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Zach Abraham

Jun 28
0

Annuity Sales Are Surging. Do You Know What They Are?

By | Annuities, Financial Planning, Retirement

We’re here to help clear up some of the confusion about annuities during Annuity Awareness Month, which happens each June!

In the first quarter of 2024, U.S. annuity sales were $106.7 billion, the highest first quarter total since the 1980s, when LIMRA first started tracking annuity sales. Despite these high sales numbers, research indicates that many people don’t really know what annuities are.1,5

One recent study revealed that only 9% of consumers say they feel very knowledgeable about annuities,1 while other studies confirm this lack of understanding. Research by the American College of Financial Services gave older Americans a score of 12% out of a possible 100% for their knowledge of annuities based on their performance on a short quiz. And a TIAA Institute and Stanford University study showed that the annuity ranks dead last—respondents know more about Medicare, life insurance and long-term care than annuities.2

During Annuity Awareness Month, we wanted to cover some facts we hope will help you understand annuities better.

Annuities Are Ancient

The concept of the annuity goes back centuries. In fact, during the Roman Empire, soldiers and their families would receive annual payments for life known as “annuas” in return for their military service; this is the origin of the word “annuity.” In the Middle Ages, annuities were available in France during the 17th century, when lifetime annuities (called “tontines”) could be purchased from feudal lords in exchange for an initial upfront payment.3

In other words, for millennia, annuities have been around to provide regular income during retirement. Fast forward to today.

Annuities Are Contracts

When you invest in something, typically you assume all the risk. Since annuities are not investments, but instead are contracts between you and an insurance carrier, one of the main risks you assume with annuities is that the payouts will be made per the terms in your contract. Certain contractual guarantees* are made by any insurance company which issues an annuity, and these guarantees are subject to that company’s financial strength and claims-paying ability.

It is very important that you have a trusted financial professional, tax professional and/or legal professional by your side to examine the terms and language of your annuity contract as well as provide information about the insurance company’s financial rating before you make any decision.

In fact, this is good advice when making any decision that involves investing or entering into any kind of a contract. Some financial industry experts and academic leaders in the financial field, like Dr. Roger Ibbotson, have found that annuities belong in the fixed portion of some people’s retirement portfolios (depending on their individual situation) because of insurance company guarantees.

But there are many different types of annuity contracts.

Today’s Annuities Are Complex

Despite their simple structure in the beginning, annuities have become increasingly sophisticated over time. In addition to providing retirement income, insurance companies have added more features to provide retirees with coverage for spouses, long-term care, death benefit for heirs, etc., either as part of the basic annuity or added on as a rider for an additional cost.

While not a comprehensive list, below is basic information about how some annuities work. We recommend that you work with a financial professional to help you compare and choose between the hundreds of annuity contracts available from dozens of different insurance companies. As with any contract, it’s important to read and understand the fine print before you sign, and you should compare policies from multiple insurance companies to find the best value. That’s where a good independent financial advisor can help.

Fixed Annuities

Fixed annuities are probably the easiest type of annuity to understand because they work similarly to the way a bank CD (certificate of deposit) works. An insurance company will pay a fixed interest rate on your fixed annuity contract for a selected term, usually from one to 15 years.

Variable Annuities

Variable annuities were developed in the 1950s, and unlike most other types of annuities, before purchase they require that you be issued a prospectus, since part of your money will actually be invested in the stock market. This means that there is market risk involved with variable annuities—you can either make money on the amount invested in what’s called “sub-accounts,” or you can lose it depending on market performance.

Variable annuities are usually purchased with the expectation that at some point the contract owner will annuitize or begin taking periodic payments. But depending on contract terms, your annuity payments may fluctuate based on stock market performance, and it’s possible that some variable annuity policies can lose principal due to stock market losses.

Fixed Indexed Annuities

Fixed indexed annuities (FIAs) were first designed in 1995. The biggest difference between FIAs and variable annuities is that fixed indexed annuities are not actually invested in the stock market so they are not subject to market risk. Instead, a selected index (such as the S&P 500) is used as a benchmark for policy credits at periodic intervals, such as annually.

Many FIA contracts offer a minimum amount which gets credited, and nearly all FIA contracts will not credit less than 0%, which means even that if the benchmark index loses money, your FIA contract value will not go down. With fixed indexed annuities, after you have owned the policy for a specified number of years (called the “surrender period”) your principal is guaranteed* and credits, therefore any policy gains, are locked in.

In other words, with fixed indexed annuity contracts, you have the potential to participate in market gains but are protected from market downturns. And most FIAs offer the option of lifetime income no matter how long you live either as part of the main annuity contract, or available as a rider for an additional charge.

Other Things to Know About Annuities

*The guarantees provided by annuities rely on the claims-paying ability and financial strength of the issuing insurance company.

Some annuities can be purchased on a deferred basis, and some on an immediate basis, and you can use pre-tax or after-tax funds. It’s important to get professional help to understand the implications for your particular situation.

Annuities must be considered carefully based on your particular situation because they are not liquid. Almost all annuities are subject to early withdrawal penalties. Make sure you understand the contract terms and the type of annuity you are purchasing. Your financial advisor and tax and legal professionals can help you compare and analyze policies.

Are You Prepared for Retirement?

With people living much longer and pensions quickly becoming a thing of the past, annuities can help provide income throughout retirement and help quell the fear of running out of money. If you are considering the purchase of an annuity, it’s important to speak with a financial professional who understands them, and can explain the fine print of an annuity contract.

Contact us to explore your options! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

This article is provided for general information purposes only and is accurate to the best of our knowledge. This article is not to be relied on or considered as investment or tax advice.

 

 

Sources:

1 https://insurancenewsnet.com/oarticle/consumer-knowledge-gap-persists-despite-booming-annuity-sales

2 https://www.usatoday.com/story/money/2024/04/30/annuities-are-good-retirement-investment/73437135007/

3 https://www.nber.org/system/files/working_papers/w6001/w6001.pdf

4 https://www.wealthmanagement.com/insurance/ibbotson-fixed-indexed-annuities-beat-out-bonds

5 https://www.limra.com/en/newsroom/news-releases/2024/limra-first-quarter-u.s.-annuity-sales-mark-14th-consecutive-quarter-of-growth/

 

Any annuity guarantees are backed by the financial strength and claims paying ability of the issuing insurance company and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract.

Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Crediting methodologies can be complex and difficult to comprehend. You should make sure you understand the risks and rewards of any annuity before considering an investment.

This document is for informational purposes only. All information is assumed to be correct but the accuracy has not been confirmed and therefore is not guaranteed to be correct. Information is obtained from third party sources that may or may not be verified. The information presented should not be used in making any investment decisions. It is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

Investment Advisory Services offered through Trek Financial LLC, an investment adviser registered with the Securities Exchange Commission. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. TREK 24-280

May 21
0

What is Sequence of Returns Risk?

By | Investments, Retirement

Sequence of returns risk can put your retirement portfolio in jeopardy, but what is it, and how do you fight it?

We get it. Retirement can be scary. We know this because it’s our job to help our clients plan for and seamlessly transition into what should be one of the most rewarding times of their lives. What we often find, however, is that most are worried about retirement because of the risks that come with it. But what are some of the risks that strike fear in the hearts of retirement hopefuls? Well, the first is related to longevity—it’s the possibility of running out of money as you get older, and being unable to go back to work in order to support yourself. We also find that people getting ready to retire are concerned about inflation, the cost of health care, the possibility of needing long-term care and more.

There’s one risk, however, that hides in the shadows, waiting to rear its ugly head and throw turbulence into the lives of new retirees and those right on the edge of retirement. It’s called market risk, or the possibility that you could lose your retirement money during market crashes or downturns. How might this look? Specifically, something called sequence of returns risk can be the most dangerous aspect of market risk. And while it might sound complicated, it’s a simple concept with the potential to have major implications on your retirement dreams. Let’s go over what sequence of returns risk is, as well as a few ways you may be able to fight it!

What is Sequence of Returns Risk?

Simply put, sequence of returns risk is the risk of negative market returns occurring right before you retire and/or very early in your retirement. During this time, market downturns can have a much more significant impact on your portfolio.

Again, it might sound like some buzzword the financial industry throws around to scare consumers, but sequence of returns risk is exactly what it sounds like. It’s the sequence, or the order, in which your portfolio provides market returns. It’s key to remember that sequence of returns risk is specifically associated with money directly invested in the market. That means it could apply to vehicles like employer-sponsored retirement accounts, traditional and Roth IRAs, mutual funds, brokerage accounts, variable annuities and any other assets that can lose value during market downturns.

Now, let’s think about your goals for your retirement. If you’re just starting your career, or you’re right in the middle of your working years, you may contribute to your various saving and investing vehicles with the goal of having a large pool of funds when you finally retire at, say, 65 years old. You’d hope that diligent saving and favorable returns would bring your assets to their highest total right at that point, giving you ample funds to draw from once you retire.

Sequence of returns risk is the potential of the market dipping near the end of your career, or in the first few years of your retirement, meaning those drops affect your account balances at their peak. You would then take losses on greater amounts of money, creating greater losses. While you never want to experience dips, it makes sense why you’d hope those periods of market volatility that you will likely encounter at some point during retirement occur farther down the road, especially when you’re concurrently withdrawing money to support your lifestyle.

An Example Where Both Retirees Have $1 Million Saved

Just as an example, let’s consider two retirees, and what happens during their first 10 years of retirement. Both have $1 million saved, and they both determine they need to withdraw $50,000 per year from their accounts to fund their lifestyles.

Our first retiree is lucky. They retire and then experience eight years of a bull market, growing their portfolio by 5% each year. In the next two years, however, they experience declines of 5%, bringing their balance back down.

The other retiree sees the exact opposite sequence. They immediately encounter a bear market upon entering retirement, which drops their accounts by 5% in each of the first two years. Then the market rebounds and goes up 5% each year for the next eight years.

Both retirees continued to withdraw $50,000 per year from their accounts. So, what was the result?

Even though both retirees had the same initial balance, withdrew the same amounts, experienced eight years of bull markets and two years of bear markets, the order or “sequence of returns” made a big difference.

The first retiree didn’t experience market dips at the beginning when their account balances were highest. At the end of the 10-year period, they still had $788,329 left in their account.

The other retiree, on the other hand, wasn’t so lucky. They took losses during the first two years of their retirement, on their highest balances, and by the end of the 10-year period, they only had $695,226.

(Please remember this example is purely hypothetical and not reflective of real scenarios or real people. We simply used a starting balance of $1 million for each person, then subtracted $50,000 in income at the beginning of each year, then multiplied the accounts’ balances by the annual positive or negative effect on the market we imagined for this example. Actual market returns are unpredictable and tend to vary far more than in the case study shown. This is strictly to display the potential effects of the aforementioned risk.)

What are Some Ways to Mitigate Sequence of Returns Risk?

You can see how the sequence of your returns can affect your portfolio. The market is unpredictable and bottomless, so it’s important to try to shield yourself from, or at least mitigate the possibility of, taking those losses at the starting gate. But how can you do that when the market is completely out of your control? Well, you have a few options.

First and foremost, you can work with a financial professional to diversify your portfolio. While diversification can never guarantee any level of protection or growth, it may give you the ability to withstand dips in certain sectors of the market. It also spreads risk across different asset classes, or even different categories within the market itself. That can potentially help you avoid taking losses in your entire portfolio, even if one sector experiences headwinds.

For instance, non-correlated asset classes, which could include annuities or life insurance policies, might be a retirement diversification option for some people. Modern policy designs like fixed-indexed annuities and indexed universal life insurance policies are typically linked to a market index, while not actually participating in the market. These products can provide the upside of market gains while still protecting the principal, or the money used to fund the policy, in addition to locking in the gains.

These solutions may not match every consumer’s situation or financial objectives, however, so it’s important to speak to your advisor to explore policies and see if they make sense for your portfolio. For some people, annuities can provide a stream of retirement income that can cover lifestyle expenses, allowing retirees to leave their assets in the market during downturns rather than being forced to make withdrawals.

Be sure to speak with a financial professional who understands your circumstances, goals and tolerance for risk. The right partner can help you develop a custom withdrawal strategy and a plan to generate a reliable stream of income with your accumulated retirement assets. Your plan may include portfolio diversification, the establishment of a liquid emergency fund, the inclusion of alternative strategies and more, all with the intention of making your money last your entire life.

