Presented by Brian Leising


When presenting Index Universal Life (IUL), we usually position the product as an either/or decision.  You either place your retirement dollars in an IUL or continue placing them in your 401(k).  When it works, this all or nothing approach is great.  What happens when this approach fails? Do you think some people are afraid to place all their eggs in one basket?  Consider this: don’t ask for all their eggs, just a few.  Here are two ways you can position IUL as a retirement plan supplement.

One way to position IUL as a retirement plan supplement requires knowledge of social security and tax planning.  The IUL becomes one of three components in a comprehensive retirement plan.  To make this work you need to understand two features of the social security program: 1) if a client receiving social security benefits also receives taxable income, their social security income may be taxable; 2) social security benefits increase if a person waits until age 70 to receive benefits.  If your client has sufficient resources, they can maximize their social security income and minimize taxes simultaneously.  Here are the steps to make this happen:

  • When the client retires, they should withdraw money from their qualified plan first. Reduce the fund as much as possible.
  • At age 70 the client begins social security payments.
  • If they still have money in their qualified plan after age 70, they will need to take required minimum distributions. For most people, RMD’s will be low enough to not affect the taxation of their social security benefits.   Of course, social security and RMD’s together may not provide enough funds for your client’s living expenses.
  • Now their IUL can help. The client can take tax-free loans from their policy with no effect on the taxation of their social security benefits.  If their qualified retirement plan was liquidated, they would pay no Federal income taxes for the rest of their life.

You do not have to fund the IUL as their sole retirement vehicle.  Use the IUL as a planning component along with their 401(k) and social security income.  By waiting, their IUL has more time to grow, their social security benefit has more time to grow, and your client enjoys greater net income due to lack of taxation.

Look for part two next week.

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