In the often uncertain realm of retirement planning, making the right choices at the right time can have a tremendous impact. One of our recent clients, Dr. Deborah PreRetire, provides a poignant illustration of this truth. Aged 55 and at the peak of her professional journey, Dr. Deborah, like many, believed she was on track with her retirement plans. However, her journey with us unveiled a roadmap with far greater potential than she had imagined.
The Starting Point
Dr. Deborah contributed the maximum allowable to her 401(k) annually: a commendable $30,000. This 401(k) scheme seemed robust on the surface, but with a closer look, its limits became evident. Considering a 32% tax deduction, Dr. Deborah’s after-tax contribution was effectively $20,400. Then, there was the unpredictable nature of the market and the uncertainty of tax rates in the future.
A New Direction with IUL
To maximize Dr. Deborah’s retirement assets, we suggested a shift. We proposed she divert her annual post-tax contribution into an Indexed Universal Life (IUL) policy. With this move, she would be poised to receive an income of over $50,000 from age 73 until her last day – nearly 19 more years of cash flow than her 401(k) could guarantee.
But what made this proposition even more enticing were the benefits the IUL policy introduced:
1. Immediate Double Benefit: Right from the outset, the IUL policy’s death benefit also functioned as long-term care. This was pivotal for Dr. Deborah, ensuring she wouldn’t burden her two beloved daughters with long-term care responsibilities.
2. Legacy Planning: The tax-free death benefit from the IUL policy ensured a generous legacy for her daughters. In stark contrast, had she retained the 401(k), the IRS would mandate her non-spousal beneficiaries to liquidate the account within ten years, creating a hefty tax bill.
Enhanced Stability with a Fixed Indexed Annuity
As we delved deeper, we saw an opportunity to bolster Dr. Deborah’s retirement even more. We took her existing 401(k) – valued at $500,000 – and rolled it over into a Fixed Indexed Annuity. Now, instead of the uncertain 401(k) yields, she had a clear projection: from age 73 onward, Dr. Deborah could anticipate a guaranteed lifetime annual income of $234,198. This was a monumental shift, providing a level of cash flow security her original 401(k) couldn’t match.
Comparing the Two Pathways
Had Dr. Deborah continued with her initial plan, she would have faced uncertain growth, potential long-term care burdens on her daughters, and a substantial tax bill upon legacy distribution. With our strategic redirection, she has nearly two decades of additional cash flow, an integrated long-term care solution, and a tax-free legacy.
Conclusion
Dr. Deborah’s case underscores the pivotal difference the right financial strategies can make. Retirement isn’t just about saving; it’s about smartly optimizing what you have to secure both your future and your legacy. If you find yourself in a situation similar to Dr. Deborah’s, remember sometimes, a few adjustments can transform a good plan into a truly great one. Let us guide you on that journey.