If you have any questions about how you can fight sequence of returns risk, give us a call today! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

 

Trek Financial, LLC dba Trek Financial is an SEC registered investment adviser. Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. Any hypotheticals are for illustrative purposes only and are not to be construed as predictive of any specific outcome. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.

Trek 24-241

Apr 19
0

5 Things You Need to Know About Retirement

By | Retirement

Saving for retirement is important, but it’s also crucial to stay informed! Now that it’s Financial Literacy Month, we thought it would be the perfect time to discuss some things you need to know.

There’s an old saying that goes something like, “What you don’t know can’t hurt you.” You might have even used it, maybe when you came home past curfew without your parents finding out or poured your juice into the plant when no one was watching. And sure, no one being the wiser might have worked when you were young, but in retirement, what you don’t know actually COULD hurt you.

It’s important to stay informed about not just past trends, but also what you should expect as you make your way through that exciting phase of your life. It could give you a better chance to prepare for obstacles and implement a plan to overcome them. It could also help you take advantage of opportunities, especially as you look to make your money last for a quarter of a century or longer. Let’s go over five things you need to know about retirement.

  1. Market Downturns WILL Happen [1,2]

When you spend between 25 and 30 years or longer in retirement, it’s not a question of “if” you’ll encounter market downturn; it’s a question of “when.” These declines are typically referred to as “bear markets,” which are defined as market drops of 20% or more. If we use the S&P 500 as an indicator of bear markets, there have been 12 instances of significant market decline since the index’s inception in 1957. That means you should expect to face some adversity in the market once every five or six years. So, what are your options?

Well, historically, patience has been a way to overcome market adversity, as long-term outlooks have always trended upward. It can also be helpful to work with a financial professional who can tailor your portfolio to your goals and tolerance for risk. If you’re more comfortable with risk or have a longer timeline to retirement, you may have more assets invested in the market, whereas those approaching retirement may consider shifting more of the portfolio into assets that are fixed, like bonds or bond alternatives.

Rebalancing your portfolio and creating a customized retirement plan as you approach retirement is advised, especially to mitigate sequence of returns risk. Sequence of returns risk is the risk of retirees facing market downturn in the few years prior or the first few years of retirement. Again, working with a financial professional to find ways to mitigate sequence of returns risk can be helpful. Sometimes this is done by creating a stream of income with part of your retirement assets to cover your living expenses. This allows you to wait out bear markets with your remaining assets which might remain directly invested in the market.

  1. Decumulation is Just as Important as Accumulation

Yes, we all want to retire as multimillionaires, hitting on our investments and getting lucrative returns. That period of building your assets, investment and making growth-oriented decisions is often referred to as the “accumulation” phase. However, the fact is, it doesn’t matter how much money you accumulate if you don’t have a plan for how to spend it in the “decumulation” phase, after you retire and no longer have employment income coming in. Oftentimes, that plan includes a strategy to create income for your projected lifestyle, as well as a comprehensive budget dictating where that income will go. Additionally, many factors will play a role in decumulation, including taxation, legislation, your life expectancy, your spending habits and more.

We traditionally recommend getting a good idea of how much you plan to spend on an annual basis. That’s how much income you’ll likely need to create, along with a little bit of wiggle room giving you the freedom to cover emergencies or other unexpected expenses. The best way to do this is often by assessing your goals for retirement, then estimating the amount of money you’ll need to achieve them. Then, we can build a budget for you to strictly adhere to in retirement. It’s important to understand that if you start planning for retirement once you’re already there, it might be too late. If you’ve become accustomed to your lifestyle, it can be difficult to make cuts, especially when some retirees actually need more money in retirement than they did while they were working, leading us to our next point.

  1. It’s Never Too Early to Prepare [3,4,5]

Think about it. You reach the most exciting period of your life, your retirement accounts are as well-funded as they’ll ever be, and you have an endless list of things you want to do now that your time belongs entirely to you. Will you want to pull back? Not likely. That’s why it’s important to start preparing for retirement long before you call it a career, giving you the flexibility to course correct if you find that you haven’t saved enough to live comfortably. But how much do you need to live comfortably? Modern estimates say retirees have set that target figure at $1.3 million for a 67-year-old heading toward a 30-year retirement, but working with a financial professional may help you get a more accurate estimate for your unique situation. It might not require that much, depending on your plan.

A 2022 study found that the average person between the ages of 65 and 74 has saved a little over $600,000. Will that be enough? It depends. Working with a financial professional early in your career, developing your own personal retirement goals and consistently devoting a portion of your income to the recommended strategies in your plan may give you a better chance to reach the financial goals you have for your retirement.

  1. Social Security May Not Suffice [6,7]

Social Security figures to be one of the biggest sources of income for most American retirees. In fact, 40% of retirees rely on Social Security for more than half of their income, and 14% rely on it for 90% of their income or more. Sure, it’s a nice benefit, but it was never designed to be a primary source of funds in the first place. It was always a supplementary tool, originally created for the economic security of the elderly back in 1932, when the average life expectancy ranged from age 57 to 63. Now, relying on Social Security has never been more tenuous. Benefits are set to take a hit of more than 20% beginning in 2034 if no action is taken soon by Congress.

Still, action is where the problem lies. The choices appear to boil down to cutting payments for beneficiaries, raising the payroll tax rate or increasing the payroll tax increase limit. So far, all of those options have been met with opposition, presumably making benefits cuts the most likely solution. Granted, American taxpayers will always be contributing to the Social Security trust fund, meaning it’s unlikely the fund is drained completely, but it is running short, making it imperative to use other planning methods. Some of those methods can include saving more and creating more supplemental income streams to provide for your lifestyle.

  1. Risk Runs Rampant in Retirement [8,9,10]

Life expectancies continue to rise, which is fantastic news for anyone who plans to use their retirement years to check off bucket list items and spend time with their families. At the same time, it means spending more money, potentially for 20 years or longer. That can put you at risk of outliving your money, which is known as longevity risk. Then, even if you do save enough to provide for 20 to 30 years of a healthy retirement, you’ll start to introduce new factors that could drain your savings such as inflation, taxes, health care and long-term care risk.

Long-term care is one of the key factors that can quickly deplete your funds, and it’s easy to see why. On average, 70% of modern retirees will need some form of long-term care, and 20% will need it for five years or longer. Additionally, the annual median cost for long-term care can run from $64,000 to $116,000 per year, and it’s not covered by Medicare because it’s a lifestyle expense as opposed to a medical expense.

