Valuable Finance Insights from Tier 1 Capital

Learn about financial strategies to enhance business and personal cash flow. Get tips that will help counteract the effects of inflation. Discover unconventional wisdom related to life insurance, infinite banking, wealth building, and much more—here in the Tier 1 Capital blog.

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How to Protect Your Retirement Savings

When it comes to financial planning, we all have one end goal in mind. That’s retirement. If you’re concerned about whether or not you’re going to be able to reach your retirement goals, no matter your age, this is for you. In this blog post, we will talk about the roadblocks that could be holding you back from reaching your retirement goals.

For the past thirty seven years as a financial services professional, when people come to us with their yet to be taxed IRA or 401K statements, they are generally shocked when they find out how much they have to pay in taxes.

Why is that so? It is because that’s not what they were told throughout their whole working career. They were told that during retirement, they would be in a lower tax bracket, but that’s not the case. You may be wondering why?

It was as if they were traveling down this road towards retirement with one foot on the gas pedal and one foot on the brake. They were setting aside as much money as they possibly could into their IRA or 401k or 403B, that’s the foot on the gas pedal. At the same time they were paying down their mortgage while watching their kids grow up and leave home. They lose those deductions by the time they reach retirement. They just can’t defer income into the future and eventually they lose those deductions. That’s the other foot on the brake.

If you’re traveling down a road with one foot on the gas pedal and the other on the brakes, are you making any progress?

Aside from losing all of your deductions, there is this ever changing tax code that we have to consider. There’s this old saying in Washington, “If you’re not at the table in Washington, you’re on the menu”. When’s the last time you were at the table in Washington? As for me, I’ve never been there.

Our country has $29 trillion in debt. Clearly we have a problem. But every time they meet in Washington and pass a new bill, it seems like they just keep on increasing spending like a drunken sailor. Now let me ask you this. If you have a spending problem or a debt problem, does it make sense to increase spending? If they’re not going to address the issue, then there’s only two ways the government could respond to try to fix this problem.

* Legislatively. They will increase taxes. How will this affect your retirement?
* Administratively. They can print more money and when they do, it results in inflation. What does inflation do to the value of your savings in retirement?

We call inflation the stealth tax. It subtly eats away the buying power of  money. You don’t even realize it most of the time but this is what inflation is doing to our cash value. Right now in 2022, it is blatant what inflation is doing to our money. But we don’t realize that the value of the dollar is decreasing little by little over time. The moment we get to retirement, it’s also very blatant that the buying power of our dollar is ever decreasing due to inflation.

When people come to us with their yet to be taxed retirement plans astounded as to how much they have to pay in taxes, when we haven’t even addressed the inflation issue, what are our options? Many don’t realize that after you earn your income and you pay your tax, whether or not you pay tax again on that money, the rest of your life is optional. It’s voluntary. The key is knowing what your choices are up front.

Whether you are in Gen Z or a Baby Boomer, or in any generation in between, you have two options on how to save for your retirement.

Strategy A
Take a tax deduction on a small amount of your cash value today and anticipate that it grows into a bigger amount in the future knowing that the government could tax at any rate when necessary just to solve the inflation issue.

Strategy B
Pay tax at a small amount of your cash value today and put it in a place where the government could never touch it ever again. So when you get to retirement you can be in control of how much tax you actually pay.

Which strategy would benefit you and your family more? Strategy A or Strategy B?

It is our mission to help as many families as possible, make the best financial decisions that would benefit them. That’s why we present you with these strategies because we believe that it is more beneficial to pay a small amount of tax on the small amount of income, rather than deferring it into the unknown future.

If you are ready to learn how to utilize these strategies to work for you in your specific situations, schedule your free strategy session today

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

Is Whole Life Insurance a Good Investment?: Internal Vs. External Rate of Return

You often hear that whole life insurance is a lousy investment and that’s kind of true in the sense that life insurance isn’t an investment. Investments inherently have risk and that’s not the case with the whole life insurance policy.

With the whole life insurance policy designed for cash accumulation, you could expect to earn anywhere between 3% and 5% over your lifetime – but understand that’s not how the policy starts off.

Starting a new life insurance policy is kind of like starting a business. If you were to start a business today, you wouldn’t expect to become profitable in the first year, the second year or even the third year – but usually from the fourth year, that business will become profitable and hopefully will continue to grow year over year. The same holds true with a whole life insurance policy designed for cash accumulation. In the first year, you might have access to 40% of what you pay in premium. In the second year, it might be 60% or 65%. In the third year, 90% or 95%. But from the fourth year on, you should be generating a profit year over year in that policy and it will only get better from that point forward because of the way the policy is designed.

Basically, for each dollar you pay in premium from the fourth year on, you could expect your cash value to increase by more than one dollar. As mentioned, life insurance isn’t an investment because there is no risk. Once that money is credited to your cash value, that value will never go down.

On a cumulative basis, we would expect the break-even point to be somewhere between year seven and year ten. For example, if you paid a hundred thousand dollars in premiums over 10 years, you would expect your cash value to be a hundred thousand dollars in those 10 years and maybe a little higher. After that, the cash value and the accumulation value will continue to grow year after year.

