retirement Archives - CPS Special Risk Services

Sequence of Returns Risk: How to Explain It to Clients (With a Simple Example)

October 14, 2026 by Tim Fuller

Retired couple hiking hand in hand down a mountain trail at sunset

Sequence of returns risk is the risk that bad market years come early in retirement, while a client is taking withdrawals. Two retirees can earn the exact same average return and end up with very different results, simply because the losses came in a different order. It matters most in the first years of retirement, which is why it belongs in every retirement income conversation.

Key takeaways

Sequence of returns risk is about the order of returns, not the average.
It matters most once withdrawals start, especially in the first years of retirement.
Losses take bigger gains to recover: a 20% loss needs a 25% gain to break even.
Protecting a portion of retirement money from market loss can soften the damage of early bad years.

What is sequence of returns risk?

While a client is saving, the order of returns doesn’t change much. A bad year early on just means buying at lower prices, and there is time to recover. Once withdrawals start, the order matters a lot. Money taken out after a loss is gone for good, and it can’t be there when the market recovers.

We describe it as climbing the mountain versus getting down it. The accumulation years are the climb: save, invest and recover from bad years. Retirement is the way down. Most of the attention in the financial industry goes to the climb, and far fewer people talk with clients about getting down safely.

A simple way to picture it

Picture two retirees who start with the same savings, take the same withdrawals each year and earn the same set of yearly returns over retirement. The only difference is the order: one gets the strong years first and the losses later, and the other gets the losses first and the strong years later.

Their average return is identical, but their results are not. The retiree who takes losses early is selling investments at lower prices to fund withdrawals, so less money is left to benefit when the market recovers. In many scenarios like this, that retiree runs out of money years sooner. This is a concept illustration, not a projection of any product or portfolio.

No one has a crystal ball. A client controls when they retire, but not the returns they get in their first few years of retirement.

Why losses hurt more than gains help

After a loss, a smaller balance has to grow by a bigger percentage just to get back to where it started. The math is simple: the gain needed equals the loss divided by (1 minus the loss).

Loss	Gain needed to break even
10%	11.1%
20%	25%
30%	42.9%
50%	100%

Those break-even numbers are before any withdrawals. When a retiree is also taking income out, the climb back is steeper still.

How to explain it to a client

Keep it short and ask a question instead of making a statement:

“No one controls what the market does in their first few years of retirement. Can I show you why the order of returns matters as much as the average?”

Then walk through the two-retiree example, and ask how much of their retirement money would have to be sold after a loss in those first years. You’ll find more openers like this in How to bring up annuities with clients.

Ways to manage sequence of returns risk

There is more than one tool. Common approaches include keeping a cash reserve for the first years of withdrawals, being flexible about how much is withdrawn after a bad year, and protecting part of the portfolio from market loss. An annuity is one way to do the last one:

Fixed and multi-year guaranteed annuities (MYGAs) credit a rate declared or guaranteed by the insurer, so their value isn’t tied to market performance. Surrender charges and market value adjustments can still apply to withdrawals during the surrender period.
Fixed indexed annuities credit interest based on an index, up to a cap or participation rate, and credited interest is typically 0% in a down index year. Credited interest usually locks in each contract year, but rider fees, surrender charges or an adjustment can still reduce the value.
Income riders and income annuities can provide income the client can’t outlive, so less has to come from the market in a bad year.

There is no standard allocation. Any recommendation has to be based on the client’s income needs, liquidity, time horizon and other assets, and documented under best-interest standards. Guarantees depend on the issuing company’s financial strength and claims-paying ability, and withdrawals above the free amount during the surrender period can carry surrender charges.

Get the Annuity 101 cheat sheet

Our free Annuity 101 cheat sheet for agents includes this example, 11 conversation openers and an intake checklist. You can also watch Agent Annuity 101 on YouTube. When a client is ready, send us the basics through the annuity quote request and we’ll design the case with you. See all the annuities we place on our annuities page.

Frequently asked questions

What is sequence of returns risk?

It is the risk that market losses come early in retirement, while withdrawals are being taken. Two retirees with the same average return can have very different results depending on the order of the returns.