That could mean enlisting in the help of long-term care insurance, which is historically expensive and useless for the 30% who end up not needing the care. Modern policies, however, can combine life and long-term care insurance, providing a pool of resources for long-term care if necessary and a death benefit to beneficiaries if not. But these policies aren’t right for everyone. We can help you compare your options and determine if they match your goals.

If you have any questions about how you can better prepare for retirement, give us a call today! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

 

Sources:

  1. https://www.forbes.com/advisor/investing/bear-market-history/
  2. https://www.investopedia.com/8-ways-to-survive-a-market-downturn-4773417
  3. https://www.wsj.com/buyside/personal-finance/how-much-do-i-need-to-retire-f3275fa7
  4. https://www.nerdwallet.com/article/investing/the-average-retirement-savings-by-age-and-why-you-need-more
  5. https://www.cnbc.com/2023/09/08/56percent-of-americans-say-theyre-not-on-track-to-comfortably-retire.html
  6. https://www.cbpp.org/research/social-security/key-principles-for-strengthening-social-security
  7. https://www.cnbc.com/select/will-social-security-run-out-heres-what-you-need-to-know/
  8. https://www.ssa.gov/oact/population/longevity.html
  9. https://www.aplaceformom.com/senior-living-data/articles/long-term-care-statistics
  10. https://www.genworth.com/aging-and-you/finances/cost-of-care

 

Trek 24-221

Mar 27
0

Diversification, Patience, and Consistency

By | Financial Planning, Investments

Here are three important principles you may want to include in your investment philosophy.

Regardless of how the markets may perform, it’s important to stick to an investment strategy that aligns with your goals and aims to help you potentially benefit from favorable market conditions while also seeking to mitigate risks during less favorable periods, including the possibility of loss. That’s why we encourage you to consider making the following three principles part of your investment philosophy:

Diversification.

The saying “don’t put all your eggs in one basket” has some application to investing. Over time, certain asset classes may perform better than others. If your assets are mostly held in one kind of investment, you could find yourself under a bit of pressure if that asset class experiences some volatility.

Keep in mind that diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if an investment sees a decline in price.

Asset allocation strategies also are used in portfolio management. When financial professionals ask you questions about your goals, time horizon, and tolerance for risk, they are getting a better idea about what asset classes may be appropriate for your situation. But like diversification, asset allocation is an approach to help manage investment risk. It does not eliminate the risk of loss if an investment sees a decline in price.

Patience

Impatient investors can get too focused on the day-to-day doings of the financial markets. They can be looking for short-term opportunities rather than longer-term potential. Patient investors, on the other hand, understand that markets fluctuate, and they have built portfolios based on their time horizon, risk tolerance, and goals. A short-term focus may add stress and anxiety to your life, and it could lead to frustration with the investing process.

Consistency

Most people invest a little at a time, within their budget, and with regularity. They invest $50 or $100 or more per month in their retirement account or similar investments. They are investing on “autopilot” to help themselves attempt to build wealth over time.

Consistent investing does not protect against a loss in a declining market or guarantee a profit in a rising market. Consistent investing, sometimes referred to as dollar-cost averaging, is the process of investing a fixed amount of money in an investment vehicle at regular intervals, usually monthly, for an extended period of time regardless of price.

Investors should evaluate their financial ability to continue making purchases through periods of declining and rising prices. The return and principal value of stock prices will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost.

To start crafting a custom investment strategy, give us a call today! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

 

TREK 24-200

Feb 22
0

6 Financial Tips for Couples

By | Financial Planning

Money can be a major obstacle for couples. Here are a few ways to overcome it.

Do you remember when you first met your partner? So many things about them might have captivated you. Maybe it was their eyes, their hair or their smile. Maybe you started talking and you fell in love with their outlook on life, their fun-loving attitude or their sense of humor. We’re willing to bet, however, it wasn’t your aligned financial philosophies that initially drew you to each other, even if financial stability was high on your list of priorities for potential partners.

At the same time, maybe that should be something you look for in your other half. Nearly 50% of Americans say they argue with their significant other about money, while 41% of Gen Xers and 29% of baby boomers attribute their divorce to financial disagreements [1]. One of our goals is to work with you to create a financial plan that can possibly provide stability and reduce stress within your financial life.

Here are six tips for couples looking to achieve their financial goals together!

  1. Communicate Effectively

Of course, communication is the key to a healthy relationship. It’s no secret. In fact, you’ve probably heard this old adage your entire life, but hearing it is different from comprehending it and acting upon it. Additionally, while it’s important when sharing your needs and overcoming conflict, it’s just as important to have open, honest, confident communication about your finances. In our experience, the majority of the battle is normalizing the conversation. Remember, you’re not just combining finances; you’re combining your entire lives, so this discussion shouldn’t be taboo. To make it easier, it can be a good idea to start with simple topics. Go over things like income, how you feel about different retirement accounts, your experience investing or how comfortable you feel with risk. You can then let the conversation naturally evolve to encompass more complex topics, or you can tackle new problems as they arise. It’s key to consider that you’re equal partners, both in life and in money, and it’s crucial to have these discussions before and during a serious relationship.

  1. Choose a Strategy

Once you’ve broken the barrier to financial discussion, it can be helpful to choose a strategy for how you’ll combine your finances. Some couples, for example, find it easiest to simply combine all their assets, giving meaning to the phrase, “What’s mine is yours.” Others, however, may feel more comfortable keeping their assets separate and handling their own personal expenses. Most commonly, a couple will land somewhere in the middle with a few select combined accounts and some solo accounts. This can help each person maintain some of their individuality and independence while also offering some guidance as to who’s responsible for different financial obligations. Spend some time discussing these options with your partner, and be completely open and honest to foster healthy communication in the present and future.

  1. Set Measurable, Realistic Goals

Identify goals that are important to both of you, especially if you want to achieve them together. Whether those are short- term goals or long-term, this gives you something to work toward, unifying your vision and objectives to keep you on the same page. It can also help you maintain control over your financial decisions and your priorities. Ensuring those goals are measurable and realistic is also important. In addition to the satisfaction that comes with watching yourself climb toward your objectives, reaching measurable milestones can be motivating, pushing you and your partner to continue saving and spending with the future in mind.

