The No-Compromise Retirement Plan

Overcoming the compromises in your IRA, 401k, 403b, 457 or TSP to live a more secure retirement.

You’ve done a good job saving. Now, you need a good way to manage that wealth. Planning for the future isn’t just about saving money while you’re working. It’s about getting the most from your money in retirement.

Growing Funds in Today’s Stock Market

Individuals who want their funds to have an opportunity for meaningful growth may choose options with exposure to the stock market. This century the market has experienced significant volatility, including 2000 – 2009 and 2020 where you have lost anywhere between 40% – 60% of your retirement savings

Growing Funds with Low Interest Rates

Individuals who do not want their retirement funds exposed to the market may choose other options, such as bank savings. However, today’s low interest rates have made it difficult to achieve meaningful returns on money in less volatile approaches.

Income for You, Legacy for Your Heirs

Some individuals have accrued money in their qualified accounts, such as 401(k)s and IRAs. In a qualified account, you may want to accomplish two goals with your funds:

First, use the money as income, and second, leave some of the money to your heirs as a legacy.

In a tax-deferred account, you can choose to receive funds for income penalty-free after age 59½. At age 72, the IRS will require you to receive funds from the account in the form of Required Minimum Distributions, or RMDs. Taxes are due when qualified account funds are distributed.

You can also leave all or a portion of the remaining account value to your heirs when you and your spouse are no longer living. The funds will generally be taxed at your heir’s tax rate.

Because tax-deferred accounts require participants to ultimately pay income tax on contributions and accumulation, it’s important to consider the overall taxes projected to be paid. Below is an example of a tax-deferred account, like an IRA. This example shows the taxes that could potentially be owed today and in the future if the account grows. This is a hypothetical example only.

For this example, we assume a 65-year old individual is in the 25% tax liability and has an IRA worth $500,000. We assume the individual’s IRA grows at 5% annually. We have also assumed the account holder lives to age 90. In our first example, the individual pays taxes on his RMDs and reinvests the remainder in another financial vehicle earning 4% annually, where taxes will be paid on the growth. In our second example,

the individual converts his IRA to a Roth IRA, pays the taxes due, and then accumulates funds in the Roth IRA tax-free.

An Alternative Approach

Certain kinds of life insurance can also be used both to create a legacy for your heirs through the death benefit and to accumulate funds that can be accessed in retirement. One such type is a permanent, flexible kind of life insurance called Indexed Universal Life (IUL). Qualifying for an IUL policy depends on your age and health. This information outlines some of the features and benefits of indexed universal life. The primary purpose of life insurance is death benefit for your heirs. Here are the basics:

Growth Potential and Protection

The “indexed” in an IUL refers to the potential for a portion of your cash value to grow when a market index rises, be protected when the market index drops, and how that portion of your premiums are credited annually.

Income and Legacy

An IUL immediately creates a legacy for your heirs with the death benefit. This amount is separate from the value of your underlying assets. One benefit of an IUL may be the ability to take loans from your policy to use for supplemental income if needed in retirement. Outstanding loans and interest will reduce the death benefit amount.

Taxation

With an IUL, your policy premiums are paid with after-tax dollars. Your cash value within the account grows income-tax free in most cases. You will generally not pay income tax on loans you take from the policy in retirement. Your death benefit is paid generally tax free.

An IUL can help deliver potential growth and protection through Indexing. Indexing is a method that enables policy holders to participate in a portion of the potential rise in the value of a stock market index, while being protected from a potential drop in the index’s value. There are many different kinds of indexes. As an example, a common indexing method uses the S&P 500® with a cap and a floor. Below is a comparison of $100,000 invested this century in stocks reflected by the movement of the S&P 500® total return including dividends (red line) and the interest credited under an Indexing method using the S&P 500® with a hypothetical cap of 13% and a floor of 0% (green line). This comparison does not include any charges for the mortality costs of life insurance nor any stock investment fees, so the actual comparative values may vary from what is shown.

Income for You or Legacy for Your Heirs

The primary purpose of life insurance is death benefit protection for your heirs, and a death benefit, payable to your heirs upon your death, is established when you purchase an IUL policy. IUL can also provide access to supplemental income in retirement. If needed, a policy holder may take loans from the account value of their IUL policy.

Additionally, many IUL policies make living benefits available, either through the contract or through an optional rider you can purchase. You can accelerate a portion of the death benefit for certain qualifying medical conditions, according to policy guidelines.

Any outstanding loan and applicable interest or utilization of a living benefit may reduce the death benefit.

Below is a description of the tax benefits you may potentially access through an IUL. Please note this information is not intended to provide tax, legal or investment advice. Be sure to consult with a qualified professional in these areas about your individual situation.

Putting It All Together

An Indexed Universal Life insurance policy can potentially deliver:

Potential for Accumulation

A portion of the IUL premium can be linked to a stock market index but not exposed to stock market risk. If that index increases in value, your policy will be credited with a portion of the increase each year.

Principal Protection

If the index drops, the credited value is protected and does not drop. Guaranteed interest may be as little as 0%. You do not lose principal or any credited interest to stock market volatility.

Income for You

Some IUL policies allow owners to borrow a portion of the accrued value through policy loans. If not repaid, loans reduce the death benefit by the amount of the loan and interest charged. Some IUL policies allow owners to withdraw all or a portion of the accrued value without penalty through a liquidity clause or rider, purchased for an additional charge. See your policy illustration for complete conditions and options.

Legacy for Your Heirs

Heirs receive a death benefit when the policy holder dies while the policy is in force. Death benefit is delivered less outstanding policy loans.