Over the past decade many clients have looked to Government and Investment
Grade Corporate Bonds as a way to reduce risk in their retirement account portfolios. One of the options I suggest to consider is in addition to looking at bonds,
consider the use of Whole Life Insurance from a highly rated company as a diversifier with a 'boost'.
Cash values accumulated inside a whole life insurance contract are kept part of the general account of the company, therefore are subject to creditor claims if the insurer becomes insolvent. Therefore, it's important to select a quality insurance company, such as Guardian Life. Similarly, Investment Grade Bond principal payments are expected to be returned at the end of the bond period, however this is also subject to the solvency of the issuer. Many mutual life insurers are some of the most conservative, stable companies in the world.
Because most of the quality whole life insurance contracts offer both a guaranteed interest rate and a non-guaranteed dividend
, if given at least 12 years to accumulate, the net returns in a whole life policy will tend to show very competitive growth rates as compared to other popular fixed income vehicles such as CDs, AAA Corporate and Government bonds and bond funds. In addition, because the typical investment into a whole life policy will be outside of the IRA or employer sponsored retirement plan, the remaining allocation of the (e.g.) 401(k) account can be more aggressive than if the client tried to diversify with bond funds inside the account.
Death Benefit & Taxes
Let's not minimize the tax free death benefit associated with a whole life insurance policy. In the event of a premature death, the insurance contract will provide an income tax free 'boost' to the survivors.