  1. Budget Effectively

As a couple, you’re a team. That means working together to reach common goals. There’s also power in finding financial strength together, so constructing a budget, controlling your spending, and expressing your thoughts freely can help you grow as a duo. When building that budget, it’s important to start by having a conversation about your priorities. Lay them out clearly, and work together to determine which expenses are “needs” and which expenses are “wants.” You’ll probably want to prioritize essentials, like food, your home, your transportation, and other necessary living expenses. You may want to move on to outstanding debt, determining how much you can realistically pay down in a given period. As partners, you should also hold each other accountable, knowing that sticking to the budget is what’s better for both. Then, know you can tweak your budget as your circumstances change and evolve.

  1. Choose the Right Financial Partner

The right financial partner or professional can help you develop and work toward your goals. Oftentimes, this means finding someone who understands your current circumstances, is able to read you and your partner as people, and is willing to work in your best interests. This can be tricky, but remember, this is your livelihood we’re talking about. It’s more than understandable if you’re skeptical when choosing someone to control your assets. Additionally, if you think it’s the right time to start working with a professional, ask many questions to determine if they’re the right person to help you achieve your goals. While you may feel like you’re on the hot seat as they ask about your saving and spending, it’s just as much of an opportunity for you to assess how effective or helpful they will be in the construction of your plan or portfolio.

  1. Develop an Actionable Plan

Once you understand your cashflow, habits, budget and goals as a couple, it’s time to develop a plan that offers specific direction and sets you into motion. Oftentimes, this is the blueprint for your future, giving both you and your partner rules to adhere to. It should also be comprehensive, meaning that it accounts for each aspect of your life. Determine how you’ll utilize specific retirement accounts, as well as if you’re comfortable having your money exposed to market risk. You can also explore options for insurance policies, which can be crucial if you want to protect your loved ones in the event of the worst. Furthermore, revisit your plan on a regular basis. Maybe your risk tolerance has changed, you feel you can contribute more to your savings vehicles, your beneficiaries have changed, you need different levels of insurance coverage, or you’re ready to graduate into retirement. Your plan plays a key role in achieving both your short- and long-term goals, and having one that you believe in can make all the difference.

We believe that money should never hinder your relationship. If you have any questions about how you can effectively combine and develop a plan for your finances as a couple, give us a call today! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

 

Sources:

  1. https://www.marketwatch.com/story/this-common-behavior-is-the-no-1-predictor-of-whether-youll-get-divorced-2018-01-10

 

Trek 24-159

Jan 29
0

5 Things You Should Know if You’re Retiring in 2024

By | Financial Literacy, Financial Planning, Retirement

Heads up! If you plan to retire this year, you should know these five things.

Are you planning to enter the most exciting phase of your life in 2024? A phase where you get to do what you want to do, not what you have to do? With the right planning and preparation, it’s possible, but you should be aware of the year-over-year changes that occur for retirees, especially if this is your first year. Here are five changes you should know about if you plan on entering retirement in 2024.

  1. Higher Income Tax Brackets [1,2]

Traditionally, tax brackets rise with inflation on an annual basis, and 2024 is no different. For instance, the top end of the 0% capital gains bracket is up from $44,625 to $47,025 for single filers and from $89,250 to $94,050 for those who are married and filing jointly. Retirees who expect to withdraw from accounts subject to income tax—like traditional 401(k)s—may also expect to see a bit more relief this year in their income. See below for 2024’s ordinary income tax brackets.

Rate (%) Filing Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 to

$11,600

 $0 to

$23,200

 $0 to

$11,600

 $0 to

$16,550
12% $11,601 to $47150 $23,201 to $94,300 $11,601 to $47,150 $16,551 to $63,100
22% $47,151 to $100,525 $94,301 to $201,050 $47,151 to $100,525 $63,101 to $100,500
24% $100,526 to $191,950 $201,051 to $383,900 $100,526 to $191,950 $100,501 to $191,950
32% $191,951 to $243,725 $383,901 to $487,450 $191,951 to $243,725 $191,951 to $243,700
35% $243,726 to $609,350 $487,451 to $731,200 $243,726 to $365,600 $243,701 to $609,350
37% $609,351 or

more

 $731,201 or

more

 $365,601 or

more

 $609,351 or

more

 

  1. Higher RMD Ages [3]

As of Jan. 1, 2023, retirees must begin taking required minimum distributions at age 73 unless they’ve already started. This was part of a gradual change made by SECURE Act 2.0 that will again raise the RMD age to 75 in 2033. This change can offer more flexibility to retirees who don’t need the money from their qualified accounts and otherwise would have incurred unnecessary income taxes. It also gives them an extra year to find other sources of income or to convert those funds to tax-free money. If you are turning 73 in 2024, your first year required minimum distribution from your qualifying accounts must be withdrawn by Apr. 1, 2025. In subsequent years, they must be withdrawn by the end of the year, or you may incur a 25% excise tax, which may be dropped to 10% if corrected in a timely manner.

  1. Elimination of RMDs for Roth 401(k)s [4]

One of the perks of the Roth IRA is that it does not come with required minimum distributions because you purchase them with already-taxed money. Roth 401(k) accounts through your employer were the same—except for the employer matching part. Before the passage of the SECURE 2.0 legislation, if your employer offered matching contributions and you chose a Roth 401(k) instead of a traditional 401(k) account, employer matching funds had to be placed into an entirely separate pre-tax traditional account which was taxable. Then, upon reaching RMD age, withdrawals were mandated for both accounts, even though taxes were only due on the matching portion.

Now, as of the passage of the SECURE 2.0 legislation, employers at their discretion can offer their matching amounts on an after-tax basis into Roth 401(k)s or Roth 403(b)s. If your employer offers this option and you choose it, you will owe income taxes on the employer match portion in the year you receive the money, but RMDs will no longer be due.

  1. Preparation for 2026 Tax Cut Sunsets [5]

Though tax cuts sunsetting at the end of 2025 won’t immediately impact 2024 retirees now, it may be crucial to begin preparing for the 2026 tax year. While the federal estate and gift tax exemption amount is currently $13.61 million per individual, it’s expected to drop back down to below $7 million in 2026. For those with larger estates, that could slice the amount of tax-free money going to beneficiaries in half. Income tax rates could also revert to what they were prior to 2018, meaning that it may be helpful to convert taxable income to tax-free income—for instance, by using Roth conversions—in the next two years. Additionally, those impacted by this change could also look to work with a financial professional to implement long-term tax strategies that give them the opportunity to pass their wealth to their beneficiaries as efficiently as possible.

