how life insurance compares to a 401(k)

How Whole Life Insurance Compares to a 401k Plan

When it comes to retirement, you have more options for saving money than qualified plans, like an IRA or 401(k). Life insurance is another vehicle that helps you achiever your retirement goals, often with more benefits, more security, and more liquidity than a 401(k).

Consider this scenario:

What if your employer approached you with a retirement account that came with unlimited access to cash and contributions, provided market safety, and offered you a steady rate of return? You were then told that this same retirement account was completely controlled by you with very little government regulation and came with tax benefits. Knowing that this type of plan was available, would that make you feel better about saving for retirement?

This is what whole life insurance for retirement does. It provides true financial security and abundance.

How Whole Life Insurance Compares to Your Current Retirement Strategy

Instead of saving for retirement inside a 401(k), life insurance allows your money to earn a steady return rate year after year. There is no question about whether your money could be lost due to market swings. Also, when your money builds inside of your whole life policy with earned interest, you are creating an inflation hedge due to the guaranteed growth, the cash value of the policy,  and the likely dividend payment (most life insurance companies have consistently paid out dividends for over 100 years.)

Liquidity, Tax Savings, Flexibility, and Control

Whole life insurance comes with an inherent cash value. This cash value is your liquidity. The beauty about accessing this liquidity from a properly structured policy is that you can do it without forfeiting your policy’s value. Consider how whole life insurance compares to your 401(k) or IRA, where you are penalized for withdrawing funds before age 59 1/2.

Borrowing from the insurance company with a policy loan is one of the easiest ways to access liquidity.  Since borrowing is not a taxable event, it allows for tax-free gains, whereas accessing funds in your 401(k) or IRA subjects you to taxes. Keep in mind, your death benefit does change if you pass away with an outstanding loan. This is because the insurance company will use your policy as collateral.

A good life insurance agent will construct your whole life insurance policy in a way that rapidly grows cash value and will teach you in detail about what you can do to never run into a situation that threatens your policy.

Traditional 401(k)s are savings accounts with large strings attached. You can’t access your money without restriction. If you do liquidate, you’re taxed and penalized with a fee. On top of that you are limited to how much you can put into your 401(k) and you’re told what investment options you can participate in. Your control and flexibility is very limited by your employer.

Whole life insurance gives you the opposite of what a 401k does—complete control and flexibility. As the contractual owner of your policy(s),  you can access your cash value whenever you want to and invest in whatever you want. You are not limited to select investment choices that your employer has chosen for you in a traditional 401(k).

How Whole Life Insurance Compares: The Death Benefit

Here’s another reason to consider ditching the 401(k)—life insurance offers you a death benefit to leave a legacy to your heirds, in addition to liquidity, tax savings, flexibility, and control. You can leave this legacy to a spouse or child, divide it among multiple beneficiaries, or put it in a trust to be used for generations to come.

While it is possible that a 401(k) will have money leftover that can be passed on to family, it is more common for people to run out of funds from their 401(k) while still living. The structure of a whole life insurance policy allows you to enjoy income in retirement but keeps the death benefit protected for future use by your beneficiary (provided you don’t have outstanding policy loans, which affect the amount of the death benefit).

When you think about how whole life insurance compares to a 401(k), it’s a wonder so many people still trust Wall Street with their retirement dollars. To learn more about making the switch to a better retirement plan, schedule a free strategy call with a Wealth Strategist.