Minimize Your Income Tax Liability at Retirement

I recently read a study that indicated affluent pre-retirees are saving on average 35 percent less than they will need during retirement. This is likely because many high-income earners do not realize that the most costly expense at retirement is typically income tax.

In a blog earlier this year, I discussed the value of using a life insurance policy as a supplemental retirement funding technique. A cash accumulation life insurance policy, such as an indexed universal life policy, can also provide significant tax benefits that help to diversify income tax liability at retirement. The tax benefits of these plans can include:

  • Tax-deferred cash accumulation.
  • Income tax-free distributions.
  • Income tax-free death benefit during your working years.
  • No required minimum distributions.
  • No 10 percent tax penalty on early distributions.
  • The flexibility to withdraw only as you see fit.

While life insurance premiums do have a cost of insurance and other administrative fees associated with them, this up-front cost is often minimal compared to the tax liability of most traditional retirement savings plans. Plus, you have the benefit of taking on those costs during your working years when you’re more financially equipped to do so.  

It is critical to properly design and manage your life insurance policy to take advantage of these diversified tax benefits. To learn more about how to do this you can contact me at hpurvis@rcmd.com or read more about the tax benefits in the Forbes article “What You Need to Know Today to Win the Tax Game in Retirement.”

Category