Generation X and those that are younger have been told for quite some time that the social security fund that the government currently uses to pay its elderly citizens is diminishing at an exponential rate. So much, in fact, some economists are predicting that the Baby Boomer generation will be taking the remainder of the funds during their last years. This remains to be seen, but it is still a good idea to prepare for the lack of social security. But how can you possibly replace the income provided by social security?
Permanent Life Insurance
Permanent life insurance is life insurance that you have until the day you die, no matter how old you become. Because you are purchasing an insurance for life, you are regarded with a cash value that grows based on the amount of premium you pay into the policy and the insurance amount purchased. What also happens is as you pay your premiums, which never go up, your life insurance amount increases along with your cash value. If you do die prematurely, your family will benefit from the increased life insurance amount. If you live your entire life span, you can choose to take advantage of the cash value inside the permanent life insurance policy.
Participating permanent life insurance policies simply means that the policy pays a dividend. This dividend is important because it can be taken as cash, pay for more life insurance, or be allocated into a separate fund for use later.
Creating Your Social Security System
When you reach the age of 59 1/2, you have the ability to take as much or as little of the money in your life insurance as you would like. If social security is not around and you need that extra monthly income, you can annuitize your life insurance policy so that it stops being life insurance and will now be an annuity. Depending on current guaranteed rates, you will receive a fixed amount of income per month, for the rest of your life. There will be no more premiums to pay as the life insurance policy is now a fixed investment vehicle. If you have any money left over in the annuitized policy, it will transfer upon death to your beneficiary who may take distributions of the remaining amount, starting at the age of 59 1/2.
You can also take loans from your life insurance policy. If you can budget continuing to pay premiums while you take cash from your policy, you can have the benefit of using the cash value and maintaining your life insurance policy. When you would die, the difference between the cash value used and the life insurance amount would be what your family would receive as a life insurance payment. This can be performed at any age and is a flexible option for those retiring at 55.
Life insurance cash value grows tax deferred so you pay ordinary income tax on the amount of money that you withdrawal from the account.
Creating your own social security policy is easier than you think. With the benefits of permanent life insurance you can at least assure that your income will be supplemented and will take what could be a stressful initial retirement, to one that you can enjoy.