What Tax Bracket Will Your Clients Likely Be in in Retirement?
I’m Tired of the Fearmongering!

By: Roccy DeFrancesco, JD, CAPP, CMP
Copyright 2024

This is a question that I do NOT believe most advisors have a good answer for.

And this issue has become a point of debate, especially in the life insurance industry with what I would say are disingenuous cash value life (CVL) sales agents pushing what I think is a false narrative on what tax brackets clients are likely to be in when they retire.

The idea of the “Power of Zero” is nonsense and is not a suitable sales concept. And many insurance agents are pushing this concept and telling clients they are going to be in the 30%, 40%, or 50% tax bracket in retirement. It needs to STOP.

Selling CVL (IUL specifically) based on higher tax brackets—the sales pitch is simple, the agent talks with clients about our national debt being over $34 trillion, how we continue to deficit spend, how Social Security and the Medicare trust funds are going broke, etc.

Then the advisors pull out this historic income tax rate sheet that shows from 1965-1981 the top rate was 70% and from 1982-1985 the top rate was 50%. And then they ask the client if he/she agrees that income tax rates are not only going to go up, but they are going to go up dramatically.

What’s the client going to say? No, he/she doesn’t think rates are going to go up?

What doesn’t the agent tell the client? That the number of tax brackets from 1965-1985 ranged from 13-16. And that today there are only seven (meaning that the upper tax brackets the agent is  fearmongering with only affected the SUPER wealthy, not the average or even average wealthy client).

The agent doesn’t remind the client that over the last 37 years, the TOP federal income tax rate has been between 28% to 39.6%. Here are the 2024 tax brackets single (S) & married filing jointly (J):

Why does that matter? If you want to make CVL look like a better alternative to a tax-deferred IRA or 401(k), what helps make the sale? Higher income taxes in retirement.

Full disclosure, I’m a HUGE advocate of using Indexed Universal Life as a tax-free retirement tool. My book Retiring Without Risk explains why it’s such a unique tool. I built the OnPointe IUL comparison software to run numbers comparing IUL to brokerage accounts, IRAs/401(k) plans (tax deferred & Roth). The numbers look great, and you don’t have to “puff” them to make IUL look better.

The primary question to ask clients about their future income tax bracket is:

“will you have MORE taxable income in retirement than you have
right now and in the years leading up to retirement?”

Let’s look at an example: 50-year-old with a spouse (age 50) who collectively make $150,000 a year. Their top marginal rate is 22%, but their effective rate is 11.46% (assumes no state income tax).

If their income increases at 2.5% a year, at age 65, their income will be $217,000. Their top marginal rate (when taking into account the standard deduction of $29,200) is still 22%, but their effective rate is 14.71% (assumes no state income tax).

Now they retire at 66 and they will NO LONGER make $217,000 of earned income.

What will their income tax rate be? Well, we need to know what their needed cash flow will be in retirement. And WHERE their retirement cash flow comes from (Social Security, tax-deferred retirement plan, Roth, cash value life, etc.).

Let’s assume:

1) ANNUAL cash flow will start at $110,000 (this is what they need to live on at age 66).
2) They both will receive Social Security payments of $30,000 a year starting at age 66.
3) The remainder of their cash flow will come from tax-deferred sources (IRA, 401(k), etc.).

At age 66, their top marginal income tax rate is 12% (taking into account the standard deduction) and their effective tax rate is only 5.86%.

Using today’s tax bracket, this client would have to have over $200,000 as their taxable income (after taking the $29,200 standard deduction) to be in the 24% bracket. They’d have to have over $383,000 to be in the 32% bracket.

Will this client be in a 30%, 40%, 50%, or 60% tax bracket in retirement? There isn’t a snowball’s chance in H-E-L-L that’s going to happen even if income tax rates go up and brackets shift significantly.

Why are advisors using this fearmongering sales tactic? They do NOT understand the numbers.

IUL vs. Tax-Deferred 401(k)

Let’s look at an IUL comparison so you can see how the numbers can be manipulated.

              Example: Male, age 50. Assuming a 5.70% ROR in the IUL. I’ll assume a 7.0% rate of return in a 401(k) plan, a 1.2% mutual fund expense, and NO wrap fee (an example slanted in favor of the 401(k)).

The client can afford to tax-deduct $22,697 a year into the 401(k) plan every year from ages 50-65. If so, then he can afford $17,250 into an IUL policy every year ($22,697 x .76 = $17,250).

I will assume withdrawals from the 401(k) plans and cash flow from IUL in equal amounts each year from ages 66-90. Money coming out of the 401(k) is ALL income taxed and from the IUL is tax-free.  The following chart shows the annual after-tax cash flow from the 401(k) vs. the IUL.

Now you understand why insurance agents who want to sell cash value life love to talk about clients being in a higher income tax bracket in retirement. It makes IUL look much much better.

What should you also notice? That even when the client was in a substantially lower income tax bracket, the cash flow from the IUL was better.


Again, I’m a huge advocate of using IUL as one (one of many) asset to be used for retirement cash flow. Mathematically, WITHOUT puffing the numbers, it should generate more after-tax cash flow in retirement than a tax-deferred alternative (and a Roth alternative).

But what I’m NOT an advocate of is fearmongering to make IUL or any CVL policy look better than it should in order to make the sale.