When does sequence of returns risk matter most?

In the years just before and just after retirement, when the balance is usually at its largest and withdrawals are starting.

Does a good average return protect against it?

No. Two retirees with the same average return can get very different results if one of them takes losses early, while withdrawals are being made.

How can an annuity help with sequence of returns risk?

Fixed, multi-year guaranteed and fixed indexed annuities aren’t invested directly in the market, so money placed in one isn’t sold at a loss after a market drop. Surrender charges, adjustments and rider fees still apply, and guarantees depend on the insurer. An income rider or income annuity can also cover part of a client’s income.

General information, not tax or legal advice. Annuities are not bank deposits and are not FDIC-insured. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Product features, caps and rates vary by carrier, contract and state.

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Reviewed by Tim Fuller on 2026-10-14

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

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Worried About a Market Drop Before Retirement? How the IUL Floor Works

October 13, 2026 by Tim Fuller

Couple in their late 50s hiking at a mountain overlook, under the title Worried About a Market Drop? How the IUL Floor Works Before Retirement

Indexed universal life (IUL) credits interest based on a market index, with a floor, usually 0%, so the interest credited in a bad year is never negative. In return, the upside is limited by a cap or participation rate. The floor protects credited interest, not the whole account: policy charges still come out every year.

Key takeaways

A market loss in the years just before or after retirement can do outsized damage because withdrawals lock it in.
IUL credits zero, not a loss, in a negative index year; gains are credited up to a cap or participation rate.
Policy charges still apply, so cash value can go down in a zero-credit year.
Caps and participation rates are not guaranteed and can change, within contract minimums.

Why a loss near retirement hurts more

Planners call it sequence-of-returns risk. If the market falls early in retirement while you are withdrawing money, you sell more shares to get the same income, and those shares are not there when the market recovers. The same average return can leave two retirees with very different outcomes depending on when the bad years land.

How IUL crediting works

Cash value is not invested in the market. The carrier credits interest based on how an index performs over a set period, usually one year, using three levers:

Floor: the lowest rate that can be credited, usually 0%.
Cap: the highest rate that can be credited for the period.
Participation rate: the share of the index gain that counts toward the credit.

A hypothetical example, for illustration only: with a 0% floor, a 10% cap and 100% participation, an index year of minus 15% credits 0%, an index year of plus 6% credits 6%, and an index year of plus 20% credits 10%. Credited interest is locked in each period, so a later down year does not take it back.

The floor does not make IUL an investment without risk. It means a bad market year costs you growth, not credited losses.

What the floor does not protect

Policy charges. Cost of insurance and other charges are deducted regardless of the index, so a zero-credit year can reduce cash value.
Changing caps. Carriers can lower caps and participation rates, subject to guaranteed minimums in the contract.
Illustrations. Projections assume a rate that may not happen. Ask to see a conservative scenario.

Where IUL fits in a retirement plan

IUL is best used as one bucket alongside retirement accounts, not instead of them. Some retirees draw from cash value in years when the market is down, which gives their investment accounts time to recover. Others use it for tax-free income to manage their tax bracket.

It works best when it is funded for years before retirement. Someone who needs the money within 10 to 15 years, or who cannot fund a policy consistently, is usually better served by other tools.

Frequently asked questions

Can my IUL lose value?

Yes. The floor applies to credited interest, not to the account. Policy charges are deducted every year, so cash value can decline in a year with little or no credited interest.

Are caps guaranteed?

No. Current caps and participation rates can change. The contract states the guaranteed minimums.

Is my money invested in the stock market?

No. The index is only used to calculate the interest credited. Your cash value is not invested in the index.

Is IUL better than an annuity for downside protection?

They solve different problems. A fixed indexed annuity is built for retirement income and has no death benefit or cost of insurance; IUL adds life insurance and tax-free access through loans.

Financial professionals: download our free one-pager, Why Clients Buy Accumulation IUL, or request an illustration. Individuals: see who buys cash value life insurance, and who it’s not for, or ask Tim a question below.

