MassMutual Analysis: Whole Life Insurance Can Help Supply Retirement Income, Preserve Equity Portfolios During Be...(ax-free death benefit that can protect a...),Health

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.

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