The key here is that the so-called financial experts will judge life insurance on those first 10 years and say it’s a lousy investment. But what they’re completely ignoring is the fact that you could still access that money through the loan option or the loan feature in the policy. Taking advantage of the loan provision can allow you to not only generate that internal rate of return, but to generate an external rate of return on your money. This can allow you to make all of your other savings and investments much more efficient. Keep this in mind: You have the internal rate of return – that isn’t going to be interrupted by accessing that cash using policy loans PLUS you’re able to put that money to work for you somewhere else and make an external rate of return on an actual investment. Once you make the money on your investment, you can cash out and repay your policy loan and realize your profit.

Can I use my policy in the early years – before the break-even point?

A lot of times people come to us with credit card debt and they’re paying a very high interest rate which is taking up a lot of their monthly cash flow. An example of how you could use your policy is to repay that credit card debt using a policy loan and then rebuild and replenish your cash values so that it is accessible again in the future. Basically, you could take a loan  against your life insurance cash, pay that credit card off and then redirect the payments from your credit card to repay the policy loan until the loan is paid off. Not only do we have a lower interest rate, we also have control over that payment amount every month. If you run into cash problems, you could back off on that payment. But if you are cash flush, you could pay that debt off faster and you’re actually building an asset for yourself.

Another way that you could access that money either in the early stages of your policy or the late stages is to borrow against your cash value to make an investment whether that’s into stocks and bonds, crypto currency, gold, silver or real estate.

 

The key is using the cash value in your life insurance policy to make your other money substantially more efficient.

 

Only in a whole life insurance policy, you can have access to the cash values without draining the tank. Basically you’re able to continuously earn compound interest and access that money to make an investment that will potentially earn you a higher rate of return. You have the policy earning the 3% to 5% over your lifetime at the same time you also have the ability to earn a higher rate of return on investments like stocks or real estate. Whether it’s to make an investment or to pay off debt, the bottom line is that you’re making your money more efficient. Your money is working in more than one place at once. That makes your money more efficient and ultimately puts you in a stronger financial position.

What about getting a margin loan or borrowing against the equity of my real estate?

It is possible to access money from other sources like a home equity loan or a margin loan on your investment portfolio. However, whole life insurance is the only financial tool that allows you to access money and know for sure that you’re going to have a greater account value at the end of the year than you did in the previous year  – when you take a loan against your life insurance cash value, the compounding of interest is never interrupted. Your policy continues to perform as if you had not accessed any money.

With a margin loan, the underlying investments might decline and you may have a margin call – once again putting further squeeze on your cash.

In real estate, the value of your real estate could appreciate or it could also depreciate, it depends on the market conditions. Also, with a real estate loan, you have a structured repayment versus with a policy loan where you can determine the payment terms in the sense that if you want to put $50 a month on the policy loan, you could do that. If you want to put $300 a month on the policy loan, you could do that. If you don’t want to put anything on the policy loan, you could do that as well. There’s no one telling you what the repayment schedule is.

Here’s another thing to consider. What if you just drain your savings to make the investment? What’s the difference there?

We had this situation with a client who started a policy. They had about $5,000 of cash in the policy. They coincidentally have a $3,500 credit card bill that’s due and they wanted to pay off the credit card. The husband wanted to borrow against the policy because he sort of understood the concept of leveraging life insurance and the power of using this method. The wife was a little hesitant and wanted to use money from their savings account instead of a policy loan. They had $20,000 in savings and she said, “Well, let’s just take $3,500 from the savings, drain down the tank. Then we could leave the money in the policy to use for our home improvements.” What they’re missing is the fact that before that transaction, they have access to $20,000 that they own and control. If they drain down the tank to the tune of $3,500, they don’t control $20,000. They only control $16,500 and they’re still earning the interest in the policy because they didn’t access the money. But if they don’t take the money out from the savings and they borrow against the policy, they will still control $20,000 and they will still earn interest on the $5,000 – even though they accessed $3,500 against the policy. That’s what we call opportunity cost. We don’t only consider the money that we’re using – we also consider what that money could have earned us had we invested that money.

Whether it’s to pay off debt or pay a lower interest rate against the policy versus credit cards or whether it’s to make an external investment by accessing the cash value in your life insurance. Life insurance could allow you to generate that external rate of return on investment opportunities and still guarantee that you’ll get the internal rate of return on your cash value that you have accumulated in the policy.

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

If you like this post, don’t forget to leave us comments down below on what you think about this topic.

Want to learn more about this topic, check out our free web course to see how our process works. If you are ready to talk, feel free to schedule a free strategy session today to get started.

The “Guaranteed 4% Interest Rate” on a Whole Life Insurance Policy

 

One of the most misunderstood concepts of life insurance policies is the so-called 4% guaranteed rate of interest.

As a result of it a lot of times people get a life insurance policy but don’t see what they are told – the guaranteed 4% rate of return.

The 4% isn’t a guaranteed interest rate of return, but rather a discount rate.

In reality, you will get somewhere between 3% to 5% as the Internal rate of return on policies, and 4% is right in the middle.

Let me explain!

