The median accumulation of retirement savings is recorded as $65,000. Many valuable retirement income strategies rely on careful planning and making the right choice.
Fixed Index Annuities (FIA) and Indexed Universal Life (IUL) insurance policies are both useful financial tools. These policies can help build retirement wealth. But is there a superior option?
This short guide will give you the ins and outs of which policy can better provide for your situation, allowing a healthy retirement.
Financial Tips
Various effective financial strategies can help you get through life. Despite their differences, both IUL and Fixed Index Annuities both stem from life insurance issuers.
One of the biggest reasons many people partake in IUL is the death benefit. The death benefit will be the multiple of the dollars you place into the benefit. Once you reach a certain age, an age of maturity, these policies will follow a set design.
This policy will not allow the cash value and the death benefit to be equal until far later. Under IUL insurance, there will be a multiplier effect on the dollars as they enter that policy.
On an annuity, you may or may not have access to a death benefit rider. In certain terms, under an annuity, the death benefit may equal the value of the contract.
Fixed Index Annuities
The benefits of FIAs or fixed index annuities are plentiful. One benefit of an FIA is its ability to equate or beat the rapid growth of inflation.
Another addition to these benefits is its protection against the bad movements of the market. It can accumulate wealth you can use for retirement. This is regardless of the duration or period of time you use it.
In certain cases, owning a fixed index annuity can allow you to withdrawal without encountering penalties. You may need to withdraw funds to battle an unexpected illness or reside in a home care facility.
Certain fixed index annuities can allow you to withdraw these funds anytime without incurring these penalties. Conversely, most if not all FIAs will apply a tax to the income earned. That is one of the risks in building a Fixed Indexed Annuity policy.
One way to avoid this issue is to open a Roth IRA account. The government may tax contributions but won’t penalize withdrawals.
Indexed Universal Life
An IUL refers to the Indexed Universal Life insurance policy. This is a permanent state of life insurance that includes a death benefit. Death benefits can protect along with a cash value accumulation.
Most withdrawals under these policies can result in taxation, but certain policies can offer tax-free loans. The cash value can accrue as well but can be subjected to taxation. Another tax-free approach is to take tax-free loans from these policies as well.
Cash Value Accumulation
It’s important to consider the plan in terms of cash value accumulation. This can greatly affect the cost of input in your contract.
If an individual has cash value in a life insurance policy, there will be monthly additions. These contributions will continually occur every month or every year. This policy ensures that your premium supports your death benefit and the cash value.
The idea of owning an IUL policy is to allow it to grow. Each person buying into these policies banks on their dependability. Each person wants an accessible policy that supports them when possible.
When it comes to an annuity’s cash value, it really connects to the contract value. There is a chance a person is contributing via an IRA or a Roth IRA contribution. Despite an individual’s monthly or yearly contribution, the contract value equates to the dollars you contribute.
In terms of accumulation, the annuity will have more acceleration in its accumulation of wealth. This occurs because no premiums are used during the process to support the death benefit.
But, in terms of growth in cash value in your IUL, there are differences. This is going to base itself on whatever index you buy into. It’s going to be based on the index, and it will be credited as such.
Market Performance
In IUL, if the index performs well, you may have a cap rate of around 6% to 7%. In correlation to the market performance, which might hold an 8% to 10% result. This will allow that policy to grow on that cash value.
In an IUL policy, if the market does poorly, and loses 10 to 15%, this will most likely grant a floor of 0%. This means your cash value is not going to grow. This will also mean there is interest credited to the account.
With that said, you will not lose any dollars out of the cash value. This is not exactly the case for an annuity.
On the annuity side, the growth in cash value can mean several different things. This is due to the many different types of annuities. For instance, you may have a variable annuity. In this case, your growth is tied to the fluctuations of the stock market.
In this trade, you can participate in the uptick of the various movements of the stock market. In this same breath, you will very much so participate in its downside as well.
But, in a fixed indexed annuity, this policy might function a lot closer to an IUL. So if you’re someone in the accumulation phase, you may want to avoid being tied to the stock market.
The IUL can help accumulation without being dependent on stock market fluctuations. You might be able to rely on the death benefit. You might also want to include yourself in all living benefits as well.
But, if you’re older in age, you might be planning for your retirement. In this case, a fixed index annuity is beneficial to your cash value accumulation.
Choosing IUL or FIA
Both Indexed Universal Life insurance policies and Fixed Index Annuities are useful financial strategies. One size does not fit all approaches.
Your age and circumstances may call for one over the other. Be sure to speak with a financial advisor to better help your retirement planning.
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