General information, not tax, legal or investment advice. Tax treatment depends on proper policy design, keeping the policy in force and current law. Policy features, riders and availability vary by carrier and state. Illustrations are not guarantees.

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Reviewed by Tim Fuller on 2026-09-30

Tim Fuller

President, SRS Inc.

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Maxed Out Your 401(k)? How High Earners Use Indexed Universal Life

October 6, 2026 by Tim Fuller

Professional woman reviewing documents at a desk with a city view, under the title Maxed Out Your 401(k)? How High Earners Use Indexed Universal Life

Once a high earner has maxed out their 401(k) and earns too much to contribute directly to a Roth IRA, a well-funded indexed universal life (IUL) policy is one more place to save with tax advantages. There are no IRS income limits on who can buy one, growth is tax-deferred, and money can be reached tax-free through policy loans when the policy is designed and kept in force correctly.

Key takeaways

In 2026 the 401(k) employee limit is $24,500, and direct Roth IRA contributions phase out between $153,000 and $168,000 (single) or $242,000 and $252,000 (married filing jointly).
IUL premiums are limited by life insurance tax rules (the MEC limits), not by your income.
Money comes out through withdrawals up to what you paid in, then policy loans.
It is life insurance first: there are policy costs, and it works best over 15 years or more.

The gap high earners run into

For 2026 the IRS lets employees defer $24,500 into a 401(k), 403(b) or most 457 plans, plus catch-up contributions if they are 50 or older. Direct Roth IRA contributions phase out between $153,000 and $168,000 of modified adjusted gross income for single filers and between $242,000 and $252,000 for married couples filing jointly.

Above those levels, the remaining options are a backdoor Roth IRA, a taxable brokerage account, a deferred compensation plan if the employer offers one, or cash value life insurance. Each has a place. IUL appeals to people who also need life insurance and want tax-free income later.

How IUL fills the gap

An IUL policy builds cash value that is credited interest based on a market index, with a floor that keeps credited interest from going below zero and a cap or participation rate on the upside. The cash value grows tax-deferred.

How much you can put in is set by the tax code’s life insurance rules (sections 7702 and 7702A), which tie premiums to the death benefit. There is no income test. A policy funded too quickly becomes a modified endowment contract (MEC), which makes loans and withdrawals taxable first, so accumulation designs are built to stay just under that line.

For many high earners the question is not whether to save more. It is where the next saved dollar will be taxed least.

How the money comes out

Withdrawals up to your basis (the premiums you paid) are generally not taxable.
Policy loans after that are generally not taxable while the policy stays in force and is not a MEC.
The death benefit passes to beneficiaries generally free of income tax.

The catch is that loans accrue interest and reduce the death benefit. If a policy lapses with a large loan outstanding, the gain can become taxable all at once. Income plans need to leave enough value in the policy to keep it in force for life.

What it costs, and who it is not for

IUL has cost of insurance, policy charges and surrender charges in the early years. A taxable brokerage account has no insurance costs, so IUL only makes sense when the tax benefits and the death benefit are worth those charges to you. It is usually not a fit for money you may need within 10 to 15 years, for anyone who cannot fund it consistently, or for someone looking only for investment returns.

Designing it well

Accumulation IUL is usually designed with the smallest death benefit the tax rules allow for the planned premiums, an increasing death benefit option while you are funding it, and a switch to a level death benefit before income begins. Ask to see illustrations at more than one crediting rate, including a conservative one.

Frequently asked questions

Is IUL a replacement for a Roth IRA?

No. It is a complement. Many high earners do a backdoor Roth IRA first, then use IUL for additional savings, especially if they also need life insurance.

What is a MEC?

A modified endowment contract is a life insurance policy funded faster than the tax code allows. It loses tax-free access: loans and withdrawals are taxed as income first and may carry a 10% penalty before age 59½.

Are there income limits to buy IUL?

No. Premium limits come from the life insurance tax rules and the death benefit, not your income. Carriers do underwrite coverage amounts based on income and net worth.

How long should I plan to fund it?

Most accumulation designs assume funding for at least 7 to 10 years and holding the policy 15 years or more before taking income.

