On a daily basis, it seems as though we talk to one of two people. The first is a young person who sees no need for cash-value life insurance, and the second is a person in their forties, fifties, or sixties who is saying, “Man, I wish I had this information and acted on it 20 years ago.” Here’s the secret: cash value life insurance is a timeless asset.
So how is whole life insurance designed for cash accumulation a timeless asset? For every milestone in life, there is an opportunity to take a policy loan to finance that cost.
For example, maybe you just graduated college and you have some student loans. You could take a policy loan to repay those student loans and then pay yourself back. And maybe you want to get married. You could take a policy loan and then pay yourself back. And then maybe you have a kid and you want to send them to a private school so they could get a good education. You could finance that expense through your life insurance policy and not have to worry about being pinched for cash flow in all these places throughout your life.
Perhaps you want to borrow against your cash value to buy rental real estate. You can borrow against the cash value for the down payment, take a conventional mortgage for the balance, and have your tenant pay back both of those loans for you. And then when the policy loan’s paid off, guess what? Now you can buy another piece of property using the same process.
Maybe you’re feeling entrepreneurial and you’re ready to start your own business. Guess what? Your policy cash value is available and you could take a policy loan to self-finance that start-up.
Or, what if you’re already a business owner? You can borrow against your cash value to expand your business, purchase inventory, or make a new hire.
The point is this: you start out with a policy here at the beginning of your life and at some point you pass away. In between, there are multiple opportunities for you to have these milestones in life, and you can self-finance those. Borrow, pay back, borrow, pay back, borrow, pay back. Then you retire, use the dividends to supplement your retirement income, and pass away. Then, the death benefit goes to your family income tax-free.
So think about this: From the time you graduate from college, let’s say from age 21 all the way until the time you die, you have complete liquidity use and control of that cash to finance all of the milestones in life. And then you have a legacy built in for your family or charity of choice.
If you’d like to get started with this timeless asset of cash value life insurance designed for cash accumulation, please visit our website at tier1capital.com to get started today. Feel free to schedule your free strategy session or take a look at our web course where we go into detail about how we put this process to work for our clients.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
Why is it important to repay your policy loans? You may have understood or heard that policy loans are unstructured, which basically means there’s no coupon booklet or payment process. You’re in control of the process, which means you determine if, when, and how quickly those loans are paid. But now the question becomes, why is it important to pay back those loans?
Oftentimes, when people are thinking about the infinite banking concept, they’ll take a policy loan and then question, “Why do I have to pay this back? It’s my money.” Well, they don’t fully understand the process.
You see, when you borrow against your cash value in a life insurance policy, you’re getting a separate loan from the insurance company’s general account. The money in your policy stays in your policy and it continues to earn uninterrupted compounding of interest. The second part is the loan that you get, which is literally a loan against the equity of your policy. The life insurance company calculates the equity and calculates how much they can loan you based on that amount of equity. So you are taking a loan from the insurance company. And the importance of paying it back is that the faster you pay it back, the less interest you pay the insurance company and the more equity that’s available for you to loan or borrow again. This is the concept of turning over your money so that the velocity of money can benefit you.
Keep this in mind. Every purchase you make is financed whether you pay cash, go through the traditional financing method, or take a life insurance policy loan. Only with traditional financing do you get a coupon book that says you need to pay this amount back at this rate. And with the traditional savings account or the life insurance policy loan, it’s a double-edged sword in that you don’t have to pay it back and you don’t have to pay it back. But keep in mind, we always say it’s not what you buy. It’s how you pay for it that matters. And when you’re in control of the banking function, you get to control the terms and conditions. But that doesn’t mean that you shouldn’t pay it back.
One of Nelson Nash’s cardinal rules, (he had four cardinal rules), number three was “Don’t Steal the Peas.” And what did he mean by that? He meant that if you borrow money against your life insurance policy, you should pay it back. Why? Because you’re going to need money again in the future. And if the money’s not back in the policy, then you’re going to have to go back to the traditional way of borrowing with a bank. And now you’re not in control.
So you may be wondering what happens if I don’t pay my policy alone? And that’s simple. Sometimes people have this policy loan, and, especially if it’s a large policy loan, the policy loan will continue to accrue interest. Meaning, that if you don’t pay back at least the loan interest, that loan interest will get tacked on as loan principal and tie up more of your policy’s equity year after year.
