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Life Insurance Retirement Plan (LIRP)

The Strategy

To be prepared for retirement, you first need to establish what your retirement income needs will be. You also need to identify the income level your family would require in your absence. Once you assess what your financial needs will be, your next step is to look for a way to provide that financial security in a tax-efficient manner. There are a number of available financial vehicles that you can use to plan for your retirement and the chart below outlines their general contribution, accumulation and distribution tax characteristics:

Product Comparison Table

 

Annual Limits on Contributions

Tax-Deferred Accumulation

Tax-Preferred Distribution

Income Tax-Free Death Benefits

Traditional IRA

Yes

Yes

No

No

Roth IRA

Yes

Yes

Yes

Yes

Qualified Plan

Yes

Yes

No

No

CD

No

No

No

No

Mutual Fund4

No

No

No

No

Municipal Bond Fund5

No

Yes

Yes

No

Individual Owned Deferred Annuity

No

Yes

No6

No

Life Insurance

No7

Yes

Yes8

Yes9

Depending on your financial plan and retirement income needs, one or more of the above options may be right for you. In some situations, after you have maximized your qualified plan contributions, a life insurance policy can provide an income tax-free death benefit to your beneficiaries9 and may also be an ideal complement to your existing retirement strategy as it can provide supplemental retirement income.


How It Works

Once you and your financial advisor decide that a life insurance retirement strategy is right for you, the first step is to select a life insurance policy. You retain all ownership rights and name the policy beneficiaries. You can then have your financial advisor structure the policy to accept maximum premium payments in relation to the desired death benefit so that, over the years, the policy cash values have the potential to grow to a substantial level.

In addition to providing an accumulated value that can be accessed to supplement retirement income, a life insurance policy also offers:

  • A death benefit to your policy beneficiary(ies) that is generally income tax-free.8
  • Tax-deferral on any cash value earnings. When your policy is properly structured, you can access your policy’s cash surrender value for supplemental retirement income, cash emergencies or other financial needs generally income tax-free.9

Three Steps

  1. The Individual - An individual purchases a life insurance policy insuring his life to provide the family with death benefit protection and a source of supplemental retirement income. The insured retains ownership of the policy.
  2. The Insured - At retirement, the insured/policyowner takes potentially tax-free income through withdrawals and policy loans from the life insurance policy’s cash surrender value.8,10
  3. The Heirs - In the event of the insured’s death, heirs can elect to receive either a lump sum, federal income tax-free death benefit9 or cash distributions over a specific number of years.

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Notes & Disclosures

 

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