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Efficient Retirement Portfolios: Using Life Insurance to Meet Income and Bequest Goals in Retirement

Paid Growth Analyst, Airbnb, Inc., 888 Brennan St., San Francisco, CA 94103, USA
Strategy, Research and Analytics, New York Life, 51 Madison Avenue, New York, NY 10010, USA
Department of Mathematics, University of Michigan, 2074 East Hall, 530 Church Street, Ann Arbor, MI 48109-1043, USA
People Advisory Services, Ernst & Young LLP, 155 North Wacker Drive, Chicago, IL 60606, USA
Author to whom correspondence should be addressed.
Received: 26 October 2018 / Revised: 21 December 2018 / Accepted: 4 January 2019 / Published: 18 January 2019
(This article belongs to the Special Issue Young Researchers in Insurance and Risk Management)
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Life Insurance Retirement Plans (LIRPs) offer tax-deferred cash value accumulation, tax-free withdrawals (if properly structured), and a tax-free death benefit to beneficiaries. Thus, LIRPs share many of the tax advantages of other retirement savings vehicles but with less restrictive limitations on income and contributions. Opinions are mixed about the effectiveness of LIRPs; some financial advisers recommend them enthusiastically, while others are more skeptical. In this paper, we examine the potential of LIRPs to meet both income and bequest needs in retirement. We contrast retirement portfolios that include a LIRP with those that include only investment products with no life insurance. We consider different issue ages, face amounts, and withdrawal patterns. We simulate market scenarios and we demonstrate that portfolios that include LIRPs yield higher legacy potential and smaller income risk than those that exclude it. Thus, we conclude that the inclusion of a LIRP can improve financial outcomes in retirement. View Full-Text
Keywords: life insurance retirement plan; simulation; efficient frontier life insurance retirement plan; simulation; efficient frontier

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Dong, F.; Halen, N.; Moore, K.; Zeng, Q. Efficient Retirement Portfolios: Using Life Insurance to Meet Income and Bequest Goals in Retirement. Risks 2019, 7, 9.

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