In the last few years, a trend in American spending has risen. Not only are Americans spending more, the boost in spending is mostly on big-ticket items like vehicles and large appliances. Unemployment rates are down and stock prices are up and the rise in spending is likely because of anticipated wealth gains and expectations of continued job opportunities. While this optimism is not altogether bad, another recent trend has been a drop in the average American saving rate.
The Commerce Department has reported a 10-year low of 3.1% savings rate in September, the 7th month in a row is was less than 4%. With Americans spending more and saving less, a potential risk is inherited by all as the economy builds. Should the financial bubble “burst” as it has in the past, many households could be left with depleted resources that could take years to rebuild.
National disasters such as hurricanes Harvey and Irma have driven spending in the last few months, however, and may be offsetting the spending to saving ratio. Since efforts to rebuild have been propelled in highly effected areas like Florida and Texas, personal expenditure towards reconstruction is unavoidable. While the effect these storms had on spending is a considerable factor in the rate of American spending, ultimately the Commerce Department determined the precise impact could not be quantified.
Considering these trends with or without the consideration of the recent storms, it’s clear that American savings should be an important topic and that Americans should be considering their savings options no matter the current level of confidence in income. One option for a secure savings resource is an Indexed Universal Life (IUL) policy. An IUL can be viewed as a type of tax-protected investment structure and is one of the more popular life insurance options in recent years.
While structures of IULs vary, one of the benefits of this type of policy is the flexibility that can be found in pay-out allowances. IUL policy owners can access the policy’s cash value through tax free loans or withdrawals, provided the withdrawal is less than the premiums paid until that point*. Depending on the structure of the policy, you may be able to take out a one-time payment or a stream of payments over multiple years. Additionally, the credited interest rate of an IUL will never be negative and will not result in a loss of value, even during years the stock market underperforms. Therefore, by purchasing an IUL policy in stronger economic times, Americans may be able to create a valuable resource for themselves should an unexpected need for savings arise.
For more information on the IUL as a savings option, contact IFN today! 800.921.3100
*Policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse, or affect guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in the excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change and you should consult a tax professional. Policy loans are not usually subject to income tax unless the policy is classified as a modified endowment contract or MEC, under IRC section 7702A. However, withdrawals or partial surrenders are subject to income tax to the extent that the cash value in the policy immediately before the distribution exceeds the owner’s tax basis in the policy. If taken prior to age 591/2, a 10% federal tax penalty may apply.
Americans Are Spending More, Saving Less, The Wall Street Journal