Since people are living so much longer today, one of the biggest question on the many peoples’ minds is, “Will I have enough income to last me through retirement?”
Unfortunately, the income that is generated through Social Security and traditional retirement savings plans may not be enough. With that in mind, you may need to turn to alternate sources in order to fill in the gaps. One way to do so is through the tax advantaged features of an index universal life (IUL) policy.
First things first. I would mostly recommend this strategy for an individual who has first maxed out all his tax advantage retirement options like a 401K, Roth or Traditional IRA. This is a strategy is a way to get income tax free withdrawals that can supplement other forms of taxable income in your retirement years. Some advisors have called this strategy a super ROTH.
How Index Universal Life Can Provide Retirement Income Solutions
While index universal life insurance does provide many of the same protections that other types of permanent life insurance offer, it can also offer much more flexibility in terms of its cash account, as well as many additional advantages too, such as:
Protection of Principal – Because of the market “floor,” the policy holder in an IUL policy will typically receive 0% interest in down market years – even if the underlying index performs in the negative during a given time period.
Opportunity for Higher Growth – Due to the way that interest is credited based on the performance of an underlying index (or more than one index, in some cases), index universal life insurance can obtain more growth than whole life insurance, or even regular universal life – allowing the cash in the policy to accumulate even more.
Annual Resetting of Gain – Index universal life insurance also offers an annual reset feature whereby cash value gains are essentially “locked in” each policy period and can never be taken away due to future market downturns. This basically protects funds from the market’s ups and downs going forward.
Setting IUL Apart from Traditional Retirement Plan Options
Index universal life insurance also offers some key features that can set it apart from qualified retirement plans – which can make it a nice alternative or supplement for obtaining additional income. And, you can make additional deposits and receive your income at any age – often without the IRS penalties that are associated with most types of qualified plans. For example:
Receipt of Funds at Any Age – Once your IUL account is fully funded for future retirement savings, policy holders can receive funds from their cash account at any age – without being hit with a 10% IRS “early withdrawal” penalty like they would with an IRA or a 401(k) plan when funds are withdrawn prior to age 59 1/2.
No Minimum Age Requirement – While most qualified retirement plans will require their participants to be a certain age in order to participate, there are no minimum age requirements with index universal life insurance. This means that policy holders can start saving early if they choose to do so. There are also no minimum age restrictions for making IUL withdrawals – so this also provides policy holders with flexibility.
No Mandatory RMD (Required Minimum Distributions) – Unlike the funds that are inside of a qualified retirement account such as a Traditional IRA or a 401(k) plan, IUL policy holders aren’t required to withdraw their funds when they reach age 70 1/2. This means that money can continue to grow and compound – tax-deferred. And, additional deposits can even be made.