I am not a Financial Advisor or CPA.. My goal is to help you understand IUL's and how they can be an amazing product to help you reach your future dreams and goals.
Social Security Made Easy...Your Social Security Questions Answered here
What is Social Security? It is a United States federal program of social insurance and benefits developed in 1935
About 158 million Americans pay Social Security taxes
57 million collect monthly benefits in 2013
About one house hold in four receives income from Social Security
You need 40 credits (10 years of work) 1 credit a quarter
Quarters do not need to be consecutive
In 2014, you receive one credit for each $1,200 of earnings, up to the maximum of four credits per year
Benefits are calculated based on average of the 35 highest years of earnings
$0 used in all years less than 35, which will result in a lower benefit
SS is paid for by your paycheck contributions and is inflation-adjusted income. It is a replacement for SOME of your income during retirement...but usually will not cover all your expenses. Make sure to plan ahead for those other expenses such as…
Estimated Costs During Retirement: (20 year estimate)
Necessary Living Expenses:
Medical: $220,000 (for Part B, Med Sup, Drugs, Deductible, Co-pays, etc.) Plus $104/month up to $640/month deducted from your Social Security Benefits (before you get them) for Part A.
Food: $219,000 ($10 meal x 3 times a day, x 365 days x 20 years)
Housing: $20,000 to $40,000 (Many still have 10 or 20 years of House Payments remaining)
Total for Necessary Expenses $459,000 – 479,000…or more
That’s about $1912/month – 1995/month…or more
And What About:
Desired Fun Living Expenses:
Vacations/Travel, Airfare/Hotels: ??
Kids College Funds: ??
New Car: ??
Golf Membership: ??
Retirement Home/LTC: ??
Now Consider: What if the Market Drops and you loose 50% of your hard earned money; as in 2008/09. Do you have Emergency Funds set aside that will not be affected by a market crash? If not, you need to start saving now for down the road potential expenses.
Let’s get Personal: I remember reviewing my SS Benefits in the past and it was estimated at 2,268/mo. I would receive that less the cost of Part A Medical. At $104/month for Medical Part A, on the low end (it can be as much as $640 depending on your past income) that would leave me $2,164/mo. Taking out Food at $900/month leaves me $1264. I still owe 20 years on my house at $1300/mo. Plus other expenses such as clothes doesn't leave me room for any fun and desired living expenses. I would have to go back to work to be able to pay for Part B and Med Sup expenses...If I didn't have an alternative source of income to use, I would be living on the streets as I could not make my house payment from my Social Security Benefits..
NOW is the time to review your Estimate SS Benefits so you can start planning for a more secure retirement bySaving Now.
Find Your Full Retirement Age...for many it's 67 years old\
Year of Birth Full Retirement Age
1937 or earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67
If you were born on January 1st of any year you should refer to the previous year. (If you were born on the 1st of the month, SSA will figure your benefit (and your full retirement age) as if your birthday was in the previous month.)
We are living longer as a result of medical advances and living healthier. Can you afford to live to 100? One out of every four 65 year olds will live past age 90 and one out of every 10 will live past age 95. In fact U.S. Census Bureau in Feb 2012 stated that they project 600,000 people to live to be 100 years old by 2015.
Male Age 65 average expected life to age 84
Female Age 65 average expected life to age 86
There are two factors you need to consider when deciding if you should take your Social Security Benefits before your Full Retirement Age (FRA) or not. If you take your benefits before FRA they will be reduced benefits for the remainder of your life. Example: If your FRA benefit would be $1000/month and you start taking your benefits at 62 you would only receive $750/mo. for life. If you decide not to take your benefits early (62 yrs) and instead decide to continue working, if you earn over $15,120/year (2015) you will be giving up $1 in benefits for every $2 you earn working. Then let's say you reach FRA and are still working...if you earn over $40,080/yr you will give up $1 in benefits for every $3 you earn.
