Pc ilipp+pension boost_401k_wrapx

Published by Capital Strategies Press / Sponsored by PolicyChallenge.com Copyright 2015 –By Paul Bullock CLU, ChFC, GBA, RPA, FLMI, CEBS- All Rights Reserved

401k Wrap - is an ILIPP or FLIPP designed to complement and augment the benefits of an Employer Sponsored Retirement Plan

401kILIPP or FLIPP Wrap

A 401k Wrap is often called a 'Pension Boost'

Copyright 2015 – All Rights Reserved

401k's and other qualified plans are great accumulation outlets! Contributions are tax deductible and earnings compound tax free.

However, qualified plans face a triple threat that can slash retirement benefits by 50% or more.

Triple Threat to Qualified Plan Pay-Outs

1) Hidden life insurance in your qualified plan can cut retirement income by more than 15%

2) Qualified benefits loose 20% to 30% to income taxes

3) Inflation erodes the spending power of level benefits by 30% to 50%, slashing your effective retirement income

A 401k Wrap is designed to counter the triple threat!


Threat #1 – Spousal ReductionUnder Federal law distributions from a 'qualified plan' must include a spousal lifetime income option, unless specifically rejected by the spouse. (This includes 401k plans that offer retirement income benefits. Even if your 401k plan only provides for a lump-sum payment at retirement, any lifetime income annuity you purchase will present you with the same survivor's dilemma!)

Election of the spousal protection typically reduces your retirement income by 10% - 20%


Threat #1 - The Survivor DilemmaTony Hardworker retires with a life expectancy of 17.1 years. He has accumulated a respectable sum in his 401k plan and is offered a number of distribution options, including: a lifetime income for himself of $1,159 monthly or $991 a month, with $661 (2/3rds) payable to his wife, if he predeceases her. If Tony takes the spousal benefit, he has just purchased a life insurance policy for approximately $34,474.

Tony only – monthly life income: $ 1,159Optional Joint Benefit: $ 991 Monthly difference forfeited: $ 168

$168 x 12 months/year x 17.1 years = $ 34,474

Total Cost: $ 34,474


Distributions from qualified plans (401k, profit sharing & pension plans) are taxed as ordinary income when received.

Assuming a 25% tax bracket during retirement, a monthly benefit of $991 would be reduced to $743 of net income received.

Total loss to income taxes over 17.1 years $50,890

Threat #2 – Income Taxes


Threat #3 – Spending Power

Retirement After-Tax Spending % Year Income Power Loss 0 $743 $743 – 5 $743 $660 11.2%

10 $743 $570 23.3%

20 $743 $424 42.9%

Even low inflation will erode your spending power-the longer the payout the larger the loss!

Retirement Dollars Lost to 3% Inflation


Impact of Triple Threat Total Projected Retirement Income $237,595 Less Spousal Reduction -$34,474 Less Income Taxes -$50,890

Less Inflation Erosion -$27,764 Total Loss from Triple Threat -$113,128

Spendable Retirement Income $124,467*** (Average Monthly Spendable $607)

Loss to Triple Threat 47.6%

*** Based on life expectancy 17.1 years at retirement


A 401k Wrap Provides a Safety Net, that Neutralizes the Triple Threat and Puts that

42% Back Into Your Pocket


A 401k Wrap uses a life insurance policy with special features to supplement your qualified plan benefits and deliver a 1-2-3 punch solution to the triple threat! 1) Eliminates Spousal Reduction because the life insurance death benefits

protect the spouse from early death (both before and after retirement) thereby freeing the insured to accept the highest plan benefits.

2) Offsets Income Taxes by providing a cash reserve that can be drawn upon to replace the taxes paid on qualified plan distributions

3) Supplements Spending Power with a cash reserve that can be used to replace the spending power losses due to inflation

**Under current law life insurance loans and death benefits enjoy special tax consideration – ask your tax adviser about the tax impact of distributions from life insurance policies and qualified plans.

Life insurance death benefits can also add substantially to the total funds transferred to your children++


ILIPP – stands for Indexed Life Insurance Private Pension

FLIPP – stands for Fixed Life Insurance Private Pension

Both concepts use the unique features of a life insurance policy to augment the benefits of your qualified plan and boost your available retirement income.

The primary difference between a FLIPP and an ILIPP is the selection of the accumulation method. Please ask your agent for help selecting the most appropriate policy type.


For additional information on this concept and other solutions to thetriple threat please visit

PolicyChallenge.com

**Life insurance policies are purchased through licensed insurance agents. The purchaser must receive a NAIC compliant illustration on any and all policies considered.

Not all agents are familiar with this concept. For best results choose your insurance agent wisely.

http://policychallenge.com/

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Pc ilipp+pension boost_401k_wrapx