Is it smart to take out an Adjustable CompLife policy at age 62?

My investment manager at a large insurance company recommended that I purchase a $515,000 adjustable term policy at age 62. The premiums for this policy are $33,000 per year for seven years. The policy would be paid in those seven years, with some dividends being paid or used to purchase paid-up additions. If I were to pay this amount, I would stop contributing, and maxing out, my 401(k) for the remaining years before I retire. I would also have to withdraw from my IRA to pay for this policy. I plan on retiring in three to four years, and I've had a government pension since 2008. My investments total nearly $1,500,000. My wife will retire next year with a pension, and plans on taking social security at age 62. Is the high cost of this insurance policy worth the returns? 

Financial Planning, Retirement, Pensions, Social Security, 401(k)
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February 2018

I don’t see any reason to do this. With a government pension, a wife with a pension, social security benefits combined with a $1,500,000 investment portfolio, I don’t see any need for life insurance coverage. 

Looking at things from an investment standpoint, withdrawing money from an IRA and discontinuing 401k contributions to purchase a life insurance policy makes no sense. You will owe taxes on anything you withdraw from your IRA and you may be foregoing an employer matching contribution in your 401k.

Asking whether the cost of the policy is “worth the returns” is kind of a funny question because whole life insurance policies tend to provide low returns. I haven’t seen the illustration for this policy, but whole life policies tend to provide returns similar to other fixed income investments. Not to mention, the premiums you pay can lead to negative returns for the first several years of a policy. You typically have to hang on to the policy for a long time to even earn a decent fixed income return. If you’re investing for that long of a time horizon, you could invest at least a portion of that money in stocks which have historically earned much higher returns than fixed income investments such as bonds or whole life insurance.

It’s probably a better idea to keep your money in your IRA, continue contributing to your 401k, and invest in a diversified portfolio with an asset allocation that is suited to your financial goals.

February 2018
February 2018
February 2018