  1. Higher Medicare Costs but Increased Social Security Payments [6,7]

Medicare costs are also up in 2024. Though Part A is free to beneficiaries, it does come with an annual deductible, which is up $32 from $1,600 to $1,632. Medicare Part B premiums are also up in 2024 from $164.90 to $174.40, an increase of roughly 6%. It’s important to know that those premiums are traditionally deducted from Social Security payments, which typically also rises with a cost-of-living adjustment determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W. In 2024, that increase is 3.2%, so while the adjusted checks won’t be entirely proportionate to the higher Part B premiums, the COLA may help to offset the extra costs.

To learn more about what it takes to prepare for the next stage of your life, call us! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

Sources:

  1. https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
  2. https://www.bankrate.com/investing/long-term-capital-gains-tax/
  3. https://www.milliman.com/en/insight/required-minimum-distributions-secure-2
  4. https://smartasset.com/retirement/how-roth-401k-matching-works-with-your-employer
  5. https://www.thinkadvisor.com/2022/12/07/the-estate-and-gift-tax-exclusion-shrinks-in-2026-whats-an-advisor-to-do/
  6. https://www.cms.gov/newsroom/fact-sheets/2024-medicare-parts-b-premiums-and-deductibles
  7. https://www.ssa.gov/cola/

Trek 24 – 115

Dec 27
0

Important Birthdays Over 50

By | Retirement

Once you turn 50, your birthdays might have greater implications for your retirement. Here are some that you should mark on your calendar.

Most children stop being “and-a-half” somewhere around age 12. Kids add “and-a-half” to make sure everyone knows they’re closer to the next age than the last. When you are older, “and-a-half” birthdays start making a comeback. In fact, starting at age 50, several birthdays and “half-birthdays” are critical to understand because they have implications regarding your retirement income. Here are a few you should be on the lookout for once you reach 50.

Age 50

At age 50, workers in certain qualified retirement plans are able to begin making annual catch-up contributions in addition to their normal contributions. Those who participate in 401(k), 403(b), and 457 plans can contribute an additional $7,500 per year in 2024. Employees and employers who participate in SIMPLE (Savings Incentive Match Plan for Employees) plans—either SIMPLE IRAs or SIMPLE 401(k) plans—can make a catch-up contribution of up to $3,500 in 2024. And those who participate in traditional or Roth IRAs can set aside an additional $1,000 a year [1].

Age 59½

At age 59½, workers are able to start making withdrawals from qualified retirement plans without incurring a 10% federal income tax penalty, although they probably shouldn’t. This applies to workers who have contributed to IRAs and employer-sponsored plans, such as 401(k) and 403(b) plans (NOTE: 457 plans are never subject to the 10% penalty). Keep in mind that distributions from traditional IRAs, 401(k) plans, and other employer-sponsored pre-tax retirement plans are taxed as ordinary income.

Age 62

At age 62 workers are first able to draw Social Security retirement benefits. However, if a person continues to work, those benefits will be reduced. The Social Security Administration will deduct $1 in benefits for each $2 an individual earns above an annual limit. In 2024, the income limit is $22,320[2].

Age 65

At age 65, individuals can qualify for Medicare. The Social Security Administration recommends applying three months before reaching age 65 (You can enroll three months prior, the month of your birthday and three months after turning 65 to avoid penalty). It’s important to note that if you are already receiving Social Security benefits, you will automatically be enrolled in Medicare Part A (hospitalization) and Part B (medical insurance) without an additional application [3].

Age 65 to 67

Between ages 66 and 67, individuals become eligible to receive 100% of their earned Social Security benefit. The age varies depending on birth year and month. Individuals born in 1955, for example, become eligible to receive 100% of their benefits when they reach age 66 years and 2 months. Those born in 1960 or later need to reach age 67 before they’ll become eligible to receive full benefits [4].

Age 70

For those who haven’t filed, from full retirement age to age 70, your Social Security benefit grows by 8% per year. Once you reach age 70, you should go ahead and file for Social Security because your benefit no longer grows and there is no penalty for continuing to work, other than your combined income calculation used by Social Security when calculating income taxes.

Age 73

In most circumstances, once you reach age 73, you must begin taking required minimum distributions from a traditional Individual Retirement Account and other defined contribution plans like 401(k)s. You may continue to contribute to a traditional IRA past age 70½ as long as you meet the earned-income requirement.

Understanding key birthdays may help you better prepare for certain retirement income and benefits. But perhaps more importantly, knowing key birthdays can help you avoid penalties that may be imposed if you miss the date.

If you have any questions about upcoming birthdays and how you can prepare for the future, please give us a call today! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

 

 

Sources:

  1. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000
  2. https://www.ssa.gov/cola/
  3. https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/parts-of-medicare
  4. https://www.ssa.gov/benefits/retirement/planner/agereduction.html

Trek 23-795

Nov 30
0

Why Long-Term Care is an Important Part of a Financial Plan

By | Financial Planning, Long Term Care

It’s National Long-term Care Awareness Month, so it’s the perfect time to discuss the importance of preparing for the potential need for care.

Financial planning can be a complex process, especially for those looking for a comprehensive plan that accounts for every aspect of their life. That comprehensive plan traditionally includes budgeting, investing, tax-mitigation, estate planning, and as you get closer to retirement, should even include Medicare and Social Security. One aspect that often goes overlooked, however, is planning for long-term care. Let’s go over why it’s important to include long-term care planning as part of your holistic financial plan.

It Can Help You Preserve Your Hard-Earned Assets [1,2,3]

The unfortunate reality is that seven in 10 of today’s 65-year-olds will need some type of long-term care, and 20% will need it for longer than five years. When long-term care can cost more than $100,000 per year for a private room in a nursing home, it’s easy to see how even a short-term stay has the potential to be costly to a financial plan. Preparing early for the possibility of needing long-term care can help you take a more structured approach to managing future care expenses, potentially reducing the need for urgent financial adjustments.

