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I don’t have to remind you that pretty much everyone is uneasy as they transition into 2021. The uncertainty over COVID-19 that has persisted for the past year as well as the presidential election has brought up new concerns for most people.

In fact, more than 140,000 U.S. works lost their jobs in December 2020 (just last month), likely due to economic fluctuations and restrictions stemming from the COVID-19 pandemic. And with Biden’s inauguration just last week many Americans and investors fear change in economic policy.

All these factors have led to many taking a serious look at their finances and are considering their long-term financial goals. Those in the Accumulation Phase have been impacted the most. What is the "Accumulation Phase?" We describe this as the period for individuals who are:

  • Age(s) 36 to 55
  • Have an income of $150,000+
  • Are interested in saving for retirement.

Let’s go over a couple problems and concerns these individuals face and discuss our Top 3 strategies we have compiled, which may mitigate these concerns.


Higher Taxes in the Future

Let me ask you this: Do you think income tax rates are going to change? Are taxes going to go down?

Tax rates vary at different points and times. Most people feel that the income tax rates are high today and are unsure of what they will be in the future. Despite the general feeling that taxes are high now, we are actually experiencing one of the lowest marginal tax environments in American history, according to The Tax Policy Center. However, the U.S. National debt is over $27 trillion and the budget deficit over $3 trillion, according to U.S. Debt Clock.org.

One of the ways to solve the debt crisis would be to increase tax rates. As most Americans have their retirement savings in qualified plans (IRA's, 401(k)s, etc.), and increase in taxes would impact the after-tax income from these retirement plans.

Market Volatility

Given the COVID-19 Pandemic and 2020 Presidential Election, we are seeing increased volatility in all economies. 

Those planning for retirement may be uneasy about exposing their finances to these situations.

Anytime major changes are made to the tax law, entitlements, or fiscal policies, you can expect increased volatility. Young investors with little assets in the market can handle market fluctuations. People planning for retirement cannot.

The Life Insurance Advantage: 

One asset that many individuals in the accumulation phase may not have considered is Cash Value Life Insurance. It has unique benefits that can mitigate concerns of both increasing tax rates and market volatility.

As you know, life insurance provides a guaranteed death benefit. The benefits are passed on to heirs tax-free and, if structured properly, are not subject to estate taxes.

In addition to the death benefit protection, cash value within a life insurance policy allows tax-deferred accumulation and tax-free distributions of cash values to provide income options for retirement, college funding, or other needs and objectives.

Strategies Utilizing Life Insurance: 

We have developed a list of our top 3 strategies that are well-suited for individuals in the accumulation phase and their specific needs and goals. These strategies are designed specifically to leverage the benefits of life insurance to meet the financial and long-term goals of individuals in the Accumulation Phase. These strategies include:

  1. Life Insurance Retirement Plan
  2. Private K
  3. R-Squared: Retirement Income Maximization

1. Life Insurance Retirement Plan

The Life Insurance Retirement Plan (LIRP) utilizes an over-funded Indexed Universal Life (IUL) Policy. Simply put, the goal is to maximize the policyholder’s retirement income via tax-free loans from the policy’s available cash value.

The Target Audience

As the name probably suggests, candidates for a Life Insurance Retirement Plan are saving for retirement and want to make sure they will have income to maintain their current lifestyle.

How it Works

In our LIRP Strategy we utilize an indexed universal life Insurance policy (a specific type of cash value life insurance) that is structured to maximize its cash value. This will create the maximum amount of tax-free income to be used during retirement.

Follow the link below to see our full proposal explaining how it works in more detail.

Sample LIRP Proposal

2. Private K

With a traditional 401(k) plan, you are deferring your taxes into the unknown future, rather than taking advantage of the low tax rates of today. With a Private K Plan, you can pay your taxes now, at a lower rate. 

The Target Audience

The ideal candidate for a Private K Plan is typically saving over what their employer is matching in their 401k. They are also concerned about future taxes and may not qualify for a ROTH IRA. These people will typically be concerned with market volatility and be upset with negative returns. In addition, they may not like the restrictive nature of qualified plans (penalties for early access).

How it Works

The participant establishes a life insurance policy on his or her own life. The client will then reduce their 401k or qualified plan contribution down to the match only. The reduced 401k contribution will then be used as the budget to fund the life insurance policy. The premium amount will be adjusted to match this budget with the face amount being a minimum non-MEC.

Follow the link below to see our full proposal explaining how it works in more detail.

Access a Sample of our Private K Presentation

3. R2 - Retirement Income Maximization

Cash value life insurance can leverage the current tax environment and current interest rates. Because interest rates are so low right now, we can leverage a cash value life insurance policy via loan from a financial institution. The low interest rate can be overcome easily via policy performance, loans are used to pay premiums and grow the cash values.

The Target Audience

This strategy works best for high-income-earners who have an annual income of $300,000 or more. Retirement is approaching fast for these people and they might be worried about maintaining their current lifestyle throughout retirement. Candidates for this strategy should have an aggressive risk tolerance.

How it Works

R(R-Squared) is a maximized retirement plan that utilizes a specific type of cash value Life policy combined with bank financing to maximize retirement income on a tax-advantaged basis. R2 provides as much as 30% more income per year as compared with traditional plans without financing.

Follow the link below to see our full proposal explaining how it works in more detail.

Access a Sample of our R2 Presentation

Next Steps

Life Insurance is a powerful tool that individuals in the Accumulation Phase may utilize to increase their cash accumulation as well as maximize their potential in retirement savings. These individuals may already be familiar with its primary use – providing money to their family or other beneficiaries after death.

But the value of life insurance exceeds just that. If properly structured, it can positively meet their other financial goals. Follow the link below to check out our Accumulation Phase Strategies:

Schedule a Time to Speak with our On-Staff CFP

Post by Travis Pence
January 31, 2021