Get more from your retirement

Transcription

1 Life insurance Get more from your retirement Planning guide

2 Will you have the money to retire and live the life you want? Uncertainty of Social Security, pension plans and tax legislation can make it difficult to know what you can count on for retirement. It s important to plan now for the future to ensure you have the financial resources to maintain the standard of living in retirement you enjoy today. There may be a surprising option available Most people know life insurance for its primary purpose to provide financial security by paying a tax-free benefit to your family or your business if you die prematurely. 1 You may be surprised to learn, though, that some life insurance policies can help you save for the future and provide income in retirement, too. Is life insurance right for your retirement plan? Now it s time for a quick quiz. Don t worry. It s not a hard one like you used to have in school. It s an easy one. In fact, there are no right or wrong answers. It s simply to help determine whether life insurance may be a good fit for your retirement portfolio. Do any of these apply? Are you contributing the maximum to a 401(k) plan or some other type of employer-sponsored retirement plan and can afford to save more? Are you concerned about having enough saved for retirement? Would you like to potentially reduce your taxes on income you receive in retirement? Do you worry that your spouse will have enough income to live comfortably if you re gone first? Do you think about the financial impact a significant medical condition could have? If you answered yes to any of the questions, we believe adding cash value life insurance to your portfolio may help you build more of what you want for retirement, and we encourage you to read on. 2

3 Build a stronger retirement Save more to help build a larger nest egg Life insurance doesn t have funding limits based on income like some qualified retirement plans do, so you are able to save additional dollars for retirement. Although the money you use for your insurance payments has been taxed, there are no taxes on your policy s cash value growth, so it builds faster. Keep your retirement plan healthy A serious illness could disrupt your retirement plan. With life insurance, if you are diagnosed with a chronic or terminal illness, some policies allow you to access a portion of your policy s death benefit to help meet your increased expenses and keep your other retirement assets intact. 2 Or, if you become too sick or hurt to work, many policies offer a feature that can be added for a cost that allows you to stop making payments during your disability while maintaining your coverage and cash-value savings. Reduce taxes and strengthen your retirement cash flow Income from your policy is generally received income tax-free which may help offset taxes from other retirement assets and lower your tax bill. 3 And you control when to withdraw money from your policy based on your personal savings goals rather than on Internal Revenue Service regulations: You may take withdrawals prior to age 59½ without penalty. You are not required to take minimum distributions beginning at age 70½. Learn how tax diversification can help you potentially lower your tax bill and maximize your income. 3

4 Spread out your tax risk The philosophy of diversification or spreading risk by not placing all of your eggs in one basket can be useful in many areas in life. Tax diversification is a strategy based on holding assets with different types of tax treatment to take advantage of the strengths of each. Diversifying taxes of your retirement assets may help you maximize your retirement income. Retirement assets generally fit into one of three baskets based on how they re taxed: Taxed up-front Contributions/ premiums are after-tax No tax on growth No tax when withdrawn Types: Cash value life insurance and Roth IRA Taxed as it grows Contributions are after-tax Growth is taxed No tax when withdrawn Types: savings account, Certificate of Deposit, Money Market and mutual fund Taxed when you take income Contributions are tax-deductible No tax on growth Full amount is taxable when withdrawn Types: 401(k) plan and traditional IRA While you can t control how an asset is taxed, you can control which tax baskets you have as part of your portfolio. By diversifying among financial products, you have flexibility to take income in the most tax-friendly way and potentially lower your tax bill in retirement. A hypothetical example may help show this: Assume in retirement you plan to withdraw $100,000 and you re in a 25% tax bracket. Here s what that withdrawal might look like using two different strategies: In this example, tax diversification provided $12,500 more than the 401(k) strategy. Strategy 1 Strategy 2 Using 401(k) account money only Using a tax-diversified strategy 401(k) account Withdrawal amount $100,000 Tax amount - $25,000 Retirement income $75, (k) account Withdrawal amount $50,000 Tax amount - $12,500 Retirement income $37,500 Life insurance policy $50,000 - $0 $50,000 Total retirement income - $87,500 Hypothetical example for illustrative purposes only. This does not represent the performance of any particular insurance or financial product. Your actual results will vary and may be more or less favorable. 4

5 Receiving income can be easy Our policies are designed to make it easy to receive regularly scheduled payments from your policy in retirement. You complete two simple steps to start the scheduled surrenders and loans process. And our built-in policy features take care of the rest. Your role 1 Decide how often you d like to receive payments. Then complete and send in one simple form. 2 Contact us if or when you want to change your withdrawal schedule. Our role 1 Ensure all premium payments you have made to the policy (the principal) are withdrawn before loans are taken. This keeps the income tax-free. 3 2 Prevent the policy from terminating due to outstanding loans (policy lapse), as long as certain conditions are met. 4 Lapse of the policy would make income you receive in excess of your principal taxable. Note: Taking loans from your policy and not repaying them may result in your policy terminating by lapse. This would end your coverage and could result in a tax liability. Consult your personal tax advisor prior to requesting a loan. What else should I consider before proceeding? Life insurance used as part of a retirement plan offers many benefits but it isn t for everyone. Consider these things first: You must need life insurance coverage and be healthy enough to qualify for it. You should be taking full advantage of any qualified retirement plan available to you. Life insurance is a long-term financial product and not a short-term savings vehicle. You need to be able to afford more than what you re saving today. There are fees and expenses associated with life insurance. Policy values may not grow as large as another type of asset might. After you ve determined life insurance makes sense for you, discuss with your financial professional which of our life insurance policies best fits your particular situation. And then get ready to start gaining more from your retirement. 5

6 About Principal Principal helps people and companies around the world build, protect and advance their financial wellbeing through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals offering innovative ideas, investment expertise and real-life solutions to make financial progress possible. To find out more, visit us at principal.com. 6

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8 principal.com 1 In exchange for the death benefit, life insurance products charge fees such as mortality and expense risk charges and surrender fees. 2 Using this feature will reduce the amount of death benefit that will be payable to your beneficiaries and may also impact the amount of your cash value. 3 When structured properly withdrawals and policy loans taken from a life insurance policy are not taxable. If, however, the policy is classified as a modified endowment contract (MEC), withdrawals and loans may be subject to income tax and may also be subject to tax penalty if the withdrawal or loan is taken prior to age 59½. 4 The Life Paid-Up Rider can guarantee the policy will not lapse when there is a large loan(s) on the policy by converting the policy to paid-up life insurance. In order for the rider benefit to begin, the following conditions must be met: The outstanding loan amount must be at least 92% of the policy surrender value if the policy was issued with the cash value accumulation test; The insured must be at least 75 years old; The policy must have been inforce for at least 15 policy years; and Total partial surrenders must equal or exceed total premium payments made. Principal National Life Insurance Company and Principal Life Insurance Company, Des Moines, Iowa , Insurance products issued by Principal National Life Insurance Co. (except in NY) and Principal Life Insurance Co., Des Moines, IA Principal National and Principal Life are members of the Principal Financial Group, Des Moines, IA The subject matter in this communication is provided with the understanding that Principal is not rendering legal, accounting or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements. Not FDIC or NCUA insured May lose value Not a deposit No bank or credit union guarantee Not insured by any Federal government agency Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group. BB /2016 t yb 2016 Principal Financial Services, Inc.