Avoiding your own fiscal cliff in retirement

By Dennis Sudac

Fidelity & Guaranty Life


The national fiscal cliff seems to be well on its way to becoming a forgettable political footnote. However, most of us must still address our own personal cliff when it comes to retirement — we simply haven’t saved enough to support our desired lifestyle beyond our 60s.

The threat of inflation and higher tax rates makes a viable solution to this problem even more complicated. Life insurance with index crediting options including commodity options should play an important role in every retirement success plan for the following three reasons:

1. Hard assets with intrinsic value generally provide good protection from inflation. With “safe money” rates on CDs and saving accounts at record lows, even a slight increase in the cost for everyday expenses will cause enormous stress for retirees. Consumer and industrial need for commodities like natural gas, oil and gold have historically neutralized the impact of rising prices. Allocating funds in an IUL to a gold commodity crediting option can have the potential to grow your IUL account value.
 
2. Commodities can potentially dampen the impact of market volatility on net worth. Even a slight decline in the market in the year before you retire can have an unbelievably adverse impact on the amount of money you can safely withdraw over time from your 401(k). Commodities, like gold, generally are negatively correlated to stock and bond performances. Allocating part of your nest egg to this interest crediting method in your IUL could provide protection against loss due to market volatility.

3. Life insurance offers unparalleled flexibility for planning in an uncertain time. First and foremost, life insurance guarantees that you can leave a legacy for your heirs regardless of changes in ordinary tax rates. A less appreciated but potentially more valuable feature is the ability to take tax-free loans from the policy itself. Your needs in retirement will undoubtedly change over time. With a permanent life insurance policy, you can borrow from the account value to fill short and even long-term gaps that market volatility or price increase may create down the road.

I firmly believe that asset preservation will continue to rank as one of the most important objectives for people in retirement. Advisors and clients should closely study the benefits of life insurance with interest crediting options like a gold commodity option when building their plans.