LifeProfessional Blog

When it comes to saving for retirement, it’s not just about how much money you can accumulate, but you also need to consider the amount of taxes you will have on your retirement income.  Most of your income ends up being subject to federal, state, Social Security, Medicare, and, in some cases, local or city taxation.  That’s why it’s so important to know all of your available options when it comes to saving for your retirement.

Taxes currently at historical low rates
It might seem difficult to comprehend - given the political atmosphere that we are in - but did you know that we are currently at historical low tax rates as compared to the last 95 years?  And with the current status of the national debt, the question you must ask yourself is: Do you think taxes are going to go up in the future or down?  If you answered “up”, then now is a good time for us to help position your assets in the most tax-advantageous ways. 

When it comes to saving for retirement, it’s not just about how much money you can accumulate, but you also need to consider the amount of taxes you will have on your retirement income.  Most of your income ends up being subject to federal, state, Social Security, Medicare, and, in some cases, local or city taxation.  That’s why it’s so important to know all of your available options when it comes to saving for your retirement.

Taxes currently at historical low rates
It might seem difficult to comprehend - given the political atmosphere that we are in - but did you know that we are currently at historical low tax rates as compared to the last 95 years?  And with the current status of the national debt, the question you must ask yourself is: Do you think taxes are going to go up in the future or down?  If you answered “up”, then now is a good time for us to help position your assets in the most tax-advantageous ways. 


A financial vehicle with three tax benefits
A universal life insurance policy offers you the peace of mind of a death benefit protection, but also offers you a combination of three tax benefits that other financial vehicles do not:

1. Tax-free death benefit
   
2. Tax-deferred cash value accumulation potential
   
3. Tax-free distributions
   

Given today’s economic realities and the awareness in knowing that taxes are likely to increase, this financial vehicle is more beneficial than ever before.

1. Tax-free death benefit
The death benefit is the main reason you should purchase life insurance.  It ensures the ones who depend on you to be able to maintain their standard of living if something should happen to you.  
When your beneficiary (or beneficiaries) is properly named, the death benefit passes to them income-tax-free and can be used for many different financial needs such as:

• Income replacement for the primary wage earners
  
• Mortgage and other debts
  
• Supplemental college funding
  
• Business succession planning
  
• Estate tax coverage
  
• And much more!

2. Tax-deferred accumulation
A universal life insurance policy also can build cash value which has the potential to grow income tax-deferred.  When you don’t have to pay taxes on your policy’s accumulation that, in turn, gives you the potential to build more value faster.

3. Tax-free distributions
You also have easy access to take withdrawals and loans out from your cash value income-tax-free.ⁱ And this amount can be used for anything you choose – supplemental retirement funding, financial emergencies, college tuition, weddings, vacations, and much more.  

Even if you currently have a life insurance policy, depending on your changing needs, there might be several other alternatives that are more suitable for your unique situation.  There are several types of life insurance policies to choose from - some may have fixed rates while others have variable rates - but below are the most common types: 

Term Insurance

A term life insurance policy is the most basic and frequently the most affordable.  It guarantees you coverage for a set period of time as long as the premiums are paid.  The period of time, or term, is a specific number of years (up to 30) or until a specified age.  Term insurance policies are usually renewable once that time period has expired, although premiums will likely increase.  It’s one benefit is a death benefit only if the insured dies within the defined period of time.  It does not accumulate any cash value.

Whole Life

Whole life is frequently referred to as “permanent” insurance because, unlike a Term policy, it remains in force for your whole life as long as premiums are paid as scheduled.  It offers guaranteed premiums that will not increase or decrease, a guaranteed death benefit, and can build cash value within your life insurance policy.  You may be able to borrow funds from the cash value or surrender your policy for its face value, if necessary.  When the insured passes away, the beneficiaries will receive the amount of the death benefit minus any outstanding loans and loan interest that may be due on the policy.

Universal Life

Universal life goes one step further as compared to whole life.  It has the same type of coverage and cash value, but the flexibility is greater.  As long as the cost of coverage and policy expenses are met, the insurer has the flexibility to pay premiums at any time and in any amount - subject to some limits.  Some universal life policies give you control over how your cash value is invested while others can grow at a declared interest rate.

Indexed Universal Life

Indexed universal life (IUL) insurance shares the coverage and premium flexibility of other universal life policies, but the crediting of interest is very unique.  Indexed interest is linked to the performance of an external index such as the S&P 500.  The cash value increases are linked to positive changes in the equity index.  What if the index were to go down?  If the index stays flat or declines, the cash value is still credited with a minimum guaranteed interest rate.  An IUL policy is for the insurers who do not like the volatility and risk that some other policies take part in and would rather have the stability and guarantees in the good times or bad times.