“Indexed universal life insurance won’t be necessary once you retire.” This is a common phrase in the financial business. You are unlikely to need a life insurance policy after you start receiving retirement income because you have been such a responsible saver and wise investor.
However, there are four compelling reasons why you might want some indexed universal life (IUL) insurance for retirement in your portfolio, even if you don’t need it.
1. IUL as a Retirement Risk Diversifier
Although indexed universal life is not fully uncorrelated to the stock market, it features a unique growth approach that allows you to participate in the stock market without taking on stock market risk. This means that IUL provides a contractual 0% floor, safeguarding against losses in bear markets. So if the S&P 500 has a negative return, you get 0%. IUL can generate double-digit returns during bull market years by tracking the S&P 500 index.
Suppose the market crashes, and you have a portion of your retirement assets dedicated to indexed universal life insurance. You might take your emergency income needs from your IUL policy, allowing your equities and mutual fund accounts to recover. In a falling market, you will have to redeem more shares of your stocks or mutual funds to maintain your current way of living.
2. IUL as a Retirement Tax Shelter
Many high-income earners are unaware that the tax status of indexed universal life is quite similar to that of a Roth account but without all the restrictions to entry. Because there are no high-income constraints and no $5,500 annual ceiling on contributions, IUL is often termed “the Roth of the rich.”
So, while you may not need indexed universal life insurance after retirement, you will most likely desire it for tax benefits.
As tax rates fluctuate due to the many regimes in Congress during your retirement, what if you could “time your tax” by adjusting the number of taxable retirement payments you want each year?
Consider taking money from taxable sources until you hit those bad tax brackets, then supplementing the rest of your chosen lifestyle with indexed universal life’s tax-free dividends.
The higher the tax rates for the wealthy, the more you will wish you had assets set up for IUL. Even though “tax reform” has occurred, decreasing all tax levels slightly, keep in mind that we are still 20 trillion dollars in debt, and gravity will cause the pendulum to swing back the other way.
Either you can plan, or you can react and change.
3. IUL for Retirement Death Benefit
When consumers are informed about the particular tax and risk-management characteristics of IUL, the death benefit is frequently the least enticing element. However, in retirement planning, you should not overlook the value of a permanent death benefit.
This is what it means:
Suppose you had a guaranteed accounts-receivable that your heirs would receive tax-free upon death. Wouldn’t you be more likely to draw down your retirement savings while still alive?
You would, of course!
A permanent death benefit permits you to use other assets in your portfolio more aggressively. Even if you deplete all of your other accounts just before your life expectancy, there will be a large amount of cash value available inside your indexed universal life policy for retirement income. Not to mention that you would have a larger tax-free death benefit to replace the portion of your nest egg.
What if you became chronically unwell or severely injured?
In retirement, one in two people will need “Long-Term Care,” whether that’s provided in a facility or the individual’s own home.
You may be able to legally collect the tax-free death benefit even if you are still alive, thanks to some indexed universal life plans’ unique riders or policy clauses.
These clauses are becoming more common in indexed universal life; however, the specifics will vary by plan and insurer.
4. IUL as a Better Pre-Retirement Liquidity Holding Tank
Everyone requires a certain amount of safe and liquid cash reserves, especially when approaching retirement.
Real estate investors and business owners likely have much more cash on hand than is now in the stock market. Even with W-2 employees, the general rule is to have six to twelve months of costs in cash. You can then draw on your reserves without fear of incurring any losses.
Contact Information:
Email: [email protected]
Phone: 7705402211
Bio:
Mack Hales has spent the past 4 decades helping clients prepare for retirement and manage their finances successfully. He also works with strategies that help clients put away much more money for their retirement than they could in an IRA or even a 401k. We involve the client’s CPA and/or their tax attorney to be sure the programs meet the proper tax codes.
Mack works with Federal Employees to help them establish the right path before and after retirement. The goal is to help the client retire worry-free with as much tax-free income as possible and no worries about money at risk of market loss during retirement.
Mack has resided in Gainesville, GA since 1983, so this is considered home. Mack is married to his wife of 51 years, has two boys and five grandchildren.
Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.