Remember to keep that in mind when deciding when to take your Social Security Benefits. The longer you wait, the more you will receive. Of course there is the argument that SS Benefits will run out...but from what I've read that should not happen. Below is a chart showing your reduction in SS Benefits if you decide to take your benefits before FRA.
Age Full Retirement 66 Age Full Retirement 67
62 25% Reduction 62 30% Reduction
63 20% Reduction 63 25% Reduction
64 13.3% Reduction 64 20% Reduction
65 6.7% Reduction 65 13.3% Reduction
66 Full Benefits 66 6.7% Reduction
67 Full Benefits
For those whom wait to take there Social Security Benefits until their Full Retirement Age (FRA) they will receive up to 8% increase in the monthly income paid to them. Example if your FRA is age 67 and you take your benefits at year 68 instead of 67 you will receive 108% of your FRA Benefits. If you wait till age 70 you will receive 124% of your FRA Benefits. So the longer you wait to take your benefits the more you will be paid for the remainder of your life.
If you started taking your SS Benefits at age 62 you might receive $750, if you wait until age 66 you might receive $1000 and if you wait till Age 70 you might receive $1,320. So when it comes to SS Benefits, waiting pays off.
Monthly Benefit Amounts Differ Based on the Age You Decide to Start Receiving Benefits.
This example assumes a benefit of $1,000 at a Full Retirement Age (FRA) of 66.
$750 at age 62
$800 at age 63
$866 at age 64
$933 at age 65
$1,000 at age 66 FRA
$1,080 at age 67
$1,160 at age 68
$1,240 at age 69
$1,320 at age 70
Estimate benefit amounts and decide when to start receiving retirement benefits
This leads one to think about setting up an alternative Cash Accumulation plan to live off, if they want to retire early, and then wait until later to access their Social Security Benefits when they can receive a larger payout. Using an Indexed Universal Life - IUL as a Cash Accumulation tool might be a great option to add to your portfolio of 401k, Roth IRA, or Annuity.
Spouse is entitled to greater of the benefit based upon his or her own benefits or 50% of the spouse’s benefit.
Example #1: Karin and Dave both have reached FRA. Dave's benefit is $1200 and Karin's benefit is $1200. Both would receive their own benefit amount.
Example #2: Keven and Luz both have reached FRA. Keven’s benefit is $800 and Luz’s is $1800. Since half of Luz’s benefits equals $900 that is greater than Keven’s benefit of $800. In this example Keven would be entitled to $900 instead of his own benefit of $800.
One approach to Spousal Benefits: In example #2: Luz's FRA Benefit is $1800 and she can take her benefit of $1800 or she could increase her benefit amount by waiting (Deferring) till age 70 to collect her SS benefits. By deferring till age 70 her benefit amount would increase to $2448. Keven's benefit was $800 and he can take his benefit or he can take 1/2 of Luz's benefit which is $900.
Widows and widowers must be 60 yrs or over to take benefits based on their own earnings history. These will be reduced benefits if taken at 60 yrs. They can be taken at 50 years, if disabled. However they can switch to survivors benefits or back to their own. They have not remarried prior to age 60; the deceased must have been fully insured (40 quarters of coverage) and the spouse must have been married to them for at least 9 months before the deceased passed away. Maximum benefit is 100% of deceased workers benefit. If the surviving spouse has not reached full retirement age and takes the benefits but continues working the benefits will be reduced by $1 for every $2 they earn over that years limit. If the deceased started benefits prior to full time retirement age then perished, the maximum benefit is limited to what the deceased was receiving when they were alive.
Even if the surviving spouse files before full retirement age, Survivor benefits can be taken.
This allows the survivor to take a benefit at age 60 based on the deceased’s earning history and allow their own benefit to grow until age 70.
Survivor benefits are equal to full retirement benefit the deceased would have received.
