Life insurance and its role in tax diversification

[Narrator] Life insurance and its role in tax diversification.

When you're saving for retirement, you need to prepare for uncertainties, like a rising cost of living, higher medical expenses, and how market volatility can impact the value of your retirement assets.

And there's one more variable that can often be overlooked, but it's just as important to consider.

Taxation can have a significant impact on a retirement asset, requiring you to make larger withdrawals to make up for the amount you lose to taxes, and potentially depleting that asset faster.

No matter what tax rates are now, you can't be sure where they'll be during your retirement.

That's why it's wise to make sure your retirement portfolio includes a mix of assets that can help you manage your taxable income in retirement and provide you with financial flexibility.

Generally, financial assets fit into these tax categories: First, there are income taxable assets such as a checking or savings account, CDs, or money market accounts.

[On-screen disclosure] Interest, dividends, and/or capital gains may be taxable each year.
This example is provided fore illustrative purposes only. [End of on-screen disclosure]

With these, you pay taxes on any gains in the year you receive them.

[On-screen disclosure] Earnings grow tax-deferred each year.
This example is provided for illustrative purposes only. [End of on-screen disclosure]

Second, there are income tax-deferred assets: traditional IRAs, pensions, or non-qualified annuities, where you pay taxes only on funds as they're withdrawn.

[On-screen disclosure] Earnings may be income-tax-free when certain requirements are met.
This example is for illustrative purposes only. [End of on-screen disclosure]

Third, there are income-tax-free assets, such as a Roth IRA or Roth 401(k), where earnings are not taxed at all assuming certain requirements are met.

[On-screen disclosure] Earnings grow tax-deferred each year.
This example is provided for illustrative purposes only. [End of on-screen disclosure]

And then there's cash value life insurance, such as indexed universal life insurance, or IUL, that offers a combination of potential tax advantages that you can't get from traditional retirement income sources, beginning with a death benefit that's generally income-tax-free to beneficiaries, plus the potential to build accumulation value tax-deferred, and the opportunity for income-tax-free loans and withdrawals from your policy’s available cash value that can be used for a variety of purposes, like supplementing retirement income.

[On-screen disclosure] Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any loans or withdrawals occur prior to age 59½ on a MEC, a 10% federal additional tax may be imposed. Tax laws are subject to change, and you should consult a tax professional. [End of on-screen disclosure]

And that can help reduce your need for income from taxable retirement accounts and potentially reduce your overall tax burden.

Here's how that could work.

[On-screen disclosure] This hypothetical example is provided for illustrative purposes only and is not intended to provide financial advice. Clients should consult with their tax advisor to discuss their specific situation. [End of on-screen disclosure]

Let's say you wanted to withdraw $100,000 in income each year for retirement, taking withdrawals from a portfolio of only taxable assets like a 401(k).

You could lose a significant portion of that income to taxes depending on your tax bracket.

[On-screen disclosure] IUL does not provide a source of guaranteed income in retirement. Your policy must have sufficient cash value available, and you should monitor your policy values carefully to ensure against the policy lapsing. [End of on-screen disclosure]

But by adding an IUL policy to supply a portion of your income through income-tax-free loans or withdrawals, you could help reduce your overall tax burden.

Now, imagine similar tax savings over many years in retirement, and you can see the powerful benefit of an indexed universal life policy in an overall financial strategy.

Keep in mind that how you fund your policy and other factors may affect how the loans and withdrawals are taxed.

Don't let taxation be an overlooked cost in your retirement.

Talk to your financial professional and tax advisor about how indexed universal life could help diversify your retirement strategy and provide tax advantages for today and tomorrow.

[On-screen disclosures]

This content is for general educational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice. Customers are encouraged to consult with their own legal, tax, and financial professionals for specific advice or product recommendations.

Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, 10% federal additional tax may be imposed. Tax laws are subject to change and you should consult a tax professional.

Guarantees are backed solely by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.

Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297.

This content does not apply in the state of New York.

Product and feature availability may vary by state and broker/dealer.

[End on-screen disclosures]