Weekend Reading: Retirement Planning with Life Insurance

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading retirement planning with life insurance Weekend reading retirement planning with life insurance
Weekend Reading

Although life insurance products are primarily associated with death benefits, certain cash-value life insurance products like indexed universal life insurance (IUL)s can provide tax-free income during retirement.


How it works: There are several strategies to obtain retirement income from an IUL. One approach involves converting a traditional IRA to a Roth IRA, either through direct conversions, backdoor Roth IRAs or mega backdoor Roths. Another strategy is to withdraw funds from a 401(k) or traditional IRA gradually and use them to pay the premiums on an IUL. Although the withdrawals are subject to income tax, the expectation is that the IUL's positive arbitrage and potential growth can offset the taxes paid.

A third strategy involves using an IUL as a hedge against potential future income tax increases. By funding the policy with after-tax funds and letting it grow for at least ten years, tax-free loans from the IUL can help offset the higher taxes on pension payments. However, this strategy is riskier and not guaranteed to be successful.

If you’re looking for a valuable retirement income planning tool that also provides benefits to beneficiaries, IUL is worth considering. However, it’s important to partner with a trusted financial professional to determine if it’s in fact the right fit for you.