Typical Situation for Widow/Widower
A Widow or Widower, at full retirement age or older, generally receives 100 percent of deceased worker's basic benefit amount. If age 60 or older, but under full retirement age, they will receive about 71-99% of the deceased worker's basic benefit amount.
The Widow or Widower must be unmarried when they file for benefits (or the new marriage must be one that SS can disregard). They can continue to receive benefits if they re-marry after age 60 (or age 50 if disabled).
If you are divorced: See If You Are Divorced for more information http://www.socialsecurity.gov/retire2/divspouse.htm
If you are divorced and your marriage lasted at least 10 years, you may be able to get benefits on your former spouse’s record.
File and Suspend Option:
At full retirement age the primary wage earner can file for his or her own benefits and then immediately suspend the benefit. This filing allows the other spouse (with a lower benefit or no benefit on their own work record) to collect a spousal benefit. It also allows the primary wage earner to continue to work and collect delayed retirement credits at an additional 8% per year until benefit is unsuspended; at age 70 or earlier.
Example: Leann and Alan just turned 67 (FRA) and Alan wants to retire but Leann wants to continue working till age 70 to receive maximum SS Benefits. Let's say Leann's monthly benefit would be 2,200 and Alan's would be $900. If Alan can claim spousal benefits his monthly benefit would be 1,100 (1/2 of his spouses benefit) which is more than his $900. By suspending her benefits she can continue to grow them until age 70 and her husband can claim spousal benefits of $1,100 allowing HIS benefits to continue growing till age 70. At age 70 HIS benefits will have increased to $1188 per year allowing him a higher benefit to retire on. For many couples where one spouse earns much less than the other this might be a great option...if the spouse decides to file and suspend their benefits till a later age.
Social Security offers many Calculators you can use such as: Earnings Test, Retirement Age, Estimated Retirement Age and Life Expectancy. Don't take it from me. Visit their site and "play around" on their calculators to find out information specific to you and to find a wealth of information to help you make an informed decision on how to use your Social Security Benefits to your best advantage.
Remember to take into consideration if you can afford to delay benefits, when you plan to retire, how much will you need monthly in retirement and what other sources of income you have available during retirement. Make sure to include an emergency fund that is liquid.
IMPORTANT: Income Taxes & your Social Security Benefits
Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
=Your "combined income"
The above is another good reason for IUL’s – Indexed Universal Life Plans:
IUL’s are not seen as Combined Earned Income and therefore will not be seen as income for Social Security purposes discussed in the above link.
LET's TALK IUL – Indexed Universal Life as a Vehicle for Cash Accumulation to help you achieve your dreams!
With an IUL in place I help my Clients to:
Grow Cash Tax Free
Receive their Money Tax Free
Avoid Market Risk
Provide Financial Security upon an untimely death
Have some Long Term Care in place
Pros and Cons of the IUL
Emerging into the Life Insurance market today with much popularity are Indexed Universal Life Insurance plans...known also as IUL's. There are many books on why one should use them such as the "Safe Money Millionaire" book which I've read a few times myself. If you'd like a much shorter version you can watch this 3 minute video instead:
I've seen articles on "Lock in, don't Loose the gains"..."Reduce Volatility...remove the downside of Market Risk", etc. So what is an IUL and what can it do for you and what should you watch out for in an IUL? What are the Pros and Cons of the IUL.
To break it down in laymen's terms...An individual buys a life insurance policy which allows them to "over fund" the policy premium to create cash accumulation in the account...to use at a later point in time (loan or with drawl)...or to pass on to their beneficiary when they perish.
So, premiums not used for the cost of insurance, policy costs, fees are held in an account that either is an indexed or fixed interest account. The policy owner receives a corresponding rate of return up to a certain cap in the indexed fund and is guarantee the interest will not drop below a set amount...usually 1-2%.
