401k negatives, shrinkage of typical 401k account at retirement due to taxes, inflation and survivor pension costs. Alternatives to offset these negatives with ILIPP funding.

1. Published by Capital Strategies Press / Sponsored by PolicyChallenge.com
Copyright 2015 –By Paul Bullock CLU, ChFC, GBA, RPA, FLMI, CEBS- All Rights Reserved
401k Wrap - is an ILIPP or FLIPP designed to
complement and augment the benefits of an
Employer Sponsored Retirement Plan
401k
ILIPP or
FLIPP Wrap
A 401k Wrap is often called a 'Pension Boost'

2. Copyright 2015 – All Rights Reserved
401k's and other qualified plans are great
accumulation outlets! Contributions are tax
deductible and earnings compound tax free.
However, qualified
plans face a triple
threat that can slash
retirement benefits by
50% or more.

3. Triple Threat to Qualified Plan Pay-Outs
1) Hidden life insurance in your qualified plan can cut
retirement income by more than 15%
2) Qualified benefits loose 20% to 30% to income taxes
3) Inflation erodes the spending power of level benefits by
30% to 50%, slashing your effective retirement income
A 401k Wrap is designed to counter the triple threat!
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4. Threat #1 – Spousal Reduction
Under Federal law distributions from a
'qualified plan' must include a spousal
lifetime income option, unless
specifically rejected by the spouse.
(This includes 401k plans that offer retirement income
benefits. Even if your 401k plan only provides for a lump-
sum payment at retirement, any lifetime income annuity you
purchase will present you with the same survivor's
dilemma!)
Election of the spousal protection typically
reduces your retirement income by 10% - 20%
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5. Threat #1 - The Survivor Dilemma
Tony Hardworker retires with a life expectancy of 17.1 years. He has accumulated
a respectable sum in his 401k plan and is offered a number of distribution options,
including: a lifetime income for himself of $1,159 monthly or $991 a month, with
$661 (2/3rds) payable to his wife, if he predeceases her. If Tony takes the spousal
benefit, he has just purchased a life insurance policy for approximately $34,474.
Tony only – monthly life income: $ 1,159
Optional Joint Benefit: $ 991
Monthly difference forfeited: $ 168
$168 x 12 months/year x 17.1 years = $ 34,474
Total Cost: $ 34,474
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6. Distributions from qualified plans (401k, profit
sharing & pension plans) are taxed as ordinary
income when received.
Assuming a 25% tax bracket during retirement, a
monthly benefit of $991 would be reduced to $743 of
net income received.
Total loss to income taxes over 17.1 years $50,890
Threat #2 – Income Taxes
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7. Threat #3 – Spending Power
Retirement After-Tax Spending %
Year Income Power Loss
0 $743 $743 –
5 $743 $660 11.2%
10 $743 $570 23.3%
20 $743 $424 42.9%
Even low inflation will erode your spending power-
the longer the payout the larger the loss!
Retirement Dollars Lost to 3% Inflation
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8. Impact of Triple Threat
Total Projected Retirement Income $237,595
Less Spousal Reduction -$34,474
Less Income Taxes -$50,890
Less Inflation Erosion -$27,764
Total Loss from Triple Threat -$113,128
Spendable Retirement Income $124,467***
(Average Monthly Spendable $607)
Loss to Triple Threat 47.6%
*** Based on life expectancy 17.1 years at retirement
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9. A 401k Wrap Provides a Safety Net, that
Neutralizes the Triple Threat and Puts
that 42% Back Into Your Pocket
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10. A 401k Wrap uses a life insurance policy with special features to
supplement your qualified plan benefits and deliver a 1-2-3 punch
solution to the triple threat!
1) Eliminates Spousal Reduction because the life insurance death benefits
protect the spouse from early death (both before and after retirement)
thereby freeing the insured to accept the highest plan benefits.
2) Offsets Income Taxes by providing a cash reserve that can be drawn
upon to replace the taxes paid on qualified plan distributions
3) Supplements Spending Power with a cash reserve that can be used to
replace the spending power losses due to inflation
**Under current law life insurance loans and death benefits enjoy special tax consideration – ask your tax
adviser about the tax impact of distributions from life insurance policies and qualified plans.
Life insurance death benefits can also add substantially
to the total funds transferred to your children++
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11. ILIPP – stands for Indexed Life Insurance Private Pension
FLIPP – stands for Fixed Life Insurance Private Pension
Both concepts use the unique features of a life
insurance policy to augment the benefits of
your qualified plan and boost your available
retirement income.
The primary difference between a FLIPP
and an ILIPP is the selection of the
accumulation method. Please ask your
agent for help selecting the most
appropriate policy type.
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12. For additional information on this
concept and other solutions to the
triple threat please visit
PolicyChallenge.com
**Life insurance policies are purchased through licensed insurance agents. The
purchaser must receive a NAIC compliant illustration on any and all policies considered.
Not all agents are familiar with this concept. For best results choose your insurance
agent wisely.