Most people who are planning for retirement fund their 401Ks and use financial vehicles like mutual funds, bonds and securities to save money. But you may have overlooked life insurance in your planning efforts. Although there are some caveats, certain forms of life insurance can provide funds in your senior years. "In most cases life insurance is probably not appropriate until all of the tax qualified plans -- IRAs, 401Ks, etc. -- have been maxed out and one doesn't have any more of those vehicles to invest in," says Rob Drury, executive director of the Association of Christian Financial Advisors, a non-profit coalition of over 3,000 financial advisers based in San Antonio. But if you're looking for an extra boost, here are three insurance options.
While annuities can help supplement retirement, the best part is that they grow tax deferred but are fully taxed at your tax bracket when you take money out. Variable annuities let you invest in accounts similar to mutual funds, and the money grows tax-deferred until it's withdrawn. Most companies offer an add-on guarantee for an extra fee, either a guaranteed minimum income benefit (GMIB) or a guaranteed minimum withdrawal benefit (GMWB). "Inside the annuity you may have an interest-bearing account or mutual funds that give you the opportunity for a higher rate of return. There are also indexed annuities that limit any losses, but also may limit future growth," says Sheldon Weiner, founding partner at the financial planning firm Egan, Berger & Weiner LLC., in Vienna, Va. An annuity may cost 0.6 percent to 1 percent of your investment, plus the standard annuity fee of 1.4 percent, which can be twice the cost of a mutual fund. GMWB allows you to withdraw up to a certain amount each year from the initial investment for the rest of your life, no matter how the investments perform. Even if the account is depleted, the insurer pays the guaranteed amount. This makes it an attractive insurance vehicle for retirement.