How a Flexible Retirement Plan Supports Stability

Retirement planning is evolving. As people live longer and markets remain unpredictable, you need financial strategies that offer both stability and flexibility. A recent study by Ernst & Young, a global firm specializing in financial auditing, tax planning and business strategy, highlights how combining annuities, especially fixed indexed annuities (IA) and indexed universal life (IUL) insurance with traditional investments can lead to stronger retirement outcomes.

In this blog, we’ll explore how integrating these tools can help build a more comprehensive and flexible retirement strategy.

The retirement challenge

The research points to a significant issue: by 2030, the U.S. is expected to face a $240 trillion retirement savings gap and a $160 trillion protection gap. These figures emphasize the need for more comprehensive retirement planning. While investment-only strategies are common, they may not be enough to meet future needs.

This study shows that integrating insurance products can help you achieve better financial security in retirement. Let’s start by identifying what these products are.

What is a fixed indexed annuity?

A fixed indexed annuity is a financial product that provides guaranteed¹ income starting at a future date, typically during retirement. You pay into the annuity now, and it begins paying out later, often for the rest of your life. This study focused on IAs with guaranteed lifetime withdrawal benefits, which include features like index-linked growth and principal protection. These features can help the annuity keep pace with inflation and provide more income over time.

Learn more about annuities from Ameritas.

What is indexed universal life insurance?

IUL insurance offers lifelong death benefit coverage and includes a cash value component that grows over time. Unlike term life insurance, which provides coverage for a set period with no cash value, IUL offers lifelong protection and builds cash value. The cash value can be accessed through policy loans or withdrawals² and can serve as a financial resource during retirement.

Learn more about IUL insurance from Ameritas.

The value of integration

The study compared six retirement strategies using simulations across 1,000 market scenarios and three different starting ages (35, 45 and 65). The strategies included:

1. Investment-only
2. IUL and investments
3. IA and investments
4. Single Premium Immediate Annuity (SPIA) and investments (age 65 only)
5. IUL, IA and investments
6. IUL, SPIA and investments (age 65 only)

The integrated strategy that combined IUL and IA with traditional investments consistently outperformed the others in terms of retirement income and legacy value.

Key findings from the study

Higher retirement income: IAs produced significantly higher retirement income³ than investment-only approaches. This is due to features like guaranteed lifetime withdrawal benefits and index-linked growth, which can outperform traditional fixed income investments over time.

Improved legacy outcomes: IUL adds a layer of legacy protection. In addition to its valuable death benefit, its cash value can be accessed during market downturns, reducing the need to sell investments at a loss.² This can help preserve wealth and enhances what you can leave behind.

Tax efficiency: Both IUL and IA offer tax-deferred growth. IUL’s death benefit is generally tax-free, and its cash value can be accessed via policy loans without triggering taxable events.² This can improve your overall financial outcome in retirement.

Flexibility and customization: Integrated strategies allow you to tailor your retirement plan based on your personal priorities, whether that’s maximizing income, preserving wealth or balancing both. For example, higher allocations to IA emphasize income, while more allocated to IUL boosts legacy protection.

Resilience in volatile markets: During market downturns, you can draw funds from an IUL policy’s cash value instead of selling investments at a loss. This flexibility can help maintain portfolio stability and supports long-term growth.

Real-world application

The study included case scenarios to show how these strategies work in practice. One example showed how combining IUL and FIA helped a 65-year-old couple manage longevity risk, market volatility and inflation, all while maintaining a steady income and preserving wealth for heirs, resulting in a 5.5% increase in retirement income and a 29.6% boost in legacy value compared to an investment-only approach.

Another example involved a 35-year-old couple allocating 30% of annual savings to IUL and 30% of assets at age 55 to a IA. This strategy resulted in 13.9% higher retirement income at age 65 and 10.9% more legacy value at age 95 compared to an investment-only approach.

Considerations

While the study presents a strong case for integrating annuities and life insurance into retirement plans, it’s important to consider your individual circumstances.

• Cost: IUL can be more expensive than term life, especially for younger individuals. However, its long-term benefits may justify the cost for those focused death benefits on legacy and financial stability.
• Liquidity: Annuities typically require giving up access to the money you invest in exchange for a guaranteed income. You should assess your need for liquidity before committing to an annuity.
• Customization: Not all annuities or life insurance policies are the same. Features like inflation protection, payout options and fees vary widely. Working with a financial professional can help you choose the right mix for your goals.

Holistic retirement planning

The Ernst & Young study reveals a powerful insight: retirement planning works best when it’s holistic. By integrating annuities and IUL with traditional investments, you can help achieve better financial outcomes.

This approach isn’t about replacing investments but complementing them. Annuities provide stability and predictability, while life insurance offers protection and flexibility. Together, they help form a resilient foundation for a secure retirement.

¹ Guarantees are based on the claims-paying ability of the issuing company.

² Loans and withdrawals will reduce the life insurance policy’s death benefit and available cash value. Excessive loans or withdrawals may cause the policy to lapse. Unpaid loans are treated as a distribution for tax purposes and may result in taxable income.

³ Withdrawals of annuity policy earnings are taxable and, if taken prior to age 59 ½, a 10% penalty tax may also apply.

Representatives of Ameritas do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your specific situation.

In approved states, Ameritas life insurance products are issued by Ameritas Life Insurance Corp. In New York, life insurance is issued by Ameritas Life Insurance Corp. of New York.

In approved states, Ameritas annuities are issued by Ameritas Life Insurance Corp.