income stream

14Sep

What Exactly is a LIRP?

BlogSeptember 14, 2022

Much like a game of chess, retirement planning is about strategy. Back in the 1970s the traditional route was relying on Social Security and having a pension. Today retirement is entirely on the individual to fund—and Social Security only should be about 40% of what you need. And among the various products out there, a life insurance retirement plan (LIRP) can help supplement your income during retirement.

So, what exactly is a LIRP?

A life insurance retirement plan is a permanent life insurance policy that uses its cash value to fund retirement. While mimicking tax benefits of Roth IRAs, any life insurance that is permanent with cash value (i.e. whole life insurance) can be used. However, term life insurance cannot be used as a life insurance retirement plan since it does not have a cash value.

How is the cash value used?

Based on your individual policy, a set percentage of the life insurance policy’s premium payment is put into a tax-deferred savings like an investment account. This becomes known as the cash value of the policy. Over time, the cash value account grows.

Once the account has accumulated a certain amount or has grown long enough, you can access the money by either withdrawing or taking out a loan against it. This money can then be used to provide tax-free income during retirement.

How can you use your LIRP in retirement?

LIRPs are great for supplementing your existing retirement funds. Assuming you max out contributions to traditional retirement accounts, you can put the extra funds into your cash value, creating additional growth. Furthermore, in case of a stock market downturn, having the cash value to pull from is great.

To build your cash value fund pay more than your required premium. Some policyholders chose to overfund their cash value account. Any extra amount paid goes directly into your cash value account and grows tax deferred. However, this strategy only works if you do not make withdrawals before age 59 ½. A cash value policy, if overfunded, can exceed the annual premium limit set by the IRS. Should this happen, it may convert to a modified endowment contract (MEC)—meaning your policy is subject to additional taxes and penalties.

The cash value of your policy can be supplemental income. The beauty of a cash value policy is your capability to withdraw from it. In additional to your traditional retirement accounts and Social Security, your LIRP can be used as supplemental income. This allows for increased retirement spending, should you wish such as a small road trip or to offset if the market has a downturn.

Your policy can be used for long-term care. With a long-term care rider, you may have the option to use the cash value portion of your LIRP to have long-term care covered should you need it. The rider provides coverage from the cash value account if you need to pay for a nursing home, assisted living, or even medical expenses associated with long-term care as you age. A LIRP might not be for everyone, but it could supplement your retirement income, help cover medical expenses, or help take care of a long-term care e

04Jun

Reasons to Pursue Entrepreneurship in Retirement

Podcast BlogJune 4, 2022

Filling the time retirement allows is never the same for everyone. For some the relaxation is important and long overdue. Others may struggle to fill that free time, even with travel or hobbies. To feel fulfilled starting a new business may be just what your retirement lifestyle needs. The following are reasons starting a business in retirement may help you:

Staying Active

Unfortunately, within ten years of retirement retirees begin experiencing significant health issues such as heart disease, depression, or arthritis. Staying active is a good way to combat health declines. Starting a new business keeps you exercising daily—be it running errands, learning new skills, and attending networking events like conferences or local flea markets.

Sociability

Strong social ties are key for aging adults and leaving your workplace may reduce most of the social interactions you received. And unfortunately, retirees are reported to be the loneliest group. Starting a new business may replenish some of those interactions as you run more errands, take classes, attend local sale events. You should even consider the online communities!

Mental Alertness

The saying goes “always a child at heart,” right? Exercise is important for your brain, too. When you become more stationary you become less engaged mentally, too. Keeping up with mental activity reduces the risk of cognitive illnesses like dementia and Alzheimer’s. What better way to do this than learning new skills to run your business?

Passion

Goals and dreams do not stop once you retire. On top of already having physical, mental, and social benefits, studies confirm that having a purpose leads to longer, happier life. Since you have more time on your hands, few obstacles stand in your way of turning a hobby since as crocheting or pottery into a business.

Supplemental Income

Oftentimes after retirement retired CPAs experience a reduced means of income. Your small business would act as income. Whether it be you start your own part-time firm or you repurpose your skills and teach them to others, there are many ways to continue using your CPA knowledge to boost a new business in retirement.

18Feb

A Retirement Strategy Offering Both Savings and Income

Podcast BlogFebruary 18, 2022

In economic uncertainty, finding answers that provide both savings and an income during retirement becomes challenging. While you try to recover from a downturn, so are companies. And history speaks for itself: employee retirement programs are usually the first cut. This was seen after the Great Recession when corporations across the U.S. reduced and eliminated 401(k) matches. More recently, with the Covid-19 crisis, some companies have begun reducing retirement programs and other employee benefits to aid in recovering from the crisis.

Since retirement is up to the employee, you want something that will withstand the market fluctuations, lower risk, and provide a promised regular income: annuities. As an insurance product, annuities are either done with a single, lump sum payment or recurring premiums that will grow and provide retirement savings and income stream.

Overview of Annuity Types

Variable annuities often yield higher returns because they are directly tied to the consumer’s investment choices. However, they can be decrease in value when the market experiences a downturn. No guarantee is offered with interest or principal protection with these annuities.

Fixed annuities accrue interest off a fixed interest rate set at the beginning of the contract. These are written in stone for a set number of years, meaning they cannot decrease in value for that time. Thus, these annuities offer some protection guarantee, have low yields, and offer low risk.

Fixed indexed annuities are a middle ground of the other two annuities. Based on the performance of a specific index, they provide guaranteed principal protection. Risk is medium with this annuity and has a capped yield that becomes part of the annuity income stream.

Ways Annuities Lower Risk in Retirement

Lifetime income – After accumulation, income payments can be received as either a lump sum, an installment payment for a set number of years, or lifetime payments depending on the rider. This may come with a fee, but some riders have no fee associated.

Tax-deferred – As long as funds remain in the annuity, your savings will remain protected from the yearly taxation on interest. As a chance to earn interest on interest, principal, and on taxes deferred, you get ahead on retirement assets that is not typically available with other retirement accounts.

Principal protection – Protecting your hard-earned money will help reduce retirement risks you will face. With fixed and fixed indexed annuities, your principal investment is protected with the chance to grow and become a stable income stream for retirement.

Growth – Annuities offer a flexibility for growth that may be capped or have a participation rate. These are linked specifically to market indexes. A variable annuity has the potential for a high growth rate, but fixed or fixed indexed annuities allow for participation but less risk.

For more information on how annuities can reduce and eliminate risk in your retirement, please listen to The Retirement Risk Show episode, “The Crossroads of Longevity and Volatility: How Annuities Help.”