How To Create a Social Security Bridge for Maximum Payout.
Updated: Nov 8, 2020
Market downturns aren’t the only factor which can drain retirement funds. Events such as emergency medical situations or unexpected personal crises may also lead to financial duress.
Proper retirement income planning takes into consideration things that could jeopardize a secure retirement, including taxes, market volatility and access of guaranteed income early. Life insurance can be used in strategies that can help retirees hedge against these challenges.
A Social Security bridge allows an individual to maximize their Social Security payouts by waiting to take benefits at a later age.
The timing of when one starts receiving Social Security impacts how much they will receive in a monthly maximum benefit. The longer a person waits, the greater the monthly benefit, which can make a significant difference over their lifetime.
Consider twins Al and Bill and how life insurance as a social security bridge makes a difference.
• Both retire at age 62 and are eligible for the maximum Social Security benefit. • Al elects to receive Social Security immediately and gets a benefit of $2,025 per month. • Bill defers his Social Security benefit to age 70 at which time he receives $3,501 monthly.
To make up the difference for the Social Security he’s not receiving, he takes distributions of $2,025 a month from his cash value life insurance policy from age 62 to 70.
Consider the Power of Three:
1. Shorten the underwriting process on the front-end.
Technology now offers some qualified applicants underwriting speed and convenience.
• No medical exams or blood work required. • Medical questions asked via an online or telephone interview. • Underwriting decisions in as little as 24 hours and payment in 10 days or less. • Easy qualification checklist helps identify candidates.
2. Accumulation-focused life insurance.
• Competitive product choices: – Not all indexes are the same and there are currently 5,000 to choose from. Indexed universal life featuring index–linked potential. – Universal life with fixed rate growth and protection from market volatility
• Tax-favored benefits: – Tax-free survivor benefit – No income taxes on accumulation or distribution – No penalty for pre-age 591/2 withdrawals – No income-based funding limits
Note: Over-fund the policy to maximize potential. Rule of thumb = $1,000 premium x policy holder's age.
Automated income Benefit from “set it and forget it” process.
• Easy – Income received as frequently as monthly with completion of a single form.
• Efficient – Automated events to help get the most from policy distributions: – Death benefit option switches from increasing to level to maximize income amount. – Withdrawal method changes from surrenders to loans when cost basis is gone to prevent an unwelcome Form 1099. – Amount re-calculates annually to ensure target-ending cash value goal is met.
• Ends properly – Over-loan protection automatically triggers to provide a safety net against policy lapse and resulting tax liability.
The Importance of Planning Ahead for Retirement
A stock market correction could affect retirement money. Of course market downturns aren’t the only factor which can drain retirement funds. Events such as emergency medical situations or unexpected personal crises may also lead to financial duress.
Being prepared is a key fundamental for retirement security. But many people aren’t taking those steps. According to various survey data, by 2030 almost 20 percent of Americans will be over 62 years old – currently the average age at which people retire. Data from the U.S. Census Bureau’s Supplemental Poverty Measure shows around 15% of Americans over 65 years old live below the poverty threshold. Moreover, almost 50% live “near poverty.” Or in other words, they have incomes which are less than twice the poverty threshold.
What’s the Future Look Like?
According to the Employee Benefit Research Institute, almost 60 percent of workers aged 55 years and older have less than $100,000 in retirement savings. Almost one-quarter of these workers have less than $1,000 saved, too. These dynamics are reflected in people’s expectations of Social Security benefits as a major income source. 36% of non-retirees anticipate heavy reliance on Social Security as a major source of retirement income – almost a 10-point bump up from what it was 10 years ago.
The shift towards Social Security is also reflected in the decline of defined-benefit pension plans as a foremost retirement vehicle. Consider the following:
• Towers Watson estimates over the last 15 years, the percentage of largest American companies offering new hires defined-benefit pension plans declined from 60% to 24%
• Public-sector defined-benefit pension plans are being slashed at the federal and state levels to readjust spending levels
• More people are looking at alternative retirement vehicles, such as fixed index annuities, for financial security