Get Schooled: How Whole Life Can Smooth Income Volatility in Retirement

Get Schooled: How Whole Life Can Smooth Income Volatility in Retirement

Adversity will teach you a lot. Don’t you just hate it?

As continuing education, the pandemic keeps giving. Retirees last year who planned on hitting the beach often hit the skids: markets dropped and so did their incomes. Think: all those hours spent with retirement planners, financial advisors and agents – I doubt this was part of the plan.

The double blow is the worst, and they took it. Markets down, income declines, you need to sell shares. Their price has hit bottom, so maybe you lose, but what can you do? Bad enough, then bam! The rebound comes and there’s less in the kitty to kick your portfolio to life. It’s ugly, and we’ve seen it all over this last year or so.

It means taking a legacy hit, too. I don’t mean the heritage left to your heirs – the one softening their loss. I’m talking about your own living legacy. It begs the most uncomfortable question retirees can face: will I have enough funds to last out my life?

Maybe you talked to an insurance agent, who convinced you to buy a whole life policy. They’re expensive, and some people can’t swing it. For them, we have term life, a fine product that buys peace of mind. That’s no minor thing, as the pandemic rammed home. You won’t hear a bad word about term around here.

Yet whole life: it’s a beastie of a different variety. Coverage starts when you pay the first premium and continues at the same cost, for as long as you live. Whole life costs more than term, but if you open a policy early in life, you’ll earn a favorable premium that never changes as you age. Term life policies get more expensive as you advance in years.

With whole life, the insurer takes part of the premium and puts it to work in a cash account. That account is the lodestar for customers. It earns a fixed interest rate, resistant to downturns. Policyholders can borrow against the cash value, draw it down (this reduces the death benefit) or use it as collateral for an outside loan. It’s there if you need it.

Mutual insurance companies pay dividends to whole life policyholders, who can take the money in cash or, more commonly, add it to their cash account, where it grows tax-deferred with the rest. That’s the preferred strategy at my desk, because the cash account is simply so valuable as a backstop when things go haywire.

Whole life policies can play a critical role in retirement planning, one too often overlooked. Life insurance industry specialists call it a volatility buffer – remember the term when you speak to your planners or insurance agents. They like informed customers, who are easier to serve, and you’ll plant them in the hot seat – just where the good ones like to sit. Your wish should be their command and if you find that it isn’t, move on to greener pastures.

Call it a buffer, a haywire cutter – whole life policies are godsends for retirees when their normal cash generators are down. Backups are useful at other times of life, too, and if that sounds a bit anodyne, let’s vivify my claim with a story.

I’m not sure how the Neil Simon play begins, but the TV version of ‘The Odd Couple’ is emblazoned on my memory, like the theme song from Gilligan’s Island – in his formative years, my Russian friend Davíd learned to recite Pushkin, tra-la. New York, 2009, in the heart of GFC darkness, my life paraphrased the OC jingle: she threw me out and requested that I never return.

The global crisis was a bitter old thing: my company said ‘go’; Russia bade a cold farewell after I gave her the best years of my life; now wifey wanted me out of our Upper East Side condo. Even the dog shot me the glare. It was time to move further uptown.

I was so broke – you can guess why – that I ruled: no taxis. I love a good cab ride, chatting with turbaned drivers about the folks back in Kabul, but ten bucks – that I couldn’t hack. I’d found a new place ten blocks north on Lexington, so, rucksack on back, suitcase rollicking in tow, guitar case in hand, I trekked out for 80th Street.

How much does the weight of a Fender Jazz Bass amplify in New York, in summertime? Bootsy Collins must have a song about it. Why didn’t I give in and hail a yellowbird? It was the guilt, I guess.

Stop for pizza and a breather? No, even a slice was too rich. In 2007, I’d dined at Steirereck, Vienna’s finest: foie gras and veal at a table outside in the city’s central park, dressed up all snazzy. “Look at us!” cried Sabina, who knew the score. “We used to be bums!” I felt pretty good, just for a beat.

I commonly quote Napoleon’s mother. How she disparaged her wicked son’s triumphs with the simple Corsican curse: ‘Solu mentre dura’! Just so long as it lasts. It was August just then in Vienna, but I felt the chill. It was all downhill from there.

I found the bottom, I reckon, in New York. Our embittered pooch, who’d taken sides, ate a plastic bottle and needed a $5,000 operation to save him. Ms. Ex broke a tooth, needed a crown – well, it was technically our money. For the price that it cost, you’d think she was queen.

Funds were shrinking faster than a NY minute. I did not, repeat not, have a whole life plan’s cash account to help – this was the old me. Yet I’m good in desperation; no pride in the breach. I rang up Vinnie and Artie.

These two were old buddies of mine and they owned a tip-top temp agency. I was ready for anything: I’d bang on a typewriter; serve the boss my special java; staple and file, for heaven’s sake. ‘Get in that line ‘round the block’, said V&A.

Vince, the soulful one, suggested I volunteer at my church to kill time. Maybe the vet or the dentist for a discount, I wondered… no. It was time for that never-fail plan, also taught by a Bonaparte. Run.

I fled to Portugal, helped set up a surfing school and an offshore investment firm, which did well for my partner, long after I’d left. Timing is everything, and if you see me on a dance floor, you’ll know I have none.

Never mind. Like Sisyphus, I’m a child of unappeasable persistence, so it turned out OK, barring scars. Let’s learn: the sun will rise and then it will set: count on it. The rest is up for grabs. So have the talk with your advisor or agent and invoke the magic words: volatility buffer. They’ll be deeply impressed – rest assured.

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