Sources: IRS: 2026 401(k) and IRA limits

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Reviewed by Tim Fuller on 2026-09-30

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Do Policy Loans Count Toward IRMAA or Social Security Taxes?

October 5, 2026 by Tim Fuller

Retired couple reviewing paperwork and a laptop at a dining table, under the title Do Policy Loans Count Toward IRMAA?

Generally, no. Loans from a life insurance policy that is not a modified endowment contract and stays in force are not taxable income. That means they do not count in the modified adjusted gross income Medicare uses for IRMAA surcharges, or in the combined income that decides how much of your Social Security is taxed.

Key takeaways

For 2026, IRMAA surcharges on Medicare Part B and Part D begin above $109,000 of MAGI for individuals and $218,000 for joint filers.
Up to 85% of Social Security benefits can be taxed once combined income passes $34,000 (single) or $44,000 (joint).
Policy loans do not show up in either calculation; 401(k) and IRA withdrawals do.
The policy must stay in force: a lapse with a loan outstanding can create taxable income.

How IRMAA works

Medicare’s income-related monthly adjustment amount (IRMAA) adds a surcharge to Part B and Part D premiums for people with higher income. For 2026 the standard Part B premium is $202.90 a month, and surcharges start when modified adjusted gross income is above $109,000 for individuals or $218,000 for married couples filing jointly. Medicare uses your tax return from two years earlier, so 2024 income sets 2026 premiums.

Because the brackets are cliffs, one extra dollar of income can raise premiums for the whole year. A large IRA withdrawal, a Roth conversion or a capital gain can push someone over.

How Social Security is taxed

The IRS looks at your combined income: adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits. For single filers, up to 50% of benefits can be taxed above $25,000 and up to 85% above $34,000. For joint filers, the levels are $32,000 and $44,000. These thresholds are not indexed for inflation, so more retirees cross them every year.

Every dollar of retirement income is taxed somewhere. The planning question is which bucket it comes from, and in which year.

Where policy loans fit

A policy loan is a loan against your cash value, not income, so it is not reported on your tax return. Used alongside retirement account withdrawals, it lets a retiree take the income they need while keeping reported income under an IRMAA bracket or a Social Security threshold.

Withdrawals up to your basis (premiums paid) are also generally not taxable.
Roth IRA qualified distributions are tax-free too; cash value is another source alongside them.
Traditional IRA and 401(k) withdrawals, pensions and most annuity income are taxable and count toward both calculations.

The catches

Policy loans accrue interest, and they reduce the death benefit. If a policy lapses or is surrendered with a loan outstanding, the gain above your basis becomes taxable in that year, which could cause the very IRMAA and tax problem you were avoiding. Income from a policy needs to be planned so the policy stays in force for life.

This also only works if the policy was funded years earlier. It is a strategy to set up in your 40s and 50s, not the year you retire.

Frequently asked questions

Are life insurance withdrawals taxable?

Withdrawals up to your basis, the premiums you paid, are generally not taxable. Amounts above basis are taxable unless taken as a policy loan.

Do I pay interest on a policy loan?

Yes. Policy loans accrue interest. Some policies offer fixed-rate loans and others variable or indexed loans, each with different risks.

Does this work with a MEC?

No. Loans and withdrawals from a modified endowment contract are taxed as income first, so they can count toward IRMAA and Social Security taxation.

Which year’s income sets IRMAA?

Medicare generally uses your tax return from two years earlier. For 2026 premiums, that is your 2024 return.

Sources: CMS: 2026 Medicare Parts A & B premiums · SSA: income taxes on benefits

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Reviewed by Tim Fuller on 2026-09-30

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Indexed UL Policy Loans: Positioning Clients for Retirement Distributions

September 25, 2026April 4, 2022 by Tim Fuller

Active retired couple walking their dog on a coastal trail, representing retirement planning

Most IUL conversations focus on crediting strategies and accumulation. But the distribution phase is where a policy delivers on its promise — or disappoints. Understanding how each loan option works is essential before you illustrate retirement income for a client.

