IFR Module 241 — Four Core Retirement Strategies
Click each strategy card to expand details, pros/cons, and ideal client profiles.
Systematically draw down accumulated assets to fund retirement income. Assets are consumed over the client's expected lifetime, with the goal of balancing spending and longevity.
Withdrawal rates typically range from 3-5% of portfolio value. Sequence-of-returns risk is a major concern in early retirement years. Must account for inflation and unexpected healthcare costs.
A Home Equity Conversion Mortgage (HECM) allows homeowners 62+ to convert home equity into tax-free income. No monthly mortgage payments required; the loan is repaid when the home is sold or the borrower passes away.
Borrowing limits depend on age, home value, and interest rates. Upfront costs (MIP, origination fees) can be significant. The home must be maintained and property taxes/insurance must be paid.
Charitable Remainder Trust (CRT): Transfer assets to an irrevocable trust that pays income to you for life, with the remainder going to charity. Provides an immediate tax deduction and avoids capital gains on appreciated assets.
Donor-Advised Fund (DAF): Contribute assets for an immediate tax deduction, then recommend grants to charities over time. Investments grow tax-free inside the fund.
CRTs are irrevocable — you cannot reclaim the principal. DAFs offer more flexibility but no income stream. Both strategies work best with highly appreciated assets to maximize the tax benefit.
Irrevocable Life Insurance Trust (ILIT): An irrevocable trust that owns a life insurance policy. The death benefit passes to beneficiaries estate-tax free, providing liquidity for estate settlement.
Dynasty Trust: A multi-generational trust designed to pass wealth through several generations while minimizing transfer taxes. Can last for the maximum period allowed by state law (often 100+ years).
ILITs require careful compliance with Crummey notice requirements. Dynasty trusts involve complex drafting and ongoing administration. Both strategies remove assets from the taxable estate but also remove the grantor's control.
Answer these five questions to get a personalized strategy recommendation.
1. What is your primary retirement goal?
2. How important is leaving a financial legacy?
3. What best describes your asset composition?
4. How do you feel about irrevocable decisions?
5. What is your approximate net worth range?
Based on your answers, a systematic asset depletion approach aligns best with your goals. You value flexibility and control, and your primary focus is maximizing your own retirement lifestyle. Work with your financial advisor to establish a sustainable withdrawal rate (typically 3-4%) and build in buffers for market downturns and unexpected expenses.
Next Steps: Review Module 232 (Retirement Cash Flow Strategy) to build your personalized withdrawal plan.
Your home equity is a significant asset, and a HECM can help you convert it into retirement income while staying in your home. This strategy works well when liquid assets are limited but home value is substantial. Consider a line-of-credit HECM for maximum flexibility.
Next Steps: Consult with a HUD-approved HECM counselor and compare borrowing options based on your home's current value and your age.
Your charitable intent combined with appreciated assets makes planned giving an excellent fit. A Charitable Remainder Trust (CRT) can provide lifetime income and significant tax savings, while a Donor-Advised Fund (DAF) offers more flexibility for philanthropic giving. These strategies are particularly powerful for assets with large unrealized capital gains.
Next Steps: Identify your most appreciated assets and consult with a tax advisor about CRT vs. DAF structures for your situation.
With your estate size and focus on multi-generational wealth transfer, ILIT and dynasty trust structures can significantly reduce your estate tax exposure while preserving wealth for future generations. Life insurance within an ILIT can provide estate liquidity without increasing your taxable estate.
Next Steps: Work with an estate planning attorney to evaluate ILIT and dynasty trust options. Review Module 235 (Wealth Distribution) for additional context.