Income Planning

What Is Income Planning?

Income Planning is the  process of helping individuals prepare for retirement’s transition from asset accumulation to income generation and asset distribution. The most common question that comes up for people in their 50s and especially in their 60s is, “will I/we have enough income in retirement?” it’s no secret that we are living longer these days-when advising people 64 and up on Medicare plans, our agents are seeing plenty of parents in their 90s- many of which are living with their children.

There are several methods to grow assets as well as grow and protect assets. It is important to note that some strategies described here are age appropriate and therefore not meant for everyone.

Using life insurance for pension maximization

The typical defined benefit pension plan may pose several challenges for you-mostly, a potentially lower monthly income during retirement, as well as a lack of flexibility to change the beneficiary or the election option. The pension maximization strategy can help you gain death benefit protection while making the most out of a pension plan.

Who would benefit from this strategy:

  • Needs death benefit protection and considering retirement
  • Married, age 50 to 65
  • You or your spouse has a defined benefit pension plan
  • Seeking to help maximize monthly income
  • Prepared for the potential impact caused by loss of benefits for the surviving spouse that may be linked to the joint life option

Things to Keep In Mind

  • ideally, you are several years away from retirement, which may lower premium costs based on age and health.
  • Be sure the life insurance policy is in force before the you declines the joint and survivor option.
  • When calculating the needed death benefit, consider a highly conservative approach (preparing for a scenario in which you die soon after retiring).
  • With some pension plans, selecting the life only option may disqualify the your spouse from medical or other benefits that may be provided with the joint and survivor option.

Example : Using a Guarantee Universal Life Policy

A 62-year-old man (Preferred Non-Tobacco), and his 60-year-old wife. The husband is a longtime city official, and with his pension plan, he is given a choice of $5,000 per month with the life only option or $3,500 with the joint and survivor option. With three grown children and a desire to travel, they are seeking to make the most of their pension plans. The couple reviews their financial situation and retirement needs with their financial professional. After determining their need for death benefit protection, they consider the pension maximization strategy using life insurance. Rather than taking the joint and survivor option, the husband can use life insurance and an annuity to cover his wife’s income needs if he were to predecease her. He takes the life only option and uses some of the extra $1,500 per month to buy Guarantee Universal Life Insurance. For a 60-year-old woman, it takes a death benefit of $751,000 to buy a lifetime single-premium immediate annuity (SPIA) of $3,500 per month. At age 70, that income need drops to $598,000, and at age 80, it drops to $413,000. Using Custom Guarantee, the husband gains a guaranteed death benefit at a cost of $927 per month to generate the coverage. The difference of $573 per month is how much this couple are ahead every month using the pension maximization strategy.

Using life insurance to help supplement retirement income

Financially protect your family & and help supplement income for your retirement

With life insurance you gain death benefit protection that can help your family pay the mortgage, utility bills, and other expenses should you die. Now, imagine your retirement. What retirement lifestyle do you imagine? It’s easy to underestimate the cost of your ideal retirement. Permanent life insurance can help bridge any gap between what you have already saved and what you will need in the future. If you’re looking to control your financial future, consider a permanent life insurance policy with the potential to build cash value that can be used to help supplement your retirement income.

Why life insurance?
Life insurance can help you with two unknowns—the loss of income from a premature death and having sufficient income to enjoy your retirement. With life insurance:

  • You gain death benefit protection not only during your important working years, but also in retirement. In the event of death, the proceeds are distributed to your beneficiary(ies), generally income tax-free.
  • Your premium payments into a permanent life insurance policy pay for the insurance coverage and expenses and a portion may accumulate cash value on a tax-deferred basis. Through policy loans and withdrawals, the cash value may then be used during retirement as a source to help supplement income.Cash value on our policy can be used how you see fit.

Who can benefit?
There are a few items to consider when deciding whether to use life insurance as part of your retirement planning. First, consider your need for life insurance today—think about the items your family will need to pay on their own without your income, should you die prematurely. Next, take a close look at your retirement plan. Will you have sufficient assets to live your planned retirement lifestyle? Is there a potential need to help supplement your retirement income. If these items concern you, you’re not alone.

Here are a few questions to consider to help you determine if using life insurance for financial protection and a strategy to help supplement your retirement income is right for you.

  • Do you have a need for life insurance protection today to help replace your income in the event of your death, to help your family pay for items such as the mortgage or rent, insurance premiums, automotive expenses, property taxes, and groceries?
  • Are you planning for retirement and are between the ages of 30 and 60?
  • Are you interested in having additional retirement income stability?
  • Have you utilized a qualified plan (such as an IRA, tax-qualified annuity, 401(k), or savings plan offered through your employer) or don’t have access to a qualified plan for retirement planning?
  • This list is not complete and there are other items to consider. Your life insurance representative can take a closer look and help you evaluate your needs.

