Most people don’t see the need for life insurance in their later years, let alone the benefit of whole life insurance in their retirement plan. By retirement, you may expect to have your home paid off, and not have the same income needs as before. You may even decide you're not retiring at all if you can help it.

https://www.youtube.com/watch?v=1kq9rC5nw6I

Even still, there are tremendous advantages to having whole life insurance that lasts for your whole life. This includes having insurance beyond what most consider their life insurance needs. Tune in today for this eye-opening conversation with Dr. Wade Pfau about the three key benefits of whole life insurance in your retirement plan.

Table of contentsThe Nature of Retirement IncomeThe Benefits of Whole Life Insurance in Your Retirement PlanHow Does the Volatility Buffer Work?Inflation RisksBuilding a Retirement Income PlanThe Reality of Stock Market ReturnsWhole Life Insurance In Your RetirementLinks ReferencedAbout Dr. Wade PfauBook A Strategy Call

The Nature of Retirement Income

[5:19] “What makes retirement income different is that the nature of risk changes… just in looking at how the investment world approached retirement income, I developed concerns.”

Those concerns led to Dr. Pfau looking into assets that are traditionally not considered retirement assets, like life insurance. Life insurance isn't common in retirement plans because many people don't believe they need it anymore. However, life insurance has benefits that many people don’t consider, and aren’t taught to consider. 

[5:56] “In the risk management context of retirement… potentially looking at different tools, not just using only an investment portfolio to fund retirement expenses, can help lay that foundation for a better retirement outcome.”

When you only have investment assets for retirement, you have a sequence of returns risk. This means that you risk significant losses because you can’t time the market in retirement. After all, you’ve got to take your income to eat and pay bills.

The Benefits of Whole Life Insurance in Your Retirement Plan

The value of whole life insurance is that “the cash value is not exposed to the risk of loss,” as Wade says. The cash value is a non-correlated asset and grows no matter what is going on in the stock market. 

[7:25] “It can provide a resource to cover spending on a temporary basis during this kind of bad market environment so that you don’t have to sell from the portfolio to fund spending... Well, then that gives the portfolio an opportunity to recover and to make up those losses again before we have to go back to selling from it.”

[8:01] “Ultimately the benefits [of whole life insurance] to the portfolio exceed the cost of the insurance to give a better net outcome, especially when we consider the tax advantages and so forth of life insurance.”

How Does the Volatility Buffer Work?

A "volatility buffer," as Wade Pfau calls it, is an asset that can help your investments during market downturns. The idea is that after the market dips, you can pull income from your volatility buffer to minimize your losses and give the account time to recover. When you give your investments some breathing room, you can extend the life of your investment account by years.

An ideal asset for a volatility buffer is whole life insurance because it's flexible and liquid. Not to mention, the death benefit provides some protection for your estate and assets. Whole life insurance gives you some freedom to spend without disinheriting heirs, too.

Inflation Risks

In conversations about retirement, people often ignore the impact of inflation. The harsh truth is that due to inflation, you will need more money in the future to have the same financial impact today. The equivalent of $100k salary now is going to be much more in the future. 

[22:25] “Inflation has this permanent impact. Because if prices are up at eight percent this yea...