Multicultural Retirees’ Income at Risk

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retirementNearly 45 percent of U.S. households are “at risk” of not having enough to maintain their living standards in retirement, according to the National Retirement Risk Index, a special project of the Center for Retirement Research at Boston College.

Many multicultural populations are particularly at risk: a new study by the Hispanic Institute For Americans For A Secure Retirement found that only 41 percent of Hispanic workers say they have saved money for retirement. African-Americans, too, face significant risk of outliving their incomes in retirement. In 2009, an Ariel and Schwab survey of middle and upper income Black and White retirees shows that retired Blacks have median savings of just $73,000 compared to $210,000 for Whites.

But some Hispanic and African-American retirees have discovered a source of supplemental income that can help tide them over during rough patches: their whole life insurance policies.

Many retirees and pre-retirees are counting, if necessary, on tapping the cash value of their whole life insurance policies – without tax or penalty – to see them through in a pinch. Their policies’ cash values, which are guaranteed to grow, also can offer protection against the erosion of income caused by rising inflation, declining interest rates, and higher income tax rates.

Gabriel Angulo, a business owner and father of three in Miami, Fla., bought a whole life insurance policy from Massachusetts Mutual Life Insurance Company (MassMutual) five years ago after the birth of his youngest son, when a neighbor had a fatal heart attack, leaving two children behind. After research, he purchased whole life insurance because of the permanent death benefit for his family.

“In addition to the death benefit that protects my family, the cash value building up in my whole life policy is a great help in planning for retirement or any other need for cash that may come up,” Angulo said. “It’s tax free, and I can use it when necessary, without penalty.”

Financial professionals say whole life insurance is particularly well-suited for supplemental retirement planning, as it creates flexibility that enables policyholders to address their needs and circumstances as they change over time.

“A whole life policy is attractive because, as long as you make premium payments, the cash value will always go up,” explained Luis Hernandez, general agent of MassMutual’s Miami, Fla., office, LINQ Financial Group. “The flexibility of whole life insurance is especially appreciated when the market experiences a downturn,” he continued. “Instead of selling off your investments at a loss, policyholders can access tax-friendly cash, which is especially appreciated by high-net-worth individuals.”

Angulo credits Hernandez’ brother, Carlos, who is a financial services representative at LINQ Financial, for his clear and detailed explanation of whole life insurance and its accompanying cash value as a determining factor in his purchase.

“Guarantees are one of the many great aspects of whole life insurance,” said Tara Reynolds, corporate vice president, U.S. Insurance Group, MassMutual. “The death benefit is guaranteed; the premiums are guaranteed, and growth of the cash value is guaranteed. It’s a piece of your financial plan that you don’t have to worry about.”

While a whole life policy’s cash value can be an effective way to supplement retirement income, it is not recommended to access the cash in the policy for non-emergency needs or desires, such as consumable goods or vacations. It also is not advisable to tap the policy’s cash value when the policyholder’s top priority is preserving the death benefit, such as when wealth transfer or estate taxes are more important to the overall strategic financial plan.

SOURCE: PR Newswire (c) 2010