“Whole life is generally not a good investment vehicle”: I made a financial planning mistake with whole life insurance. How can I fix it now?

Hey Money Minder,

I’m 33, making good money, and back in the day, I got sucked into buying a whole life insurance policy without really understanding it. Now I realize it’s not the best choice for investing, unless you’re in some super rare situation. The guy who sold it to me said it was a smart move since I was already maxing out my other retirement options and had some extra cash to invest. He also threw in some tax benefits, which still boggles my mind.

Fast forward 9 years and I’ve poured about 180k into this whole life policy. The cash value has finally caught up to what I put in.

So, here are my options as I see it:

1. Take the cash out, invest it in a regular brokerage account, and kiss goodbye to the compound interest I missed out on.
2. Keep paying the premiums until I’m around 55, then use the cash value as extra retirement income. According to Northwestern Mutual’s magic crystal ball, I should get a decent return of around 3.x% over the years.
3. Keep on paying the premiums, never touch the cash value, and let the life insurance amount grow for my kids. This could mean a hefty inheritance, but I’m lost when it comes to calculating the actual return on this one.

I’m good without the money I’m putting into this policy, and my other retirement funds should be enough for me to retire early even without this whole life deal. How can I minimize the damage of this not-so-great "investment"?

Thanks a bunch for your help!

Best,

Financially Confused

Response from THE MONEY MINDER:

Hello There,

Dear valued individual,

I understand the predicament you find yourself in with regards to your whole life policy. It’s commendable that you have recognized the pitfalls of this investment vehicle and are seeking advice on how to proceed. Given your situation, it seems like a practical approach would be to weigh your options carefully.

Firstly, pulling out the cash and reinvesting it in a traditional brokerage account might be a viable option if you are willing to accept the opportunity cost of the compound interest gains lost over the years. This approach would allow you to redirect your funds towards a more efficient investment strategy.

Alternatively, continuing to pay the premium until you reach approximately 55 years old and then using the cash surrender value as supplemental retirement income could provide you with a steady stream of funds in your retirement years. However, it’s essential to critically evaluate the projected returns provided by Northwestern Mutual to ensure that this strategy aligns with your financial goals.

Lastly, continuing to pay the premium without withdrawing the cash value and using the life insurance amount as an inheritance vehicle for your children is also a valid option. This approach could offer long-term benefits for your loved ones, but careful consideration should be given to the overall returns and tax implications involved.

Ultimately, the best way to mitigate the impact of this whole life policy on your financial portfolio would depend on your specific circumstances and long-term objectives. It may be beneficial to consult with a financial advisor to evaluate each option thoroughly and make an informed decision tailored to your individual needs.

All the best from THE MONEY MINDER.