When you buy a whole life insurance policy, the insurance company generally makes two promises –

  • Promise No.1 – They’ll pay the death benefit whenever you die, as long as you own the policy
  • Promise No.2 – Once you reach the age of maturity (typically 100 or 121) they will have a pile of cash equal to the initial face amount of the policy waiting for you when you hit that age of maturity, whether it’s 100 or 121.

Now, if you have a limited pay policy, let’s say life paid up at age 65, that doesn’t mean you’ll have the equivalent of the face amount available in cash at age 65. It means premium payments will stop at age 65 and the cash will continue to grow. So that at 4% the policy will have, a cash value that is equal to the face amount at the age of maturity (typically at age 100 or 121, depending on the policy).

Where do the 4% returns come from?

The 4% guaranteed discount rate comes from regulation 7702. Recent changes made to this regulation allowed the discount rate as low as 2%.

Basically, if the insurance company is using a lower interest rate, that means everywhere along the line they need to have more cash so they can keep Promise no. 2: to produce a cash value equal the face amount at the age of maturity, whether that be age 100 or age 121.

So consequently, if they’re applying a lower discount rate they will need to have cash more cash along the way – It means your cash value along the way should be higher. So, if you’re designing a policy for cash value accumulation, the changes in the regulation aren’t necessarily a bad thing.

The downside of changes in 7702?

Well, prior to the 7702 changes in 2021, the actual cost of pure insurance increased. For example, a $100,000 of the death benefit may have cost $4,000 per year prior to the change in 7702, may now cost you $4,800 per year.

So with it, you’re going to get less death benefit per dollar of premium

The death benefit is going to cost more, but that’s not necessarily an issue when you’re building the policy, designing it around accumulating cash.

Conclusion

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

If you like this post, don’t forget to leave us comments down below on what you think about this topic.

Want to learn more about this topic, check out our free web course to see how our process works. If you are ready to talk, feel free to schedule a free strategy session today to get started.

Protect Your Dollars Against Inflation With Life Insurance

 

 
 

Currently we’re at 20.7 trillion of money in circulation. In 2025, it’s projected to be 33.5 trillion, and in 2029, it’s projected to be $53.9 trillion. Doesn’t that create inflation? What does that mean to us? Well, isn’t inflation really having an effect on the purchasing power of our money? Isn’t that literally a way that the government found to pay their bills by taking money from us, stealing our purchasing power?

Did you know that 40% of all US treasuries have been printed between the year, January, 2020 and today, not only that, but 78% of all the money that our government has ever printed has been printed between January 20, 20 and today. Do you have any idea what effect inflation is going to have on you, your family and your business? When it comes to responding to crisis, whether it’s wildfires, hurricanes, pandemics, or war, our government only has two ways that they’re able to respond. They could respond legislatively by increasing taxes, or they could respond administratively by printing more money. That’s it. They only have two tools in their toolbox when it comes to responding to crisis.

Federal taxes are projected to be $3.8 trillion for 2021. In 2020, 61% of us households paid no federal income tax and that number is expected to increase in 2021. Now in 2025 tax revenue is projected to be $6.3 trillion and in 2029, 8 years from today, tax revenue is projected to be $10.5 trillion. So we absolutely know that the government is planning on increasing taxes. Now here’s the question. When the government increased taxes, are they going to tax the people who don’t pay any taxes? Or are they going to tax the people who are used to paying taxes? Let’s face it. They can’t get blood out of a rock and when they go to increase the taxes by 270% over the next eight years, are you willing to pay those taxes? Are you prepared? What are you doing to protect yourself, to make sure you’re not paying more taxes than you need to? The point is we live in America and we have choices. Are you choosing a strategy that protects you from taxes? Or are you choosing a strategy that is going to subject you to increasing taxes?

So now we’re going to take a look at what happens when our government responds administratively by printing more money. Did you know that in the year, 2000, the amount of money in circulation measured by the M2 money supply was $4.8 trillion? In 2021, it’s projected to be $20.7 trillion. Now think about this: In the year 2000, it was 4.8 trillion, in 2021 it’s 20.7 trillion. The amount of money in circulation grew by over 430%. Well, our population in the year, 2000 was 300 million people. Today it’s 330 million. So the amount of people in our country grew by 10%, but the amount of money that they put in circulation grew by 430%.

The bigger problem is currently we’re at 20.7 trillion of money in circulation. In four years, in 2025, it’s projected to be 33.5 trillion, and in 2029, it’s projected to be $53.9 trillion. That’s a big number, but when the government prints more money, what does that create? Doesn’t that create inflation? What does that mean to us? Well, isn’t inflation really having an effect on the purchasing power of our money? Isn’t that literally a way that the government found to pay their bills by taking money from us, stealing our purchasing power?

How do you protect yourself against the effect of increased taxes and increased inflation? The stealth tax?

Well, that’s easy first and foremost, you want to protect your money. So you’re never subjected to losses. Secondly, you want to have access to your money so that you could take advantage of any errors, mistakes, or blunders that are made by the government, wall street and the banks. Lastly, you want to do both with reduced or eliminated taxes. What I just described are the benefits of cash value, life insurance.