And that can put you in a position where it becomes so insurmountable that you have to either walk away from the policy or reduce the face amount of the policy in order to eliminate a large portion or maybe even all of the loan. But keep in mind, that can also trigger a taxable event, and that full taxable event will happen in the year of surrender, meaning anything that’s surrendered over the premiums you paid is going to be fully taxable as ordinary income. So that’s not really a position you want to put yourself in.
So the next question becomes: if I have to pay interest back to the insurance company and have the risk of a taxable gain, what is even the benefit of taking this policy loan?
Well, that’s simple. The benefit is that you’re in control. We have many clients who take loans and pay them back. We have many clients who take loans, start a repayment process, and have to suspend or reduce the amount they’re paying back because of a temporary cash flow situation. That’s the beauty of being in control of the process. You set the terms and conditions of the loans and you could pay it back, stop, reduce, whatever. Again. That’s the issue of control. But what we’re talking about also is that if there’s a long-term situation where the cash flow isn’t there to pay back a large, perhaps insurmountable loan, you do have options. And that’s where we can help you.
If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation to put this process to work for you. Or if you currently have a life insurance policy loan or are thinking about taking one, please visit our website at tier1capital.com and schedule a free strategy session today. We’d be happy to discuss the options with you.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
We’ve often said it’s important for you to be in control of the banking function in your life. Why is that important? Well, let’s take a look at the cast of characters in the play that we call banking.
First, there’s a depositor. Nothing can happen without a depositor.
Next is the borrower. The borrower pays for everything.
And in the middle is the banker. The banker matches up depositors and borrowers and collects a fee in order to do it.
But keep in mind that the banker in the middle controls everything. And that’s why it’s crucial for you to be in control of the banking function in your life. The process of banking.
So let’s take a look at what it looks like when you’re not in control of the banking function in your life. There are two times you’re giving up control of that cash flow.
The first is when you’re paying cash for purchases, and the second is when you’re financing through a bank or credit company.
So let’s take a look at that first option of paying cash for a purchase.
The first step is to save. Capitalize that bank account so you have enough money to afford the item you want to buy.
Step number two is to “Drain the Tank”. And once you drain that tank and make that purchase, you have given up control of all of that money. And you’ll never see the interest you don’t earn.
Like Nelson Nash used to say: “You’ve abdicated your responsibility as a steward of that money.”
The second way you could give up control of your money is by making purchases and using the bank to finance those purchases.
With this method, you’re borrowing from the bank and paying them a fee for the privilege of using their money. And actually, it’s not their money. It’s the depositor’s money. Remember, they’re linking everyone up. With this option, you’re literally obligating a portion of your income to the bank. And as Nelson said, you’ve abdicated your responsibility as a steward of that future cash flow. So what’s the solution? How do you control the banking function in your life? Well, let’s talk about that.
If the recipe for being in the banking business is to have depositors and borrowers, then think of it, on a daily basis, what are you, your family, and your business? Aren’t you depositors and borrowers? So if the recipe is depositors and borrowers, you can literally be a bank. But how do you do it? That’s the process that you need to control, and that’s where we could help you.
So here’s what normal borrowing looks like. You deposit money in the bank and the bank matches you up with the borrower. The borrower takes the money and pays the bank back in increments. The bank collects a fee for that and then pays a tiny little bit to you, the depositor. Now, this is where the magic of banking happens after you make that first payment back to the bank. They’re able to turn that over and lend it out again. And when you make your second month’s payment, they lend that out again. And this is the velocity of banking.
You see the basis of any business – whether it’s a car dealership, whether it’s a McDonald’s franchise, or whether it’s banking – the cornerstone of that business is turning over its inventory. It doesn’t matter if your inventory is used or new automobiles, McDonald’s hamburgers, or money. It just so happens that in banking, their inventory is depositors’ money. So the quicker they could turn that over, the faster they’re able to earn more profit.
