By Pamela Yellen
Despite enjoying the longest-running bull market in history, most preretirees have a substantial retirement savings shortfall.
The average 65-year-old in the U.S. will outlive their savings by almost a decade, according to a new report by the World Economic Forum . And the typical household nearing retirement has only saved enough in their combined 401(k)s and IRAs to provide them at most $600 a month, according to the most recent Federal Reserve Survey of Consumer Finances.
Studies show most people have few assets outside of their market-based retirement accounts and any home equity they may have. And 74% of workers would experience financial difficulty if their paychecks were delayed for just one week. This leaves them extremely vulnerable in the next market crash.
According to investment strategist Sam Stovall, historically, the longest bull markets “went out with a bang and not a whimper.”
During the last financial crisis when the S&P 500 /zigman2/quotes/210599714/realtime SPX -3.35% fell by 57%, we often heard the refrain, “There’s no place to hide.”
Except it wasn’t true. There’s an asset that has passed the test of time, increasing in value every single year for well over a century — including during the Great Recession and the Great Depression.
That asset is whole life insurance. But before you close your mind because you’ve heard that whole life insurance is a lousy investment, I want to tell you about a little-known variation of whole life that may well be the most overlooked retirement saving strategy: high cash value, dividend-paying whole life insurance.
This type of policy funnels much of your premium into options or riders that make your equity — your cash value — grow significantly faster, while slashing the commission paid to the insurance agent by 50-70%.
You receive a guaranteed cash value increase every year, plus you have the potential to receive dividends. A policy that pays dividends is called a “participating” policy because the policy owner shares in the profits of the company in the form of dividends credited to the policy. Some companies have paid dividends every single year for well over a century.
7 reasons to consider high cash value, dividend-paying whole life as part of your retirement savings plan
Here are some of the benefits of a properly structured high cash value dividend-paying whole life insurance policy:
1. Guaranteed, predictable annual growth. Regardless of what’s happening in the stock or real-estate markets. Historically, the growth has been significantly greater than savings or money market accounts and CDs. Your policy is also guaranteed to grow by a larger dollar amount each year, and both your principal and growth are locked in and do not go backward in a market crash.
2. Liquidity. You can borrow up to 90% of your cash value whenever and for whatever you want, without begging for it or filling out nosy credit applications. The only questions you’ll be asked are how much money do you want and where do you want it sent?
You can pay back your policy loan on your own schedule and skip payments when needed without worrying about dings on your credit report, collection calls, or repossession.
Many well-known people have used whole life insurance policy loans to start or grow their businesses when no banks would lend them a dime, including Walt Disney, Ray Kroc, J.C. Penney, Foster Farms, and the Pampered Chef.