Income Maximization

Situation:

  1. As a client gets into their retirement years, they may begin shifting their investments into conservative vehicles
  2. These vehicles may not provide the level of after-tax income that they need or desire
  3. For some clients, an income maximization strategy may allow them to increase income and the amount that they transfer to heirs

Solution:

Income maximization is a technique by which conservative or fixed interest rate investments are sold or liquidated, and the proceeds are used to purchase a Single Premium Immediate Annuity (SPIA), locking in an income payment for life. The income generated may be more than the client needs. A gift of the excess income is made to an Irrevocable Life Insurance Trust (ILIT), which purchases a universal life insurance policy with guaranteed coverage for life. Upon death of the client, the proceeds from the life insurance pass to heir estate-tax free, replacing the original principal paid into the SPIA.

Benefits:

  1. Reduces market risk during volatile times
  2. Enhances net after-tax income
  3. Potentially increases the net rate of return in investment income
  4. Removes assets from taxable estate, thus increasing legacy to heirs
  5. Provides a guaranteed income stream for life

Considerations:

  1. Principal is irrevocably exchanged for guaranteed income
  2. Conversion and purchase of life insurance requires medical underwriting
  3. The exchange may be taxable and/or result in additional charges and/or risks