Adding Whole Life Insurance Cash Value As A Volatility Buffer In Retirement
March 9, 2021 by Wade Pfau
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The next potential use for whole life insurance in lifetime financial planning is using the cash value as a volatility buffer asset to help manage the sequence-of-returns risk for investment portfolio distributions. Retirement spending can be sourced to the cash value after a market downturn to avoid selling portfolio assets at a loss. Returns for buffer assets should not be correlated with the financial portfolio, since the purpose of buffer assets is to temporarily support spending when the portfolio is otherwise down. This attempts to allow for portfolio recovery before distributions from it resume. The cash value of whole life insurance has this characteristic since it is contractually protected from declining in value.
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