modified Endowment Contract, policy loans and/or distribution are taxable to the extent of gain and are subject to a 10% tax penalty.

Access to cash values through borrowing or partial surrenders will reduce the policy's cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.

    Paula Tremblay

SOURCE MassMutual
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