There are many benefits of owning a permanent life insurance policy. First and foremost is the life insurance death protection. Additionally, one of the many benefits that can be utilized along the way, if necessary, is access to the policy’s accumulation value for the benefit of the policy owner while living. For instance, accumulation value can be used as a supplement during the policy owner’s retirement years.
Investment returns are variable and unpredictable. The order of returns has an impact on how long a portfolio will last if the portfolio is in the distribution stage and if a fixed amount is being withdrawn from the portfolio. Negative returns in the first few years of retirement can significantly add to the possibility of portfolio ruin.
Let’s take a look at two scenarios below
Let’s assume we have a client that has accumulated a retirement portfolio of $1,000,000 at his retirement age of 65. This retirement account is going to be invested in an index fund that mirrors the S&P 500. This client’s goal, with this asset, is to withdraw $50,000 a year pre-tax to help support a portion of his post-retirement lifestyle. If he retired and experienced the sequence of returns in Scenario A, after a 10 year timeframe, he would have ended up with a projected account value of $506,951.
But what if we simply reversed the hypothetical rates of return? The results of the reversed sequence of returns is shown in Scenario B. By reversing the sequence of returns this client would have an ending account balance of $406,597.
Unfortunately we can’t control what the market is going to do when we decide to retire. But there is a possible solution to help protect a client in years when the market does go down….Max Accumulator+.
If the client had purchased American General Life’s Max Accumulator+ when he was 50 years old, he could have funded the policy and utilized the power of IUL (upside potential with no downside risk due to market performance) to create an additional bucket of money that could be used as backup income source for the years following negative performance in his retirement account. Below is an example of the resulting scenario when using an IUL.