There is a new strategy that a number of voices in the insurance industry are touting that just makes sense, and you may want to consider this? It is a better way to save for your Retirement!
Simply put, you overfund a permanent Variable or Indexed Universal Life Insurance policy. There are a number of reasons why this makes sense, and is a better way to save for your retirement.
- TAXES- Permanent life Insurance cash values get the same tax deferred treatment as the traditional government sponsored Retirement savings plans (IRA, 401K), but, when you retire you can withdraw all your premiums paid tax free, and then borrow against the cash value for additional retirement income. Since this is a loan it is not taxable, and the carrier should credit you back the same interest it is charging you for the loan, so in effect there is no cost for the loan. When you die, those loans will be deducted from the total amount of the policy and the balance is passed to your heirs Income tax free. If you have anything left in your Government Sponsored retirement plan when you die they are taxed as a Lump Sum Distribution to your heirs, which could incur significant taxes! And, your IRA withdrawals are taxed at ordinary income rates vs. the Tax Free income you enjoy from the Life insurance cash value!
- COSTS-While there is a cost to the Life insurance, if you die prematurely these costs are inconsequential compared to the Death benefit to your heirs. All of the overfunded contributions go directly into your separate account which invests in your chosen investment portfolio. They incur the same investment fees you would pay in your IRA/401K, but there is no 5% commission deducted up front for the contribution!
- LIMITS- Your Government sponsored retirement plans have limits on them (ie. IRAs are limited to $5000/$6000) but you can size the life Insurance so that the maximum contribution you want to make can be made to your tax deferred Separate Account.
- RETURNS- Your Separate account will receive the same returns you would get in those same investments in a retirement account, but a premature death will give your heirs a tremendous return on those contributions! If you have any family members who are financially depended on you this is something you need to have in place, to protect their financial futures. You are actually covering two concerns with this one product!
- CHOICES- Your choices will vary by carrier, but look for carriers that have Target Date funds, or Asset Allocation Funds which give you a more balanced return and will not be as volatile as investments in any one sector. Some carriers have a broad range of investment strategies which you can invest in varying percentages to give your portfolio broader diversification.
If you would like to see what this strategy could mean to you contact me at ctrowbridge@farmersagent.com, 650-876-9600
