Even though you may think you have a comfortable nest egg, relying solely upon traditional means for your retirement income could prove costly. Life insurance usually isn’t the first vehicle that comes to mind when you explore the different avenues available for retirement funding. Yet Supplemental Life Insurance for Retirement Planning, otherwise known as SLIRP, can be an effective financial strategy. SLIRP uses a life insurance policy structured to generate a tax-deferred cash flow during retirement. The funding vehicle for the SLIRP strategy is a permanent life insurance policy issued by an insurance company. This type of policy can provide tax-deferred cash value accumulation, tax-free withdrawals contingent upon certain stipulations, and a generally tax-free death benefit to your beneficiary(ies). SLIRP can provide higher-income professionals, physicians in particular, with an additional source of funding – without the drawbacks of some other retirement vehicles.

Chances are that you’ll live longer than you think. According to government statistics, "The older population is expected to double over the next 30 years to 70 million by the year 2030. Over the next 50 years, the population age 85 and older is expected to grow faster than any other age group. Will your nest egg last? There are several conventional vehicles most individuals turn to for their retirement income: Social Security, company pension plans, and personal investments, such as IRAs and 401(k)s.

Before we go any further, it may be helpful to briefly review a few of these conventional retirement planning vehicles:

· Pension Plans: There are limits on the amount of compensation that can be considered in pension plan benefit formulas. Most pension plans will replace only 40 percent to 60 percent of pre-retirement earnings. Also, pension plan benefits are often integrated with (and usually reduced by) Social Security benefits.

· Government Programs/Social Security: Social security benefits will most likely be reduced or eliminated for those younger physicians out there. Also, Social Security may be reduced if you begin collecting benefits before full retirement age. Individuals born after 1959 cannot start collecting full Social Security until age 67.

· IRAs and 401(k)s: There are limits on the amount you can contribute to IRAs and qualified plans, such as 401(k) plans. These factors may force you to depend heavily on your personal assets and other investments to fill your retirement gap. A better approach may be to consider supplementing your retirement income with life insurance.

Each of these vehicles has a strong appeal, for widely different reasons. However, none of them offers the combination of powerful benefits that SLIRP provides in one package, making it a very attractive means of supplementing retirement income. SLIRP benefits include:

· Tax-Deferred Growth: funds accumulate on a compounded basis, meaning no tax is owed while gains are not being distributed.

· Potentially Tax-Free Income: as long as certain stipulations are met, withdrawals from a SLIRP strategy may be income tax free.

· No Limit on Contributions: for physicians, this can be the most or one of the most important benefits. Unlike IRAs or 401(k) plans, SLIRP policies are not subject to any limits on contributions; a physician making a substantial annual income can use SLIRP to build a sizeable, potentially income tax-free cash flow for their retirement years.

· Virtually 100 percent creditor protection: another key point for doctors – SLIRP can give individuals creditor protection on their assets placed inside of a SLIRP strategy. Traditional retirement strategies, more than likely, are not protected in this regard.

· Potential for Penalty-free Withdrawals: physicians are not required to wait until 55 or 59 to access their funds, unlike traditional plans, which makes this strategy extremely flexible in accommodating early retirement and/or changing life requirements.

While all this may sound too good to be true, SLIRP is quite real. SLIRP currently can be utilized in Pennsylvania, New Jersey and Delaware, to name a few participating states. Because this retirement planning strategy is not yet widespread, many physicians either are not aware of it at all, or don’t understand how SLIRP works. In essence, SLIRP benefits all spring from the cash value of a life insurance policy. Here’s how it works.

In its plain form, life insurance is a tool to protect your loved ones. In return for paying a level premium, a life policy provides death benefit protection and the ability to accumulate cash value. Life insurance can generate cash value on a tax-deferred basis as long as the policy remains in force. A portion of the premiums has the potential to build cash value each year, providing a convenient way to accumulate cash value for future needs, in addition to providing protection. Over the long term, any cash value will accumulate tax-deferred. The cash value is available through loans for Whole Life policies and through partial withdrawals and loans for Universal Life and Variable Life policies to help meet financial needs. However, it’s important to keep in mind that partial withdrawals reduce your death benefit, and loans accrue interest and decrease the death benefit by the amount of the outstanding loan and interest. SLIRP strategy relies on a life insurance policy’s cash value.

Here’s a more detailed perspective on how SLIRP functions. Cash surrender value for Universal Life and Variable Universal Life policies and dividend value for Whole Life, if available, can be withdrawn from the policy up to an amount equal to your cost basis. In the case of a life insurance policy, your cost basis generally means the total amount of premiums paid. As long as withdrawals do not exceed your cost basis, there is no taxable distribution.

After you reach your cost basis, loans and partial surrenders can be made against the policy’s cash surrender value. Interest will be at current rates and added to the amount of the loan if not repaid. Taking loans reduces the death benefit and cash surrender value, and therefore increases the risk of your policy lapsing. If you surrender the policy or the policy lapses for nonpayment of premium, the Internal Revenue Code requires that taxes be paid on all gains. If a policy loan is outstanding when you surrender your policy, or it lapses, the amount of the loan (including interest) will be considered income to the extent of gain in your policy and will be taxable to you. If your policy remains in force, the amount of your unpaid loan, plus any interest accrued, will be deducted from the policy’s death benefit before payment to your beneficiary(ies). The result can be cash flow that can supplement your retirement income.

SLIRP strategies should only be setup with the help of a qualified financial service professional. Physicians planning for their retirement are advised to work with insurance carriers with reputations for both financial strength and business integrity.

SLIRP is not meant to fully replace traditional retirement strategies. It is designed to be a complementary component of an individual’s retirement planning. For physicians in particular, SLIRP provides a powerful combination of features and benefits that rounds out and reinforces their existing retirement plan, offering maximized accumulation of assets while minimizing risk and taxes to make those "Golden Years" truly enjoyable.

No matter what your retirement dreams are, it’s important that you take the time to prepare yourself for the future. The responsibility of retirement security and comfort falls squarely on your shoulders. With Americans living longer, healthier lives – thanks in part to our high quality health care – the more sources you can turn to to supplement your income in retirement, the more likely you’ll be able to have the lifestyle you want.