Key takeaways

Most IUL policies offer a fixed loan option and a variable (indexed or “preferred”) loan option, and they behave very differently over time.
Indexed loans can illustrate attractively through positive arbitrage, but negative arbitrage can erode the income a client was counting on.
Check each product guide for the fixed loan rate, whether it’s participating, and what the variable loan rate is tied to or capped at.

If loan interest charged exceeds the interest credited to cash value, the amount available for distribution can fall well below the income your client expected.

Why distributions deserve as much attention as accumulation

With many carriers offering their own version of Indexed UL, keeping track of every product’s moving parts is close to a full-time job. Advisors often spend hours helping clients understand crediting and accumulation, then give the distribution phase much less attention.

Yet if the goal is supplemental retirement income, how the client takes money out matters just as much as how the policy grows. The loan provisions you choose — and how you explain them — shape the client’s experience for decades.

Fixed loans and wash loans

A fixed loan charges a stated interest rate, set in the contract, on the outstanding loan balance. There is no question about the cost of borrowing, which makes it the more predictable choice.

After a number of years (often around year 15), many IUL products provide a wash loan or zero-cost loan, where the rate charged on the loan equals the rate credited to the borrowed cash value. Confirm the timing and terms with each carrier, since they vary.

Indexed (variable) loans and the arbitrage question

The option most commonly illustrated is the indexed loan, sometimes called a preferred or participating loan. Borrowed cash value stays in the index strategy while loan interest accrues at a variable rate.

When the illustrated crediting rate exceeds the loan rate, the illustration shows positive arbitrage — a gain on the loan rather than a cost — which can make projected income look larger. That is why many producers prefer to show it.

The flip side is negative arbitrage. In years when crediting falls short of the loan rate, interest compounds against the policy, the available income can shrink, and in severe cases the policy can come under lapse pressure.

Matching the loan option to the client

Either loan type can be appropriate. The right choice depends on:

The client’s tolerance for variability in retirement income
Whether they plan to pay loan interest as it accrues or let it capitalize
How much cushion the design leaves between projected and required cash value

Before illustrating, pull the product guide and answer three questions: What is the fixed loan rate, and is it participating? What index or benchmark is the variable loan rate tied to? Is the variable loan rate capped? Share those answers with your client so the illustration is understood, not just admired. For a broader look at how RMD dollars and other assets can fund life coverage, see our piece on using RMDs in life insurance sales.

Frequently asked questions

What is the difference between a fixed and an indexed loan in IUL?

A fixed loan charges a contractually stated interest rate, so the cost is known. An indexed (variable) loan leaves the borrowed value in the index strategy and charges a variable rate, so results depend on the spread between crediting and loan interest.

What is negative arbitrage on an IUL loan?

It happens when the interest charged on an indexed loan is higher than the interest credited to the cash value. The shortfall compounds and can reduce available income or pressure the policy toward lapse.

When does an IUL wash loan become available?

Many products offer a wash or zero-cost loan after a set number of policy years, often around year 15, but timing and terms vary by carrier and product. Always confirm in the product guide.

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Reviewed by Tim Fuller on 2026-09-25

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President, SRS Inc.

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Using Indexed UL Alongside a 401(k) to Help Clients Retire on Time

September 25, 2026March 14, 2022 by Tim Fuller

Many clients plan to retire at 65, counting on a 401(k) to carry them. But a market decline in the years just before retirement can push that date back. Indexed universal life, used alongside a 401(k), can add a layer of downside protection and tax-advantaged flexibility.

Key takeaways

A 401(k) is exposed to market volatility, and distributions are taxed as ordinary income.
A common strategy: contribute enough to capture the full employer match, then direct additional savings to a properly funded IUL policy.
IUL offers an index-crediting floor, tax-advantaged access to cash value through loans and withdrawals, and a death benefit — but caps, participation rates and charges vary and change.

If a client’s investments are down in the years just before retirement, they may have to work longer and hope their allocations turn around.

The sequence-of-returns problem for 401(k)-dependent clients

For clients whose primary retirement asset is a 401(k), timing matters. A downturn shortly before or after retirement can force them to delay retirement or draw down a depressed account. And because 401(k) distributions are taxed as ordinary income, every dollar withdrawn is worth less than it appears.

