There is a lot more to the tax savings
when it comes to tax-free retirement planning. With the index crediting strategy you have two major benefits; first you can easily outperform the actual index in a volatile market
and secondly you can protect your gains without having to reinvest conservatively lowering returns during retirement.
Two good examples of the index strategy would be the last decade of the S&P 500 where the index lost money for the first time over a 10 year period, and reasonable index strategy would have returned 5 percent to 7 percent over that time.
A stronger example would be the Nikkei 225, Japans version of the S&P 500. The Nikkei 225 was at an all time high in 1989, only to drop more than 75 percent the following 20 years.
Anyone who decided a buy and hold strategy was the way to go would have been much better off with an index strategy with annual point to point. They would have doubled their money over the 20 year period instead of losing 75 percent.
With the tax-free planning strategy one would not have to worry about a major stock market collapse
destroying their retirement, where conventional wisdom would have been seriously depleted in the early 2000's or in the 2008-09 collapse. Back in 2008 the TV pundits had no ideas on how to avoid the carnage or what would be the best place to put ones funds except into cash. One noted TV adviser was recommending bank stocks that went belly up only days later.
Anyone who was investing in an index point-to-point strategy would not have lost any money and would have done very well while the market recovered.
The index strategies available with today's indexed universal life policies not only allow for a tax-free retirement — which is great considering the increasing possibility of higher income tax rates — but they provide a great way to grow retirement savings and then protect the account during the payout stage.
There is a lot more to tax-free retirement planning, but these two major benefits are often over looked.