Retirement Game-Changer: The Role of Life Insurance

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Can life insurance truly transform your retirement plan? Explore the often overlooked benefits of life insurance with Rob Wolf, as he uncovers its pivotal role in safeguarding your financial future on the Wolf Financial Podcast. From its potential as a tax shelter to its capacity for providing tax-free benefits to your heirs, we'll dissect how life insurance can be a cornerstone of both income protection and legacy planning. We'll also tackle the emotional and psychological hurdles many face when purchasing life insurance and why it’s frequently a product that's sold rather than eagerly bought.

In this episode, we delve into the strategic importance of life insurance during retirement, especially how it can help replace lost Social Security income and manage required minimum distributions. We'll also discuss the critical need to consult with tax, legal, or investment professionals to navigate the inherent risks of investing. This comprehensive look at life insurance aims to offer clarity and actionable insights, ensuring you make informed choices that bolster your financial well-being and long-term legacy plans. Don't miss this opportunity to fortify your understanding of how life insurance can be a game-changer in your retirement strategy.

Learn more about Wolf Financial Advisory:
https://www.wolffinancialadvisory.com/

Disclosure: Robert Wolf, James Koenig, Sara Wolf, and Michael Rock are investment advisor representatives of, and securities and advisory services are offered through, USA Financial Securities. Member FINRA/SIPC. Additionally, Amanda Opulskas and Adam Wallace are registered non-solicitors of USA Financial Securities, A registered investment advisor. 6020 E. Fulton St., Ada, MI 49301. Wolf Advisory Services and Wolf Financial Advisory are not affiliated with USA Financial Securities.

The strategies and concepts discussed are for educational purposes only and do not represent specific investment, tax, or estate planning advice. Investing carries an inherent element of risk and it is in everyone’s best interests to consult a tax, legal, or investment professional. The opinions expressed herein are not meant to provide specific investment advice or serve as a prediction for future stock market performance. Past performance does not guarantee future results. Securities and advisory services are offered through USA Financial Securities, member FINRA/SIPC. A registered investment adviser. Wolf Financial Advisory and USA Financial Securities are not affiliated entities.

Episode Transcript

Voiceover (00:00):
The strategies and concepts discussed are for
educational purposes only and donot represent specific
investment, tax or estateplanning advice.
Investing carries an inherentelement of risk and it is in
everyone's best interests toconsult a tax, legal or
investment professional.
Past performance does notguarantee future results.
Securities and advisoryservices are offered through USA

(00:22):
Financial Securities memberFINRA SIPC, a registered
investment advisor.
Wolf Financial Advisory are notaffiliated with USA Financial
Securities.
Wolf Financial Advisory.
When it's important to you,it's important to us.
This is the Wolf FinancialPodcast.

(00:42):
Here's your host, Rob Wolf.

Rob Wolf (00:51):
Good day everyone.
Rob Wolf here with the WolfFinancial Podcast, and today
we're going to be talking aboutthe most exciting topic life
insurance.
Wow, you know, life insuranceis one of those topics that
bring up some unique emotions.
I've had people say well, why doI care?
I'll be dead, of course.
That's when the other spousekicks them and then says some
choice comments right.

(01:12):
So why life insurance?
Why is it important to a basicfinancial plan and why would I
even consider perhaps keepinglife insurance in my portfolio
well into my retirement years?
Well, first and foremost, lifeinsurance for those that don't
know what it is is an insurancepolicy that covers the life of

(01:35):
what's called the insured.
So in my case, I have lifeinsurance on me.
So if I were to pass away,money would become available to
my wife and my children to helpreplace the income that I would
have been bringing in if I wasalive.
So many a times you see peoplethat end up having a lot of life

(01:56):
insurance early in their livesbecause they have yet to make
all of the income that theypotentially could have made if
they lived a long life right andplus, when you're younger, you
tend to have more obligations.
You got children that you'reraising, you got debt, mortgage

(02:18):
cars, college loans.
You haven't been able to buildup a retirement plan the way you
had.
So those are all reasons whypeople end up having life
insurance.
But why would I consider havinglife insurance as I get into
retirement and as I get into myolder ages?