If the 401(k) is one piece of a diversified plan, this may not be a major concern. But if it’s the plan, adding a non-correlated, tax-advantaged bucket can help.

The “above the match” strategy

When an employer matches contributions, it almost always makes sense to contribute enough to capture the full match. Savings beyond that point can be directed into an Indexed UL policy designed for accumulation.

Because index crediting has a floor (commonly 0%), credited interest won’t be negative in a down year — though policy charges continue to be deducted, so cash value can still decline if crediting is low. Upside is limited by caps and participation rates, which vary by product and are subject to change. Illustrate using current rates and reasonable assumptions.

Income and protection in one plan

A properly funded IUL can provide supplemental retirement income through policy loans and withdrawals, which are generally income-tax-free if the policy is not a modified endowment contract and remains in force. Understanding the loan options is critical; our article on IUL policy loans for retirement distributions explains the trade-offs.

If the client dies before retirement, the beneficiary receives an income-tax-free death benefit — protection a 401(k) balance alone can’t provide in the early years.

Who this fits

Clients contributing to a 401(k) without an employer match
Clients contributing beyond the match who want tax diversification
Clients who also need permanent life insurance protection
Clients with the discipline and cash flow to fund the policy consistently for many years

Contact our life team to see how much supplemental income a properly designed IUL could help generate for your client.

Frequently asked questions

Can an IUL policy lose value?

Index crediting typically has a floor, often 0%, so credited interest won’t be negative. However, cost-of-insurance and other charges are still deducted, so cash value can decline in years when crediting is low.

Is IUL a replacement for a 401(k)?

No. For most clients it works best as a complement — capturing the full employer match first, then using IUL for additional savings, tax diversification and death benefit protection.

Are IUL retirement distributions tax-free?

Policy loans and withdrawals up to basis are generally income-tax-free if the policy is not a modified endowment contract and stays in force. A lapse with loans outstanding can trigger taxes.

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Reviewed by Tim Fuller on 2026-09-25

Tim Fuller

President, SRS Inc.

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Protecting Retirement Contributions When a Client Can’t Work

September 25, 2026December 29, 2021 by Tim Fuller

Advisors spend years helping clients save for retirement. A disability can stop that progress overnight, not just because income stops, but because contributions, employer matches, and Social Security credits stop too.

Key takeaways

A disability can halt personal retirement saving, employer matching contributions, and Social Security earnings credits.
Even a disability of a year or two can set retirement back significantly because of lost compounding.
Disability retirement coverage pays contributions into a trust while the client is disabled, so saving continues.

When the paycheck stops, so does the 401(k) contribution — and the employer match with it.

What stops when income stops

Personal contributions to 401(k), 403(b), SEP, or solo 401(k) plans
Employer matching or profit-sharing contributions
Social Security earnings credits (though a disability “freeze” can protect a Social Security record for those approved for SSDI)

Regular disability insurance replaces part of the paycheck, but it’s usually all needed for living expenses.

The solution: disability retirement coverage

Disability retirement security policies pay a monthly benefit into a trust while the insured is disabled, where it’s invested for retirement. It’s designed for clients who already have group or individual disability coverage and understand the importance of retirement saving. At one carrier, eligibility has started around $76,000 of annual income. See how DI Retirement Security works.

Self-employed clients

Business owners and self-employed professionals who fund SEPs or solo 401(k)s have no employer to keep contributions going. Disability retirement coverage can be especially valuable for them. We can help with illustrations, case design, and implementation.

Frequently asked questions

What happens to retirement savings if you become disabled?

Contributions and employer matches usually stop, and savings may be drawn down to cover expenses, setting retirement back.

What is disability retirement coverage?

Insurance that pays retirement contributions into a trust while the insured is disabled, so retirement saving continues.

Can self-employed people protect retirement contributions?

Yes. Disability retirement coverage can replace contributions to plans like SEPs or solo 401(k)s.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-25

Tim Fuller

President, SRS Inc.

