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March 24, 2004 at 07:00 PM
Manage Lifecycle Plans Efficiently
By Using A Joint VA/VUL Strategy
BY
Planners are becoming increasingly aware of the growing need to focus on clients needs beyond accumulation.
Planning for the income withdrawal and the wealth transfer phases takes on critical importance as clients age. The entire planning cycle, or lifecycle planning, can be managed efficiently by using a combination of products that each serves its own purpose well.
Variable annuities can be an efficient way to provide lifetime income; variable universal life policies are an efficient way to pass money to heirs. By combining these two into one overall strategy, clients can move from one financial lifecycle phase to another in smooth succession.
How does it work? Heres an example: Clients Alice and Bob are both 35 years old. Both already are contributing the maximum amount to their employer-sponsored 401(k) plans and have fully funded personal IRAs. They decide to purchase a variable universal life policy on Bob for the death benefit protection and for the tax-deferred growth potential of the policys cash values.
When Alice and Bob reach age 45, they evaluate their current assets with their financial planner and decide to purchase a jointly owned variable annuity. The VA will be used to help supplement their retirement income with a lifetime income stream. They would like to retire early.
At age 60, Alice and Bob do retire, and begin drawing income from selected accounts. By retiring after age 59 , they avoid any 10% penalty tax issues.
Social Security will not be available until age 62. Working with their planner, their total cash flow can be coordinated to match their expenses.
Their VA now has grown and they do not need all of the income this annuity could currently provide. If they annuitize the contract, it allows them to supplement their retirement cash flow while directing a portion of it to fund their life insurance coverage.