Let’s see what it looks like when you’re in control of the banking function. You see, you’re the depositor, you’re the bank, and you are the borrower. So let’s assume that your business wants to buy a vehicle and the vehicle is going to cost $20,000. You go to your reserve of money, a specially designed life insurance policy, and you loan it to the bank (you). And then you turn around and loan that money to your business. Now your business makes a payment back to the bank (you), and the bank (you) pays the depositor (you) a portion of that interest. The excess interest in between is the profit of the bank.
But the key to the infinite banking process is that you are still earning interest on your deposit because you collateralize a loan against your life insurance policy. Rule number one: Never Drain the Tank.
So again, this is where the magic of banking happens for you this time. Because you are the bank, you get to constantly loan money out to you and then recapitalize that bank. So you get to benefit from the velocity of banking. Keep in mind the profits of banking and the principle of velocity banking is going to happen with or without you being in control. The question is, do you want to be in control and earn the profits or do you want to abdicate that control to the bank and let them make the profits?
If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation so you can put this process to work for you and your family. Be sure to visit our website at tier1capital.com. Feel free to schedule your free strategy session or check out our free web course to learn in detail how we take people through this process.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
Are you dreaming of the day when you finally get to ring the “debt-free bell”? If that sounds like you, stick around to the end of this blog because we are going to do a deep dive on whether it’s better to be debt-free or to own your own debt.
There are many “financial gurus” out there advising people on getting out of debt and, certainly, for a segment of the population, that is an ideal goal. Many people are buried in debt and they need to get out of it. We are not arguing that point, but there’s another segment of the population who makes a really good income and has some debt. And, unfortunately, this advice is being pushed on them as well. And those people are literally living a life of hell getting out of debt or trying to be debt-free.
And the problem with this advice is that by putting all of your free cash flow towards your debts, you’re not able to save. And a lot of times the advice is for you to save in a qualified retirement account where you can’t access that money. So, what happens is you get out of debt, but you still have no access to cash. And so what happens? You have to go back into debt.
The solution to this is to start saving in a place where you have complete liquidity, use, and control of your money. That way you no longer have to depend on banks and credit cards when you need to go make your next major capital purchase, invest in your business, or take advantage of an opportunity that comes up.
And here’s the issue: if you’re building your own cash that you can borrow against and utilize to pay off some other debt or to make purchases, now you are actually owning your debt. And looking at what Nelson Nash said, that’s what banks do. A bank for us. When we borrow money from a bank, it’s a liability to us. It’s an asset to the bank. If you’re the banker, you now own an asset. And sure, you have the debt. But now you can control the terms and conditions. You can control when and if those payments are made. You are in control. And that’s the point.
Here’s the perfect example. Let’s say you have $5,000 in your bank account today and you also have a balance on your credit card of $5,000. And tomorrow you decide, “Hey, I need to get out of debt. I’m going to take this $5,000 and I’m going to apply it towards my credit card.” Today, you have a net worth of zero. And tomorrow, after you pay off that credit card, you have a net worth of zero. But what’s the difference? Today, you own and control that $5,000 in your bank account. As soon as you give it to the credit card company, you no longer have liquidity use or control over that money. And your net worth hasn’t changed at all. You’ve abdicated your responsibility as a steward of that $5,000.
You see, when the money is in your control, you have the opportunity to invest it, earn money on it, and do basically whatever you want with it. But as soon as you hand it over to the credit card company, you’re giving them that control and the opportunity that comes with it.
That’s why we recommend borrowing against your own money and using that to pay off the credit card. And now that you own that debt, you could redirect the payment. You were sending Visa, MasterCard, or Citibank back to your policy. Now you own the debt. It’s an asset to you and you’re earning interest on that money.
We always say “Never Drain the Tank”. Always allow that money to continuously compound interest. And that’s what we do with specially designed whole life insurance policies designed for cash accumulation. We’re allowed to own our debt and repay ourselves, so we never stop that compounding.
If you’d like to learn more about how to get started with a whole life insurance policy designed for cash accumulation, be sure to visit our website at tier1capital.com to schedule your free strategy session today. Or if you’re interested in learning more about how we use this process, check out our free web course. It’s about an hour and it goes into a deep dive of how we do this.
And remember, it’s not how much money you made. It’s how much money you keep that really matters.
Are you looking to get started with the infinite banking concept? But you’re wondering what the best type of policy is, whether it’s universal life, index universal life, variable universal life, or whole life insurance? Well, if that sounds like you, stick around to the end of this blog because today we’re going to do a deep dive on what the best type of policy is for you and your situation.