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Indexed Universal Life as a Supplemental Retirement Strategy for High Savers

September 26, 2026September 20, 2021 by Tim Fuller

Clients who already max out their 401(k) and IRA contributions often look for another tax-advantaged place to save. For the right client, a properly structured indexed universal life (IUL) policy can add tax-deferred growth, downside protection and tax-free access to cash value, along with a death benefit.

Key takeaways

IUL has no IRS contribution limits like qualified plans, though funding is limited by the policy’s death benefit and tax rules.
Cash value is credited based on index performance, subject to caps or participation rates, with a floor that protects against market losses.
Policy loans and withdrawals from a properly funded, non-MEC policy can generally be taken income tax-free.

For clients who have maxed out qualified plans, properly funded IUL can be a tax-advantaged complement, not a replacement.

Who is a good candidate?

Look in your book for clients who:

Contribute the maximum to qualified plans and still have money to save
Expect taxes to be the same or higher in retirement
Dislike the idea of losing accumulated value in a market downturn
Want tax-efficient income from non-qualified savings
Have a genuine need for life insurance protection

Younger clients, often in their 30s to 50s, with discretionary income can also be good candidates, especially when they have a long runway to fund the policy.

How IUL works

Premiums build cash value that is credited based on the performance of one or more market indexes, subject to a cap, participation rate or spread. A floor, commonly 0%, means the account doesn’t lose value because of a negative index return, although policy charges still apply. Illustrated rates are limited by regulation and should be presented conservatively.

Cash value grows tax-deferred. As long as the policy is not a modified endowment contract (MEC), clients can generally access money through withdrawals up to basis and policy loans without income tax, and loans are not reported as income while the policy stays in force.

Designing for accumulation

For income-focused designs, carriers and advisors typically solve for the minimum death benefit needed to accept the planned premium without creating a MEC. Policies generally perform best when funded for 10 to 15 years before distributions begin, though designs can be tailored to the client’s age and premium schedule.

How the client takes income matters too. Our post on IUL loan options explains the difference between fixed and variable loans and why it affects retirement income.

Keep expectations realistic

IUL is life insurance first. It carries charges, and underfunding or poor index performance can reduce values and, in the worst case, cause a lapse that triggers tax on loans. Clients should understand that illustrations are not guarantees and that the policy needs periodic review.

Once a client commits to a premium, our team will help you assess insurability and prepare efficient designs across our carrier partners. Contact us to get started.

Frequently asked questions

Can indexed universal life be used for retirement income?

Yes. A properly funded IUL policy can provide tax-advantaged retirement income through withdrawals and policy loans, as long as it is not a modified endowment contract and remains in force.

Can you lose money in an indexed universal life policy?

Index credits have a floor, commonly 0%, so a negative index year does not directly reduce cash value. However, policy charges continue, so values can decline if crediting is low or the policy is underfunded.

How long should an IUL be funded before taking income?

Policies generally perform best when funded for about 10 to 15 years before distributions begin, though the right timeline depends on the client’s age and design.

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Reviewed by Tim Fuller on 2026-09-26

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Insurability: The Retirement Asset Clients Forget to Protect

September 26, 2026September 14, 2021 by Tim Fuller

Retirement planning is about accumulating enough money, over enough time, to support the life a client has built. Qualified plans do much of that work, but contribution limits and the risk of dying before the plan is complete can leave gaps, especially for higher earners. That is where insurability becomes a valuable asset.

Key takeaways

Qualified plan contribution limits often fall short for higher earners trying to replace their income.
An overfunded universal life policy can provide supplemental retirement income with tax advantages similar in some ways to qualified plans.
The death benefit self-completes the savings goal if the client dies before retirement.

A savings plan only works if the saver has enough time. Life insurance is the only vehicle that finishes the plan if time runs out.

Why qualified plans may not be enough

Qualified plans are the backbone of most retirement strategies, but they have limits. Annual contribution caps restrict how much higher earners can set aside relative to their income. And every savings plan assumes the saver lives long enough to finish it. If a client dies early, the account stops growing and the family is left with whatever was accumulated.