If you’re looking to learn more about how cash value life insurance could help protect you, your family and your business against the eroding effects of taxes and inflation, schedule your free strategy session today!

How Business Owners Can Increase Cash Flow

 

When you first start your business, it’s very important, actually, it’s vital that you reinvest the profits into the business to help the business grow. However, as your business continues to grow more and more, your net worth becomes enmeshed in the business. Consequently, your net worth becomes illiquid and inaccessible. And that has a direct impact on your cash flow.

As business owners, we face many challenges at various times throughout the year: how to increase revenue or increase sales, how to decrease expenses or overhead hiring people. Currently, it’s very difficult to hire people, and more importantly, it’s difficult to get the right people for the right position.  One common thread challenge that all business owners face either consistently or at various times throughout the year is how to increase cash flow.

Today, we’re going to talk about how to increase your cash flow as a business owner and we’re also going to show you how to do it without increasing your sales and without reducing your overhead expenses.

When you first start your business, it’s very important, actually, it’s vital that you reinvest the profits into the business to help the business grow. However, as your business continues to grow more and more, all your net worth becomes enmeshed in the business.

Consequently, your net worth becomes illiquid and inaccessible. And that has a direct impact on your cash flow, which has a direct impact on your ability to continue to grow your business on your ability to take care of your personal obligations, as well as your ability to procure financing, to grow your business, or even just to operate it.

In every business, there are seasons of good cashflow and bad cash flow and for the business owner, the typical diagnosis is something like this: “If only I could make some more sales, if only I could earn some more revenue, then I could finally feel the cashflow relief that I’m looking for.”

You see, typically business owners usually correlate lack of cash flow to one of two things, either too little sales or too much overhead. What we found that the real culprit is how they are using their money. How they use their money is really going to have a huge impact on a consistent basis on their cash flow.

About all the competition we have for our business checkbook. We have vendors, we have consultants, we have taxes. We have insurance. Everyone is trying to get into our checkbook and they’re trying to get in there on a consistent basis. So it’s really important that we make our cash flow as efficient as possible so that we as business owners don’t feel pinched when we need more money.

Exactly. And understand that all of those competing industries or those competing vendors are very good at what they do. And because of that, we’re giving up control of our money unknowingly and unnecessarily. But the good news is that’s where the opportunity exists for you to really increase your cash flow.

Because once we bring the awareness that knowingness, that you’re doing things in a less efficient way, we’ll be able to bring that awareness and make the changes necessary to give you the relief you’re looking for. Here’s a perfect example. A few years ago, a business came to us for some consultation on some business succession planning. Basically they had some partners that were looking to retire and they didn’t have the cashflow to buy them.

After a thorough analysis, we determined that the major culprit in pinching their cash flow was that they were in a race to get out of debt.

And what happens when you’re in a race to pay off your debt is all your disposable, monthly income is leaving your control and going into the control of a bank or a finance company.

Now understand the bank loves that because the bank was taking that money and turning it over. And literally by paying off their debt quicker, this business was making the bank’s position better and their position worse.

So what’s the moral of the story. Well, we’ve said it once and we’ll say it again. It’s not what you buy. It’s how you pay for it. That really matters.

And to underscore that point, let me share with you an analogy that we share with our clients. Let’s say that you want a special drawing to appear in the masters golf tournament in the spring of 2022. And you came to us to improve your chances of winning. Well, we point out to you that there’s really only two approaches. Number one, you can purchase the clubs of anybody who’s ever played on the tour or approach number two would be to have the swing of anybody who’s ever played on the tour. Which strategy do you think would improve your chances of winning?

Well, the obvious answer is to focus on the golf swing, how you’re using your money in our example is so much more important. And whoever has the control of your money controls your life. Sometimes we get hung up on things like loan terms and interest rates, and we take our eye off of what’s really important controlling our cash flow

When you control your cash flow, and that becomes your major focus, all of your decisions become much clearer.

NEVER be at the Mercy of Banks Again | Shuttered Line of Credit – What Happens?

 

…there’s an old saying, “A banker is somebody who will give you an umbrella when it’s sunny and take it away when it’s raining.”

Wells Fargo recently closed credit lines on their customers. Stick around to the end of this video, because we’re going to go over exactly what that could mean for their customers, for the economy, and show you a solution that will make sure that you’re never at the mercy of banks, the government or Wall Street again.

On July 8th, 2021, Wells Fargo announced to its customers that if they had a personal line of credit, they were shutting it down. Basically, if you had this line of credit, you’ve got to notice that in 60 days, Wells Fargo was going to shutter your account. Let’s go over exactly what that means.

Well, when your account is shuttered, it means two things. Number one, any unused portion of your credit line is no longer accessible to you. So you don’t have access to the unused portion. And secondly, they’re going to be getting a payment schedule for the outstanding balance that’s remaining. So how is that going to affect their customers? Well, it’s going to affect their customers in four ways. First and foremost, their access to credit has been limited. Secondly, their future cashflow is limited because now they have a payment schedule. Thirdly, because they had credit and it was shut down, that’s going to have a negative impact on their credit score. And all three of those issues are going to negatively impact their customer’s ability to obtain credit in the future.