It’s Not Covered by Medicare [4]

A common misconception is that long-term care or extended stays in assisted living or nursing home facilities are covered by Medicare. It does cover some stays in skilled nursing care if, for example, a medical condition has necessitated that level of service; however, long-term stays are typically categorized as non-medical expenses. As such, even with a carefully chosen Medicare or Medicare Advantage plan, there could be limitations for long-term care needs. This highlights the value of exploring additional financial strategies to prepare for potential long-term care expenses. Note that this is general information only. It is recommended that you consult with an experienced Medicare planning professional or contact Medicare directly for detailed coverage options.

It May be Able to Extend Your Independent Lifestyle

Planning for long-term care is about so much more than just the care itself. It’s about giving yourself the opportunity to make life-altering decisions in any scenario. A clearly defined plan to pay for long-term care can help you retain your agency and decision-making power, even if you’re no longer capable of living on your own. While this is a potential benefit of long-term care planning, outcomes vary based on individual circumstances. It can also be helpful to know that you have a plan in place in the event of the worst, potentially giving you confidence and saving you from the stress that can come with having to make a decision and arrange for your care at the last possible moment.

You Can Shoulder the Burden for Loved Ones

Just as your plan is about more than the care itself, your plan is also about more than you. Creating a comprehensive plan which outlines your care preferences and financial strategies for potential long-term care needs can be a proactive step. Such planning might assist your family in navigating decisions more effectively, potentially reducing the emotional and financial strain associated with urgent or unexpected care needs. However, it’s important to recognize that each individual’s situation is unique, and the effectiveness of any plan can vary based on personal circumstances. Additionally, a plan can give your family the same assurance it gives you, as they can potentially gain confidence that you’ll be in capable hands should you need high-level care for an extended period.

You May Prepare to Access Care

Early financial planning may provide more options for managing long-term care needs, though it’s important to note that each person’s situation is unique, and the impact of planning may differ. While planning can help in exploring different care options, such as at-home care or nursing facilities, and potentially aid in financial preparation, it doesn’t guarantee specific levels of care or event facility availability. We encourage thoughtful planning to explore potential strategies for funding long-term care, recognizing that each individual’s needs and capabilities are unique. While approach aims to support informed decision-making, but it’s important to note that it does not eliminate the complexities and uncertainties associated with long-term care arrangements and costs.

There Are Modern Options to Pay for It

Modern times have brought about innovative solutions to pay for long-term care. Traditional long-term care policies still exist, offering coverage that may or may not be utilized, but now, long-term care insurance can be integrated with other types of insurance products, such as permanent life insurance policies, to combine benefits. Such integration can address concerns related to traditional long-term care policies, potentially offering more flexibility in policy utilization. The cash value portion of the hybrid policy that is protected and guaranteed by the claims-paying ability of the issuing insurance carrier can be used to pay for long-term care if you need it or as a death benefit for your beneficiaries if you don’t. As with any insurance product, these policies have their own intricacies, fees, and charges, so it’s important to work with a financial advisor to understand your options and see if one of these hybrid policies matches your goals.

If you have any questions about how you can prepare to fund long-term care, please give us a call today! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

Sources:

  1. https://www.genworth.com/aging-and-you/finances/cost-of-care.html/
  2. https://acl.gov/ltc/basic-needs/how-much-care-will-you-need
  3. https://www.theseniorlist.com/nursing-homes/costs/
  4. https://www.medicare.gov/what-medicare-covers/what-part-a-covers/how-can-i-pay-for-nursing-home-care

Trek 23-766

Oct 26
0

Your 2023 Year-End Financial To-Do List

By | Financial Planning, Tax Planning

The end of the year is upon us. Here are some tasks to check off before 2024 arrives!

As the year wraps up, it can be a great time to take financial inventory. Your circumstances are constantly changing and evolving, and the proper financial plan is not meant to be a set-it-and-forget-it thing. With the end of the year presenting the perfect chance to revisit your goals, here are a few areas you may want to check in on before we flip the calendar to 2024.

  1. Review Your Financial Plan

As the year comes to a close, it can be a great idea to reassess your financial circumstances and make necessary adjustments to your financial plan. Maybe your goals have changed. Maybe you’re on a fast-track toward goals you expected to take longer to reach, so you can move some dates up. And remember, it’s always important to make sure that your beneficiaries are up-to-date annually on all of your accounts, investments and insurance policies.

  1. Adjust Your Monthly Budget

Now that we’re in the final quarter of the year, you may be in a good position to revisit your budget and adjust as needed. Maybe you received a nice annual bonus or raise, or maybe you’ve recently had a baby and haven’t had a chance to fine-tune your budget through the sleepless nights. No matter your circumstances or the new milestones and stages of life you reached this year, it can be a good idea to look at how your income keeps up with your expenditures and tweak accordingly.

  1. Review Your Investments

It’s important to know that diversifying with different asset classes can help protect your overall portfolio, especially important during times of increased market volatility. Be sure that your investment portfolio positions you with a level of risk you’re able to tolerate, especially as you get closer to retirement.

  1. Recalibrate Your Retirement Account Contributions [1,2,3,4]

As you traverse your career and attempt to carve out a lifestyle that will be sustainable once you get the chance to quit working and chase your retirement dreams, it’s important to know how much you’re allowed to contribute to your various accounts. In 2023, the contribution limit is $6,500 for traditional and Roth IRA accounts, and it is $22,500 for 401(k)s. In 2024, those limits are expected to increase to $7,000 and $23,000, respectively. If you’re 50 or older, you can also make catch-up contributions of up to $1,000 to your IRA and $7,500 to your 401(k). Those limits are expected to remain the same for 2024.

  1. Take Your RMDs [5,6]

Below we’ve created a chart to show the age at which you must begin taking required minimum distributions from your tax-advantage accounts that mandate them. Failure to adequately withdraw funds will result in a 50% excise tax, and the deadline to withdraw the minimum amount from tax-deferred accounts is Dec. 31. If you’ve reached the age at which you must take the distributions, withdrawing the proper minimum amounts from the correct accounts can help you avoid that hefty penalty. We’re also available to help you calculate your RMDs to ensure that you withdraw the right amount!

 

Date of Birth RMD Age
June 30, 1949, or Before 70 ½
July 1, 1959, to Dec. 31, 1950 72
Jan. 1, 1951, to Dec. 31, 1959 73
Jan. 1, 1960, or After 75

 

  1. Spend Money Left in Your FSA [7]

Unlike health savings accounts (HSAs), flexible savings accounts (FSAs) do not typically allow you to roll your excess funds into the next year. You may have a grace period provided by your employer, but even the grace period often comes with a limit as to how much can roll over. Some ideas to avoid losing funds left in your FSA include booking general wellness appointments like visits to the eye doctor, annual physicals and dental cleanings.

