Case Study - 401(k) or Whole Life Insurance

401(k) or Whole Life Insurance

401(k) or Whole Life Insurance

How to save for retirement without sacrificing cash flow

Aaron knows the importance of investing for a comfortable retirement, but doesn’t want to tie up all his cash in a qualified plan he’ll be penalized for accessing before age 59 ½. Is there a better way to save for retirement than a 401(k)? He has a lot of friends talking about real estate...

  • Male
  • 35 years old
  • Patent attorney

"This is not about the common financial advice and 'following the herd' mentality. If you want things to change you must be the change." - Justin Atkinson, Wealth Strategist

The Challenge

Like many millennials, Aaron was looking for a safe and effective way to save for retirement, outside of a company 401(k) or IRA. Were these types of qualified plans really the best way to invest? Although he hadn’t built up his own wealth at the time, he had witnessed first-hand how the Great Recession wiped out many people’s retirement savings back in 2008. Aaron didn’t want to make the same mistake with his wealth, but he wasn’t sure what other options he had to save for retirement.

One big drawback of qualified plans was that they would tie up his money until age 59 ½. Sure, a 401(k) employer match seemed like a great perk, but if he needed funds before retirement age, the penalties for early withdrawal would likely eat up any wealth he’d accumulated after the company vesting schedule. In particular, Aaron was interested in investing in real estate. Although he didn’t have a particular property in mind at the time, he wanted to make sure his assets were liquid enough that he could purchase real estate when he was ready.

Solution

Aaron and his friend Ken, a Paradigm Life client, had discussed retirement and wealth strategy prior to Aaron scheduling his first appointment. Ken mentioned Paradigm Life CEO Patrick Donohoe's best-selling book Heads I Win, Tails You Lose: A Financial Strategy to Reignite the American Dream and how it outlined a different way of saving for retirement, one where Aaron would have the liquidity he was looking for. Aaron read the book and then scheduled an appointment with Wealth Strategist Justin Atkinson.

Based on Aaron's goals, Justin suggested a Guaranteed Choice® Whole Life policy from Penn Mutual. Justin explained how this type of whole life insurance policy offered guaranteed growth, regardless of what happens in the market, which helped put Aaron's mind at ease. He wouldn't have to worry about losing his retirement savings if his investments weren't performing well. This type of policy also blends the flexibility and affordability of term life insurance with the cash value and death benefit of permanent life insurance, giving 35-year-old Aaron confidence that he would be able to afford his premiums now and enjoy the benefits he needs for years to come.

Justin and Aaron also discussed how he could use his policy to fund real estate investments. Aaron could either take a policy loan from the cash value of his insurance policy and pay it back on his own terms, or he could use the policy as collateral for a bank loan, depending upon the interest and financing rates offered by the insurance company and the bank when he was ready to buy property. Further, if Aaron decided to utilize the policy loan feature, he would continue to earn interest on the full cash value of his insurance policy. No penalties or fees and easy access to his money means no lost opportunity cost for Aaron.

Results

Although Aaron hasn't used the policy loan feature of his Guaranteed Choice® Whole Life policy yet, he plans on using his policy in the future to fund real estate purchases and other possible business ventures. Because Justin put an Enhanced Permanent Paid-Up Additions Rider in place for Aaron, his cash value can grow rapidly, should Aaron choose to exercise this rider, providing him with even more cash flow for future investment opportunities.

By the time Aaron retires at age 65, he is projected to have a guaranteed $1.2 million in cash value, which he can use to fund his retirement. He'll also have a $2.6 million death benefit, assuming all policy loans have been paid up. When non-guaranteed assumptions are factored in, using historical performance data, Aaron could have over $2.2 million in cash value for retirement and a death benefit of nearly $4.4 million.


Explore The Numbers
401(k) or Whole Life Insurance