So you could see how this simple shift from a line of credit to a term loan could have such a waterfall effect on these customers and not only their present cashflow position, but also their future ability to access capital. In the last week or so, we had the opportunity to speak with some of our clients and a lot of them asked “Is this even legal what Wells Fargo is doing? Are they even allowed to do this?” And the answer is yes, it’s written in the terms of their loan agreement.

You know, there’s an old saying, a banker is somebody who will give you an umbrella when it’s sunny and take it away when it’s raining. And this action by Wells Fargo only underscores the meaning of that saying. You see Wells Fargo is protecting themselves. They have it written into the loan agreements that they’re allowed to shutter or shut down those lines whenever for whatever reason. And by the way, it’s not only personal lines of credit, it’s home equity lines of credit that they can do this on. They can do it with business lines of credit. And not only Wells Fargo, other banks can do the same banks write documents on those loans. That’s why there’s all these legal documents when you take out a loan. Why? To protect the bank! But this should come as no surprise for Wells Fargo customers. In 2008 and 2009, when they took over Wacovia they did the very same thing.

They shut down credit lines for people, business credit lines. And I had clients call me and say, Hey, I’m in trouble. I’ve got to get a new credit relationship. I just got a letter from Wells Fargo that says I have 60 days to obtain new credit. Well, the ideal situation back then would have been to have control of their own pool of money so that they wouldn’t be affected when the bank decides that the bank wants to protect itself and they shut down your access to capital. So this is all part of what Nelson Nash referred to in his bestselling book, Becoming Your Own Banker. And in there, he has a chapter called the golden rule. And basically the golden rule, according to Nelson Nash was the one who has the gold makes the rules. Well, if you’re in control of your own pool of money and you’re making loans to yourself or to your business, you are truly in control of the process. So the question really becomes, do you want to continue to be controlled by the process and be at the mercy of the banks? Or do you want to be in control of the process? Again, the one who has the gold makes the rules!

Banks are really good at getting us to do what’s in their best interest and they do it under the premise that it’s in our best interest. And they’re so good at doing it, most of the time, we don’t even know what’s happening. And the perfect example of this is a 15 year mortgage with a low interest rate versus a 30 year mortgage with a higher interest rate. Let’s take a look at a solid example of a $250,000 mortgage.

So if our choices are a 30 year mortgage for third, for $250,000, at 4% interest, our payment is about $1,200 per month, a 15 year mortgage for 3.75%. And that’s how they entice us to do what’s in their best interests. They offer us a lower interest rate on a shorter term loan. Our payment will be about $1,800 per month. Now that’s a 50% increase in cashflow that we don’t control. And that’s cashflow that the bank now controls, but again, they have us focused on the interest. So with the 30 year mortgage, we would pay the bank $179,000 in interest with a 15 year mortgage, we’re only going to pay the bank $77,000 in interest. So here’s the issue, if the amount of interest paid is really in the bank’s best interest, why would they cheat themselves out of $102,000 of interest? Well, the answer that is, it’s not the amount of interest that’s paid. It’s how fast the bank gets it back. What the bank literally did by getting us to pay the loan back quicker, they increased their rate of return on the loan, the 30 year loan, they had about a 9.5% rate of return. And on the 15 year loan, they end up with a 13% rate of return. They almost increased their rate of return by 50%.

The thing is that with businesses, when they sell products, inventory turnover gets them more profits. And with the bank, they have a product to it’s loans. So the quicker they’re able to get the loan money back and then turn it over with a new loan, the more interest, the more profits that they’re able to make. Imagine how stressful it would feel if you had a credit line out for tens of thousands of dollars, and only had 60 days to secure new financing, to secure a new banking relationship.

Conversely, imagine having access to your own pool of money, so that when you got this notice, you can borrow against your pool of money, use it to pay off Wells Fargo or anybody else who calls your credit line and buy yourself time to obtain another relationship. In the process, while you’re using that money, you’re still earning uninterrupted compounding interest on the money you used to pay off that loan. Wouldn’t that be a great situation to be in?

If you’re ready to learn more about our process and exactly how it works, check out our free web course at tier1capital.com. It’s one hour and you could register right on our website.

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

How to Increase Your Net Worth

 

Because our money never leaves the policy, our money continuously earns compound interest even while we’re using it. It’s as if our money’s in two places at once, because quite literally it is. We’ve cracked the code on creating wealth by making purchases.

 

Wouldn’t it be great if you could increase your net worth by making everyday purchases? Most people think there are only two ways to make a purchase. You could either pay cash or you could finance. But today we’re going to talk about a third option, an option that allows you to earn continuous compound interest on your money even after you make the purchase.

When it comes to making major capital purchases, the often most convenient way is to finance the purchase. Think about it – when you go to buy a car, how easy is it to show proof of income and them to give you a loan?

So when we borrow, we have no access to capital. We have to use somebody else’s capital, therefore pay them interest, and in the process, we’re not earning interest, but make no mistake we’re using the collateral of our future income to pay for the purchase. The bank is loaning us money because they know we have the ability to earn income.

