Is Infinite Banking a Good Strategy for Retirement?
As you approach your golden years, financial security is a top priority. Among the many different financial strategies out there, you may be hearing more and more about infinite banking. This concept enables just about anyone to become their own bankers, offering some benefits and flexibility that could fit well into your retirement plan. But like most things in the world of money, there are downsides and risk, too.
So what exactly is infinite banking? How does it differ from traditional banking? And is it right for you? Let’s take a look.
What Is Infinite Banking?
Infinite banking is widely viewed as a personal banking system. It’s a process that overfunds a whole life insurance policy, allowing you to borrow against its cash value. Rather than depending on traditional banks for loans and financing, you can borrow from the cash value of your own policy.
Infinite Banking: Pros
This strategy may appeal to someone who wants independence from traditional financial institutions, or to avoid jumping through rigid lending hoops.
Infinite banking has some advantages, including:
- potential wealth accumulation
- flexible, low-interest loans
- potential to reduce taxes in retirement
- quick access to funds for emergencies
With this strategy, you have control over your money and can access it whenever you need to – maybe even tax-free.
For example, you can work with an experienced financial advisor to set up a dividend-paying whole life insurance policy. If you structure your policy by selecting riders like “high early cash value” or “paid-up additions,” you can optimize your cash value growth. This sets up the cash value in the insurance policy grows over time.
During retirement, you can access the cash value via policy loans or withdrawals; both of which can be tax-free. Here’s what that could look like:
Policy loans: Because this type of loan is not considered income, it doesn’t trigger income taxes. The loan will accrue simple interest, but you maintain flexibility in setting repayment terms. The interest rate is also traditionally lower than what you’d pay a traditional bank.
Withdrawals up to basis: This type of withdrawal allows you to access a portion of your cash value (up to the amount you’ve paid in premiums) tax-free.
By utilizing the Infinite Banking concept and a dividend-paying whole life insurance policy, you can set up a tax-free retirement income stream.
Infinite Banking: Downsides
Many pre-retirees have concerns about the safety of infinite banking, and for good reason. While it is a legitimate strategy that’s been adopted by individuals and businesses for years, there are risks and downsides to consider.
Infinite banking is not a guaranteed way to accumulate wealth. The returns on the cash value of the insurance policies may fluctuate depending on what the market is doing. Plus, policy fees and interest rates can impact the overall performance of the strategy. Beyond that, we generally don’t recommend using life insurance as a line of credit.
Infinite banking is a long-term strategy that requires careful planning to work into your overall financial plan. Don’t jump into infinite banking without consulting your trusted financial advisor.
How Is Infinite Banking Different from Traditional Banking?
Infinite banking differs from traditional banking in pretty big ways. Unlike traditional banks, which profit from loaning out customer deposits, infinite banking allows you to keep the interest you would typically pay to a bank. It also gives you greater control over your finances because you’ve essentially cut out the middleman of traditional financial institutions.
At Beacon, we understand the importance of financial independence and flexibility – especially as you approach retirement. Our team can guide you through the many options you have – even outside of infinite banking – to take control of your financial future.
Who Qualifies for Infinite Banking?
Qualifying for infinite banking is available to almost everyone. Unlike traditional banking, which involves credit checks and strict eligibility criteria, this strategy is accessible to many different people at various income levels and credit backgrounds. Whether you’re a business owner, professional, or salaried employee, you can probably utilize infinite banking – if that’s what you want to do.
If you have questions about this financial strategy or retirement income planning, contact our firm today. We can schedule you a one-on-one consultation with one of our experience financial advisors. We’re here to help you feel confident in your financial plan.