Life insurance Advantages

  • Immediate financial protection and control. Gain death benefit protection for your loved one. You own and control the life insurance policy.
  • Tax-deferred growth. Your premium payments may earn interest and grow on a tax-deferred basis.
  • Flexible premium. With a universal life or an indexed universal life (IUL) insurance policy, you can adjust your premium payment based on available resources. However, there are limits on the amount of premium that may be paid into a policy to qualify as life insurance.
  • Generally tax-free distributions. Any potential cash values within your policy can be taken as generally income tax-free loans and withdrawals, as long as the policy is not a Modified Endowment Contract (MEC). Withdrawals are income tax-free up to the cost basis. (Cost basis is the amount equal to the total premiums paid.)

Life insurance Disadvantages

  • Reduced death benefit. Depending on market performance, additional premiums may be necessary to continue the desired death benefit, depending on funding. Policy loans and withdrawals will reduce the death benefit and may cause the policy to lapse. Withdrawals may be subject to surrender charges that may reduce the death benefit and cash value.
  • Non-guaranteed performance. Cash values for loans and withdrawals. In later years may be more or less than originally planned. Minimum premium payment requirements must be met to maintain the policy, provide for cash value growth, and avoid lapse if the policy becomes over-loaned. Depending on funding, life insurance may not guarantee avoiding loss of premium.
  • Premium payments are not tax-deductible. Your premium payments for life insurance are not tax-deductible.
  • Avoid creating a Modified Endowment Contract (MEC). Life insurance policies that surpass certain premium limits can be classified as a MEC. MECs may be subject to unfavorable tax treatment. Talk with us for more details and learn how to structure your policy appropriately.
  • Cost of insurance. Permanent life insurance policies require monthly deductions, which include cost of insurance, expense charges, and potentially other charges which may reduce the cash value of the policy.
  • Surrender charges. Surrender charges may apply to withdrawals and the amount available for policy loans.

How does it work?
After a needs-based discussion we will help structure the policy to match the desired death benefit coverage, and provide you the ability to access any potential cash values to help supplement your retirement income.

401K/IRA Rollover

Helping Baby Boomers with changing retirement needs

As the Baby Boomer generation enters retirement, The focus  on accumulating assets inevitably shifts to seeking strategies that convert savings into income.

Guaranteed income is a major concern

Baby Boomers face greater financial challenges than previous generations. Many are carrying mortgages into retirement, while others are still supporting their adult children and even elderly parents. On top of these challenges, lifespans are increasing. On average, 65-year-olds today are expected to live to age 85 and about one out of every four will live past age 90.In a recent study from the Insured Retirement Institute, 41 percent of Baby Boomers said that guaranteed monthly income was the single most important trait they looked for in a retirement investment.

This strategy has become slightly more complex because of the different riders that are available. When we reach retirement age, many of us have retirement accounts such as a 401k, 403b, and are wondering  what to do with them when making the transition from our working days to our non-working days. There is also the market risk factor of the underlying accounts that are usually invested in mutual or bond funds or a mix of both. In order to reduce market risk, many people will rollover their retirement funds into a variety of annuities, some of which to convert into guaranteed lifetime income no matter what the stock market does, and some that have non-guaranteed values, as a result of being tethered to an index, such as the S & P 500.


Volumes have been written on this subject, so while we won’t go into that in detail here, we will try to make this as simple as possible.

  • Guaranteed lifetime income When you rollover your IRA into an income annuity, the deposit will produce a guaranteed income based on your deposit and what year to begin income. Unless you have enough money in your IRA to live on for 20, 25 30? years, guaranteed lifetime income will win the comparison most of the time.
  • Flexibility in choice and design While we won’t go over the Types of Annuities in detail here, there are annuities that can produce immediate income, include long-term care riders, be designed for growth, can be driven by an market index, or produce  guaranteed results regardless of what the market does.
  • Tax-free growth  exactly what it sounds like. Although you cannot avoid paying taxes forever, you can defer them until your income stream begins, which depending on your age, could be 5- 10 years later.


  • Lack of Liquidity  Most annuities have surrender periods, which have penalties for early withdrawals with the exception of those products that allow 10% withdrawals without any penalties. Surrender charges typically decrease over the surrender period. This means annuities are not a good idea if you need to get at more than 10% of your account value in any 12 month period. You also can’t take out a loan with an annuity like you can with your 401k, which is why a portion of your assets needs to be outside of an annuity.
  • Taxed as Ordinary Income Although your annuity investment grows tax-deferred, when you withdraw your money, qualified funds, including earnings, are taxed as ordinary income . For non-quallified funds you are taxed only on the earnings. This is important because the ordinary income rate is higher than the long-term capital gains rate you would pay if you invested in stocks or mutual funds on and held onto them for more than a year.
  • Lower Returns than Stocks  While it is true that you won’t have years where you “kill it” with an annuity investments as you may have in the  stock market, annuity strategies tend to be favored by people who are shifting their focus on preservation and distribution, rather than accumulation of their assets.

A reasonable strategy at or near retirement age is to reduce the risk of your portfolio consistent with your age, as most carriers will want to see at least 30% of you liquid net worth outside an annuity. This would seem to echo the words of a mentor: “subtract your age from 100 – that’s the  maximum percentage of your portfolio that should be at risk”.`

To get a free consultation call contact us now.

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