Since we’re financing and we’re giving up that monthly cashflow, it hinders our ability to save for the future. And then the next time we need to go buy a car. We’re forced to finance again, because we didn’t have the ability we didn’t have the cash flow to build up a pool of cash to self-finance or pay cash for that car.

So you see how every financial splash we make creates a ripple effect down the road.

Every decision we make financially could either move us towards financial freedom or further away from financial freedom. Often times these debts snowball. So it’ll start with a car loan and then it’ll be paying for the wedding and tuition for our kids and appliances and furniture. These monthly payments slowly grow and grow and grow. Before you know it, we’re out of control of our cashflow.

Think about it from the perspective of a financial institution, what does the financial institution want? What does it need? It needs our money. And the best way to get that is to do it on a systematic basis – on a monthly basis. So the more of our monthly cashflow that the financial institution can control, the more that they can control us, but the more profits that they could make.

The goal of every debtor is to finally be able to go out and pay cash for that car. They’ll save month after month, year after year until they finally have enough money to go out and pay cash for that car. But what happens when they drain their tank down to zero is – they gave up all the potential to earn compound interest on that money.

You see the person who pays cash – does so, so they don’t pay interest. They think they’re getting ahead of the game, but really they’re always going back to zero. They save. They wipe it out. They save again. They still have payments – it’s to a savings account, but at the end of the day, they’re still not earning interest and they’re really not in control of their financial future.

You see, there are only two components when it comes to compound interest and that’s time and money. Every time we drain that tank, we’re losing all that time. And we all know time is an asset that we can never regain.

A lot of times we talk to folks who don’t finance and the reason they don’t finance is because, “I hate paying interest.” they’ll say. My response to them is, “Oh, so you like to lose interest?” And then I get a look like, what are you talking about? And then I explained to them how they’re losing interest by paying cash.

So if financing isn’t the answer and paying cash isn’t the answer – what is the solution to finally achieving financial freedom? And here’s the secret. It’s not what you buy – it’s how you pay for it, that really matters. So you may be wondering how we do this. The answer is we use specially designed whole life insurance policies. Mainly because they have some unique characteristics and that we’re able to collateralize loans against the cash value of the policy. What that means is we’re never taking money from the policy. We’re never draining that tank, but instead we’re placing a lien against that cash value so that we have access to make major capital purchases and basically self-finance.

Because our money never leaves the policy, our money continuously earns compound interest even while we’re using it. It’s as if our money’s in two places at once, because quite literally it is. We’ve cracked the code on creating wealth by making purchases.

There are two main differences between this type of financing and traditional financing. The first is that it’s an unstructured loan repayment schedule. Meaning that you get to determine when and how much you pay back towards this policy loan. And the second key difference is that every time you make a payment, your payment is literally increasing your net worth.

Make no mistake about it – whether you finance through conventional methods, through a bank or a finance company, or with using our process and borrowing against your cash value – every payment you make will increase somebody’s net worth. Using our process, you will increase your net worth.

So every time you make a payment, you increased your future ability to access that capital again. So that over time you’re less and less dependent on the banks and financial institutions – and ultimately can reach freedom this way.

Earlier we mentioned that it’s not, what you buy, it’s how you pay for it. We talked about financing, we talked about paying cash and then we talked about using our process. In this process, we focus on showing you how to regain control of your money. You see, when you focus on controlling your money, all of your decisions become very clear. It’s only when we take our eye off the ball and we focus on interest rates, or we focus on getting a high rate of return on our money that we really start to lose control of our financial future.

If you’re ready to finally regain control of your financial future, please check out our one hour web course. It’s on our website tier1capital.com. We go into great detail about how our process works and how it could work in your life.

Remember, it’s not how much money you make – it’s how much money you keep, that really matters!

Benefits of Life Insurance for Kids

 

Once they reach adulthood, they’ll have access to their policy’s cash value. They could buy their first car. They could help fund college. They could put a down payment on a house.

 

Are you thinking about buying a life insurance policy on a child or grandchild, but aren’t exactly sure what the benefits of this purchase are? Fundamentally life insurance is a transfer of risk, and in most cases it’s a transfer of risk from the insured to the insurance company for the case of premature death. But let’s face it – when it comes to a healthy child, the risk of premature death is pretty low. That’s why we think the more important thing to look at is locking in their insurability.

The most important reason that we recommend that parents or grandparents purchase insurance for their child or grandchild is to lock in their future insurability. So in other words, when you purchase life insurance on a child, you’re able to “lock in their current health”.  That is so important because if  later in life, they lose their insurability because of a mental or nervous problem, a health issue or an occupational issue, they’re going to be guaranteed by the insurance company, through the policy rider, that they will be able to purchase a stipulated face amount $25,000 up to $125,000, every few years from the ages of 25 through 40. This allows them – as they become adults and maybe have become uninsurable – to take care of the things that are most important to them, their families and their businesses.

So adding that Guaranteed Insurability Rider for just a few dollars a year onto the policy for the child is going to lock in their ability to purchase more insurance throughout their adult life, which is really important.

The next point to consider when thinking about insuring a child is the cost of the premiums. Now the premiums cost much less for a child than it does for an adult because the insurance company has many more years to collect those premiums.

