Are you working with affluent clients who are at or near retirement age? If so, you may encounter clients receiving Social Security income benefits that don’t need to cover their living expenses. For these individuals, Social Security can become a valuable resource to help fund life insurance policies or annuity products, providing significant benefits for their families and financial legacies.
Life insurance can be a powerful tool to maximize the value of Social Security payments, creating opportunities for intergenerational wealth transfer. By reallocating unneeded Social Security income, clients can fund policies or trusts that ensure their legacy continues for years to come.
Consider the following example:
A 69-year-old male and his 65-year-old spouse were receiving a combined $24,000 annually in Social Security income. Because they did not need this income for their day-to-day living expenses, they were netting approximately $14,000 annually after taxes.
After consulting with their financial advisor and insurance broker, the couple decided to use the net $14,000 to fund an Irrevocable Life Insurance Trust (ILIT). The ILIT was used to purchase a Survivorship Universal Life Insurance policy with a $973,000 death benefit. This policy was designed to provide a significant financial legacy for their children and grandchildren.
For this couple, the decision was straightforward: allow the Social Security income to accumulate without purpose or strategically leverage it to create a lasting legacy for future generations.
When working with clients who may benefit from strategies like this, consider asking the following:
Do you currently rely on your Social Security income to meet your living expenses? – This helps identify whether the income can be repurposed.
Have you considered how your current assets and income could be used to benefit your heirs? – This opens the door to discussing legacy planning.
Are you concerned about taxes or estate planning for your beneficiaries? – Life insurance products can provide tax-advantaged solutions for passing wealth to heirs.
Would you like to explore strategies to leave a financial legacy without impacting your current lifestyle? – This frames the conversation around leveraging unused income effectively.
While life insurance is a key tool, other options such as annuities can also provide benefits:
Deferred Annuities: Clients can use unneeded Social Security income to purchase deferred annuities, which can provide a guaranteed income stream for beneficiaries or supplement retirement income if needed later.
Hybrid Products: Some life insurance products combine long-term care benefits with a death benefit, offering flexibility for both legacy and healthcare planning.
Charitable Giving Strategies: For philanthropic clients, funding a charitable remainder trust or gifting premiums for a charitable life insurance policy can create dual benefits for heirs and causes they care about.
For financial advisors, helping clients understand how to make the most of their Social Security income can differentiate your practice and deepen client relationships. By presenting strategies that align with their goals and values, you can create meaningful plans that enhance their financial legacy.
Whether through life insurance, annuities, or other financial tools, showing clients how to turn unused income into a powerful legacy demonstrates the value of your guidance and expertise.