Tax Free Retirement: An Explanation

» Posted by on Oct 4, 2011 in Retirement Planning | Comments Off on Tax Free Retirement: An Explanation

How does it work?

 

It’s not a new concept. It’s an under-appreciated concept. The fact that it’s built on a Life Insurance platform, has caused many of us to go no further in exploring this option as a retirement strategy. That’s too bad because this strategy can be very beneficial for many. And that’s an understatement.

 (The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

I’ll keep this discussion at a very high level and in non-technical conceptual terms.

 

You are probably aware that Life Insurance death benefits are not taxable. In today’s financial management parlance, we like the term ‘wealth transfer’ more than the term ‘death benefit’ because it seems less morbid.

 

Now you may be thinking that being dead is not what you have in mind when you think of retirement.

 Me too.

 

There are cash value permanent life insurance policies called Universal Life insurance policies that have been around since the early 1980s.

 

With a Universal Life policy you don’t have a fixed premium to pay for your death benefit (wealth transfer). You pay premiums into a ‘bucket’ of money’ from which the premiums for the death benefit are taken. If your bucket of money accumulates more money than is needed to fund the premiums for your death benefit, the excess money will become your accumulated cash value. The idea is to ‘over-fund’ the bucket, to grow your cash value tax deferred.

 

The excess money in the bucket can grow, and with certain types is guaranteed to grow while insured against loss. There are ways (very popular) to give your bucket an opportunity to grow when the securities market grows, while insuring your bucket from loss during market downturns. When the bucket grows you pay no taxes on the growth. The growth of your bucket of money is tax deferred, which means that you pay taxes if you withdraw the money.

 

Here’s one of the keys of the tax free retirement concept:

 

  • You don’t have to make a taxable withdrawal to get the use of your money for retirement. You can borrow your money from your bucket and pay little or no interest on the loan. You have borrowed the money from yourself, and you don’t’ need to pay it back.

The purpose of this article is not to get ‘down in the weeds’ regarding how this is done, but it works, and it has become a legitimate practice.

The money in your bucket that you don’t borrow, becomes part of your death benefit (wealth transfer).

 

We are learning that more clients that we might have imagined, are very concerned about the legacy that they will leave to their loved ones or favorite charity. The wealth transfer is also tax free.

 

So now we have explained the concept. Of course there are more details that we’ll want to explain as we get closer to a live analysis. Patrick Kelly’s National Best Seller Tax Free Retirement is an excellent presentation of this concept that provides more detail about how this concept can be implemented, but it’s still in layman’s language – not in insurance technical language.

 

We would be happy to run (at no charge) a set of illustrations from Insurance companies that offer Universal Life Insurance policies to show you how such a vehicle might serve your goals for Tax Free Retirement.

 

We would also be happy to run (also at no charge) a calculated projection of your overall retirement plan to see you your current plan is likely to play out.

 

We believe that there’s too much at stake in Retirement Planning to ‘fly by the seat or your pants’ and cross your fingers, hoping that your plan is adequate. Today, we have the technology to actually project what’s likely to happen, taking into consideration how your plan will stand up to things like major market downturns, serious illnesses, the need for Long Term Care etc.

 

Let us equip you fly with an ‘instrument rating’, the insrument being an

How does it work?

It’s not a new concept. It’s an under-appreciated concept. The fact that it’s built on a Life Insurance platform, has caused many of us to go no further in exploring this option as a retirement strategy. That’s too bad because this strategy can be very beneficial for many. And that’s an understatement.

I’ll try to keep this discussion at a very high level and in non-technical conceptual terms.

You are probably aware that Life Insurance death benefits are not taxable. In today’s financial management parlance, we like the term ‘wealth transfer’ more than the term ‘death benefit’ because it seems less morbid.

Now you may be thinking that being dead is not what you have in mind when you think of retirement. Me too.

There are cash value permanent life insurance policies called Universal Life insurance policies that have been around since the early 1980s.

With a Universal Life policy you don’t have a fixed premium to pay for your death benefit (wealth transfer). You pay premiums into a ‘bucket’ of money’ from which the premiums for the death benefit are taken. If your bucket of money accumulates more money than is needed to fund the premiums for your death benefit, the excess money will become your accumulated cash value.

The excess money in the bucket can grow, and with certain types is guaranteed to grow while insured against loss. When it grows you pay no taxes on the growth. The growth of your bucket of money is tax deferred, which means that you pay taxes when you withdraw the money.

Here’s one of the keys of the tax free retirement concept:

You don’t have to make a taxable withdrawal to get the use of your money for retirement. You can borrow your money from your bucket and pay little or no interest on the loan. You have borrowed the money from yourself, and you don’t’ need to pay it back.

The purpose of this article is not to get ‘down in the weeds’ regarding how this is done, but it works, and it has become a legitimate practice.

The money in your bucket that you don’t borrow, becomes part of your death benefit (wealth transfer).

We are learning that more clients that we might have imagined, are very concerned about the legacy that they will leave to their loved ones or favorite charity. The wealth transfer is also tax free.

So now we have explained the concept. Of course there are more details that we’ll want to explain as we get closer to a live analysis. Patrick Kelly’s National Best Seller Tax Free Retirement is an excellent presentation of this concept that provides more detail about how this concept can be implemented, but it’s still in layman’s language – not in insurance technical language.

We would be happy to run (at no charge) a set of illustrations from Insurance companies that offer Universal Life Insurance policies to show you how such a vehicle might serve your goals for Tax Free Retirement.

We would also be happy to run (also at no charge) a calculated projection of your overall retirement plan to see you your current plan is likely to play out.

We believe that there’s too much at stake in Retirement Planning to ‘fly by the seat or your pants’ and cross your fingers, hoping that your plan is adequate. Today, we have the technology to actually project what’s likely to happen, taking into consideration how your plan will stand up to things like major market downturns, serious illnesses, the need for Long Term Care etc.

Let us equip you fly with an ‘instrument rating’, the instrument being an updateable calculated projection of your retirent plan.

Request A Free Consultation
(913) 440-9637


Service Area

The Wade Agency proudly services Kansas and Missouri, including: Belton, Bonner Springs, Bucyrus, Clearview City, Cleveland, De Soto, Edgerton, Edwardsville, Eudora, Gardner, Grandview, Hillsdale, Kansas City, Leawood, Lenexa, Linwood, Louisburg, Mission, New Century, Olathe, Overland Park, Peculiar, Prairie Village, Raymore, Shawnee, Shawnee Mission, Spring Hill, & Stilwell, KS.

Helping Olathe & Kansas City navigate the insurance and retirement world.