We often hear from people to gee. I wish I purchased insurance when I was younger. What better time to purchase the insurance than when you’re a child? Now, obviously a child doesn’t have that ability, but the parents do. My parents purchased small policies for me that would have the funeral covered in case I died. Well, I use those policies today. I borrow against those policies to purchase my computers and every couple years I pay the money back and then it’s time to buy a new computer.

Well, the other practical purpose of having insurance we talked about earlier was guaranteed my youngest son when he was 18, had a stroke he’s uninsurable, but he has a large policy with options that he can purchase additional insurance in the future. So he can take care of his family and his business.

This brings us to our next point – the savings component of the policy you see with every whole life insurance policy. The insurance company is making two promises. The first is to pay a death benefit whenever the insured dies. The second is that the cash value in the policy will be equal to the face amount at the age of maturity – so the cash value is guaranteed to be there. Because of that aspect of a whole life insurance policy, you’re actually getting multiple duty dollars. Think about it instead of just putting money away in a savings account or a mutual fund or a 529 plan, you’re also getting a death benefit. You’re also getting future insurability and you’re also giving them the ability to choose how they want to use their money. It’s almost like their money is going to be in two places at once. They’ll always have access to cash in the policy and they can use it for whatever they want. And the money’s going to continue to grow uninterrupted on a tax-favored basis.

With the loan provision, they’ll have guaranteed access whenever you’re ready to transfer the policy into the child’s name. Once they reach adulthood, they’ll have access to their policy’s cash value. They could buy their first car. They could help fund college. They could put a down payment on a house. The possibilities are limitless. There’s no stipulations that say what policy loans can be used for. The only stipulation is that it’s guaranteed, that they’ll have access to the cash value via the policy loan, which is a really great thing for a savings vehicle for a child or a grandchild.

So now that we looked at the benefits of owning life insurance on a child or a grandchild, we have to also discuss the rules because insurance companies have special underwriting rules that they abide by when considering offering insurance to a child.

The first rule is that the child can’t have more insurance in place than the parent, unless there’s a good reason such as the parent is uninsurable.

The second rule is that when the child has siblings, then all of the siblings need to be equally insured. In the case of a grandparent purchasing on a grandchild, all of the grandchildren would also need to have equal amounts of life insurance in force.

In conclusion, life insurance is a unique financial tool for children or grandchildren. It could literally protect them from the cradle to the grave. They’ll have access to cash everywhere along the line. They can use the money to supplement their retirement income on a tax favored basis. And then they pass away and the money goes to their children or their grandchildren. It is a unique financial tool that should be considered. It may not be everybody’s choice, but it definitely should be considered and in the conversation.

If you’d like to get started with a policy on your child or grandchild, or would like to learn more about the options, feel free to give us a call, or to schedule your free strategy session today. Please leave us a comment down below, let us know what questions you have about life insurance. And we’ll be sure to answer them in upcoming videos.

Remember, it’s not how much money you make – it’s how much money you keep that really matters.

Qualified Plans: The Hidden Truth

These are not tax savings plans but
rather tax deferred savings plans. The government did not say that you don’t have to pay taxes…

 

For many people, the term 401k is synonymous with retirement preparation, and sometimes represents the full extent of
their preparedness. Such accounts are often included as part of a benefits package provided by employers, and chances
are if you have one, most of your retirement savings are being deposited into this account. Given that it can play such a
prominent role in our financial picture, it is imperative that you fully understand exactly how these plans work.

So what do Qualified Plans do exactly?

Most people will be familiar with the fact that they defer taxes, which is true. But this term “defer” can often lead to a
misunderstanding about what is actually happening. Some people fall victim to the misconception that “deferred” taxes are
taxes they are “saving” because the taxes do not have to be paid; which is not true. These are not tax savings plans but
rather tax deferred savings plans. The government did not say that you don’t have to pay taxes on the dollars in your
Qualified Plan; they said that you don’t have to pay the taxes now.

If not now, then when?

Well, later obviously. The key difference between now and later though is relative to your tax
bracket. What bracket you are in now, and what bracket you will be in when you decide to take the money out of the
account. If you defer the tax and you are in a higher bracket later than you are in today your share of the account will be
less. If you are in a lower bracket when you take the money than when you put it in you will get more. The IRS is not
going to ask you what tax bracket you were in the day you made the contribution to your account. Their only concern is
going to be what tax bracket are you in at the time of withdrawal. Because this is true you will need to make an informed
decision about which option is best for you.

The Check Story

“Let’s assume that you call me one day and want to borrow $10,000. I hand you the check, but before you take it you are
going to ask me two questions. The first is how much interest am I going to charge you, and the second is when do you
have to pay it back?

Suppose I said to you, I am doing fine right now and do not need the money, but there will come a day when I need it, and
when I know how much I need we can figure out how much interest I need to charge you to get how much I need.”
Would you cash that check? Probably not, but you are standing in line to do exactly that with the federal government in
your qualified plan. They did not say that you don’t owe the tax; they said you can pay us later. At what rate? Now that is
a good question.

Understand that Qualified Plans do two things:

1. They defer the tax, AND
2. They defer the tax calculation

Ultimately, the impact these plans can have on your finances either positively or negatively, depends on a number of
factors. The first and most fundamental of these is your understanding of the rules of the game, and secondarily the
strategy you use to play the game.

Tic-Tac-Toe

You may not remember the first time you played tic-tac-toe, but you can probably guess who won. It was likely the person
who showed you how to play the game. The game has only a few simple rules, one is the X, the other O, three in a row
wins. As we first learned this game as children, we lost routinely until we learned the strategy of the game. If you have
dollars in a Qualified Plan, you are already playing the game. As an advisor, my job is is helping clients employ a winning
strategy by better understanding the rules of the game.

5 Types Of Life Insurance Policies

 

“We know that life has a lot of uncertainties that come along with it and being able to position our clients in a way that they can react and adjust and thrive during these uncertain times creates an opportunity for them to take advantage of uncertainty rather than become a victim of uncertainty.”

 

Initially there was only one type of life insurance, and that’s the simplest form, term insurance. With term insurance, there’s only one benefit and that’s the death benefit. If you die within the term, then a death benefit is paid in cash to your family. 

Life insurance was initially bought by sailors. When they would go out on a voyage, they would buy insurance and then when they would come back, they’d be home for a month or two. When they would go out on another voyage, the price would go up. One of them said, “Hey, is there a way that I could pay the same rate for the rest of my life, this way I don’t have to keep paying an increasing premium.” What was developed was the precursor to whole life insurance. The insurance company realized that in order to even out the cost over the lifetime of this individual, they had to overcharge in the early years so that they could undercharge in the later years. By overcharging, they were putting money aside and that created an ever expanding pool of cash that could be utilized to offset the increases of premium in the later years.

At its very essence, life insurance is a transfer of risk. Whether you have a full life insurance policy or a term life insurance policy, we’re all going to die. So the insurance company is taking on that risk with a little bit of uncertainty, because they don’t know when you’re going to die. The insurance company has to price the policy properly so that they can guarantee the payment that they committed to or promise to your family and still make a profit. 

Now understand this. When you have a whole life insurance policy, you have an ever expanding pool of cash. That’s because when you get a whole life insurance contract, the insurance company is making you two promises. They’re promising to pay the death benefit when you die and they’re also promising that when that policy matures, usually at age 100, the cash value and the death benefit are going to be the same. So they have to put reserves away to make sure they could keep those two promises. 

Now the insurance industry has functioned very well for hundreds of years with these two products. Then in the 70’s, when interest rates were rising, a company called E F Hutton arose. Those of you who are old enough might remember EF Hutton because when he EF Hutton spoke, everybody listened. Have you heard him lately? He doesn’t exist. EF Hutton was sold off to first capital life, and first capital life was taken over by executive life and executive life doesn’t exist because they were investing their policy holders cash values in junk bonds sold by Michael Milken. Michael Milken did jail time for his shenanigans. But the bottom line is that universal life insurance is really term insurance with a side fund invested at market interest rates. 

So every year the cost of that annual renewable term policy is increasing. Eventually it’s going to hit a breakeven point and it’s going to start eating away at your cash values. It transfers the risk of insurance and investments back to the policy holder. 

I understand that with whole life insurance, you could never take a step backwards because of the way the policy is actuarily designed. The policy has an ever-growing cash value guaranteed by contract. In the early eighties, when all policies were first introduced, they looked really attractive because they were tied to market interest rates. At that time, CD’s were paying 15% to 16%, but by the mid eighties, market interest rates started to stabilize. And so you all policies didn’t project as well. 

So the insurance industry’s response was to not invest in market interest rates, but to invest directly into the stock market through mutual fund sub-accounts. Now known as a variable universal life insurance policy, which was introduced by equitable life in the mid eighties, and everything was functioning fairly well as the market was going up. What people didn’t realize was that when the market went down, you got hit with a double whammy. Number one, your cash value moved backwards. Number two, because your cash value moved backwards, you have to increase the amount of pure life insurance. So at a time when your cash value was going down, your expenses, the pure life insurance component was going up. That created some significant problems for the universal life policy. 

The newest version of the universal life policy is called an index universal life policy or an IUL. With that, your money isn’t in the market. It’s tied to a market index. They’re able to eliminate the losses from the market, but they also have the crediting of interest to your account. 

Whether it’s a universal life, you lose. If it’s indexed universal life, you lose. If it’s variable universal life, you lose. The bottom line is this, with all three of those products, you can move backwards. With a whole life policy, it’s actuarily designed that you could never take a step backwards. If you’re planning on having cash available for future events, why would you ever want to transfer the risk from the insurance company back to you? To us? It doesn’t make sense. 

As you know, our mission is to help our clients regain control of their money. So we use the whole life and term life products because the certainty those products provide, allow for us to adjust the planning for our clients uncertainties that happen in life. We know that life has a lot of uncertainties that come along with it and being able to position our clients in a way that they can react and adjust and thrive during these uncertain times creates an opportunity for them to take advantage of uncertainty rather than become a victim of uncertainty.