The infinite banking concept uses life insurance as a vehicle to implement the process. But let’s take a step back and think about what exactly is insurance fundamentally.
Life insurance or any insurance, for that matter, is technically a transfer of risk from you to the insurance company. And the cost of doing that is a premium that the insurance company charges.
Now, let’s take a look at the various types of cash value life insurance and the characteristics of each.
Fundamentally, life insurance, or any insurance for that matter, whether it’s homeowners or car insurance, is a transfer of risk from you to the insurance company. Basically, you’re saying, “I have this risk. I don’t choose to accept it. I need to transfer it.” The insurance company raises its hand and says, “Hey, we’ll charge you a premium for that risk.” And they’re working with the law of large numbers. They’re working on thousands of people who are in the same situation that you’re in.
But now let’s look specifically at life insurance. Let’s say you have a $100,000 risk that you don’t want to accept. You transfer it to the insurance company. With a whole life policy, it’s all bundled together. It’s a neat little package, and it’s guaranteed to have more cash value next year than it did this year. That’s because the insurance company is making two promises:
When you reach the age of maturity, let’s say age 121, they’ll have the face amount of the policy available for you in cash should you want it.
Now, let’s take a look at some other types of policies. There’s universal life, there’s indexed universal life, and there’s variable universal life.
But the chassis is universal life. And what that basically means is: the technical term for universal life is flexible premium adjustable life. If you want to have the flexibility of making various or not making payments, you can do that. Here’s the problem: that variability creates some additional unwanted risk that most insureds don’t understand. Quite frankly, most insurance agents don’t understand it. Now, there are three variables that the insurance company needs to consider as it relates to a life insurance policy.
Mortality. Are more people going to die than expected?
The cost of running the company. Is it going to cost more than we anticipated?
Investment returns. Are we going to earn enough like we anticipated as it relates to this policy?
Now, with a whole life insurance policy, the insurance company assumes all three of those risks. Basically, what they’re saying is: “If more people die sooner than later, we can’t change the deal. If it costs more to run the company due to things like cybersecurity, we can’t change the deal. And if we don’t earn enough interest on our reserves, we can’t change the deal. We own it. You’re off the hook.”
Life insurance policy contracts are unilateral contracts, meaning that the owner of the policy has one responsibility, and that’s to pay the premiums and pay the premiums on time so the policy doesn’t lapse. All of the other risks are completely on the insurance company. They have to deliver on everything else that’s listed in that contract.
Here’s the issue as it relates to universal life, variable universal life, or equity indexed universal life: the insurance company gave itself an escape clause. They allowed themselves to transfer the investment risk back to the insured. The insurer doesn’t know it or realize it, and I guarantee you the agent never explained it to the insured in that way.
But, basically, what it says is: If mortality is greater than expected, if expenses are greater than expected, and if our investment return isn’t what we expected, we reserve the right to change the deal.
How do they do that? How can they do that? Well, it’s real simple. Run an inforce illustration, run a sales projection, and you’ll see that some of these policies start to fall apart in your late sixties or in your seventies. And what does that mean? Basically, it means that the policy expires before you do.
Now, think about it. Life insurance is the fundamental vehicle for infinite banking. And yet some people are recommending a product that won’t be around as long as you may be around. In other words, you have to die to win.
Another thing to consider is if you allow the policy to lapse and there’s a gain on that policy, meaning you don’t want to pay any more premiums because it’s cost prohibitive. What you could end up with is a huge tax bill because there’s so much gain within the policy and all of the gain is taxable as ordinary income.
Here’s the thing with these universal life policies. In your later years, the cost of insurance could get very expensive. And it will. So you’re left with the choice of paying an astronomical amount of premium and then having to pay the premium again at a higher amount the following year, or just allowing the policy to lapse. Now, if you let the policy lapse and you’ve used it for infinite banking purposes, there’s a high probability that you’ll have a taxable gain, and that taxable gain is going to be fully taxable at ordinary income rates.