This Indexed fund generally follows the S&P 500, EURO or the Hang Seng market rates but is not actually "in" the market. The bonus to this is that if the market crashes the policy owner does not loose any funds because the money is not in the market. Policy owners find this feature very attractive because...nobody wants to wake up and find they've lost 40% of their money in a market crash. Which has happened in the past to many whom have placed their money "in" the market (Stocks/Bonds, etc.) in the past.
PROS: MAJOR BENEFITS OF INDEXED UNIVERSAL LIFE INSURANCE (IUL's)
There are several benefits of Indexed Life Insurance (IUL's) of which a few are listed below. Each policy has it's own benefits "baked in" and some have riders available for purchase to enhance the IUL policy.
*If the insured dies prematurely the death benefit, any cash accumulation/interest passes to the beneficiaries of the policy...usually with out going through probate.
*With some IUL's the policy owner has the right to choose from a number of indexed strategies as stated above...S&P 500, EURO, Hang Seng to name a few of the choices...depending on the policy and the insurance companies.
*Like other cash-value life insurance policies, Index Life Insurance offers policy owners with drawl privileges and loans. It is important to know the specifics of the policy you choose...some even offer "wash loans".
*The cash value in a indexed life insurance plan grows on a tax advantaged basis: tax-deferred or tax-free.
*If you have a "bad month" financially and can't make your payment your cash accumulation can help make the payment for you.
*IUL's offer different features such as living benefits (death benefits paid out in advance due to 12 months of less to live), Riders to add spouse or kids, Long Term Care options, etc. This allows you to choose a plan that benefits your future goals for financial security for your family.
*IUL's offer different "indexed caps or options" make sure to understand what your policy offers before purchasing as you will want to purchase one that has your interests in mind.
CONS: NEGATIVES OF AN INDEXED UNIVERSAL LIFE POLICY (IUL)
Insurance agents hear it all the time...Everyone wants to know: "What is the catch"..."It sounds to good to be true"..."You don't get something for nothing". So, what are the catches to an IUL Indexed Universal Life Policy?
*Indexed Life Insurance is subject to surrender charges if you stop paying premiums during a "set amount of time"...such as the first 5 or 10 years. These charges can be quite high leaving you with no cash value if you cancel too early in the policy.
*IUL's are usually set up for long term cash accumulation, not a buy in and jump out set up...or a quick get rich deal. Your funds grow when you choose to stay in it for the long haul...such as money for retirement, or a down payment on a house...down the road.
*IUL's are generally not suitable for short-term insurance needs due to the high costs (usually less than 401k fees/costs in the long run) of purchasing the insurance, fees/costs...and the cost to surrender a policy due to lack of making premium payments. (Loss of job and can't "fund" the policy or make the premium payments)
*Not all IUL's offer the same "indexed caps or options" make sure to understand what your policy offers before purchasing as you will want to purchase one that has your best interests in mind. IUL's are different so you must read your policy information to make sure to purchase one that has your financial well being planned into it...such as Living Benefits (see above), or other riders. Your agent may not take time to point out your options so you must make sure to know what comes standard with your plan and which are riders that you may want to purchase. Not all Index Universal Life plans (IUL's) are a like.
TO SUM IT UP: If you are looking for somewhere to accumulate cash with a good rate of return on your money and no chance of loss then an IUL bares further review.
It is always important to read and understand any Cash Accumulation Vehicle before purchasing.Call for specific information on policy's available before making a purchase. Not all IUL's offer the same "benefits", "indexed". "living" or "LTC" options. GET YOUR QUESTIONS ANSWERED
THE ADVANTAGES OF USING IUL for Cash Accumulation
Be Wise, my grandfather used to say to me. Keep your eyes open to new ideas, options and opportunities.
Nine years ago the Index Universal Life (IUL) product was brought to market and it has become one of the fastest growing cash accumulation products on the market today. It is becoming the preferred type of life insurance and it's giving Traditional Term, Variable UL and Whole Life a run for it's money. Why?
