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Understanding Pension Risk

A recent study by the federal government¹ has shown that as many as 1 million people are at risk of losing their federally insured pension benefits despite recent gains in the stock market. Even with the federal insurance program that protects these specific plans, the maximum benefit to an employee would be $13,000 per year. That amount of money could be a major blow to most that rely on their pension to support their needs in retirement. What this report shows is that planning solely on a pension may not be the best and only option for individuals.

Two alternatives that could be used in addition to a pension for an individual would be a deferred immediate annuity or an index universal life policy.

Deferred Immediate Annuity (DIA)
A DIA is basically a single premium immediate annuity that can guarantee a lifetime of payments, but starts more than a year into the future. Think of a DIA as a self-funded social security program that is actively managed by a large insurance company instead of the federal government. Since the individual decides how much to put in and when to start benefits, a producer can help their clients properly plan for their retirement needs. One example of a DIA is a 40 year old putting $5,000 a year into a DIA policy for 20 years, and then starts the income phase of the DIA when he or she turns 70 years old. The DIA can be a very flexible retirement planning tool.

Index Universal Life Policy (IUL)
An IUL policy is a life insurance policy that combines the potential for cash value accumulation through interest credited to the account that is tied to a predetermined index² while providing a life insurance death benefit. One feature of the IUL can allow for retirement planning through the use of tax-free loans³ against the policies accumulation value. A person looking to enhance their options in retirement can use an IUL not only to pass wealth from one generation to the next, but use tax-free loans as a supplement in retirement. 

Make sure the insurance sales support team that you rely on understands the benefits, risks, and complexities of IULs and the many options that are available to your clients. 

Contact Imeriti today to learn more at 800.921.3100.


² Although the interest credited on the accumulation value is normally affected by the performance of an external index, the policy does not directly participate in the index or any equity or fixed interest investments.

³ Loans ttypically reduce accumulated cash value benefit and/or the death benefit and may be subject to surrender charges. Unpaid loans can be subject to ordinary income tax and, if taken before age 59 1/2, may result in a federal tax penalty. 







The information contained herein is for general information purposes only. Simplicity Life is not to be held responsible for the accuracy of this information. Neither Simplicity Life nor its employees provide tax or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax adviser.

The information, statistics, and opinions reported herein are from sources believed to be reliable. However, Simplicity Life and the author of this blog do not guarantee the truth, accuracy, and reliability of any source, fact and/or statistic cited and no do necessarily agree with any opinions expressed by such sources.

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