Below you will find a guest post about using Indexed Universal Life insurance in retirement from my personal friend and colleague John “Hutch” Hutchinson. John and I collaborate with a group of sophisticated insurance professionals once a year to share ideas, stay current with our industry, and sharpen our craft.

John has done an excellent job of creating consumer friendly education-based content on IUL and its place in retirement planning.

With that, enjoy his article below:

3 Ways Indexed Universal Life (IUL) Can Bolster Your Retirement Planning?

By John “Hutch” Hutchinson

There is a common mantra echoed throughout the financial community that “you won’t need life insurance in retirement.”

Because you have been such a responsible saver and a prudent investor, it’s probable that you won’t need any sort of life insurance product once you start drawing retirement income.

However, below are 3 powerful reasons why you may want some Indexed Universal Life allocated amongst your portfolio during retirement even though you may not necessarily need it.

#1: IUL as a Risk-Buffer:

Although Indexed Universal Life is not completely uncorrelated to the stock market, it has a unique growth methodology where you can get stock market participation without stock market risk. What this means is that IUL offers a contractual 0% floor protecting against losses in down-market years. Yet IUL still provides the opportunity to earn up to double-digit returns tracking the S&P 500 index during up-market years.

If there is a market crash and you have a block of assets allocated to IUL during retirement, you could pull your ongoing income needs from your Indexed Universal Life policy, thereby allowing your stocks and mutual fund accounts to heal. Otherwise, in a down market you must redeem significantly more shares of your market-based assets to meet your ongoing standard of living.

Once consumed, these shares can no longer participate in the next market rebound. If you could only wait until the market recovered or better yet achieved new highs, you could redeem far less shares of your stocks or mutual funds to produce the exact same income.

Picture yourself with a pool of assets immune from the crash inside of Indexed Universal Life so you can still enjoy an uninterrupted standard of living during these years while your stock portfolio licks its wounds.

#2: IUL as a Tax-Buffer:

Many high-income-earners are unaware that the tax-treatment of Indexed Universal Life is very similar to a Roth Account, only without all the barriers to entry. Because there are no income limitations for IUL and no $5,500 cap on contributions, it is often called “the Roth of the rich.”

So although you may not need any permanent life insurance during retirement, you will probably want it for its tax treatment.

Here’s why:

Most of your other sources of retirement income will be taxable in some way, shape, or form. None of the following are immune from Uncle Sam:

• Rental Real Estate
• Taxable Brokerage Accounts
• Tax-Deferred Annuities
• Social Security
• Deferred Compensation plans
• Retirement Accounts IRAs, 401(k)s, Profit Sharing Plans, Defined Benefit Pensions, etc.

As tax rates continue to change with the different regimes occupying Congress during your retirement, what if you could “time your tax” by toggling the amount of taxable retirement distributions you want each and every year.

Imagine withdrawing amounts from your taxable sources right up until you reach those really ugly tax-brackets and then supplementing the rest of your desired lifestyle using Indexed Universal Life’s tax-exempt distributions.

The more that tax rates rise for the wealthy, the more you will wish you had assets allocated to IUL. Even if some alleged “tax reform” occurs in the future, remember that there will be gravity for the pendulum to swing back the other way.

You can either proactively prepare or react and adjust.

#3: IUL for its Death Benefit:

Once informed about the unique tax and risk-management characteristics of IUL, the death benefit is often the least appealing feature for clients. However, you shouldn’t discount the utility of a permanent death benefit in the context of retirement planning.

Here’s what I mean:

If you knew that you had a guaranteed accounts-receivable that your spouse and children would receive tax-free at your death, wouldn’t you increase your consumption of retirement assets during your lifetime?

Of course, you would!

The existence of a permanent death benefit allows you to more aggressively spend down other assets in your portfolio. Even if you fully exhaust your other accounts shortly before life-expectancy, there would be so much available cash value available inside your Indexed Universal Life policy plus even more tax-free cash in the form of a death benefit.

What if you got chronically ill or critically injured? Statistics show that every other retiree will need some sort of “Long Term Care” whether in a facility or in the comfort of their own home.
Did you know that certain Indexed Universal Life policies have special riders or policy stipulations allowing you to legally access the tax-free death benefit for these reasons even though you haven’t died?

The finer details will vary by product and company, but these provisions are becoming more and more common with Indexed Universal Life.

Closing Thoughts:
Most people overlook the unique utility that Indexed Universal Life can provide clients wanting to maximize their net-spendable income throughout retirement. IUL’s rare growth methodology and favorable tax treatment make it the ideal complement to a diversified portfolio of retirement assets.
Click here or the raw link below to explore the most comprehensive article ever written on exactly how Indexed Universal Life works as well as an in-depth examination of IUL’s pros and cons.

By John “Hutch” Hutchinson (click here to learn more about the author)