The IUL is an excellent product in which to save money now, to produce a steady cash flow later in retirement. So, what are the advantages of using an Index Universal Life to save for retirement?
* Clients love the fact that their annual returns will never be a negative as the Index Universal Life provides a guarantee of no loss of money...as the money is following the exchanges, but no in the exchange...therefore, no money can be lost. Clients are completely proteted from the risk of the market and there is never a decline in the contract's value due to decling values in the index (market).
* The Carrier invests in bonds and index options and provides the interest credits to the Index Universal Life product. This year, some experts expect bond defaults to be seven times historical averages. If one of the bonds default the insurer bears this risk and protects its contract holders.
* Everyone wants to put their money where there is a high positive return on it. There are many safe alternatives to avoid risk where you can "park your money" but the return is usually quite low and many are suffering from very low yields. Add to that you are "locked in" to them for a specific period of time...making them unattractive to many savers whom are looking for a better rate of return on their money. With the Index Universal Life, if the Index performs well over a measured period of time, the contract can result in an quite attractive interest credit. Many Index Univeral Life products include interest cediting formulas that compare multiple indices such a S&P 500, Euro, Hang Seng, or Plus Indexs that compare multiple indices and more heavily weight the better performing indices.
* When looking for a place to place your funds to grow for retirement you will find options that create taxation. IRAs and 401(k)s for example, delay but do not elimiate taxation and funds being released as payout are seen as income to Social Security pay outs. In fact, many advisors point out that they allow clients to save a smaller amount of taxes now in order to pay a much larger amount in taxes later. Index Universal Life can be used to create a totally tax-free cash flow in retirement. Through the use of contract loans available cash flow can be free of federal, state, and local income taxes, as well as free of the alternative minimum tax, creating a tax-free death benefit as well. These wash loans allow you to borrow pratically interest free. This tax-free feature allows the Index Universal Life products to be more attractive than other alternatives, even if those alternatives create a higher pre-tax return. Make sure to discuss tax issues and conseqences with your CPA in any circumstances.
* Saving for retirement usually relys on the income from both of the couples to remain working in order to reach their pre-set retirement goals...but what if one can not work for a period of time. That changes everything. Also, the death of a working spouse can devastate the best-laid plans to fund ones retirement and keeps the other spouse working much longer than anticipated to reach those retirment goals. An Index Universal Life elimiates this risk by providing a life insurance death benefit, pass tax free through probate plus cash accumulation.
* It is not unusual for the agent to be able to set up a scenario where the guaranteed cash value equals the premiums paid after a period of time, such as,10 years for example.
* A lifetime of insurance coverage with out paying for a lifetime. An unexpected bonus for clients whom use Index Universal Life to save for retirement is that once the client stops paying premiums at the specific time and starts taking cash flow as contract loans the insurance coverage does not end. In fact, when set up correctly clients can often continue to be insured for the rest of their lives wth out ever having to pay additional money into the contract. Of course, one must not take all the money out at once for this to take effect.
So, are Universal Life Products the perfect place to save money for retirement? Well, "perfect" is a very dangerouse word as you might suspect, but the above are very good reasons and should give you "food for thought". A place to put your money while working, to be able to receive funds paid back at retirement, which offers high rates of returns compared to other products, that contains a tax advantage and funds released are not seen as income by Social Security, and wher your funds will NEVER experience a market crash...well, those are just a few good reasons to consider and Index Universal Life plan as your place for store retirement funds till needed.
IUL...A Great Solution for Economic Uncertainty
IRS and Government approved IUL's:
...Growth Poetntial to help Outpace Inflation (Rule of 72)
...No Market Risk, with High Interest Caps
...Tax Free Advantages using "wash" loans
...Living Benefits for Use Now and in the Future:
Long Term Care, Critical Illness, Terminal Care - with out high cost
...Avoid Loss, Realize Gains
For more Information check out these articles: