3 Reasons for Having an EIUL be a part of your RETIREMENT STRATEGY April 29, 2011Posted by shaferfinancial in Finance.
Tags: Equity Indexed Universal Life, retirement strategies, Tax free retirement income
There are three big questions that no financial planner can answer for you. These are what I call the “Holy Trinity” of retirement problems. Because no-one can really answer these questions, they are rarely talked about in polite company. Here they are:
How much income will I have to live on?
How long will I live?
What are the tax rates going to be?
Wealthy people who were living on their wealth were once called coupon-clippers because they got their regular income from owning bonds that paid a fixed interest rate. Those days are mostly gone, because corporate bonds are callable and if you are living off of interest from treasuries or certificate of deposits then you are starving today. Most people have been sold on the idea of mutual fund ownership as a way to retirement income. But this is possibly the worst idea imaginable because mutual funds have high variability. That means they go down, as well as up in value [sometimes 50%!]. How can you plan an income stream using a product that has such high ups and downs? You really can’t [note all the arguments over how much of your mutual fund value to use each year of retirement].
Reason #1 to own an EIUL…..
It doesn’t have the variability of mutual funds and the cash value never goes negative.
Most people save for retirement unevenly, little if any until age 35-40 then acutely after age 50 when that retirement is staring down at you. The truth is 20% of 40 year old men will die before retirement [13% of 40 year old women]. On the other end 16% of those men will be alive at age 90 with 26% of those women alive and kicking at age 90. Fully a third of 40 year olds will have the problem of dying early or living an extremely long life.
Reason #2 to own an EIUL….
If you die early [before you have completed your retirement plan] the life insurance proceeds will finish your retirement plan for your spouse and family and if you live a long life not having to pay taxes on your income will stretch your retirement income out as long as possible.
Common practice is to defer taxes to your retirement years. But no one knows what the tax rate will be in those years. With the government running huge deficits, there is a high likelihood that taxes will be a bigger factor in the future. But the bottom line is no one knows.
Reason #3 to own an EIUL
Taking out income, TAX FREE, is not only a way to pump up your in-the-pocket retirement income, but a way to eliminate a huge uncertainty [risk] in your retirement planning.