Want tax-free retirement income? Tax-free money in retirement sounds amazing… at first glance.

https://www.youtube.com/watch?v=mylXCXThFl0

But before you dive into this strategy, there are three things you need to know about why “Tax-Free Retirement” is a really bad idea.

To find out exactly why you shouldn’t set up your financial game plan for tax-free retirement… tune in now!

Table of contentsSetting FrameworksWhat is Tax-Free Retirement?“Don’t Let the Tax Tail Wag the Dog”Retirement is a Concept that Needs FixingHow to Change RetirementSo Why Shouldn’t You Do Tax-Free Retirement?Why Tax-Free Income is Not the Best First SolutionLife Insurance is InsuranceBook A Strategy Call

Setting Frameworks

When you’re presented with a certain lens or framework, it’s important to step back and consider: 

Where is the information coming from?

Who does this benefit? 

What are the other options?

These questions can go a long way in helping you determine whether a strategy is a good fit for you, whether it has merit, and how you should approach it. 

The idea of tax-free retirement using whole life insurance is popular. Just the name alone makes it sound amazing. So why wouldn’t someone want to implement it? Keeping the above questions in mind, we’re going to unpack the nuances of this approach so that you can use that information to better your strategy.

What is Tax-Free Retirement?

The general idea of tax-free retirement is that you have set up a whole life insurance policy for maximum cash value growth that you can use for retirement income. The strategy suggests that after maximally funding a policy, you can choose to retire and use that cash value for retirement income. You use a certain formula to determine how much you can withdraw each year over a certain timeframe (instead of borrowing against it) without creating a taxable event. 

The premise is that by saving into a whole life insurance policy, you can pull an income from your policy without paying taxes. And while this is true, there are certain disadvantages that people don’t often consider or discuss. 

“Don’t Let the Tax Tail Wag the Dog”

This concept comes from Garrett Gunderson, author of Killing Sacred Cows. 

[14:10] “He talks about how you cannot ever make all of your financial decisions on the basis of, ‘How do I pay the least amount of tax?’ If you’re just looking at taxes, that’s a lens being put in front of your eye [saying], ‘Here’s the most important thing.’ Really, there’s not one most important thing; there’s a lot of factors that you need to consider.”

When you only make financial decisions out of the fear of paying taxes, you’re acting from a place of scarcity. The scarcity mindset doesn’t serve you, because it prevents you from seeing other options or strategies that may be even better for you, depending on the purpose of your dollars.

If you want to leave a large legacy to your children, but you choose a “tax-free retirement” strategy out of fear, you run the risk of disinheriting your children. This, of course, is not the outcome you want if you’re aiming for a legacy. So it’s important not to let fear dictate the lens through which you take financial action.

Retirement is a Concept that Needs Fixing

Let’s consider the typical retirement paradigm. Generally, you work from about age 20 or so until you’re somewhere between 60 and 70. In all of those working years, you work as hard as possible to make as much as possible. And hopefully, you save as much as possible. Then, when you’re ready to retire, you stop working completely and live off of what you’ve saved. You probably intend to continue living life at the same level of comfort and quality, so you take about the same income that you made when you had a job. 

Unfortunately, many people only save about 10-20% of their income. But, they still want to live at 100% of what they’re used to. This means retirees are going through their money...