LIRP in lieu of ROTH...
I have done some initial research and found this a rather controversial subject but here goes...
I am currently a pass through entity and file as such. This means that all of my income is passive and that I can't contribute to any sort IRA or 401k. It has been recommended to me that I get a life insurance policy (lirp) and over fund it. My understanding is that it is after tax money but that down the road what I take out is tax free. Sort of like a ROTH. Also, I don't need the life insurance...no one relies on me. I'd be using as a way to lower taxes down the road. Once all my mortgages are paid off I'll be in the highest tax bracket for sure.
I guess I'm looking insight into whether this is a good idea or not, and also what pros and cons there are that I may be overlooking. TIA
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#5 Personal Finance Contributor
- Financial Advisor
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@Mike S. is right. One of the best things about a LIRP is that you will get about 2 to 3 times the income from your savings. The conventional rule of thumb for determining the safe withdrawal rate from your savings is 4% (i.e. The 4%-Rule)
The safe income rate for a LIRP is more like 8%. This is where all the haters and financial pundits just don't get it. They focus on accumulation. Sure, a brokerage account may have more in it by retirement age. But when you look at how much income the LIRP can generate, it blows away IRAs and 401(ks)... not to mention safety!
Dollar for dollar, you would be hard-pressed to find anything that will provide more INCOME for your retirement savings dollar.