Retirement Planning: Turning Savings Into Income

Retirement isn't one account. It's a plan with several tools that work together to pay your bills after the paychecks stop. Here's a plain look at the most common tools, including where indexed universal life (IUL) can fit and where it doesn't.

Start with the foundation: 401(k)s and IRAs

For many people, a workplace plan like a 401(k) or 403(b) is the starting point. If your employer offers a matching contribution, many people make sure they contribute at least enough to receive it.

Individual retirement accounts (IRAs) come in two main types:

• Traditional: Contributions may lower your taxable income now. Withdrawals in retirement are generally taxed as income.

• Roth: You contribute money that's already been taxed. Qualified withdrawals in retirement are generally not taxed.

The IRS sets yearly contribution limits and rules for each account type, and they change over time. Check irs.gov or a tax professional for the current numbers.

Where IUL can fit

An IUL is life insurance first. It provides a death benefit and builds cash value. The cash value earns interest based partly on a market index, with a cap on the upside and a floor, often 0%, on credited interest.

Later in life, you may be able to access cash value through policy loans or withdrawals. When a policy is set up and managed properly, loans generally aren't taxed as income while the policy stays in force. But loans charge interest and reduce the cash value and death benefit, and if the policy lapses, taxes may be due. Fees are higher in the early years, so an IUL tends to work best for people who need life insurance, can fund it steadily for many years, and review it regularly.

We see IUL as one tool alongside a 401(k) or IRA, not a replacement for them.

Annuities: turning savings into income

An annuity is a contract with an insurance company. You pay money in, and in return it can provide income for a set period or for life. Common types include fixed and fixed indexed annuities. Some types, like variable annuities, are securities and require additional licensing to offer.

Things to understand first: surrender charges if you take money out early, fees, how long your money is tied up, and the fact that payments depend on the claims-paying ability of the insurance company.

Putting it together: an income plan

A retirement income plan asks simple questions: What will you spend each month? What income will you have from Social Security, pensions, and savings? What fills the gap? The Social Security Administration lets you claim as early as 62, but waiting, up to age 70, increases your monthly benefit. Plan for healthcare costs, inflation, and a long life.

Questions people ask

Should I stop contributing to my 401(k) to fund an IUL?
We don't suggest giving up an employer match. Many people keep contributing at least enough to receive any match and consider an IUL in addition, if it fits their needs and budget.

Is an IUL "safe from the market"?
Credited interest usually has a floor, so an index drop doesn't directly reduce credited interest. But policy charges still come out, and cash value can go down. It isn't risk-free.

Take the Family Protection Assessment

Sources: IRS (irs.gov) retirement plan rules; Social Security Administration (ssa.gov).

WEDOIT education, led by Dr. Joel M Tchafack, PharmD, licensed life insurance professional in NM, CO, MD, NC, SC, TN, TX, VA and WY (NPN 19623090). WEDOIT LLC, Carlsbad, New Mexico · 575-266-3119 · info@wedoitinsurance.com

General education, not investment advice.

This content is for education only and isn't tax, legal, or investment advice. Coverage and benefits depend on the product, carrier, state, and underwriting.