  1. Talk to Your Financial Professional or Advisor

The job of a financial professional, planner or advisor is to assist you with your unique circumstances and goals. We aim to provide guidance that aligns with your vision, and together we’ll navigate the path to a financial future you are comfortable with. Whether you’re looking to check off all of these boxes as the year ends or start 2024 with fresh goals, we can help!

 

If you would like to discuss your situation with a financial professional or advisor, give us a call! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

 

Sources:

  1. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
  2. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
  3. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
  4. https://www.thinkadvisor.com/2023/09/27/smaller-401k-ira-contribution-limit-increases-expected-in-2024/
  5. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
  6. https://www.orba.com/what-is-your-required-minimum-distribution-age/
  7. https://www.goodrx.com/insurance/fsa-hsa/hsa-fsa-roll-over

Investment Advisory Services offered through Trek Financial LLC., an (SEC) Registered Investment Advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 23-732

 

Sep 25
0

6 Key Features of Indexed Universal Life Insurance

By | Health Care, Life Insurance

Indexed universal life insurance is a type of permanent life insurance that offers different benefits to policyholders. Here is what you need to know!

Traditionally, life insurance has been one of those assets someone might hold but hope they never have to use. Often crafted to protect from the worst-case scenario, it’s most known for the death benefit it can offer heirs in the event of untimely death, providing a payout that has the potential to ease both financial and emotional tension. Modern life insurance options, however, can come with different features depending on the type of policy you purchase. Because September is Life Insurance Awareness Month, we thought it would be the perfect time to go over one of those options: indexed universal life (IUL) insurance.

NOTE: When reading this information, it’s important to remember that life insurance may require medical underwriting and sometimes policies can be denied. In general, the younger and healthier you are, the lower the cost of insurance.

  1. The Classic Death Benefit

The classic benefit of every different type of life insurance policy, including IUL, is the death benefit, which is typically paid out to the policy’s named beneficiaries tax- and probate-free in the event of the policyholder’s death. This can give your heirs a nice sum of money to cover things like burial and funeral costs, outstanding debt, and living expenses. It can be difficult to lose a provider, and a life insurance death benefit can ease some of that burden.

  1. Permanent Coverage

IUL policies offer permanence, which can make them a viable option for all ages. Unlike term life insurance, where the death benefit expires when the policy expires—typically in 20 or 30 years—an indexed universal life policy is a permanent policy that offers your beneficiaries a death benefit as long as premiums are paid and the policy is in force. While term policies can offer relatively affordable premiums for young, healthy policyholders, an IUL can lock in and guarantee coverage even if the policyholder develops a condition that would make them uninsurable later.

Increasingly popular [1], indexed life policies are sometimes purchased by healthy seniors as a way to transfer tax-advantaged wealth as part of their estate plan, or seniors may elect to purchase a policy which has long-term care benefits either built in or added as an optional rider to an IUL policy.

  1. Flexible Premiums

One of the key differentiators between whole life and universal life is flexible premiums. IUL policies allow policyholders to determine the monthly premiums they pay based on their desired death benefit and/or cash value in the policy. For instance, if your need for a high death benefit is not as great as it once was, you can pay lower premiums while still keeping your policy in force. Furthermore, the cash value portion of the policy can also be accessed to pay premiums, whether that’s by choice or by the policyholder’s inability to pay monthly premiums. On the other hand, policyholders with the funds to increase premiums to increase coverage can do so, potentially meaning a greater death benefit and a greater cash value.

  1. Accessible Cash Value Portion

Permanent life insurance policies like whole life and universal life offer a cash value portion that is funded by the policy’s premiums. Because the policy’s premiums are paid with post-tax dollars, that cash value is accessible to the policyholder for any reason as a tax-free loan, potentially making IUL a useful source of income for retirement, postsecondary education, a downpayment for a home, or any other major expense. Granted, borrowing from the cash value of a policy does accrue interest per policy terms; however, the cash value in an indexed universal policy also continues to be credited interest as if the borrowed amount is still there, again based on the contract terms. That gives the cash value a chance to keep pace with, or even outpace, the amount the policyholder owes in interest. Furthermore, if the policyholder uses the cash value as a tax-free source of retirement income and never pays it back, the borrowed amount plus interest is simply taken from the death benefit. It’s important to read and follow the contract terms carefully to make sure that the policy stays in force whenever the cash value is borrowed.

  1. Guarantees Provided by Carrier

In addition to being accessible as a source of tax-free income, the cash value in an indexed universal policy also comes with guaranteed principal protection and growth that correlates with a preselected market index. Those guarantees are made by the claims-paying ability of the issuing insurance company, and they can allow you to participate in at least a portion of the market’s upside without subjecting you to its bottomless floor. This can make indexed universal life a helpful tool for those without the stomach or tolerance for market risk. Depending on investment, saving and lifestyle goals, it can also help to diversify a portfolio with a non-correlated asset class that still offers potential market upside.

  1. Long-Term Care Hybrid Policies

Nearly 70% of today’s 65-year-olds will need some type of long-term care (LTC), and 20% will need it for longer than five years [2]. It’s also important to know that extended stays in long-term care facilities are not covered by Medicare, as they are considered lifestyle expenses as opposed to medical expenses. That means that today’s retirees may want to consider the possibility of needing LTC, as well as a way to cover the potentially exorbitant costs. Modern hybrid policies can give policyholders the option to combine their life coverage with long-term care coverage, eliminating the “use-it-or-lose-it” aspect of long-term care policies of old. If you need the benefit to pay for long-term care, it can be used to pay for those expenses, but if you don’t, it can be converted to a death benefit for your beneficiaries.

If you’d like to find out if an indexed universal life insurance policy might align with your unique financial circumstances and goals, we can help! Give us a call today to explore your options and build a plan for your future. You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395. 

 

Sources:

  1. https://insurancenewsnet.com/innarticle/indexed-life-sales-up-28-drives-strong-q2-for-life-insurance-wink-says
  2. https://acl.gov/ltc/basic-needs/how-much-care-will-you-need

 

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment or any change to your retirement plan. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

 

Trek #23-712