The Power Of Zero Show Can You Retire on Life Insurance Alone?
There's this belief among financial experts that life insurance is the financial silver bullet. However, as David explains, that's not 100% accurate.
Yes, life insurance can mitigate every retirement risk and solve all forms of retirement problems, but it's never a safe bet when implemented all on its own.
A Life Insurance Retirement Plan (LIRP) should not be the only cog in your retirement machine because retirement is all about squeezing as much juice as possible from all available tax-free accounts.
David demonstrates how no two tax-free retirement plans are created equal. The people that enjoy stress-free retirement are the ones that strategically take advantage of more than one tax-free retirement account.
The first reason you shouldn't go all-in with life insurance is the wisdom of not putting all your eggs in one basket.
The sequence of returns risk is the other major reason why it doesn't make sense to retire on LIRP alone. This essentially means a phase when you're forced to take money out of your retirement plan in a down market.
David describes how the timing of withdrawals from a retirement account can influence how long an investor's money lasts during retirement. Low returns early in retirement can deplete a retiree's portfolio faster than initially anticipated.
Going bankrupt during retirement is detrimental because, if you don't have at least a dollar in cash value to your name, the IRS makes you pay all the foregone taxes up to that point in your life, all in one year.
LIRP is not a substitute for the stock part of your portfolio. Its growth is not sufficient enough to stretch your retirement dollars through life expectancy.
David explains that if you retire at 65, your money must last for at least another 30 years. The stock market is well suited to such a scenario if structured efficiently.
David recommends doing one thing to safeguard your retirement: diversify as much as possible.
Mentioned in this episode:
David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
PowerOfZero.com (free video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram