Building Your Infinite Banking System: Start Where You Are!

Are you getting started with the infinite banking concept and you’ve heard that you should be building a system of policies?

When it comes to starting your banking system, the most important piece of advice that I give people is to start where you are. Start with whatever budget feels comfortable for your situation at the time.

Ideally, you want to build this banking system, and a system of banking has multiple branches or multiple policies that are accumulated over time. But it doesn’t happen overnight. The key is to start at a place that’s comfortable for you financially and more importantly, is something that you can utilize. Because the more you use it, the better it’s going to get.

As Nelson Nash said, any time that you can control the financing function in your life, you win by default because everybody else is being controlled by the system. If you’re in control of the system, you win by default.

I got my first policy as soon as I graduated from college, and naturally, I didn’t have a job yet, so my policy was only $200 a month. But that was starting where I was at the time. Over time, however, I’ve built more and more policies into my banking system and leveraged them along the way. As we build up that policy and that policy ages and matures by design, actuarially they become more and more efficient.

During the early years of the policy, let’s say I had access to 50% of the premiums that I was paying. However, over time, and as that policy has matured, I have access to more than $1 for every $1 of premium that I’m paying. You see, life situations change. I started earning an income and then as my income has grown, I’ve been able to purchase more policies because ideally, we want to be saving 20% of our income.

However, as our income changes, that’s a moving target. And so it’s important to build that system to accommodate and save efficiently along the way. Not only do I have access to more and more cash, but now I’m making the rest of my money more efficient because I can utilize that money and leverage the cash value I have to make the rest of my money more efficient.

For example, when I wanted to buy a car, instead of paying cash for the car, I borrowed against the life insurance. I was able to maintain control of my cash, and now I’m making a monthly payment back to the insurance company. And that’s important because now I have two hoses filling up this policy bucket.

I have the premiums growing and accumulating the cash value. Plus, I have the policy loan repayments, reducing the lien on my cash value so that I’m growing my cash value exponentially. Consequently, the next time I want to go buy a car or put a down payment on a house, I’ll have access to more cash value within my policy because I’m playing honest banker.

And here’s another analogy. If you’re doing business with a commercial bank, you are flying into a perpetual headwind, but when you control the financing function in your life, you’re creating a perpetual tailwind.

So naturally, we start off by insuring ourselves and maybe our spouses, but over time, it may make sense to build a banking system to include your extended family and your children so that you have multiple lives insured. And that creates a windfall into the family banking system and allows you to create generational wealth within your family.

If you’d like to get started in creating a tailwind instead of flying into a headwind, schedule your free Strategy Session today. Or if you’d like to see exactly how we put this process to work for our clients, check out our free webinar, The Four Steps to Financial Freedom.

And remember, it’s not how much money you make and it’s how much money you keep that really matters.

Resilience and Redemption: Bob Cordaro’s Inspiring Journey

Episode Summary

In this episode of the Control Your Cash podcast, hosts Olivia Kirk and Tim Yurek dive into a stimulating conversation with Bob Cordaro, a local attorney, influential radio show host, and business personality. They discuss Bob’s journey through high school, his time in College, his experience in the financial world, and his expeditions in the legal, media, and political landscape. Bob opens up about his transformational time in prison, his influential advocacy towards fairness and people-focused policies, and his philosophy on viewing life as an ongoing, observer-beneficiary documentary. The episode offers the listeners value in terms of understanding resilience, self-sustainability, and maintaining a positive outlook during difficult times.

Key Takeaways

Learning from Challenges:

  • Bob sees challenges as opportunities for learning and growth, emphasizing the importance of extracting lessons from difficult situations.

Finding Positivity:

  • Despite facing setbacks, Bob maintains a positive attitude and encourages others to focus on the good things in life.

Happiness as a Decision:

  • Bob believes that happiness is a decision and not merely a reaction to circumstances. He shares personal observations and life lessons about choosing to be happy.

Maintaining Perspective:

  • He encourages putting life events into perspective, acknowledging that some people face more significant tragedies. This outlook helps him navigate challenges without getting upset.

Transcript

Olivia: Hello and welcome to the control your cash podcast. I’m your host, Olivia Kirk.

Tim: And I’m Tim Yurek.

Olivia: Today, we have a great show in store for you. We have Bob Cordaro with us, who’s…

Bob: You’re assuming it’ll be great. That’s an assumption.

Olivia: From what I understand, this is going to be a great podcast. I heard that Bob is a great storyteller and also very influential in his space. He has a, a Bob Cordaro show on a local radio station, WILK.

Tim: Yeah, so uh, Dunmore High School. Played football for the incomparable Jack Henzes, University…

Bob: Won the championship that our senior year. 

Tim: Of course, well you guys were loaded too that year. Uh, and then of course, uh, University of Rochester. Academic All American. Uh, Phi Beta Kappa. I mean you check all the boxes, Bob.

Bob: And I mean all of them. I just continue and you’ll get there.

Tim: Yes. So, uh, local attorney, University of Pennsylvania Law School, local attorney, practicing mostly in business.

Bob: Mostly business. Ham and eggs though, I would say. It was a ham and egg guy. The things that once, the lawyers start being allowed to advertise, which I didn’t believe in, the personal injury and those kinds of things sort of went away.

So you, you, you re-concentrated and I always enjoyed business anyway. So I became a mostly business attorney, but I did ham and eggs. I did wills and estates and all kinds of whatever. Neighbors and friends and people needed small criminal cases, some decent sized criminal cases, a lot of stuff. So, 

Tim: So, you had a good business career as far as a lawyer, but that didn’t seem to rock your boat.

Bob: No, it did. 

Tim: It did? 

Bob: Yeah. I loved it. I liked the radio business. We built, two stations from the ground up. Rebuilt a third, I had five, radio stations and a billboard company at, at a, one particular time. And oddly enough, I’m flying to Madison, Wisconsin to look at a wireless cable company and a  radio station that had gone bankrupt.

And I said, I’m going to, I got five kids. And I got to be one of these guys that misses everything because he’s going to be on a plane. And I came home from that trip, actually my wife was on it with me, and I started selling the radio stations and the billboard company over the next few years. 

Tim: Right. 

Bob: And I said, I can make plenty of money as a lawyer, I don’t need to, I don’t need to get on this treadmill.

As enjoyable as it would be, your first responsibility is your kids, period. So, unfortunately, I had the Sisters Filippini, these Catholic nuns and they always told you to do your duty and, you know, you’re going to go to hell if you don’t and so forth. So I thought my duty once I was secure financially was to run for office and I did.

And then I won and that was, that was the worst of it.

Tim: Well, the first, the first time. You ran was for Congress, right?

Bob: Congress in 1988 as a Democrat.

Tim: In a Republican, jurisdiction, right. District, right. So one of the things, and you, I know you remember this is, tell, tell everybody about the ladder.

Bob: Oh, well, we were running against a guy named Joe McDade and he’d been in office for 26 years and he seldom even came home and I was doing an okay job, but I just thought our areas in trouble. I mean, like people can’t find jobs. They, young kids can’t stay here, all those kinds of things. So he’s not doing enough.

And, they asked me, the Democrat party asked me. Would you run in this primary because there’s a guy called Lyndon LaRouche and one of his disciples was going to be the nominee and he would be the first nominee from this Lyndon LaRouche, long lost Lyndon LaRouche wing of the Democrat Party to, to be a national candidate and it would give him a forum and it’d be embarrassing, Bob, would you do this for us?

I said, okay. I said, but if I’m going to do this, I’m going to tell people I’m not running in the fall. I just started one of my radio stations. We had a kid and a kid on the way. And so I, you know, I said, I don’t want to run in the fall. They said, but you have to say, you’re going to run the fall. And I said, but if I say I’m going to run in the fall, I’m going to run in the fall.

Well, you have to say it. And so I ended up running in the fall against McDade, which I knew I couldn’t win unless some insane miracle happened. But I figured we’re, we’re in this, we’re going to have fun with it. So we discovered that Joe McDade had, and I liked Joe McDade, I knew him before I’d worked on Capitol Hill.

I knew him, I’d see him around, I was at fundraisers of his and so forth. But, now I’m running against him. And, we discover that not only does he not come home, there were like 23 or 24 occasions where he either voted absentee or just so he didn’t even come home on election day. And there was two times he didn’t even vote for himself. He didn’t vote at all.

So, he had this fake house that was his address up in Clark Summit, so we went up there and I, funny, one of the people that went up with me is current Democrat Congressman Matt Cartwright. And we go up and WBRE’s there and they film us from the time we get out of the car. And we walk up and we’re standing on the sidewalk in front of his house and we have this voting record where he didn’t vote, didn’t vote, didn’t vote.

And, you know, that he truly isn’t from the area. So, he then comes home, and he said that, I was a peeping Tom. I was looking in his house, and he had a ladder he put up against the, the window of the second floor. And, it was pretty funny. And, that was a, that was a, I guess the highlight of the campaign, because it was both humorous and, even though I was going to get destroyed in the election, it got him to come home and actually campaign.

Olivia: So he just had this fake address, is that what you’re saying?

Bob: Basically. He would stay at a Ramada Inn in Clark Summit when he came home, which was not often. And, but he had to have an address. 

Olivia: Okay. So where was he actually, where was he actually from?

Bob: He was originally from here. 

Olivia: Okay.

Bob: The family was from Scranton. They were in the coal business.

Olivia: Okay. 

Bob: Neat house in Greenridge section of Scranton. 

Olivia: There are neat houses up there, aren’t there?

Bob: Yeah, and, yeah, but look he was a good guy, but I figured if I’m running against him, I’m going to run against him. 

Olivia: I’m bringing the news with me.

Bob: So I did. And we had some fun. There was a lot of things that would irritate you as a 26, 27 year old kid versus now they’re just totally humorous.

Olivia: So you ended up losing against him…

Bob: Yes, yes we lost.  

Olivia: And then running again for office.

Bob: Well, the funny thing I, and sadly Joe McDade’s no longer with us, but my friend Mark Walsh, he was taking me around to all the voting booths, all the voting places, that day. And I mean, they did everything but lay palms in front of me going, you know, going to visit and so forth.

So he’s going, Bob, he goes, I think we’re going to win. Let’s keep going. It was like six o’clock at night. We’ve been doing it since eight in the morning. I said, Mark, enough. I said, we’re not going to win. He goes, come on. Let’s… I said. Just because they’re being nice doesn’t mean they voted for me. Okay? And, and that night we did lose.

Substantially, I might add. So. 

Olivia: It was a good effort though. That’s a long day.

Bob: It was, it was fun and it was, but the, the district was sprawling, it still is. And you’d go up Route 6, which is the, the nickname for it is Sullivan’s Trail from an army general that marched that route. , I don’t even remember the war at this point.

Olivia: Mm-Hmm. 

Bob: But Route six that goes from, uh, like somewhere in Stroudsburg, but it’s runs through Scranton. Goes all the way up to Potter County where Adelphia cable was from at the time. 

Tim: Right. 

Bob: I mean, it was nine hours. End to end. It was. So I did a lot of driving. 

Olivia: Wow. 

Bob: And I would go and I would. We’d call ahead, and we’d get an interview with the local newspaper if they weren’t afraid of him, some of them were.

And, and go to a local radio station, and I’d do an interview, and I’d do the newspaper, and they’d take a picture. And that’s what the presence we had, and we, we tweaked, we tweaked Joe McDade pretty good.

Tim: Now, how. How were you received by him subsequent to the election?

Bob: We became friendly again. 

Tim: Oh, good.

Bob: Yeah. Yeah. There was an instance where, there was an event for Frank Carlucci, the defense secretary and just this extraordinary businessman/public servant from this area. And, it was up at Montage and sort of these confederates said Bob you got to be there, so we go my wife and I are there and we’re in this long receiving line and I wanted to meet Frank Carlucci.

I didn’t like want to make anything out of it. What was gonna happen and they, we get about, somebody comes up and it was one of Joe McDade’s aides ago. Oh, you’re Bob. Oh, yeah I’m so and so from Jake something from McDade’s office two seconds when we get within of Carlucci, they sent the, you know, they shut the reception line down.

And there was people behind us that wanted to meet Carlucci too. I go, don’t do, don’t shut down the line for me. I’ll, I just, I’ll get out of it. But they shut it down. It was, it was all those kinds of things.

Olivia: They were waiting for an excuse.

Bob: Yeah. It was just old school, old school politics. I remember we had the Scranton Tribune, the Scranton Times at the time.

Two newspapers, so I’m getting coverage in the papers because they’re competing with each other and McDade has never given them stories and McDade stopped giving the Tribune, which was theoretically the Republican paper. He stopped giving them his best press releases and given them to the Scranton Times.

Because even though the line of family was Democrats, they were neighbors, you know, when they grew up. So he starts giving the stories to the Times. Well, the Tribune calls me in and they do this huge profile in what was called the Scrantonian, the Sunday edition. I, you know, and they let me say whatever I wanted to say and how mediocre Joe McDay’s job was and everything.

And he just goes after them like a ton of bricks. And they say, so I figured I got entree with the Scranton Tribune. You know, at least I got one of the newspapers and he starts giving them the same news releases and attention and everything else. They got his attention with that interview with me. And we go back and I’m telling him about some event I had, and I think it was of significance.

I don’t remember what it was now. And the guy goes, who will be unnamed, he says, you know, we have a policy. I said, what is that? He goes an inch for an inch. I said, I’m lost. He goes, well, you have to buy an inch of advertising to get an inch of, editorial. And I said, Oh, well, we had no money for the campaign.

So they cut me off then. Joe got them back. But it was, it was really funny going against really all the powers that be. And it was an eye opener. And it was enjoyable. And there was some really negative things around a recent divorce Joe had and some other scandalous things. The FBI was investigating him.

And, actually somebody from the FBI came to me and said, would you like this information? You know, here’s what’s going on. 

Tim: Wow.

Bob: And I said, that’s your job. That’s not mine, which I think set me down the wrong path with the FBI, by the way. But that’s another, that’s a story for a few years later. But I said, that’s your job, not mine.

I’m realizing I’m going to two things. Number one, I just didn’t think it was right. Number two. And I knew they were using me. They wanted to publicize it for their own purposes, not to help me. So I didn’t talk about the impending, indictment of Joe McDade. And I didn’t talk about his personal life either.

And, and the good thing about that was even though I lost, I made a lot of friends and didn’t make any major enemies. So, but he, you know, it was funny the night of the campaign. He said that I ran a negative campaign. Well, yeah, on your job. And I said, I said to the reporter, I said, I could have scorched the earth.

That was my, and they actually quoted me in the paper the next day. I could have scorched the earth and nobody knew what I was talking about. But then…

Olivia: But then it came out.

Bob: To stick me the FBI, like, I think less than a week after the election headlines, Joe McDade target of FBI probe. And he had been raided before the election. His house. 

Tim:Wow. 

Bob: And, so I, I learned how the big boys play politics, which was, it was humorous to me. Everything’s…

Olivia: Humorous on your end. 

Bob: Everything’s funny to me. I, but you know, it was, well, I, I told my kids when I was in all those years I was in prison, I said, listen, I said, just because it’s about you, because it’s you doesn’t mean it’s not funny.

Olivia: That’s a great attitude, actually, you know, not taking yourself too seriously. 

Bob: Well, dear God, how could I? 

Tim: So after that campaign…

Bob: But that made me hate politics. Because I found myself, there was something called one of the issues that was in that race that year was the, the, I’m forgetting what they call them, but like the gap babies, there was people who got, were born in a couple of years in the 1920s were for some statistical reason, getting less social security than other people.

Olivia: Okay.

Bob: And I got asked about it and I pandered. Instead of saying, well, people who make too much money shouldn’t get any social security. You’ve done well for yourself, we’re happy for you, but the system’s going bankrupt. Now this is 1988, you could see it coming. Instead of giving my true answer, I said, well, I’m going to really work hard for the gap.

And I walked out of this thing, it was up in Bradford County. And in, how am I forgetting the town, but you know, this is our age. And I left there and I was physically ill where I had to pull over the side of the road and I go, I just, I just said what she wanted to hear instead of what I believed. And from all of those experiences combined, I said, I, politics is not for me.

I may feel compelled to do it at some point, which I did. When I ran for County Commissioner and got asked to run for Congress again. But, it, it, it made me see that politics was not, uh, this, uh, glorious thing that everybody’s out there trying to do the right thing. 

Tim: Well, so, you know, and that, that makes a good point.

So think about like business, either you got it or you don’t, right? It, you know, whether you’re selling something or you’re making something, it either, it, it, it’s good and it works or it doesn’t. And the consumer will vote for you if it’s good for them and it works for them. 

Bob: Yeah.

Tim: But in politics, all those rules are, you know, it’s, it’s not the best person that wins.

Bob: I talk to people on my radio show all the time. I said, you know, we’ve got a current Democrat party that everything they do is against the people they claim it’s for gas prices, food prices, you know, switch to a battery powered cars, all of everything they’re doing is, but people are wedded to that tradition and what is and politics is very different than the reality that that most business people live today, you know.

Tim: Yeah, I would say like business is more a meritocracy.

And politics, I don’t even know what the hell you would call it. 

Bob: Well look at some of the clowns that are in office now. 

Tim: Oh my god. 

Bob: It’s frightening. Keep it up. I go from the, starts from the president on down here you say. Really?

You gotta be kidding me. 

Tim: Who wiped his ass today?

Bob: By the way, I got Joe Biden toilet paper for Christmas. And I said, I can’t see what it’s doing back there. So I just blow my nose with it. 

Tim: So let’s talk. So, so now that being said about politics. How did you get into the commissioner’s race? 

Bob: Our area needs leadership. And it did very much then. And I saw a county that was headed towards insolvency. There’s no such thing as bankruptcy. You could just raise the taxes. And terrible leadership.

And I said I’m running for commissioner because as a commissioner it’s an executive position. Not like this silly county council down or county council down here. If you win with your partner, you are the legislature. You are the executive at the same time. So, you know, you could actually affect change immediately and constantly during your time.

So I said, I’ll run for commissioner. And I could still even work part time, you know, as a lawyer. I had already, as I told you, disengaging from the radio business, so I just said it’s my duty to do it, and, and, so I, so I, we ran. And my partner, years before, sort of unbeknownst to us before the election started, had been pulled over for a, he wasn’t driving, he was a passenger in his own car the night that one of his children was born, and he had cocaine in his wallet, and so it was a cocaine stop. Now he was with the Democrats at the time, so they covered it up and it didn’t get publicized and whatever, but they always held it in case they needed it and they came out with it that election. So even though it was a very close election for majority minority, we lost by a couple thousand votes and I became the minority commissioner in 2000.

Tim: And then, what was it, 2004?

Bob: 2003 election, 2004, you know, we took office as majority, myself and,  A. J. Munchak. 

Tim: Okay. So you mentioned earlier prison, so talk to us about, not, not so much that experience or even how you got there, but when you came out, right? It’s a new world. You know, when, when you think about technology, think about.

Bob: I’m not an early adapter anyway, you know, or adopter. I’m not, I’m not. So I could always be comfortable a few years behind. I did eight years, five months and come out on a home confinement. I got out, eight years, five months to the day. I had done 11 different prisons, a lot of transportation. They said, wanted me to talk and I didn’t.

And so bouncing you around a lot was one of the, side effects of that and, because I mean, you know, theoretically, I was told I don’t even have to get indicted. So I said, well, if I don’t have to get indicted, why would you indict me? The answer without being answered was because we can. But I saw the, I saw the, the, the fearsome discretion and power of the federal government.

During that whole time, and it reinforced a lot of beliefs I had about government and any accumulation of power because of human nature, not even because of evil or good or whatever, just human nature is to grab power and to assert it. And some people get burned in that process. In some cases, many people get burned.

So it was, I mean, it was a lesson there. And of course, when you’re under the. The jackboot of prison guards and prison officials for all that time. I mean, two o’clock in the morning, cause some jackass was smuggling stuff into the prison. You’re all rousted from bed and sent out in the snow in t-shirts to stand there for an hour and a half.

And this would happen all the time. It was a, it was a crazy, experience. And you were under no control. And I spent, during that prison time, I spent over six months in, solitary confinement. Or what they would call the SHU, it’s Special Housing Unit. So I saw, I was at penitentiary, I was at medium security, I was at low security, I was at camps, I was at Philadelphia, I was at Brooklyn.

So, among those 11 prisons, I sort of saw it all. 

Olivia: On the country tour. 

Bob: A tour of the great northeast.

Tim: So when you came out, I’m assuming, you know, probably money was tight when you came out. Yeah. Yeah. So, you know, our show is the Control Your Cash show.

Bob: I was saying on the radio show before this, I said, I’m probably the, I don’t have any cash. So therefore, well, when I did, I was pretty good with it. 

Tim: You were. So the point is, and what our audience wants to hear is…

Bob: Full disclosure.

You were one of my insurance agents so…

Tim: I guess that’s good. 

Bob: The Guardian. 

Tim: So the, the, the point is though. When you had a start over, you got knocked on your butt. How do you, how do you get back up? And what lessons do you learn through that whole process? 

Bob: I mean, but you have to put everything in perspective.

The primary perspective, well to get religious, not, I was going to say to not get religious, well to get religious. Is that the way I look at life is, you know, I’m Catholic. Jesus dies, gives us the opportunity to go to heaven. We can never control our circumstances. It’s how we react to them and deal with them that we succeed, which is going to heaven.

It has not very little to do with what actually happens on the ground here because we’re not in control of it. So, I’m just, I just never thought there was anything to get upset about. I never thought I was on my ass. I was just in places I didn’t want to be. Quite realistic. I didn’t. So I thought to myself, well, how do you behave when you’re confronted with a circumstance?

And I’ve got to put that in perspective. I even said it. As I was being, you know, frog marched around and, and, you know, these perp walks that they made me do three of, they re-indicted me and then re-indicted me. And I said, look, I know people who’ve had children die. Their parents die when they were young and they were dependent upon.

Like I know people with cancer. I know real tragedies. This is a man made tragedy and I’ve got my complicity in that, whether there’s people out to get me or not, whether it was stupid, stupidity, naïveté. And so, you know, why would I ever think this is a tragedy? Why? Because I can’t practice law because I can’t drink scotch.

I, you know, I can’t have a cigar. I mean, really, it was just never to me in my way of thinking there was never anything to be upset about or to whine about. And I had a guy tell me and, you know, you got a lot of advice when you’re going to prison or you, you know, but the one guy said, your children are watching, he said, and by the way, a lot of other people.

And they want to see how you react to this because it’s going to teach them. How to react to the indictment and the press and the newspaper and all of these kinds of things.

Olivia: That’s powerful.

Bob: And so I said, I’m gonna yeah, I’m gonna teach people how to how you should react or at least as best I can and so that was all of those things starting with you know, my my Catholic beliefs were the foundation of anything, not just going to prison, not just being indicted, not just I remember they had this hour long press conference when I got indicted and this hour long thing about how bad of a person I was and all this on the radio, it was live on the radio, so I was driving around in my car, listening to it, because what else am I going to do, you know, I’m driving around Route 81 and whatever, and after it was over, I called my lawyer.

I said, is that all they got?

Look it again, just because it’s happening to you doesn’t mean it’s not funny.

And nothing is life and death, except life and death. And again, so many people that we all know, particularly as we get older, that the tragedies that they’re living through the, you know, whether it’s a relative with Alzheimer’s, you could name the tragedies that outweigh what I was facing. And it just never bothered me, to be honest.

I, it just, whatever. So I, I don’t like when you say someone asked me, he said, geez, you know, you’re always laughing, whatever. I said, well, I’ll be laughing in prison too. By the way, I used to piss a lot of prisoners off when I was laughing. You’re not supposed to be having fun in prison. You’re not supposed to be happy, I guess, whatever.

But, happiness is a decision.

Olivia: Yeah.

Bob: It’s not a reaction to circumstances. And the part of that decision is, I, I, I sent my kids, uh, a couple of letters during my incarceration, or a letter, and, and it had, one of them had, If by Rudyard Kipling, that amazing poem, and another had, Teddy Roosevelt, Man in the Arena, and another was my own personal observation, which is that life, or happiness is a decision, and so, if I look at the whole package, well, you know, I, I, I compared it to a kid in a basketball game and, and, and his teammates are throwing the ball in the stands and the refs are making unfair calls and all this.

And he’s still smiling because he knows he could win. It’s in his control to win, which would be getting to heaven. And so I said, that’s the way you should look at it. Most people, unfortunately. They try to fill the gap of not having that belief. They try to fill that with things. And nobody loves things more than me.

Nobody loves booze and food and a great car and a great house. Nobody loves them more than me. But they’re not the be all, the end all. They’re good things, but they’re not the altar to worship on. And people try to fill that gap that they don’t have because they don’t have a core. I believe faith in God, to rely on.

And so, well, what’ll make me feel better now? Is it, is it sex? Is it, is it drugs? Is it money? Is it a car? Is it a nightclub? And it’s all just silliness. 

Olivia: Yeah, you could have all the things and still not be happy. It’s that conscious decision to be happy and not be victimized by circumstances. That really is going to make the difference at the end of the day. 

Bob: You said it well. And at the end of every day. 

Olivia: Yeah.

Bob: Not just the day. 

Tim: It’s true. 

Olivia: Yeah. 

Tim: It’s so, it’s so true and you, and you think about… 

Bob: You have to internalize it too. 

Tim: Yeah. 

Bob: So that it’s, and I, I think I did before prison. 

Olivia: It sounds like it.

Bob: But prison, like it let you prison sort of let you, be say, you know…

Olivia: Be with yourself. 

Bob: I was sort of right about that.

Olivia: Yeah. 

Bob: You know? Yeah. That is the right way to approach things and, so I got a lot of verification of what I believed going in. And during the process. And, the other thing I did is I sort of looked at it as part, which I do life in general, but part of me is observing everything that I’m in. I’m in a, you know, we’re all in a documentary, which we’re the camera.

And, so you’re part observer, part participant and that helps you watch what you’re doing as you’re doing it. And it’s, it’s sort of fun. 

Olivia: That’s interesting. Where’d you get that idea? I mean, cause I mean, in a, in a sense it’s true. 

Tim: It is true

Olivia: I know, but like, I’ve never, I…

Bob: I can’t say it’s, I can’t say it’s, it is original to me.

I can’t say it’s just my idea, but that’s the way I look at life. 

Olivia: Yeah. That’s pretty cool.

Tim: It’s a great perspective, and I think if you use that. 

Bob: But it’s a documentary most people don’t want to watch. 

Tim: Or sometimes it’s cringeworthy for sure. 

Bob: Oh man, I had a lot of cringeworthy.

Tim: So talk to us about how you, you know, once you got out, you came and, you know, what’d you do for, like…

Bob: Did you ever hear someone say, and I know I told my kids. If I had to start at zero, if I had to start at McDonald’s, I think I’d work my way up and I’m sort of a lazy type. So maybe I’d only be the hamburger flipper, but, you know, there’s nothing wrong with starting at zero.

I had no debt either. So it was sort of like…

Olivia: An absolute zero.

Bob: Well, I had debt to the federal government. They’re still torturing me, but that’s another story. But, but, I, I looked at it as a challenge and an opportunity and a clean slate and, I mean, there’s nothing to be afraid of I mean, if I, if I need a meal, I could go to my mother’s house, you know, I’m not going to starve on the street.

Tim: Who cooks better than mom? 

Even if she didn’t cook well, I’m going to eat. I mean, this is not existential. None of this is. So. I just didn’t think there was anything to worry about because you have zero particularly wouldn’t, and my family was great. They stuck by me tons of friends visit, tons of family visit, and and so and and tons, tons writing, tons sending messages, so I mean I always knew that I had a lot of friends out there and that it was a wonderful life still and so, starting over again…

Olivia: You ended up back in radio.

Bob: Yeah.

Olivia: Which is ironic.

Bob: Because I was on home confinement for 13 months. And so my family, the last thing they wanted me to do was be in the media again, because I’m not going to not say what I think. So they’re like, Oh, we’re going to do this again. And I applied for a student teaching jobs. Which many of them are controlled by Kelly services.

So I went three days filling out all these insane things. And there’s nothing I hate more than filling out forms on a computer, but I do, I do it. And then they even had incentives if you were a felon, but they figured they didn’t want the headache of some school answering to the media as to why I was there teaching as this horrible criminal.

And so they said, guess what? You can’t do it. And then you can’t work for your family. You can’t work for yourself and you couldn’t do any job on home confinement where you didn’t just go from your home, to the job, and then back. There was no flexibility on that whatsoever. So a number of friends had reached out.

Oh, would you like to do sales for us? Would you like to do sales management? Would you like to run this company? And I couldn’t do it because I could only go to the office and home. And so I finally realized I’m going to have to do, I’d thought about it in prison quite a bit too. I’m going to have to do a radio show.

And I called WILK and agreed. Frank Andrews was actually on the air in the afternoon. He wanted to do an interview and they said, well, why don’t you come on and do a, you know, guest host the Morning Show one day. And I did, I got permission. Then I did. And then they said, well, how about if you substitute every, you know, every so often when somebody’s sick or vacation or whatever.

So I did that for a little while. And then after a few months, so April of what, 21, I guess, they offered me a job. And so I took it and I’ve, so we’re negotiating the contract. They’ve been great down there too. I’m negotiating the contract with the general manager. And I forget what he asked me and I said, well, right.

What am I going to tell you? I have an ankle bracelet. How am I going to, I’m going to tell you what I’m going to do. So, so I, I got into, you know, to the radio gig and, uh, it is not about. Me getting back at anybody. I don’t see, I don’t see it that way. I have a lot of people screwed me. I mean, there’s no doubt about that, but that’s just not, you can’t, I don’t know you, I can’t live my life focused or even paying attention to that because there’ll always be people trying to screw me.

And it’s not, by the way, I, I always talk about things like racism and these other issues that they try to isolate to, to this category. No. People just like to keep other people down.

Tim: Yeah

Bob: It has nothing to do with race. It has nothing to do with anything except, Oh, this guy might be getting ahead. Let’s screw him.

I mean, it’s just, so that’s always going to be a condition of life. It’s always going to be a factor of life. And, so the show is about what I believe the, incredibly wrong track the country is on. And it’s hopefully educational, hopefully do it in a fun way, in a funny way, an entertaining way.

But it’s, it’s a passion project, I guess you’d say, because it’s not a lot of money. It’s just, you know, a living wage.

Olivia: Nice.

Tim: So, now how, how many years are you doing that now, Bob?

Bob: Full time. I started, the it was the Monday after Easter in 2021. So like April 5th, I think I can’t remember the specific date, but yeah.

Tim: Yeah. And you know, I’ve listened to many, many episodes and I’ve actually called in a couple of times and I thought, I figured you recognize my voice.

Bob: I didn’t know. 

Tim: No, really? 

Bob: No, I would have called you out. 

Tim: So a couple of times I called in, but, I mean, you got a really engaged audience and, and, you know, I know that… 

Bob: It’s enjoyable.

You know, it’s, it’s like hanging around and some of them don’t even like me, you know, the people listening, they’ll always send him, you know, I, I remember the one time when we start, when I, particularly when I started doing it, they would say, Oh yeah, great. Coming from an ex-convict. And I was like, well, let’s get something clear here.

I tried to have my conviction overturned and failed. I’m a convict. I would be an ex-convict if I got my conviction overturned. But I’m not. So I mean…

Olivia: If you’re going to insult me, do it formally. 

Bob: Yeah, do it accurately. Let’s use the English language the way it’s supposed to be. But, I don’t duck that. I’m not ashamed of it, frankly.

That part of my life was very educational, whether I liked it or not. And, and so I hope the shoe, the show is about truth, fact, and reality, which a lot of people who lead us don’t see and don’t want to see for their own benefit or, or comfort or whatever. And, so, I mean I get to do that every day and people, they are very responsive.

Positive and negative, but it doesn’t matter to me and they’re very involved and they’re enjoying themselves and they’re laughing and they’re fired up and all that kind of thing. I say when I did the television show, which was nonpolitical and I enjoy that and I may go back to that, but the radio show, I said, if, if, I get a tear to my eye at least once during the show, if I get, worked up in a lather at least once during the show, and if I laugh once during the show, I know that it was a pretty good show.

Tim: Jim Valvano. 

Bob: Does he say that? 

Tim: Well, he said in his  ESPY speech. 

Bob: Oh. 

Tim: If, if you cry once a day, if you laugh once a day, and think once a day, you’ve had a full day. 

Bob: Yeah. 

Tim: And, uh…

Bob: That’s great. 

Tim: Yeah. 

Bob: And it’s, you know, it’s how I approach the show. I know, I feel like I accomplished something that day and we do a veterans tribute, which is very important to me.

In fact, that’s the reason I continued to do the show. Many times it’s just off the obituaries of veterans who’ve passed away, but very often it’s, you know, families and others who I encourage, like, you know, send me information on your family member. I don’t care. It was peacetime. I don’t care if they were a war hero.

And, and so you get to do that and you get to publicize businesses that you could really believe in. You get to publicize events that you are excited about for other people. And, it’s, it’s a great, platform and they let me say anything I want. I’m sure there’s a point at which they’d fire me, but I don’t…

Olivia: I haven’t reached it yet.

Bob: I haven’t held. Well, I haven’t held back either. So.

Tim: Right. But, you know, Bob, knowing you…

Bob: Well, I say, the other part is, this is the truth of it, it beats working. I’ve seen people work. I know what they do. 

Tim: Right. 

Bob: Guys in construction and, I mean, they really, they, people in factories, they actually work. This is not work.

Tim: Isn’t that great? Now, when you think about that, so first, well, two things. Number one, it’s not work. I’ve never, ever known you to hold back, so that’s just not going to happen. But number two, and I’ve told my kids this over and over throughout their lives, is find out, like, figure out something you love to do, find a way to get paid for it, and you’ll never have to work a day in your life. And seriously, it seems like you’ve found that.

Bob: Some of that’s true. Well, I mean. I like to get paid. So that’s why I did the TV show and that worked out well. But it ran its course with channel 16. So now we’re looking at other options, but, I say, I’m starting to say we, if I start referring to myself in the third person, just smash me in the head, would you with this skull over here.

Looking at other options to bring the TV show back, cause that was designed to be all positive and, and to, to bring people together and, about great things that are happening and really interesting people that are happening. I do that on the TV, the radio show, but people are afraid of the political side of it.

Cause this area is so Democrat and, and for whatever reason, I always find myself going after the majority and so, you know, they’re afraid to sometimes to do things on the show because it is so opinionated and, but I mean, I don’t care what your politics is, if you’re doing something interesting or if you’re a charity, so there’s a lot of interaction on that front, which is again, as I said earlier, a fun part of the show.

Olivia: So, so what is your TV show about?

Bob: The TV show, we, we interviewed everybody from Bo Dietl with his movie projects. We had, uh, like maybe one of the, Steve Vacendak, who was one of the greatest basketball players from this area. We had people who ran Goodwill Industries and St. Joseph Center. And they’re all on all of the episodes of war heroes, combat veterans of Korean War, World War Two.

Really an interesting montage of people, a sports writer at age is like mid nineties. Now we had a lot of interesting guests. It was fun to do and it was, and it was nonpolitical. Which I liked too. I mean, I said, I could listen to myself talking about politics for five days, not six. And it was very popular.

We were lucky to have a position right out of, after the great show, Pennsylvania Outdoor Life. And so we had a lot of eyeballs watching, and it had a lot of reach, and so it was very enjoyable. It was very enjoyable. 

Olivia: Awesome. And all of those are available on YouTube.

Bob: On YouTube. Under the Bob Codaro Show on TV.

Olivia: Okay. 

Bob: Yeah, we’re gonna, we’ll come back with, I’m sure I’ll come back with some TV. I’ve had, been having discussions about it. 

Olivia: Yeah, it’s in the works. 

Bob: Yeah. 

Tim: Well, it seems like you, you’ve always had an affinity for media. Just I don’t know, just like since I’ve known you, you seem to have an affinity for media and it seems like you’re back where you belong.

Bob: Maybe so. Maybe so. And it’s much better than owning. I don’t have to make payroll every Friday, they do it. I remember like going up to, I remember this one time we’re, we’re going up to, I had to make payroll and I used to call, uh, my friend X.E. McAndrew, we lost unfortunately John McAndrew and I would call him up on Thursday nights and go, X, payroll tomorrow.

He goes, eh, we’ll get it done somehow. And so I, at one time driving with one of my salesmen. And, and you can’t look desperate to your advertisers, but I go, my, my old guy, my old buddy, Ed Connick, I go, Ed, I really need the money for Friday. We drive up to the Ray Price and they had a car dealership on Mount Pocono and he gave us the money.

It was nice of him. It really was. He didn’t have to pay because you have 60, 90 days to pay radio and media. And he paid us ahead of time and I made payroll that day, that week. 

Tim: Wow. But, you know, that’s the great thing about, you know, about business though is the wonderful people you meet and the, and, and the impact that you could have.

Bob: I think about, about anything your interactions are. 

Tim: True. 

Bob: And it’s easier to sit at home, which I frankly prefer to do, but you would have missed so much. 

Olivia: Mhmm.

Tim: Exactly. 

Bob: Whether it’s prison or politics. Uh, although I, I said. I would, uh, rely on the 1200 prisoners I’m with out at Allenwood inside the fence. More than 1200 people in politics any day.

So true. Because there, there were real consequences for lying and screwing somebody in prison, there are no consequences in politics. 

Olivia: That’s a great point. 

Tim: That’s great. 

Bob: I would, I would think of myself, boy, if they tried that in here,

I wouldn’t even have to do anything. 

Olivia: Well, Bob, this has been a great show as, as promised, you delivered and we appreciate you so much for, for joining us today and our audience, I’m sure, appreciates it also your stories and very captivating.

So tell them how they could, find you, you know, when we talked about the YouTube channel and the radio, how could they, how could they get in front of you? 

Bob: To see the, I think we have 45 to 48 editions of the television show. It’s under the Bob Cordaro show on TV. And you can see other, if you go to YouTube, you’re going to see other stuff that interviews with Joe Snedeker, that kind of thing that you’ll, so there’s, there’s that stuff.

And then on, I’m on WILK news radio. You go to WILK news radio.com. If you don’t get the signal 103.1FM and 910 and 980AM, uh, every day, nine to noon. And, it’s, I, I can be found,

Tim: Bob. I can’t tell you how good it was. Number one to see you. 

Bob: It was great talking to you. I said, I don’t know if this is for the broadcast or not, but I mean, I, I met him when he was getting recruited at the University of Rochester to play football and we’ve been fast friends ever since I, like, immediate, immediate, he was such a good teddy bear of a guy.

And I love your dad. I do. It was like we were talking the other day. The first time after 15, 18, 20 years, whatever. 

Tim: Yeah. 

Bob: It was like we had just spoken the day before. 

Olivia: Oh, that’s the best. 

Tim: Exactly. That’s the best, right? So there’s people that I haven’t seen since high school. And I saw a really good friend, Eddie Rubel.

He, he played football with us in high school and, he moved out to Colorado. I haven’t seen Eddie in 40 years and we saw him this summer and it was like, wow, we just picked it right up, you know? 

Bob: Yeah, that is nice. 

Tim: Yeah. So, Bob, thanks so much for being with, being here as our guest, and I’m sure our audience got a lot out of it because I did.

And I know it was…

Bob: Who is the audience? 

Olivia: We’re talking to business owners all across the country.

Bob: Oh okay, neat, neat. Yeah. That’s good. Well, it’s neat that you do this and extend beyond your, your normal, business modes, even if it doesn’t necessarily assist with business. But it’s, it’s, it’s important that you do this.

This is great. 

Olivia: Yeah. We, we aim to add value to our audience and, and spread knowledge from other business owners and professionals. And. Convicts. 

Bob: You know, I, you give them an inch, they take a yard. 

Tim: I know, how about that?

Bob: Do you see this, do you see this? That’s my line. It’s like I tell my producers on the radio show I tell…

Olivia: Well its accurate I heard.

Bob: I tell the jokes around here, okay? 

Tim: That’s right. 

Bob: I’m the one with the lines. Not you. 

Olivia: I’m back in my place.

Tim: There you go. He liked you better when you didn’t say anything. 

Bob: No. You know what? Yeah. If you have a good line, use it as long as you’re willing to accept the consequences. 

Tim: There you go. 

Olivia: Words to live by. Thank you so much again, Bob, for joining us.

Bob: Thank you. Pleasure to see you guys and be with you. 

The Power of Leverage: Grow Your Wealth with Smart Financial Strategies

Are you looking to get the most bang for your buck? Well, here’s the secret. It’s called leverage.

There are many definitions of leverage, but the one I like best in financial terms is to use the least amount of money to control the greatest amount of assets. Think about it. For real estate investors, what do they do? They borrow other people’s money. They get bank loans to buy real estate, and then they let their tenants pay the mortgage.

When you’re investing in real estate, you want to put as little down on that property as possible, right? The reason why is that the more control of your cash you have, the more investments you can make down the line. You have your money working for you, as well as other people’s money working for you as well as the mortgage.

But many times we run into people who say, I’m buying a piece of real estate and I’m going to pay cash for it. Let’s say it’s going to cost $250,000, my question to them was, why are you doing this?

“Number one, it’s a good investment. Number two, I’ll collect the rent.”

Well, that may be true, but think of it this way. If the rents were that good if you use leverage to purchase that property instead of using $250,000 to control one piece of property, that same individual can use $250,000 to control five properties. Then you would have five rents coming in.

So if you were to pay cash for a purchase, what often isn’t taken into consideration is the opportunity cost. You don’t consider what that money could have been earning you had you not parked it in that investment or that piece of property.

What we see is the interest we’re going to pay when we finance. What we don’t see is the interest we would give up by paying cash. We fixate on the things we see and we completely ignore the things we don’t see.

So how do you get the maximum return on your money? Well, the secret lies in using the least amount of dollars to purchase the biggest assets possible. The way you do that is by using other people’s money.

For example, a bank with a mortgage. Another example is using a whole life insurance policy cash loan to leverage against your existing cash value without interrupting the compounding of interest within your contract.

So the bottom line is having as little of your money in the game as possible so that you can create a larger net worth by leveraging other people’s money, whether that be money from a bank or money from the insurance company.

Now, you may be wondering, how exactly do I use a life insurance policy loan to make the best return possible on my money? Well, when using the policy loan provision, your money doesn’t ever leave your contract. The insurance company gives you a separate loan from their general account and places a lien on your policy cash value. Your cash value continues to grow and compound as if you never touched it because you didn’t, and you’re able to use the cash to go make outside investments and hopefully earn a higher rate of return.

So here’s an example of the evolution of using a life insurance policy to make real estate investments.

You fund a policy in year one with an annual payment. You borrow against the cash value of that policy to pay the closing costs. On the first piece of real estate, you buy. Two or three years later, you pay back that loan completely. You paid premiums for a total of three years and now there’s enough money to borrow against the cash value to pay not only the closing costs but also the down payment on that property.

Two or three years later, you pay back that loan and now there’s enough money to borrow against your cash value to pay closing costs and down payments on two properties. You just rinse and repeat over your lifetime. You’re building a large net worth in real estate as well as building a large net worth in cash value of your life insurance policies.

So you may be wondering, hey, what’s the difference? In both scenarios, I’m paying closing costs and the down payment, and getting a mortgage, and losing interest all along the way. However, using this method allows you to control the cash flow along the way and recapture the interest paid by passing it on in your legacy using the death benefit.

So using life insurance policy loans to make your investment purchases can make your money more efficient because you’re not losing out on the opportunity cost of your money. You’re still able to make the investments. And with time, you’re able to build a cash value that you own and control so that you’re able to make more and more purchases.

The trick is to leverage $1 to allow you to build an empire.

If you’d like to get started with a cash-value life insurance policy used and designed to leverage your cash to make more investments, schedule your free strategy session so we can talk specifically to your situation, or check out our free webinar, The Four Steps to Financial Freedom.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Personalizing Policy Design for Infinite Banking with Whole Life Insurance

If you’re looking into the infinite banking concept using a whole life insurance policy, I’m sure you’ve heard of the different splits. Do I do a 90/10? Do I do an 80/20? Do I do a 40/60? What is the best design for me and how do I get the most out of my policies?

There is no one-size-fits-all when it comes to infinite banking. The policy design really comes down to how you actually plan on using the policy. From there, the advisor can help you design a policy that meets your goals and objectives as to how you want to use it.

When looking at the best policy design for a particular client. We certainly want to make sure we’re within their budget and that we can design the policy properly so it can perform now, as well as in the future for them.

Another thing we take into consideration when designing policies is the long-term effect of the modified endowment contract status test. You see, that test, The modified endowment contract status test, is an ongoing test. You may pass it in the first year, you may pass it in the 10th year, but you may fail that test in later years. And here’s the deal. Once a MEC, always a MEC. What that means is once that policy is a MEC, it will be a MEC forever.

It’s hard to determine when you’re first illustrating a policy if and when that policy is going to MEC because when you’re illustrating a policy, it’s only based on the current year’s dividends. But dividend scales change every year.

Let’s take a step backward. What exactly is a modified endowment contract and what effects does it have on the policy?

Well, the government wants to make sure that you’re not using life insurance as an investment because it’s not an investment. So we need to make sure that for the amount of cash you’re stuffing in that policy, there is enough death benefit to justify it. 

If your policy doesn’t pass the seven-pay test, it could become a MEC. What that means is it becomes taxable like an annuity, meaning any loans or distributions above the premiums paid into the policy will be taxable and taxable as income when that is accessed.

But keep this in mind, the effects of the MEC, the fact that distributions are taxable don’t come into effect until the cash value is greater than the premiums paid in, which typically can be anywhere from seven years to 13 years down the line.

So what that means is your policy could be an MEC on day one, But you won’t have to pay taxes on that distribution until the cash value is greater than the premiums paid.

So let’s go back. What is the best policy design?

Typically with an infinite banking concept design in a whole life insurance policy, we’re looking at a 40 base and a 60 paid-up additions rider, meaning 40% of the premium is going towards supporting the base policy, The death benefit, the regular whole life insurance contract, and 60% is going towards paid-up additions and building up that cash value in the early years of the contract. This is typically a safer policy design to prevent your policy from MEC-ing down the line.

Because every situation is different, it may make sense to do a higher amount of paid-up additions in the early years. For example, if you’re just getting started and you need access to a lot of that cash value in the early years and you don’t want to tie it up in the policy, it may make sense to put on more paid-up additions with the knowledge that may cause a MEC down the line. So, again, there’s no one size fits all.

We had mentioned that there’s a 40/60 and that might be the typical best way to do it, but it doesn’t mean that that’s the way you should do it.

If you’d like to talk about your situation and what policy design best suits your needs, hop right on our calendar by clicking the Schedule your Strategy Session button on our homepage. Also, if you’d like to learn exactly how we put this process to work for our clients, check out our webinar, The Four Steps of Financial Freedom.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Practice Financial Efficiency with Life Insurance Policy Loans

So you’ve heard of life insurance policy loans, but have you ever wondered exactly how the intricacies of policy loans work?

If you have a whole life insurance policy, there’s a contractual provision built into your contract that allows for policy loans. Policy loans are unique in that they’re unstructured, and you have guaranteed access via this loan provision. We usually recommend policy loans for our clients because they’re unstructured and they make the rest of their money more efficient.

You may be wondering how the heck could taking a policy loan make my other money more efficient. Well, there’s a couple of reasons.

First is the fact that it’s a collateralized loan. What that means is you’re not borrowing money from your policy, you’re borrowing money from the insurance company. They’re putting a lien against your policy, which means your money continues to earn uninterrupted compounding interest. It’s almost as if your money is in two places at once.

If you were going to pay cash for something and instead take a policy loan, now you still control the cash, the money in the policy is still working for you, earning uninterrupted compounding of interest and you’re paying a loan back to the insurance company. As that loan balance comes down, the amount of equity you can borrow against rises. You always have access to more and more money as long as you’re paying back the loan and the premium.

With the challenges we’re looking at going forward; high inflation paired with high interest rates, making the most of your money is important. That efficiency that you can achieve by borrowing against the cash value of your life insurance basically gives you multiple duty dollars.

The next benefit of using a life insurance policy loan is this unstructured repayment schedule, meaning you as the policy owner get to determine the amortization of that loan. You could set it up on a monthly basis for an amount that matches your budget or pays off the loan within a certain time period, or you could contribute lump sums towards that policy loan to knock it down when you have, let’s say, a bonus or a windfall of money, come in or you could pay just the interest. And it’s not required that you pay back the policy loan, although it is recommended.

Let’s say you set up the loan repayment for $400 again, that’s your decision. But three or four months into it, you realize you need more monthly spendable income. You could reduce that loan payment from 400, let’s say, to 300, or 200, or 100, or stop it altogether. Obviously, interest will accrue, and that interest is paid to the insurance company. However, it gives you flexibility within your current cash flow. That’s another key to making the rest of your money more efficient. 

The insurance company is actually able to make this unstructured loan because they’re the entity making the loan as well as guaranteeing the collateral. They’re on both sides of the equation, meaning they have nothing to lose in the game. If you don’t pay that policy loan back they have the cash value. If the insured dies with the policy loan outstanding, they simply reduce the death benefit dollar for dollar because that money was technically already paid out to that policy owner.

Here’s another note on making your money more efficient. What’s the least valuable asset that you control? Wouldn’t it be a death benefit on your life? You’re never going to spend that money. But think of it this way, by using the loan feature and borrowing against that cash value, it’s almost like you’re becoming the beneficiary of your own life insurance policy.

If you’d like to get started with using whole life insurance to leverage cash value and make your money more efficient, feel free to hop on our calendar using the ‘Schedule your Strategy Session’ button, or check out exactly how we put this process to work for our clients with our web course, The Four Steps to Financial Freedom.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Demystifying Taxes and Financial Control

Episode Summary

Welcome to the Control Your Cash Podcast, in this episode, Olivia and Tim delve into the complex world of taxes, shedding light on common misconceptions and strategies for financial control. Discover why so many taxpayers unknowingly overpay and how the government’s tax system impacts your financial future. Learn why deferring taxes into retirement accounts may not be as beneficial as it seems, and explore alternative ways to keep your money safe and in your control. Join them as they uncover the hidden truths about taxes and provide insights to help you regain control of your financial journey. Don’t miss this enlightening discussion.

Key Takeaways

Tax Overpayment Reality Check: 

  • Research suggests that a staggering 91% of taxpayers overpay on their tax bill, with over 70% overpaying by more than 70%. This reveals a significant disconnect between perceived understanding and actual overpayment.

Opportunity Costs: 

  • Overpaying in taxes not only means losing the taxed dollar but also the potential earnings that could have resulted from it. This loss extends across generations, affecting not just the individual but future descendants as well.

Inflation as a Stealth Tax: 

  • Inflation acts as a hidden tax, eroding the purchasing power of money over time. It impacts everyone but tends to affect lower-income brackets more severely.

Empowerment Through Knowledge: 

  • Understanding the realities of tax systems and financial instruments empowers individuals to make informed decisions and seek out strategies that align better with their financial goals and aspirations.

Transcript

Olivia: Hello, and welcome to the Control Your Cash Podcast. I’m your host, Olivia Kirk.

Tim: And I’m Tim Yurek. 

Olivia: We’re here today to talk about everyone’s favorite topic. Taxes. Just kidding, the dreaded taxes, it’s a huge major capital expense for households and businesses across America. So it is a topic that does need to be discussed because there are better methods than other for funding taxes, or if you’re lucky enough to receive a tax refund, how to put those tax dollars to work for you, your business, and your family.

Tim: You know, it’s funny, I did some research on taxes and found that 91% of all taxpayers overpay on their tax bill. 

Olivia: Now nobody wants to hear that. 

Tim: And here’s the kicker. Over 70% of them overpay by over 70%. So, you know, everybody out there thinks that they’re handling things the best way and that they’ve got the best accountant or the best CPA.

But clearly there’s a disconnect. If everybody thinks they’re doing it right, and 91% is overpaying, something is not adding up, if that makes sense.

Olivia: And then we wonder why the government doesn’t give us a clear cut method or tell us how much to pay in taxes. They’d be losing a huge chunk of their revenue by doing so.

Not to mention, we talk about the five areas of wealth transfer. Taxes are number one. Where are we giving up control of our money unknowingly and unnecessarily? No one wants to pay more in taxes than necessary, but they are something that we need to consider when considering financial planning and how to move ahead for ourselves.

Tim: Yeah. I mean this. So think about this. If you overpay in taxes, you don’t only lose the tax dollar. You lose what that dollar could have earned for you. That’s opportunity costs and you lose it forever. Meaning that not only do you lose it, but your children and your grandchildren and your great grandchildren lose the ability to have controlled that dollar.

So it’s really important to address the tax issue. Uh, but again, everybody thinks they’re doing it right, but there has to be some kind of a disconnect because if so many people are overpaying, and they’re overpaying by such a large degree, something isn’t adding up. And think about this, you know, every few years, uh, a political candidate might run on we’re gonna, you know, we’re gonna reform the tax system.

Nothing ever gets done. There’s no incentive in Washington to reform the tax system.

Olivia: Well, the government doesn’t produce anything. All they have is revenue, and they only, what, what are the sources of revenue? Taxes? Is that it?

Tim: Well, taxes and borrowing. Right? So, so and… 

Olivia: If you can consider borrowing as a form of revenue.

Tim: Yeah, I mean, 33 trillion dollars in debt. What’s another trillion dollars? What the heck? Easy come, easy go, right? 

Olivia: Except it never came.

Tim: But look at all the constituents we could buy off.

Olivia: Oh my gosh. So, yeah, it’s, it’s. The tax money has to come from somewhere because it is expensive to run the country, to protect the country.

And the government’s job is to do just that. And, you know, they have to get paid themselves. So the money has to come from somewhere. And as this debt adds up, as interest rates rise, and they keep on going up and up and up. As these things happen, the cost of the interest on the astronomical amount of debt is increasing, and you know the money has to come from somewhere.

And spoiler alert, it’s gonna come from the people who have the money. If you don’t have any money, the government’s not coming for you. It’s the people who have the money and newsflash again. You may be, it may not feel like it, but you may be those people who are responsible for paying those taxes, whether it feels like it or not.

Tim: You know, I like when people say, hey, the rich should pay their fair share. Well, think about this. Over 80% of taxpayers filed for $100,000 of income or less. Now, guess what? If you make $100,000 in the United States, in 2023. Are you rich?

Olivia: Does it feel like you’re rich is the better question.

Tim: It doesn’t feel like it for sure, but here’s the point when you’re sitting there saying, yeah, the rich should pay their fair share, you’re basically saying, come and kick my butt because I’m rich. Now you don’t feel rich, but as far as the government’s concerned, you make a hundred grand you’re rich.

Olivia: Yeah. Yeah, that that 100 to 200,000 of income has some some real challenges to face between you know all of the problems that everyone’s dealing with as far as rising inflation rising interest rates but then there’s also other layers of challenges that come up between not getting as much for child care or not getting as much for financial aid and paying more for your children to go to college. Not to mention, if you’re in that, that earning bracket, you may have some, some student debt yourself that you need to account for in there.

So it’s really important. We always say to make your money as efficient as possible. And as you continue to earn more and more money, if you don’t address these issues, those problems are going to continue to compound as your income grows. So it’s important to address each of the wealth transfers, starting with taxes to make sure that you’re not paying more than you need to, to make sure that you’re keeping as much as you can, and to make sure that you’re setting yourself up for success here.

Tim: Yeah. And looking at setting yourself up for success, all the strategies that we employ on a daily basis, whether they’re financial or personal, really have a ripple effect on everything else that we do or that we’re able to do in the future. And keep this in mind, you know, when we talk about saving money on taxes, it may not necessarily be you paying less taxes this year.

We have to look into the future and take the idea of deferring taxes into a 401k or a qualified retirement account. Well, it’s a government tax qualified retirement account, which means that all the rules are laid out by the government. They made the rules. Now, keep this in mind, those rules were made to favor the government.

They weren’t made to favor you. Remember Nelson Nash saying in his book, Becoming Your Own Banker. You know, the government creates a problem, high taxes, and then they provide a solution to that problem. The ability to defer your tax into the future. And then they make that first available to the rich, and then to the not so rich, and then to the not so rich, less, even less, and even more.

And then next thing you know, now they have an exception to the rule for everybody. It’s called an IRA. Now think about this. The government creates the problem. The government provides the solution to the problem. Do you think that maybe, just maybe, you might be, you know, you might be subject to manipulation there.

I mean, if they really wanted to solve the problem, what would the solution be? 

Olivia: Possibly to lower taxes. 

Tim: Wouldn’t that be the logical solution? But do you think that’s going to happen?

Olivia: It can’t at this point because every, every splash has a ripple and we’ve got into a very high level of government debt to say the least, and that’s just one layer.

And then adding on the, the rising interest rates on top of that. So it’s impossible for them to slow down now. And it’s just math, you know, at the end of the day, it’s just math. 

Tim: You know, so the, the big thing is people think, and they’re, they’re led to believe by their, accounting or their, their tax people, that if you defer money into this retirement account, you’re gonna save X amount of dollars in taxes.

So let’s say you’re in a 30% tax bracket and you put $10,000 into this retirement account. Hey, you saved $3,000. Eh, no you didn’t. You deferred $3,000 of taxes into the future. Now let’s look at, did you really save money? 

Olivia: It’s funny because. You know, we get, we get calls every single year around tax time where our clients are saying, hey, my accountant said I could save on taxes.

Like I need to get money into my qualified plan. And we’re like, do you have the money accessible to put into your qualified plan? Is that money baked into your cake? Is that in your cashflow to put away 10-20,000 dollars into your IRA? And a lot of the times the answer is no. Right. Cause if it was, then you just pay the taxes, right?

You’d have the money to pay the taxes instead of scrambling to figure out how to save on taxes. At the end of the day, no one wants to pay the taxes. But another thing to consider there. On top of deferring the taxes into the unknown future, you’re also losing access to that money, you know, you’re not that money isn’t accessible before age 59 and a half without penalty and regardless of when you take it out, it’s going to be fully taxable as income at that time.

So if you want to use it to accomplish a financial goal down the line before age 59 and a half, you’re subject to taxes and a penalty. So then you really didn’t save any money on taxes. You know, they’re getting you one way or another. And a lot of times it’s where you’re worse off for it. 

Tim: Well, absolutely.

And now let’s add another layer to that cake. Right. And think of it this way. When you have to pay more for goods and services in the future, not through your own fault. But because the government is printing more money and printing more money just increase, increases the cost of the goods and services that we’re consuming. 

Olivia: Hashtag inflation.

Tim: That’s called inflation, right? So isn’t that, isn’t inflation another tax? 

Olivia: We call it the stealth tax around here because it affects each and every single one of us. Some more than others, you know, the lower your income, the more you’re going to be affected by the effects of inflation that are eroding away at the buying power of our dollars.

And a lot of people don’t consider the effect of inflation on our retirement savings, right? Because we see maybe we’re earning so much rate of return on, on our, our retirement savings, our retirement investments, maybe we’re paying fees, maybe we’re going to pay taxes. But what’s not considered is that when you put that dollar in, in 2023, that’s the most that dollar’s ever going to be worth ever. So…

Tim: Meaning that, meaning that that dollar can buy the most goods and services in your life going forward. 

Olivia: Yeah. 

Tim: Right? As inflation affects those dollars going, that dollar going forward, you’re going to be able to buy less and less goods and services with that dollar. So, but, you know, so now let’s sort of, the picture is starting to come together. You’re told you’re saving taxes, and in the example we used, $3,000 you’re saving in taxes.

And you believe it because that’s what you see on your tax return. Right? This is go, goes back to what Nelson always said, the seen and the unseen. We see the $3,000 we’re saving in taxes. We don’t see at the time of that deduction or the time of that deposit into the account, we don’t see the taxes we’re going to have to pay in the future.

We don’t see or feel the cost of inflation on that money. And, you know, another thing we don’t see or feel is did we make or lose money on that deposit over time? So all of these things paint a picture that oh well, I don’t know what the taxes are going to be in the future. I know that the dollars that I’m taking out of that account down the road are going to have less buying power than the dollars today, but I don’t know how much less.

I don’t know whether or not I’m going to have, I’m going to lose money or make money in that account. Now you’re looking at it and saying, boy, am I saving money? Or am I just greasing the wheels of the, you know, the accounting industry and the financial services industry and the government, and they’re just using my money to sort of advance themselves and me, well, I guess I’m left to sort of sink or swim on my own.

Olivia: And that’s the case. A lot of times. And, you know, a lot of times there isn’t enough money in those accounts for, for someone to retire comfortably. In the past it used to be that your employer would provide a pension and all of that risk was placed on your employer instead of on that individual.

But nowadays, ever since we have these qualified plans and the accessibility to them, all of the investment risk is on the individual. And we’re seeing now how that’s working out with so many people. Unprepared for retirement, you know, whether, whether they’re saving in their 401, 401k or not, you know, um, it’s, it’s sad and it’s something that needs to be addressed as soon as possible so that you’re set up for financial success throughout your life and also saving in a place where the government can’t get their hands on it, you know, a place where, um, that money’s safe and there for you, your business, and your family, and no one else.

Tim: And, and that’s, that’s a such a great point, right? Wouldn’t the best way to overcome taxes be to put your money in a place that the government can’t get at? 

Olivia: Contractually. 

Tim: I mean, how much, how logical is that, that Wait, you mean to tell me there’s a place I could put my money that the government will never be able to get its hands on it?

Olivia: Well, you think about it, like, the government are the ones making the rules. And they’re making those rules frequently, you know, mind you. They’re not just saying, let’s make these rules, set it, and forget it. We see how often the rules have changed between, um, in those qualified accounts. Between the beneficiaries, between the RMDs, between everything.

We don’t know what that’s going to look like down the line. 

Tim: And who do they, who does the government lean on when they’re making these regulations? When they’re changing these laws? When they’re setting up, uh, when they’re setting up, uh, regulations? Aren’t they using the access to the large companies, the ones who are going to benefit the most?

So think about this, the people who are making the laws, right? So, they, they make the rules, they profit from your participation, and they control the outcomes. What chance does the individual or the, or the, the average person or business owner have against the big corporations and the government and the financial institutions?

I mean, it’s, the deck is stacked so far against us that it’s really, really difficult to get ahead. And we’re seeing that more and more today because of inflation, because of taxation, because of the amount of money that the government’s printing. The little guy’s getting squeezed out, no doubt about it.

And just, you know. Rightfully or wrong, wrong, right? Let’s look at COVID. They put the little guy out of business, the small business owner, but you can go to Walmart, you can go to the big corporations, you can go to Target, but you can’t go to Joe’s store down the street. 

Olivia: Yeah, it’s sad, and I’m sure many people are still recovering from those effects, and the effect that it had on their business during COVID, and then after.

But yeah, it’s hard. It’s hard as a business owner, and it’s important to that’s why we always talk about making your money as efficient as possible, setting it up. So, you know, you’re in control of it. You know, you’re not being squeezed by all of those outside entities, all of those, those things that conventional wisdom teach us to do.

And we do so naturally because that’s what everyone else is doing. That’s seems to be the only way, but there is a way to set yourself up and your family and your business so that you could regain control of that. Um, and do it in a tax efficient manner. 

Tim: Yeah. I think you have to realize from this perspective, a lot of what we think to be true about taxes may not necessarily be true.

And if what we think to be true is not true, how soon do we want to know? When do we want to know that what we thought or believe to be true about taxes? This is really not true. Do we want to know now or do we want to know 30 years from now or 20 years from now? 

Olivia: It’s always better to know as soon as possible.

So you could start making those incremental changes. Those, put the ripples in the other direction, if you will, so that you’re moving towards your financial goals rather than being separated from them unknowingly and unnecessarily. If you’d like to learn more about our process. At Tier1 Capital, be sure to check out our website at tier1capital.com. 

You could feel free to schedule your free strategy session right on our homepage. We’d love to speak with you personally about your specific situation. Thank you so much for listening today. We appreciate it from The Control Your Cash Podcast. We’ll see you next time. 

Understanding Whole Life Insurance: Cash Value vs. Death Benefit Explained

When it comes to specially designed whole life insurance policies designed for cash accumulation, you hear us talk about the cash value as well as the death benefit. A question that we’ll often get at the death of the insured is, “Are both the death benefit and the cash value, paid out to the named beneficiary?”

Have you ever wondered how the living benefits and the death benefits work in a whole life insurance policy? Let’s take a step back and look at how.

With a regular, whole life insurance policy that insurance company is making you two promises. The first is to pay out a death benefit when the insured dies, assuming that the policy is in force. The second is to have a cash value that’s equal to the death benefit at the age of maturity, which is typically age 100 or 121.

So in order to keep that second promise, these policies are actuarially designed to get better and better from a cash value perspective each and every single year because the insurance company needs to stash more and more money away in order to meet that second promise.

So think of it like this, the insurance company is amortizing your mortality costs until age 100 or age 121. As they’re putting that money away to fulfill this second promise, they’re filling up that policy with equity. And that equity becomes cash value that you can borrow against.

If you’re looking at a life insurance policy illustration, you’ll see this under the guaranteed values. You’ll see a guaranteed cash value guaranteed by the insurance company as well as a guaranteed death benefit. With these numbers and these values, this is the worst-case scenario.

You see, your obligation as the policy owner is only one. It’s to pay the premiums the insurance company is responsible for making and meeting all of the other promises within this unilateral contract.

So let’s transition into, how the cash value and the death benefit relate. And the fact of the matter is, it is all baked into the same cake. The death benefit might be $150,000. And when you die, the cash value might be $60,000, but all you’re going to get as far as a death benefit is the $150,000. Why? Because the insurance company puts that money away over that time period to make sure that if you make it to age 100 or age 121, they’re going to have $150,000 in cash waiting for you.

Think of it like this. The cash value in the cash value accessibility through that policy loan provision is a living benefit at death, you get the death benefit and the living benefit ceases.

Another question that makes sense to ask is, “What if there’s a policy loan against my cash value at the time the insured dies? What happens then?” Basically, what will happen is the insurance company will calculate the death benefit, 150,000. And let’s assume you have a $30,000 loan against the policy at the time of your death. They subtract that 30,000 from the 150,000 and your net death benefit is 120,000.

So we often get the question, why don’t I get the death benefit plus the cash value? Certainly, there are some “financial gurus” out there saying, “Hey, the problem with whole life is you don’t get the cash value and the death benefit.” Duh. No, you don’t.

If you have a mortgage against your house, let’s say the house is worth $300,000 and you have a $200,000 mortgage against the house. If you go to sell the house, you don’t get the 300,000 plus the 200,000. What happens is the buyer pays $300,000, your net is 100,000. And so it is with life insurance. If you die with a $150,000 death benefit and $50,000 of cash, you get the 150 death benefit. You don’t get the 150 plus the cash. 

If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation so that you’re able to take advantage of the living benefits as well as the death benefit included in this whole life insurance policy, feel free to hop on our calendar with schedule the Strategy Session button. Or if you’d like to learn more about exactly how we put this process to work for our clients, check out our free web course right on the homepage, The Four Steps to Financial Freedom.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Smart Finance Tips for the Holiday Season: Avoid the Credit Card Hangover

The holiday season is officially upon us. Let’s talk about how to manage spending and how to finance the holiday season because, for many Americans across the country, the holiday season can feel like a major capital purchase.

So how do we make those purchases as efficiently as possible to keep our family in a safe, secure, and moving forward financial position? Let’s start by defining what a major capital purchase is.

We define it as anything you can’t purchase with monthly cash flow, such as the holidays. There are a lot of gifts, there’s a lot of food and often travel that goes into the holiday season. It’s important to make sure your money is working as efficiently as possible, especially during this time that could feel overindulgent in a way.

One of the things that creates the post-holiday hangover is you’re stuck with credit card bills. It’s so easy and convenient to buy whatever you need to buy for the holidays and use that little piece of plastic.  Unfortunately, when January rolls around, those bills start rolling in and then you’re hit with the hangover. How in the world do we pay for these things that we already consumed and gave away? There’s no returning the holiday gifts, at least not the ones that you purchase for other people.

In the second quarter of 2023, for the first time in history, American consumers had over $1 trillion in credit card debt alone. Now, we all know how easy it is to get into credit card debt and how hard it could be to get out of credit card debt because the interest rates are astronomical. So even if you’re paying hundreds of dollars per month towards that credit card bill, you could just barely be touching the principal. A majority of that payment is going to Visa or MasterCard.

So here’s one of the big problems that we see so often after the holidays. You get that large credit card bill and you want to get it paid off as quickly as possible. But the problem is all the money that you’re earning, you’re taking and putting it on the credit card balance, So you’re not getting anything new. Unfortunately, it’s zapping all of your cash and your cash flow so that somewhere down the road when an emergency comes up or an opportunity, you don’t have any access to your own money. So what do you do? You go back and use the credit card.

Think about the psychology of this. You’re in a race to get out of credit card debt, only to go back into credit card debt. So here’s my question. Are you making any progress? What’s the solution?

By adding one extra step by first building up a pool of cash that you own and control and that you’re able to access in the future, you’re able to be less dependent on credit for major capital purchases going forward. You could have a pool of cash that you could leverage against, access money, and then start paying and rebuilding that pool of cash instead of paying back Visa and MasterCard.

So here’s the way it works.

You have this pool of cash, cash value in a life insurance policy, you borrow against it to pay off completely your credit card balance in January. Now, you’re not racking up those high-interest rate charges. Right now the current interest rate is somewhere around 5% for a policy loan. But more importantly, now, every payment you make back to the insurance policy is building or replenishing the equity that you borrowed against. So somewhere down the road, when you do have an emergency or an opportunity comes by, now you have access to money that you could utilize to take advantage of the opportunity or to take care of the emergency.

It gives you the best of both worlds lower interest and the cash flow payments are actually building equity for you. At the end of the day, it’s not what you buy. It’s how you pay for it that really matters.

If you’d like to get in control of your finances so that you’re no longer controlled by the system, but rather in control of this process of financing purchases, be sure to schedule your Free Strategy Session today.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Unlocking Your Financial Ferrari: How an Old Life Insurance Policy Rescued a Family from Debt

Do you have a Ferrari in your garage, and you’ve never driven it? Someone recently reached out and they had a 12-year-old life insurance policy sitting doing nothing. This means they had cash value in the policy that’s accumulated over the last 12 years, and they’ve never put that money and deployed it in their financial system before. So we were able to create a plan for them to get out of debt.

You’ll hear us talk often about specially designed whole life insurance policies designed for cash accumulation. However, all life insurance policies have a cash value aspect built into the cake. You see, when you have a whole life insurance policy the insurance company is making two promises. The first is to pay the death benefit when the insured dies, as long as that policy is in force. The second is to have a cash value equal to the death benefit at the age of maturity, which is typically age 100 or 121. In order to keep that second promise, the insurance company is required to stash away more and more cash over time.

Now, the policy owners have something called a loan provision built into their contract, which guarantees them access to that cash value via policy loans. You see, these people bought their original policies for death benefit purposes, but they also had the cash accumulation.

Now, the policies were 12 years old. They were very well seasoned, meaning that at this stage of the game, the cash value increase was over $2 for every dollar they paid in premium. That was a really good moneymaking machine, so to speak. And I explained to them, it’s sort of like you have a Ferrari in your garage and you’ve never taken it out on the street. We’re going to give you the keys to that Ferrari so you can get it working for you, not the insurance company.

You see that policy has that cash value that you’re able to access through the loan provision on a guaranteed basis. You’re able to repay it within your cash flow because it’s an unstructured loan from the insurance company. And what this family is able to do is borrow against their cash value and pay off this high-interest credit card.

Now, the key here is that as they repay that policy loan, it’s going to reduce the lien against their cash value and they’ll have access to more and more cash value over time. With that, they’ll be able to pay off all of their credit card debt using this process. The beautiful part about it is that they’re going to get out of debt quicker than if they put all of their payments and snowball them on one credit card, then the next, then the next.

That’s the amazing thing about this. Because now they’re filling up that policy equity with two hoses, the premium hose, and the loan repayment hose. Before they were only filling it with the premium hose and they weren’t even tapping into it.

You see, there’s a big difference between paying off debt with a regular snowball and just putting all your cash flow towards getting out of debt as soon as possible versus using a policy loan. Because if you just snowball the traditional way, you spend all of your money and send it all off to the credit card companies, and at the end of the day, what do you have to show for it? Nothing. A zero debt balance.

However, when you use the policy loan to get out of debt, at the end of the day, you have a policy full of cash value that you’re able to access and leverage again, so you are less dependent on those credit companies in the future when it comes to finance your next purchase.

Another key distinction between policy loans and traditional debt is that there’s no qualification. It doesn’t impact your credit score. So actually, their credit score is probably going up after they pay off that credit card debt. And it’s an unstructured repayment schedule so that they’re able to fit the payments into their cash flow.

If they’re feeling cash flush and have a lot of extra cash flow, they can put extra towards that policy loan and get it paid off and built up faster. But if they’re feeling pinched and they only want to make a small amount, they have the flexibility to do that with no questions asked. Because the entity that is guaranteeing that debt is the insurance company, and coincidentally, the insurance company is also the one who’s lending the money to the insured.

And here’s a better distinction when they made the credit card debt, they had to actually apply for the credit card and get permission for that lending amount. They were applying for permission from the bank or the credit company to give them a revolving line of credit. When they went to get the policy loan they were giving an order. They were literally telling them, This is what I want, go get it for me. That is not a small distinction.

The bottom line is, would you rather be controlled by the process or be in control of the process? Do you have a life insurance policy just sitting around doing nothing while you’re accumulating debt?

If that sounds like you, hop right on our calendar by clicking the Schedule your Free Strategy Session button. We’d be happy to talk to you about your situation and how to get you on the path to financial freedom.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Life Insurance: Attract, Retain, and Reward Your Key Employees

Episode Summary

In this episode, Tim and Olivia discuss the strategic use of life insurance for attracting, retaining, and rewarding key employees. They explore the benefits, including true cost recovery and tax advantages, as they share insights and real-life examples. Learn how small businesses can compete for talent and tailor benefit plans to keep key employees engaged. They also uncover the pitfalls of generic consulting solutions and the importance of personalized strategies in this competitive business landscape. Tune in for actionable tips to regain control of your company’s financial future.

Key Takeaways

Life Insurance Benefits for Corporations:

  • Life insurance policies with death benefits allow companies to recover costs associated with benefits, utilizing cash values to fund retirement plans or exit strategies.

Attracting and Retaining Key Employees:

  • Small business owners need to compete for talent. Attracting and retaining key employees is crucial due to the high cost of replacing valuable talent. 

Customized Plans for Retention:

  • Successful plans start with conversations with both the business owner and the key employee to identify what’s important to each party. 

The Role of Proper Planning:

  • Efficiency of Money: Proper planning using life insurance policies can efficiently inject cash into the business during crucial events like the death of key individuals, aiding in business stability and growth.

Transcript

Olivia: Welcome to the Control Your Cash podcast. Today we’re going to be talking about life insurance, specifically as it relates to how to attract, retain, and reward your key employees. Hi, I’m Olivia Kirk.

Tim: I’m Tim Yurek. We’re from Tier One Capital, and we’re here to show you how to regain control of your money.

Olivia: So tell us a little bit about why executives and why companies and business owners would want to use life insurance instead of investments for attracting and rewarding their key employees.

Tim: Well, there’s a couple of reasons. First and foremost is the fact that built into the life insurance with the death benefit, a company can get a true cost recovery of the benefits and properly structured you can utilize the cash values to help you know, fund a an executive retirement plan or an exit strategy for the owner of the business and then the death benefit, if the company retains the policy, the death benefit can be utilized to cost recover all of the premiums paid and the benefits paid out of that policy.

That’s why you see large corporations, uh, for example, banks. Banks utilize What’s known as BOLI, Bank Owned Life Insurance, and they utilize that to cost recover the cost of their benefit plans, and also to fund their SERPs, Selective Executive Retirement Plans, for their key executives. And again, life insurance creates a nice little cost recovery, but then there’s other benefits.

The second benefit is, if something happens to the executive before they reach the retirement age, you have the death benefit that would kick in, the corporation would get the death benefit and then they could pay the death benefit out as a guarantee of salary continuation for the executive that was deceased.

And I think another big issue is the fact that life insurance, the cash values build up on a tax deferred basis. And what that means is the company doesn’t have to pay tax on the growth inside that policy Until they take it out assuming that cash value is greater than the premiums paid in. So there’s a lot of moving parts so to speak or a lot of little benefits that up that add up to a huge benefit to for a company to utilize life insurance as the funding mechanism for their executive benefits.

Olivia: I got ya. So, you know, in today’s world, as a small business owner, there’s a lot of competition for employees out there. At the end of the day, there’s only one pool of talent, right? And everyone’s competing for the most qualified people out there. So if you’re a small business owner and you have a key employee who’s an asset to the company, it makes sense to want to retain them because the cost of hiring someone could be to 200 percent of what you’re paying your key employee right now.

So setting up these these benefits for the employee and making them attractive to the employee. Because at the end of the day, what one out of every two employees is actively looking for another job out there, at least open to the conversation. Um, it’s important to make sure that you’re competitive with what’s out there in the market.

So you’re not losing that key employee, losing their talent, losing all of that knowledge that they hold within themselves, and then having to start over from scratch at a higher cost. So, um, how do you structure these plans to make it worthwhile for the employee to stay? 

Tim: Well, that’s a good question. And so let’s step back a little further, right?

So during the great resignation, Over 28 million people voluntarily left the workforce. They voluntarily quit their job and they went other places. Maybe places where they were appreciated more. Or maybe they were a place where they were getting executive benefits. So, that’s the first thing. The other thing is, think about this.

At the height of this great resignation, 4 million people every month left their job. And that’s especially troubling for small businesses because small business owners, the, a key employee in a small business, might be the only employee within their geographic region that holds the skill set the company needs.

We had one client, as you know, their, their project manager retired and the company literally did almost everything but stand on their head to get this guy to stay with the company. We’ll let you work, you know, Tuesday, Wednesday, Thursday. We’ll let you, you know, we’ll give you extra time off. We’ll pay you 50 percent more to work 40 percent less.

And the guy said, listen, I’m 65, I’ve worked all my life. My wife and I are in good health. We want to travel. We have plans for retirement. There’s nothing you can do to keep me. Here’s the point. It took three people to replace that guy because of the skill set that he had. And that’s something that more and more businesses are being confronted with on a daily basis.

Now, here’s another thing that has to be considered. A midsize or a large corporation is getting a lot of attention from the benefit planning companies because they have the critical mass to make it worthwhile for those businesses, to put in large benefit packages for their executives or their group of key people.

But a small business might only have one or two key people. So these benefit houses are looking at them and saying, well, you know, it’s not really worth our time to just set up plans for two people when we can go and do basically the same amount of work and set it up for seven or eight people. It’s a lot easier and well, it’s more profitable for them.

So the small business owner is really being underserved in that market, if that makes sense. So to answer your question, how do you set up these plans? Well, it starts with a meeting with the company to see, you know, what their appetite is, or how they’re being affected by what’s going on out in the workforce.

Do they have key people? If they left, what type of impact would that have on their cash flow on their business? You know a lot of times you get a guy who might be a great salesman and he uh, you know is, is doing 60, 80 percent of the company sales, and all of a sudden he decides he wants to start his own business.

Now all of a sudden you’ve just trained your biggest competitor, and oh, by the way, he’s taken all of your key customers and your key accounts. So you gotta look at what can we do to make sure that this guy stays around. And a lot of times I heard one story, um, sort of similar situation. There was a guy who was a key salesman and he learned the business and he went to the company.

He realized that he was 65 percent of the overall sales of the business. And he went to the owners of the company and said, Hey, you know, give me 10 percent equity in the business. All he wanted was 10 percent. They’re like, no, no, no. You know, this is a family business. We’re not. He said, oh, okay. He went out started his own business within a very short period of time, two years, put that company out of business.

You know, I mean, so that was really not a good move.

Olivia: Talk about a worst case scenario. 

Tim: And here’s the point we could have designed a phantom stock plan that would have. Uh, mirrored, yeah, would have mirrored the equity in the business, but it would not have given…

Olivia: Actual stock.

Tim: Actual stock or an equity position. And I bet the guy would have taken that.

He would have, he would have loved that, right? Because now he doesn’t have any of the bad parts of the business. He just has the equity growth. That’s huge.

Olivia: Yeah. 

Tim: So. You know, again, setting up these plans starts with a, a conversation with the business owners. And then, here’s the key point, having that conversation with the executive, finding out what’s important to that individual.

And I’ll give you an example. You know, we worked with a manufacturing company out in Long Island. And we met with the executive. Oh, here’s the other thing. They had, they brought in this consulting firm, big time business consulting firm that did executive benefits from Chicago. So they bring in these hotshots from Chicago who charged them $18,000 to do an analysis that we did for, we would have done for free and they did the analysis and then they came back with a plan that the executives, weren’t interested in because it wasn’t… 

Olivia: It didn’t meet their objective, what they care about.

Tim: Exactly. It didn’t meet their objectives.

Olivia: Hey, do you care if we put this in place for you? Is this going to to make you want to stay with us? You know, is this valuable to you?

Tim: How much value will would do you see in this they saw no value in it?

They went to the company and the company said well that’s gonna cost too much to fund. It just was not from either side whether from the executive or the company it wasn’t a viable plan. So the company now has a bad taste in their mouth. And, you know, we get referred in, we come in and they’re like, you know, sitting there with crossed arms because they’re thinking this ain’t going to work because of their past experience.

So the first thing we said was, listen, we’ll do an analysis. It won’t cost you anything. So that sort of brought their guard down a little bit. But then more importantly, we sat down and found out what the objectives of the company were. Which they wanted to reward the CEO who had been there so long and they wanted to reward him for growing the company.

But then they had that CFO that they needed to do something for. That they wanted to reward him. But now doing it in a way that was beneficial or that was valuable to him. So we sat down, we had the key conversation with him. And then all of a sudden found out that you know, he had an eight year old and a six year old.

He needed to educate them, and he had gotten a late start in life. He hadn’t planned and saved money for them. So we designed a plan that would pay $60,000 per year for each of his children for four years while they were in college. In essence, we paid for their, for his children’s college education. As you know, when we delivered the plan, he was in tears with gratitude. 

Now the point is this, that guy ain’t going anywhere. He’s beholden to that company because that company is going to educate both of his children and it won’t have to come out of his pocketbook.

Olivia: Right, right.

Tim: Right, and and so here’s the deal all he’s got to do is what he’s been doing every day show up go to work. Do everything that he does and do it to the best of his ability. He’s all in on that.

Now, he’s got a greater incentive to look out for the benefits of that company. Why? Because that company is taking care of his, his responsibility, which is to educate his children. So the point is, getting to that valuable point, or understanding what’s important to the executive, as well as what’s important to the company, then our job is easy.

Then we just find a way to make it happen. And the key is there are so many different types of plans out there. We could help people to find the right plan for them. That fits their budget, might be more, you know, balance sheet or income statement friendly, and all of a sudden, now we’re adding value.

Olivia: Right, because although you’re quote unquote paying for, for this benefit, you’re also building an asset that’s on the company’s books. So it’s not, you’re just dishing out all of this money and never seeing it on the balance sheet. You have the benefit. Growing and accumulating within the plan and then also on the back end, you have that cost recovery associated with the death benefit, which is a huge deal for the company because basically of the money that you put into the plan, you’re able to cost recover when that insured passes away.

Tim: Yeah. And again, when you set it up properly, we set it up where the company would get a rate of return, not only get their money back, but get it back at an opportunity cost. So now all of a sudden they’re getting their money back. They’re getting growth on that money and they’re locking in this key person and they’re providing a benefit that is recognized as a huge, massive value for that executive.

Again, that’s the best way to do it. And You know, we’ve, as you know, we do that over and over and over again, but the key is having those key conversations. 

Olivia: Exactly. And then thinking about it from a business perspective, right, once that person dies and you get that death benefit, it infuses into the company, right?

So you could expand the company. You could create another plan for your next key employee that you don’t want to lose. And it kind of creates a momentum within the company because cashflow is the lifeblood to any business. So creating that perpetual motion by insuring these key employees is actually a good thing from a current cashflow perspective.

And then those windfalls coming in down the line as well. 

Tim: Yeah. And think about this. Most companies, you know, there’s a, we have a saying, are you insuring your PCs, right? Your personal computers. More than you’re insuring your VPs. And think about that. Computers don’t make your business what it is. You’re key people.

All of your people make your business what it is. You know, your business is just a building and its equipment. But it’s the people that are operating the equipment. It’s the people that are inside the building. that make your business successful. Doesn’t it make sense to insure them? Because God forbid, if you lose one of them, that’s going to cost you money to try to replace that person.

Olivia: I’m thinking about this from a family, a small family business perspective. Um, this would be extremely beneficial for um, those multi-generational businesses, you know, the younger generation ensuring that older generation while they’re still insurable, while you could still afford that cost, um, on that person would be a huge, a huge incentive, right?

Tim: Yeah

Olivia: A huge relief off that second generation, right? Because, you know, think about the value that that original or older generation holds within the company.

Tim: Right. And you think about, you know, the, the likelihood of a business going to the second generation or the third generation, or even the fourth and fifth generation.

It’s, the odds are insurmountable for a company to get to the fourth generation. But yet we know a lot of businesses locally and nationally that are in the fourth and fifth and sixth generation. That’s where they did the planning. That’s where they had the key conversations to make sure that everything was done properly, to make sure that the business could pass to that next generation in the most tax efficient and most effective way going forward.

Olivia: So when you’re, when we’re thinking about, you know, multi-generational family businesses, how important is that cashflow in making sure that the business is able to go multi-generations? Um, cause you know, when, when the key person dies, when, you know, the first generation passes away, they not only, you not only lose that family member, but you also lose that family member’s mentorship and their knowledge and, and their relationships often could go with them.

Tim: Right.

Olivia: You know, you, you didn’t have those, um, relationships. You didn’t build those relationships as firmly necessarily as that first generation. So, you know, you’re up against a lot. Um, you know, when that first generation passes away and not only that, but maybe the proper planning wasn’t put in place, and you have to buy mom out of the business now.

You know, how are you going to do that when now you’ve lost your relationships, you’ve lost the revenue, um, you’re still figuring out all of the things that that person was doing? Um, the cash flow could make a huge difference in those, those situations. 

Tim: Oh yeah, and then you have another issue. And the other issue is maybe the banking relationships that the business had we’re with the, let’s say the founding generation and all of a sudden the founder dies and the bank doesn’t have the same relationship with that next generation and that next generation doesn’t have the, maybe the talent, maybe it does, but it certainly doesn’t have the relationships and all of a sudden now, you know, uh, a very good banking customer all of a sudden becomes not quite as good.

And now the bank looks at this, are, you know, uh, yeah, we understand you need more money to, you know, an increased credit line and some, some equipment loans, et cetera. We understand you need that money, but, you know, we had a great relationship with your dad. We don’t, we don’t know you, and you don’t have as much of a track record.

And your dad had all the relationships, you know, with, you know… 

Olivia: It all of a sudden becomes riskier for the bank.

Tim: It becomes a riskier proposition for the bank. But here’s the point. What could solve that problem for the next generation? Wouldn’t it be, so the problem is the death of the founding generation.

Wouldn’t the solution be, wouldn’t it be neat if you could have the, the event that triggers the problem, the death of the, of the founding generation? Wouldn’t it be cool to have that same event, the death of that individual trigger the solution to inject the company with cash.? I mean, it’s just efficiency of money.

So now think about what you could do. You can set up a succession plan for the founding generation, an exit strategy, funding these benefits. And then when the founder dies, you get an injection of cash that the second generation or the next generation could utilize to, continue to, to, to operate the business and possibly to grow the business.

It’s all possible. It just becomes an issue of, are you doing the proper planning?

Olivia: Yeah. At the end of the day, the planning is, is going to be the key. Setting up those, those documents with the lawyers, also setting up the plans that are properly funded, that have the proper amount of death benefit to allow these goals to be accomplished.

Because it is possible at the end of the day. But it’s not possible if you don’t do the proper planning. You know?

Tim: Yeah, absolutely. And so oftentimes we’ll see that where companies didn’t do the proper planning or they did the planning and it wasn’t set up properly or it was underfunded or God forbid they used the wrong types of insurance and we see that so often, um, it’s a shame, but it, it happens.

Olivia: With the proper planning anything is possible. Especially when it comes to family business or small business it is important to address these issues, make sure that proper planning is in place so that what you want to have happen is going to happen, even if you’re not there to see it happen. Many times, small business owners and family business owners are putting their heart and soul into this business only to have their years of hard work, dedication, and perseverance demolished at their death.

You know, because at death come, there’s a lot of costs. There’s a lot of things that need to happen at that time that cost money and time. So if you’d like to get started with a plan designed for your family business, your small business to make sure it makes it to that next generation or to make sure that you’re able to exit without bankrupting the business or without closing those doors.

Check out our website at tier1capital.com. Schedule your free strategy session today. We’d be happy to speak with you about your specific situation. Also on our website, we have a free guide. The six critical questions to ask when doing this type of planning. Just click on the button that says business planning guide under our free resources.

Tim: Thanks for listening to the Control Your Cash podcast. I’m Tim Yurek. Until next time.

Olivia: I’m Olivia Kirk. Have a great day. We’ll talk to you soon.