Cash Value Life Insurance

• There are two basic types of life insurance--term and permanent. Term insurance is good only for the term, saving no cash value with the premiums you pay. Permanent insurance uses premiums to invest and grow cash value. The cash value grows tax deferred and can later be used to pay life insurance premiums or be taken out as a means of income. Since premiums are after tax dollars, only the earnings on cash value will be assessed taxes. While you can use this method of purchasing life insurance to save for retirement, keep in mind that it has more expenses than other retirement savings accounts.
  
  

Annuities

• Annuities are insurance products bought to guarantee income. Income can start immediately or the money can grow tax-deferred until a later point in time when the income is taken. Like most tax-deferred accounts, you can access the money starting at age 59 1/2. This is earlier than the Social Security full retirement age of 65. Deferred annuities provide either fixed returns or use mutual funds for more aggressive variable growth. An investor can "annuitize" a deferred annuity, meaning it starts a lifetime or fixed period income. According to IRS Code 72(t), you can take an immediate annuity or annuitize a deferred annuity and avoid the early distribution penalty of 10 percent for withdrawals prior to age 59 1/2.
  
  

Considerations

• Budgeting for early retirement requires careful planning to ensure you do not outlive your income means. This is especially true with annuities. If you choose to take payments for a period of time, say 20 years, you may find yourself without sufficient financial resources 30 years down the road. If you take an immediate annuity for the remainder of your life, your income will remain the same, but the cost of living may sky-rocket. These considerations along with Social Security or pension incomes must be carefully reviewed prior to making irrevocable early retirement decisions to annuitize funds.
  
  

Accelerated Death Benefits

• An accelerated death benefit is not a death benefit at all; it is a living benefit that uses the value of the death benefit for the insured under specific dire circumstances. Terminally ill patients with less than six months to live or those with no hope of leaving nursing homes after being there for at least six months can, in some life insurance policies, access part or all of the death benefit value. This allows the insured to access more than the cash value. While this isn't early retirement per se, this may be beneficial to a younger person who becomes ill and doesn't want to impoverish his spouse or children in his final days.