This is the time of year when a lot of people are putting money into their IRAs to get a deduction for last year or changing their 401(k) contribution rates. While there are a lot of tax advantages to using an IRA, as soon as you write that check to the IRA custodian, you will not be seeing that money again until you retire. It is not going to help you put food on the table today. If you need to access that money in an emergency, you will be forced to pay the taxes that are due as well as a 10% penalty.
One of the most powerful features of a permanent life insurance product used as a retirement planning tool is the ability to take loans from the insurance company that are secured by the cash value of your life insurance policy. This provides you with a tax-free loan that you can use to meet your day to day purchasing needs.
Think about the thousands of dollars that most of us spend on loans for our cars, houses, boats, college education expenses, weddings and vacations.
When you set up a permanent insurance policy, you have a retirement savings plan that should be earning an approximately 7% to 8% annual rate of return from now until you retire. But unlike an IRA or a 401(k), you can access these funds at any time. This is literally putting your money to work in two places at one time. When you take a loan for $25,000, for example, to purchase a new car, you can pay your policy back just as though you were paying back a bank loan. In 5 years your car loan will be paid off just as if you had a traditional loan. The difference is, your retirement fund had earned interest on the ENTIRE balance the whole time.
This is an extremely powerful concept. I know people that have had to tap into their IRAs and 401k plans after they lost a job. Its bad enough that they lost a great deal of their savings to pay the income taxes, but the 10% early withdrawal penalty is like kicking you when you are already down. Do yourself a favor. Put your money into a powerful growth vehicle that will provide the retirement income you need and be there when you need it tomorrow.