Case Study: How Bank-Financed Retirement Plans Solve the Savings Crisis

Why Traditional Retirement Planning Falls Short

Many high-income professionals assume they’re on track for retirement, only to realize too late that their savings won’t cover their future needs.
Consider the case of a 45-year-old earning $250,000 per year, with $1M already saved in his 401(k) and IRA. With 20 years left until retirement, he believes he’s in good shape—but when factoring in inflation, taxes, Social Security uncertainty, and actual retirement income needs, the numbers tell a different story.
Without an optimized strategy, this professional would have to drastically increase his savings, scale down his lifestyle, or delay retirement altogether.

How Inflation Impacts Retirement Needs

One of the most overlooked factors in retirement planning is inflation—the gradual increase in costs over time.
Even though he earns $250K today, that same amount won’t go as far in 20 years. Based on historical inflation trends, he’ll need about $451K per year at retirement age to maintain his current lifestyle.
🚨 That means his retirement plan needs to produce nearly double his current annual income just to keep up with inflation!

How Much Will His $1M in Savings Grow?

This individual currently has $1M saved in his 401(k) and IRA, which will continue to grow tax-deferred until he starts withdrawing funds at age 65.
Assuming a reasonable 8% return, his retirement account is expected to grow to about $4.66M over the next 20 years.
💰 This sounds great, but now we need to calculate how much of that he can safely withdraw each year.

Annual Withdrawals & Post-Tax Income

Using a standard 4% withdrawal rate, he will take about $186K per year from his savings.
🔹 But remember—this amount is taxed.

Since 401(k) and IRA withdrawals are treated as taxable income, he’ll owe:
✅ Federal income tax (~24%)
✅ California state tax (~9.3%)
✅ Medicare tax (~2.35%)

After taxes, his actual take-home retirement income from these accounts will be about $120K per year.
📉 That’s a major difference from the $186K he expected!

How Social Security Helps (But Won’t Be Enough)

Social Security is projected to provide a starting benefit of about $47K per year in today’s dollars. Since it adjusts for inflation, his estimated payout at age 65 would be about $78,600 annually.
💡 However, there are major concerns about Social Security’s future reliability:
❌ Will Social Security Still Exist?
The Social Security Trust Fund is projected to run out by 2035, meaning future benefits could be reduced unless Congress intervenes.
❌ Social Security Benefits Are Taxable
Retirees with additional income—like our subject—will owe taxes on up to 85% of their Social Security benefits.
After taxes, his actual take-home amount from Social Security will be around $58,950 per year.
🚨 This reduces his expected retirement income even further!

Final Traditional Retirement Income vs. Required Amount

Total Retirement Income (Post-Tax)
✅ $120K per year (401(k) & IRA withdrawals after tax)
✅ $58.95K per year (Social Security after tax)
💰 Total post-tax retirement income: ~$178,950 per year
🚨 That’s significantly below his retirement target of $281K per year!
🚨 He still has a gap of over $102K per year.
To close this gap using traditional savings alone, he would need to contribute about $35,300 per year for 20 years—a total personal contribution of ~$706K.
📉 That’s an overwhelming financial burden!

What Is Premium Financing?

Premium financing allows individuals to fund high-value life insurance policies—like Indexed Universal Life (IUL)—without relying solely on personal savings.
Instead of paying premiums out of pocket, a bank provides a loan to cover most or all of the funding, boosting retirement growth without requiring excessive personal contributions.
✅ The bank loan is secured by the policy’s cash value and death benefit, making it a low-risk financing structure.
✅ The insured does NOT assume personal liability—the policy growth covers repayment.
✅ Policy benefits include tax-free retirement income, unlike taxable IRA and 401(k) withdrawals.
💡 Premium financing allows high-income earners to maximize retirement savings while preserving liquidity.

How Bank-Financed Retirement Plans Solve the Problem

Instead of attempting to save an impossible amount, our subject turns to Bank-Financed Retirement Plans (BFRP)—a strategy that leverages premium financing instead of out-of-pocket savings.

How BFRP Works

✅ Personal contributions: $50K per year for 5 years ($250K total).
✅ Bank match: ~$592K over 10 years through premium financing.
✅ Projected tax-free retirement income at 65: $102K per year (assuming 6% growth).
Since IUL distributions are tax-free, this amount fully covers his remaining retirement income gap.
🚀 With only $250K in total personal contributions, he secures more retirement income than traditional savings would require at nearly 3x the cost!