Using Advanced Calculators To Find The Best Retirement Strategies
Welcome to our series with Todd Langford, Founder of Truth Concepts. In our recent conversations, we've explored exciting ideas around life insurance, investment strategies, and simplifying complex financial concepts. In this blog, we're diving into the comparison of traditional investment strategies with innovative approaches involving whole life insurance.
Key Concepts Discussed
- The interaction between cash value and death benefits in whole life insurance.
- Using life insurance as part of an investment strategy versus the "buy-term-and-invest-the-difference" strategy.
- The impact of interest rates and inflation on retirement planning.
Scenario Analysis
We're comparing two strategies over the accumulation and distribution phases:
- Scenario A: Buying term insurance and investing the difference, aiming for asset growth until retirement.
- Scenario B: Utilizing whole life insurance, leveraging its benefits to invest and grow assets that complement the insurance benefits themselves.
In Scenario B, the key advantage is using the life insurance policy as an asset that can be tapped into, allowing potential investments while maintaining the insurance benefit.
The Retirement Phase
When reviewing the distribution phase, the question is how these strategies play out at retirement age, particularly at age 70:
- By Term and Invest the Difference: This strategy may leave you relying heavily on the interest from your assets, possibly only providing $82,000 annually if interest rates are favorable (around 5%). The strategy heavily benefits financial institutions, keeping the principal with them.
- Whole Life Insurance Strategy: Provides an option to use the life insurance benefits effectively, ensuring that investments can work in tandem and provide a similar or better level of security and income.
The Impact of Inflation and Interest Rates
A hypothetical example was drawn to highlight the impact of changing interest rates and inflation over time. For instance, if the safe interest declines to 3%, the income might drop significantly to $51,000 annually. Additionally, with a 3% annual inflation, the purchasing power of $80,000 reduces almost by half over 20 years.
The overall insight stresses the importance of understanding these dynamics and considering how whole life insurance can act as a safeguard or complement to traditional savings and investment accounts.
