LIRPs: A Well-Kept Secret for More Than 30 Years | Secure Retirement Strategies (2024)

FAQs

Do LIRPs make sense? ›

A LIRP may not be the most effective financial planning tool for the average person, but there are people for whom these plans make sense. High net worth: Individuals whose investment goals exceed the maximum limits of their other retirement savings accounts can benefit from LIRPs.

LIRP means life insurance retirement plan and is not meant to replace a standard retirement plan, like an IRA or 401(k). ². When someone is considering a life insurance retirement plan or LIRP, they are usually referencing a permanent life insurance plan. The two life insurance terms can be used interchangeably.

LIRPs have been around since 1986, but many people still don't know how beneficial they can be. LIRPs offer the benefits of life insurance, while also making it possible to earn life-long income.

The IRS sets annual contribution limits for 401(k)s—$22,500 for 2023—while LIRPs do not have this restriction. So, you have an opportunity to save more for retirement in an LIRP.

Suze Orman is a big supporter of term life insurance policies, and she firmly believes that those types of policies are the best ones to have. She insists that term life insurance policies are cheaper than whole and/or universal life insurance policies and that they just make sound financial sense.

Life insurance is no longer needed for many people once they reach their 60s or 70s. At this point they have retired, their kids have grown up, and they've paid off their mortgage and other debts.

Flexibility in Withdrawals

While qualified plans have penalties for early withdrawals and required minimum distributions each year, LIRPs benefit from having more flexibility. In a LIRP plan, you can take withdrawals & tax favored loans at nearly any time.

As the cash value of your policy grows you can withdraw or borrow funds, although there may be tax implications. LIRPs offer an investing strategy if you've maxed out your 401(k) or other retirement saving vehicles and are looking for a tax-deferred way to increase your retirement savings.

A LIRP is typically funded with either whole life, indexed universal life, or variable universal life insurance. The underlying policy provides both a death benefit to beneficiaries upon the policyholder's passing and a cash value component that grows over time.

Germany became the first nation in the world to adopt an old-age social insurance program in 1889, designed by Germany's Chancellor, Otto von Bismarck. The idea was first put forward, at Bismarck's behest, in 1881 by Germany's Emperor, William the First, in a ground-breaking letter to the German Parliament.

What is the oldest life insurance company still in business? ›

1752 The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, the oldest insurance carrier in continuous operation in the United States, was established. 1759 Presbyterian Ministers Fund, the first life insurance company in the United States, was founded.

Immediate fixed annuities are the oldest, most common type of annuity: You pay an insurance company a lump sum up front, and in return you receive a fixed monthly payment for life (or some other specific time period).

Let's walk through the scenario. With $300,000 planned for your use as a retiree, a retirement age of 50, and an anticipated life expectancy of 85 years, you need that money to last you 35 years. This should mean that your yearly income is around $8,571, and your monthly payment is around $714.

You can retire at 50 with $500,000; however, it will require careful planning and budgeting. As the table above shows, if you have an annual income of either $20,000 or $30,000, you can expect your $500,000 to last for over 30 years. This means you will run out of retirement savings in your 80s.

Summary. Retiring with $200,000 in savings will roughly equate to $15,000 annual income across 20 years. If you choose to retire early, you will need additional savings in order to have a comfortable retirement.

Work: Since life insurance helps replace lost income to your family when you die, you may want to keep your policy if your spouse or other family members depend on you for income. But if you have very little income from your retirement job, it is likely unnecessary to continue with the policy.

Annuities can provide a reliable income stream in retirement, but if you die too soon, you may not get your money's worth. Annuities often have high fees compared to mutual funds and other investments. You can customize an annuity to fit your needs, but you might need to pay more or accept a lower monthly income.

Typically you should consider an annuity only after you have maxed out other tax-advantaged retirement investment vehicles, such as 401(k) plans and IRAs. If you have additional money to set aside for retirement, an annuity's tax-free growth may make sense - especially if you are in a high-income tax bracket today.

A LIRP is typically funded with either whole life, indexed universal life, or variable universal life insurance. The underlying policy provides both a death benefit to beneficiaries upon the policyholder's passing and a cash value component that grows over time.