(02:43):
Life insurance is one of thebiggest tax shelters in the IRS
code.
Not many people know this.
Life insurance is somethingwhere the IRS, believe it or not
, limits how much money you canput into a life insurance policy

(03:05):
.
Now let me ask you this If lifeinsurance was such a bad deal,
why does the IRS limit how muchyou can put into it?
Well, the simple answer is it'sbecause it's a tax shelter.
It's a tax shelter because itallows the money to grow tax

(03:27):
deferred and you have access tothe money on a tax favored basis
.
So if I want to take awithdrawal or a loan against my
policy, I don't have to paytaxes on any of the gains that
built up into the contract.
And then ultimately, upon mydeath, whatever the net death

(03:49):
benefit is, goes 100% incometax-free to my heirs.
That doesn't sound too bad, doesit?
So why all the angst when itcomes to life insurance?
Well, I think a lot of lifeinsurance is usually sold, not

(04:09):
bought, which just meanssomebody sitting across the
table from you and they'retrying to sell you on the idea
of buying life insurance.
Now, we all intrinsically knowthat we should have life
insurance, but usually the onlytime we buy it is when somebody
is actively trying to sell it tous.

(04:31):
So the fact that it's in asales situation where it's
usually brought up can, in ofitself, bring up a negative
feeling.
Right, life insurance, believeit or not, is actually purchased

(04:52):
by the average person six toeight times over their lifetime.
Most of those is because six toeight times they saw a life
insurance agent and they weresold a policy.
Right, that's neither good norbad, but that's usually the
experience that most people havewith life insurance.

(05:15):
But getting past that, gettingpast the process of buying life
insurance, is the importance ofowning life insurance.
I want you to think this through.
I'm retired, I've built myretirement nest egg.

(05:35):
Both me and my wife are drawingsocial security.
Why would I need life insurance?
Well, guess what happens whenthe first spouse dies?
What happens?
We lose a social security check, don't we?
That's immediate income loss tothe surviving spouse.

(05:58):
Now, as long as that survivingspouse has enough other assets
to be able to draw from, they'reprobably going to be okay.
But if that surviving spouseonly has a small amount left in
their nest egg to pull from andthey lost a big social security
check, that could create afinancial hardship for that

(06:23):
surviving spouse A considerationwhy someone would want to carry
life insurance into theirretirement years.
From a legacy standpoint.
If I have a million dollars ofan IRA, I know all that money is

(06:44):
going to be taxable.
Let's assume that I only needto take the required minimum
distribution, not because I needit, but because the IRS is
forcing me to pull that moneyout.
Need it, but because the IRS isforcing me to pull that money
out and I'm having to pay taxes.
I'm having to pull $35,000 outa year and pay taxes on it.

(07:06):
What could I do with some ofthat required minimum
distribution that I didn't needfor my lifestyle?
I could save it.
That I didn't need for mylifestyle.
I could save it.
I could give it away right, orI could just put it in the bank,
one thing that some people willchoose to do with life

(07:31):
insurance is they'll take someof that required minimum
distribution and they'll buylife insurance with it $35,000.
The after-tax amount of that,let's say, is about $25,000.
They take a portion of that$25,000 and they buy some life
insurance.
Let's say they buy half amillion dollars worth of life

(07:54):
insurance on that worth of lifeinsurance on that.
So now they die, the milliondollars goes to the kids and
it's all taxable.
But they get this half milliondollars of life insurance and
how is it received?
How's life insurance received?
It's received income tax free.

