Texas Trusted Advisors, An Asset Protection Company

Live Well, Worry Less: Retirement Income Planning

Retirement income planning options

After working a lifetime and saving, you want your nest egg to sustain you for life. Taking steps to reduce the risk factors that commonly erode a retiree’s nest egg over time can make the difference between running out of money and having enough in retirement when on a fixed income. Typical risks are:

Rising costs of goods and services over time.

Inflation

Living beyond your life expectancy.

Longevity

Rising costs of receiving care.

Healthcare

Increasing and uncertain future taxes.

Taxes

While Texas Trusted Advisors can’t help you eliminate all of these risks, there are some strategies to consider that can possibly reduce the impact of these risks: ROTH IRAs and Permanent Life Insurance.

ROTH IRAs

ROTH IRAs are individual retirement accounts in which the owner can contribute after-tax dollars. The benefit of a ROTH IRA is that your money grows tax-free and can be drawn down after age 59.5 tax and penalty-free as long as the account has been open for five years or more. One downside is that some people don’t qualify to open a ROTH IRA account, and there are contribution limits.

Permanent Life Insurance

The primary purpose for purchasing Permanent Life Insurance is for the death benefit protection that it provides. However, Permanent Life Insurance offers the ability to build up tax-deferred cash value that can be accessed during your lifetime to generate a stream of retirement income – potentially income tax-free. This is how it works:

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    Each premium payment you make will do two things:


    1. Build cash value income that is tax-deferred. This is cash value that you can use during your lifetime through policy loans and withdrawals to provide a tax-free retirement income.
    2. Provide an income-tax-free death benefit to your named beneficiary. Optional Accelerated Benefit Riders allow you to access the death benefit during your lifetime in the event of a terminal, chronic, or critical illness. 


    Therefore, Permanent Life Insurance provides¹:


    • Income tax-free death benefits.
    • Tax-deferred build-up of cash value.
    • Potential for tax-free retirement income².

What’s the right option for you?

For many people, a ROTH IRA is a great tool. However, as mentioned earlier, there are some restrictions on how much you can contribute and how much income you are allowed to have to qualify for a ROTH IRA. 


If you have someone who depends on you financially, you may need life insurance. In addition to the death benefit protection, permanent insurance with a cash value feature can also serve as an accumulation vehicle with some tax advantages. Premiums are determined based on the amount of coverage you need and the distributions through tax-free withdrawals and loans, which can generally be taken after your first policy anniversary. Your insurance professional can help you determine the right coverage to meet your goals. 


A combination of the two may work for you! If you meet the income eligibility requirements for a ROTH IRA but want to set aside more than the contribution limits allow and you have a need for protection, you may want to do both. Texas Trusted Advisors can review your situation and offer recommendations.

Indexed Universal Life Insurance

Indexed Universal Life (IUL) Insurance can help you build wealth while still leaving a death benefit to loved ones after passing. IUL policies allocate part of the premium payments toward the cost of the death benefit feature, with the rest going to the cash value of the policy minus fees. Either on a monthly or annual basis, the cash value may be credited with interest based on an index, subject to limits called caps, spreads and participation rates.

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    Keep in mind, life insurance requires medical and often financial underwriting to apply. Life insurance product guarantees rely on the financial strength and claims-paying ability of the issuing insurer. IUL insurance may desirable to retirees because:


    • It can provide upside potential, flexibility, and tax-free growth potential.
    • It offers permanent coverage as long as sufficient premiums are paid.
    • It is easily canceled if you stop paying premiums (although you may be subject to surrender charges which could reduce your principal).

¹ Note that life insurance cannot offer all of these benefits simultaneously. Exercising one option may reduce the value of other policy features and benefits.

 ² Policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. This assumes the policy is not a Modified Endowment Contract (MEC). Tax laws are subject to change. You should consult a tax professional.

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