Life Insurance vs. Roth IRA for Retirement

Mark Fitzpatrick of recently asked about insurance vs. Roth IRA for retirement. Here’s what I shared with Mark:

Our research indicates some consumers are considering whether to fund a Roth IRA or permanent life insurance to plan for retirement. Why might they be making this comparison?

The Roth is a retirement account specifically designed for retirement savings; alternatively, life insurance provides income to dependents in the event of your passing.

How do the contributions and contribution limits for a Roth IRA compare to premium payments for life insurance?

In this scenario, one would be comparing apples to oranges. I would encourage consumers to first determine their goals and then find the right tools to accomplish them. Both are useful in the right context, but I would not necessarily promote the use of life insurance for retirement unless there was a compelling reason.

For the typical consumer who’s not eligible for a Roth IRA, but isn’t ultra wealthy, how would you recommend they employ these products? Would you recommend one over the other or some usage of both?

Most consumers have employer-sponsored retirement plans, so if they cannot contribute to a traditional IRA or Roth, they will have some plan available to them.

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