Yes, IUL is commonly used as a retirement income supplement. By funding the policy during working years, you can take tax-free policy loans in retirement to create an income stream that does not count toward Social Security taxation thresholds.
One of the primary use cases for IUL is creating a tax-free retirement income stream. Here is how the strategy works:
IUL loans are not counted as income, which means they do not increase your Social Security tax, do not push you into a higher tax bracket, and do not affect Medicare premiums. This makes IUL a powerful complement to 401(k)s and IRAs which are fully taxable in retirement.
A well-funded IUL started at age 35-45 with $500-$1,000/month in premiums can potentially generate $3,000-$8,000/month in tax-free retirement income starting at age 65.
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You can borrow against your IUL cash value through policy loans, which are tax-free as long as the policy remains in force. Most policies allow you to borrow up to 90% of your cash value at competitive loan rates. Read more
IUL and 401(k) serve different purposes. A 401(k) offers employer matching and higher contribution limits, while IUL provides tax-free income in retirement, no contribution limits, and life insurance protection. Most people benefit from having both. Read more
IUL can be a good financial tool for high-income earners seeking tax-advantaged growth and those who have maxed out traditional retirement accounts. It is not a pure investment but a hybrid insurance-savings vehicle. Read more
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