(08:16):
Have you ever thought about whena heir receives money?
Their natural instinct is tospend it, not defer it.
We know that the proper thingfor the heir to do with that
million dollars is to stretch itand do proactive tax planning

(08:42):
over the 10 years the IRS givesthem to stretch it.
If they have life insurancethat they can receive income
tax-free, they're not only goingto have the income tax-free
dollars to pay the taxes and theIRA distribution, but they will
also have access to thosedollars in a lump sum that will

(09:06):
take care of their need forimmediate gratification on that
inheritance.
We're all emotional creatures,we all want immediate
gratification.
And I will tell you this if youjust leave the IRA to the kids,
the vast majority of them aregoing to spend more of that IRA

(09:30):
immediately, paying more intaxes than what they should have
.
So life insurance can be awonderful vehicle not only to
give tax-free money to the heirsto pay the taxes on the IRA
distribution, but also tosatisfy that itch that they're

(09:52):
going to have for some immediategratification of spending some
of their inheritance.
A side note that many peopledon't realize that also comes
with life insurance at olderages is many life insurance
policies now are issued withchronic illness benefits, which

(10:12):
just means if you were to becomechronically ill, such as
needing care in a facility orterminally ill, you can actually
spend down the death benefitduring your lifetime to go
towards your expenses Verysimilar to what one would

(10:33):
consider with long-term care.
Now it's not consideredlong-term care insurance, but it
is a benefit that acts like along-term care benefit.
This would be a wonderfulbenefit for those people that
say you know what?
I looked into long-term care.
I don't want to spend my moneyon it because I may never have

(10:56):
to use it, but I will tell you.
If you have life insurance inyour portfolio, somebody will
get the benefit of that deathbenefit.
It's either going to be yourheirs if you die peacefully in
your sleep, or it may beyourself.
If you have a chronic illness,you have a stroke, you end up in

(11:20):
a facility, you might be ableto utilize those dollars to help
pay for your expenses.
So you don't have to spend downthat million-dollar IRA in huge
chunks at a time because you'renot going to get any type of

(11:42):
government assistance for yourlong-term care situation.
If you have a lot of money, thegovernment doesn't care.
If you have a million-dollarIRA and you got to pull $150,000
from it every year to coveryour medical long-term care
expenses, they don't care.
You just have to pay the taxesuntil you drop that IRA down to

(12:05):
a very minimum amount.
Then you'll get governmentassistance.
With life insurance.
You can have that chronicillness benefit where you can
access the death benefit notjust the cash value and pull
that down income tax-free in theevent of a chronic illness,
allowing you to meet with aelder care attorney to prepare

(12:26):
on how to build and protect therest of the portfolio should
that chronic illness last longerthan five years.
All good reasons to own lifeinsurance.
Folks, life insurance is reallyan amazing miracle.
It creates an estate when anestate is needed the most.

(12:50):
It provides for those widowswith children.
It provides living legacies toheirs for many generations.
I utilize life insurance in ourportfolio planning all the time
and it's something that,regardless of whether or not you

(13:11):
think it may be appropriate foryou, it should still be a
conversation topic with youradvisor.
You don't want to leave anystone unturned, and if you do
have life insurance, please makesure your beneficiary
designations are correct so thatthe money goes to the people

(13:32):
that you want it to go to.
This is Rob Wolf with the WolfFinancial Podcast.

Voiceover (13:39):
Thank you for listening to the Wolf Financial
Podcast.
For additional informationabout our firm, please visit our
websitewolfadvisorieservicescom.
Wolf Financial Advisory.
The strategies and conceptsdiscussed are for educational
purposes only and do notrepresent specific investment,

(14:00):
tax or estate planning advice.
Investing carries an inherentelement of risk and it is in
everyone's best interests toconsult a tax, legal or
investment professional.
Past performance does notguarantee future results.
Securities and advisoryservices are offered through USA
Financial Securities member,finra SIPC, a registered

(14:20):
investment advisor.
Wolf Financial Advisory are notaffiliated with USA Financial
Securities.
The strategies described hereinmay not be available for all.
Insurance companies may requirean individual be approved by
underwriting which ensures theapplicant meets health standards
determined by the issuer.
Some strategies describedherein are made possible by the
use of policy loans against thecash value of the policy.

(14:42):
Policy loans reduce the deathbenefit of a contract in the
amount that is outstanding andmay include interest as well.
Employing a strategy utilizingpolicy loans has the potential
to be classified as a MEC, whichposes additional consequences.