Overfunded universal life as a supplement

A universal life policy funded above the minimum needed for the death benefit can build meaningful cash value. That value grows tax-deferred and, in a policy that isn’t a modified endowment contract, can generally be accessed through withdrawals and loans without income tax. For many clients, indexed UL is the design of choice; see our overview of indexed UL for supplemental retirement income.

The self-completing feature

What sets life insurance apart is the death benefit. If the client dies before reaching retirement, the policy pays out a sum that can replace what the savings plan would have built. No other savings vehicle completes itself this way.

Why insurability matters now

All of this depends on being able to qualify for coverage. Health can change quickly, and a diagnosis can raise costs or close the door entirely. Encouraging clients to lock in insurability while they are healthy protects both the family and the retirement plan. Contact us to discuss design options and underwriting for your client.

Frequently asked questions

Can life insurance supplement retirement income?

Yes. A properly funded permanent policy can build cash value that grows tax-deferred and can generally be accessed through withdrawals and loans without income tax, provided the policy isn’t a modified endowment contract.

What does it mean that life insurance self-completes a savings plan?

If the insured dies before reaching the savings goal, the death benefit pays a lump sum that can replace what the plan would have accumulated.

Why is insurability considered an asset?

The ability to qualify for coverage at good rates depends on health, which can change at any time. Securing coverage while healthy protects future planning options.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Repositioning Idle Savings Into Linked-Benefit Long-Term Care Coverage

September 26, 2026August 26, 2021 by Tim Fuller

Many clients have money sitting in savings accounts, money market funds or CDs that they think of as a safety net but never plan to spend. Repositioning part of those dollars into a linked-benefit life and long-term care policy can put that money to work against one of retirement’s biggest risks.

Key takeaways

Idle savings earmarked for ‘just in case’ can be repositioned to address a future long-term care need.
Linked-benefit policies can multiply a single premium into a larger death benefit and a larger pool of LTC benefits.
If care is never needed, heirs receive an income tax-free death benefit, and many policies offer a return-of-premium option.

Close to 70% of people turning 65 will need some form of long-term care, yet many are self-funding that risk with money sitting in savings.

Finding idle money

Ask clients about funds they hold for emergencies or “someday” that they don’t expect to use for living expenses. These dollars are often in low-yield accounts, and a portion may be earmarked, consciously or not, for health care costs later in life. With care costs rising (see our post on long-term care costs), that is exactly the risk a linked-benefit policy is designed to address.

How linked-benefit coverage works

A linked-benefit (asset-based) policy combines life insurance with long-term care benefits, often funded with a single premium or a short payment schedule. The premium buys:

A death benefit that is typically larger than the premium paid
A pool of long-term care benefits that can be a multiple of the premium, depending on age, gender, health and product design
Liquidity features, such as a return-of-premium provision on many products, so clients can get some or all of their premium back if they change their mind (terms vary by carrier)

For a deeper look at product designs, see our overview of asset-based long-term care.

Why clients like it

If they need care, qualified long-term care benefits are generally received income tax-free.
If they never need care, beneficiaries receive a generally income tax-free death benefit.
If they change their mind, return-of-premium options can provide an exit.

This “use it or pass it on” structure often resonates with clients who have been reluctant to buy traditional long-term care insurance.

Getting started

The leverage a client receives varies considerably by age, health, gender and carrier, so comparing products matters. Contact our long-term care specialists, and we’ll help you identify good candidates in your book and compare linked-benefit options across our carrier partners.

Frequently asked questions

What is a linked-benefit long-term care policy?

It is a life insurance or annuity policy with built-in long-term care benefits. The policy pays for qualified care if needed, and pays a death benefit to heirs if care isn’t needed or isn’t fully used.

Can I get my money back from a linked-benefit policy?

Many linked-benefit policies include a return-of-premium provision that lets the owner recover some or all of the premium. Terms vary by carrier and product, so check the specific policy.

Are linked-benefit LTC benefits taxable?

Qualified long-term care benefits are generally received income tax-free, and the death benefit is generally income tax-free to beneficiaries. Clients should confirm details with their tax advisor.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

Connect on LinkedIn →

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