Is retirement something that awaits you in the future? Did you know your life insurance policy could actually help you during retirement? Most people have a retirement plan in place - but many people overlook the benefit of having a life insurance policy that could supplement your retirement income. Life insurance plans with living benefits and wealth management perks can allow you to truly relax during your retirement years. Let's break down the types of retirement income, and then we'll take a look at how your life insurance policy can boost that income!

Types of Retirement Income

1. Taxed Now - These retirement income sources are subject to taxation by the government and usually taxed annually. This can include bank funds, mutual funds, and stocks. The amount of retirement income that is taxed depends on a variety of factors, including the individual's tax bracket, the type and amount of retirement income they receive, and any deductions or credits they may be eligible for. This type of retirement fund may impact Social Security taxes and is included in your estate. The benefits of this type of retirement income is that there are no contribution limits and no required minimum distributions (RMDs).
2. Tax-Deferred - Tax-deferred retirement income refers to income that is earned or accumulated in a retirement account and is not subject to immediate taxation. This can include 401Ks, Traditional IRAs, 403b, and annuities. Instead of paying taxes on this income upfront, taxes are deferred until the individual withdraws the funds from the retirement account, typically during retirement. At that time, the income is taxed at the individual's current tax rate, which may be lower than their tax rate during their working years. These funds are subject to income tax, RMDs at age 72, contribution limits, and potential 85% Social Security taxation.
3. Tax-Free - Tax-free retirement income refers to income that is earned or accumulated in a retirement account and is not subject to taxation at any point, including when the funds are withdrawn during retirement. Life insurance is a great way to secure tax-free retirement. There are no contribution limits, no RMDs, no excise tax, and it does not affect Social Security taxation. This can provide a significant tax advantage for individuals who expect to be in a higher tax bracket during retirement or who want to minimize their tax liability in retirement.