Build Wealth with a Life Insurance Retirement Plan

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Understanding Life Insurance Retirement Plans With Secure Retirement Strategies

When it comes to planning for your retirement, security means everything. Whether you are looking to secure a reliable stream of income during your retirement or provide for your loved ones after you’re gone, Secure Retirement Strategies can plan for a brighter future. Our team of expert financial professionals is passionate about helping individuals and families achieve their retirement goals.

What Is a LIRP and Why You Should Own One?

A Life Insurance Retirement Plan (LIRP) is a very powerful, yet pretty basic, financial planning tool used in the financial planning industry for decades. Unlike traditional life insurance plans, a LIRP is a life insurance plan that features a savings component that allows you to withdraw funds while you’re still alive. A LIRP can be used to:

Create a self-completing retirement plan.
Provide supplemental tax-free retirement income.
Avoid the threat of higher income taxes in the future.
Address estate tax issues at death and paying off debts.
Guarantee what you want to happen financially in life will happen whether you are here or not.
Provide access to funds that may be earmarked for retirement purposes.
Pay for college without being disqualified from financial aid.
Address your long-term care need.

How Taxes Affect LIRPs

If you are like most people saving for the future, you have accumulated a good portion of your wealth in two of the three investment buckets. These are the taxable and tax-deferred buckets. While many investors are aware of how important it is to invest funds in these buckets, they do not account for the impact that higher taxes will have on diminishing all of the wealth you have gained. It is important to include the third bucket, the tax-free investment, in your plan.

In the United States, factors such as federal government spending on social welfare programs, our national debt, and the large numbers of baby boomers exiting the workforce are set to cause our tax rates to skyrocket. To combat these issues, many Americans are turning to tax-free accumulation and distribution tools like a Life Insurance Retirement Plan as a way of avoiding the impact of raising taxes.

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LIRPs Vs. Roth IRAs

Let’s take a 30,000-foot view of what a Life Insurance Retirement Plan is. A Life Insurance Retirement Plan is an accumulation and distribution tool that shares many of the tax-free attributes of a Roth IRA but without many of the restrictions. When you design a LIRP properly, it gives you many desirable features, which include no income limitations.

Remember, the IRS imposes income limitations on those who can put money in a Roth IRA, but a LIRP has no contribution limits. Furthermore, with the LIRP, you will not get any 1099s issued, so your money will grow tax-free.

How the Stock Market Affects LIRPs

Typically, with the LIRP, you participate up to about 12.5% when the index is positive. When the index is negative, you get zero. You do not give back or lose any money. The LIRP has an average return of between 7% and 9% per year.

Furthermore, you can typically use 95% of the death benefit for long-term care or chronic illness. Every year, on the policy’s anniversary date, you can change indexes if you’d like. If you ever need to skip premiums, you can do so, and the LIRP comes with a lapse guarantee rider, so you cannot lapse the coverage.

Why Choose a LIRP?

We like to tell people that a Life Insurance Retirement Plan is a Roth IRA plus more. Typically, we like to put the money in a LIRP over a five-year period instead of all at once. This ensures that we don’t buy too much death benefit or move you into a higher tax bracket.

In our professional opinion, the LIRP is an excellent financial tool to have in your financial planning strategy. It provides tax-free income, a death benefit for legacy, long-term care coverage, no 1099’s, and does not hit your tax return — it’s a win-win for those who choose to invest.

Can a LIRP Replace a Pension Plan?

Your retirement planning needs a solid foundation, and Life Insurance Retirement Plans (LIRPs) offer remarkable advantages that traditional pension plans simply can't match. Through a permanent life insurance policy, you'll gain access to tax-advantaged growth potential while maintaining the flexibility that pension plans often lack.

When you look at pension plans, you'll notice they're becoming increasingly rare. Many employers have shifted away from defined benefit plans, leaving you to wonder about reliable alternatives. That's where a whole life insurance strategy comes into play. Your cash value life insurance can function similarly to a pension, providing steady, reliable income during retirement.

Here's what makes LIRPs particularly powerful: unlike pension plans, you control the contributions, and there's no risk of your employer terminating the plan. Your insurance company maintains the policy as long as you keep it in force. Plus, you'll avoid the modified endowment contract status by properly structuring your contributions, maximizing tax efficiency.

The cash value component grows tax-deferred, much like a pension would. However, you gain additional flexibility in accessing these funds through policy loans or withdrawals. Your retirement savings grow protected from market volatility, offering the peace of mind that traditional pensions once provided. This strategy puts you back in control of your retirement destiny.

How a LIRP Complements Other Retirement Income Streams

Think of your retirement income like a symphony where each instrument plays its part. Your LIRP, structured through a permanent life insurance policy, adds a powerful new element to this financial orchestra. While your 401(k) and Social Security provide their baseline retirement income, your life insurance delivers tax-advantaged distributions that can help maintain your lifestyle without pushing you into higher tax brackets.

Combining a LIRP with other retirement vehicles creates powerful synergies for residents across our six-county service area. Your whole life insurance policy builds cash value that you can access tax-free through loans, while variable universal life insurance offers growth potential tied to market performance. This flexibility lets you respond to changing financial needs throughout retirement.

Consider this real-world scenario: You're receiving Social Security and required minimum distributions from your retirement accounts. These create taxable income that could affect your Medicare premiums. By strategically taking tax-free loans from your insurance policy's cash value, you maintain your lifestyle without increasing your taxable income.

With a LIRP, your retirement savings strategy gains another dimension. The death benefit protects your loved ones, while the living benefits provide tax-efficient income. This combination of protection and accumulation perfectly complements traditional retirement vehicles, creating a more robust and flexible financial future.

Ready to Start Planning?

Let us help you plan for a prosperous financial future! Contact us today to learn more about Life Insurance Retirement Plans and our retirement strategies, such as: