Life Insurance Retirement Plans (LIRPs) offer tax-deferred cash value accumulation, tax-free withdrawals (if properly structured), and a tax-free death benefit to beneficiaries. Thus, LIRPs share many of the tax advantages of a Roth IRA, but they do not have the limitations on income and contributions. Opinions are mixed about the effectiveness of LIRPs; some financial advisers recommend them enthusiastically while others are more skeptical. In this paper, we examine the potential of LIRPs to meet both income and bequest needs in retirement.
We contrast retirement portfolios that include a LIRP with those that include only investment products with no life insurance. We consider different issue ages, face amounts, and withdrawal patterns. We simulate market scenarios and, using the Efficient Income Frontier (EIF) of Milevsky (2009) and Pfau (2013), we demonstrate that portfolios that include LIRPs yield higher legacy potential and smaller income risk than those that exclude it. Thus, we conclude that inclusion of a LIRP can improve financial outcomes in retirement.
Presentation from the 2017 Actuarial Research Conference
Paper: Efficient Retirement Portfolios: Using Life Insurance to Meet Income and Bequest Goals in Retirement, in preparation