In Nelson Nash’s bestselling book, Becoming Your Own Banker, on page 39, he clearly expresses his thoughts on universal life. Universal life came into play in the early 1980s. It was created by a company called E.F. Hutton, a stock brokerage firm. And in Nelson’s opinion, they knew nothing about life insurance. For those of you old enough to remember the commercial, you remember when E.F. Hutton spoke. Everybody listened.
Have you heard ‘em lately? They don’t exist.
Universal life is nothing more than one-year term insurance with a side fund. And if you remember, back in the early eighties, interest rates were 15-16%. And those policies didn’t work then. So could you imagine, under today’s interest rate environment, how faulty and how much risk you’re accepting as far as the interest rate is concerned?
Universal life was an attempt to unbundle the savings and the insurance components of life insurance, which, if you understand whole life insurance, it can’t be done. You can’t unbundle the whole life contract. Here’s the thing with the universal life contract, the flexibility you’re getting cannot be duplicated with the whole life policy. However, it can come close and at the end of the day, the risk that the insurance company is pushing back to the owner of the contract is not worth the flexibility.
This takes us to the policy illustration. When you’re choosing insurance companies or you’re choosing insurance policies, generally an agent will show you an illustration or a projection of how the policy might perform. And it is very tempting to look for the highest yielding illustration. But that is such a slippery slope. There are so many variables that the insurance company can manipulate to create that better-looking illustration, and it is not worth the time of day when you look at those illustrations. If you’re judging whether or not you should purchase a policy based on an illustration, stop the process – you’re off the rails.
The issue is how are you going to use that policy? And what Nelson Nash proved to us in his bestselling book, Becoming Your Own Banker, you will have the greatest impact on the performance of that policy. You will have the greatest impact on how that policy serves you.
Some of our clients use these policy loans to get out of debt faster, take advantage of investment opportunities, start their own business, or send their children to college.
The point is: how are you going to utilize this policy to move you toward your financial goals? And what is that worth?
With these policies designed for cash accumulation, you have the opportunity to take advantage of the internal rate of return as well as an external rate of return. So it really comes down to how you are going to move forward using these policies and taking advantage of the continuously compounding interest that happens within your contract. And that’s the importance of the infinite banking concept when you’re trying to regain control of your money.
If you’d like to get started with a specially designed, whole life insurance policy designed for the infinite banking concept to help achieve your financial goals. Be sure to visit our website at tier1apital.com to schedule your free strategy session today. Or if you’d like to learn more about how our process works, take a look at our free web course listed right on our homepage.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
Are you rich on paper but feel financially stuck and frustrated? Take a look at your net worth statement. Identify which assets are stagnating assets, meaning that some other financial institution or some other entity is in control of that asset.
It’s been said that money needs to flow. It’s a simple law of nature, just like water has to flow through us or we die. Blood has to flow through us, or we die. If we’re out in nature and we’re thirsty, we never drink stagnant water. We always drink running water. And it’s the same with our money.
But what conventional wisdom teaches us to do with our money is to park it, leave it there as long as possible, and then get it back someday. We are trained to do things with our money that we would never do with the things that money buys.
Here’s an example:
You would never buy a loaf of bread, put it away, and say you’re going to eat it in 40 years. Yet we do that with our money.
You would never buy a car and put it away and say, I’m going to drive it in 40 years. Yet we do that with our money.
And there are so many other decisions that we are trained to do with our money that we would never do with the things that money buys.
So the question becomes: how do we achieve the returns we get by parking our money while still allowing our money to flow so that we could have complete liquidity use and control of that money to take advantage of opportunities or emergencies that come about?
This is step three in our process. It’s a specially designed whole life insurance policy for cash accumulation that allows you complete liquidity use and control so you can take advantage of financial opportunities or business opportunities, or bail yourself out of a financial or medical emergency. This allows your money to flow and still receive or attain the returns that you would get by parking your money. You get the best of both worlds. You get a reasonable rate of return, plus you get liquidity use and control of your money so your money flows.
If you’d like to get started with a specially designed whole life insurance policy for cash accumulation, so your money is no longer stagnant. Be sure to visit our website at tier1apital.com and feel free to schedule your free strategy session today.
Remember, it’s not how much money you make, it’s how much money you keep that really matters.
So, you’re purchasing a whole life insurance policy specially designed for cash accumulation, and you’re wondering how much money exactly is going to be available within the policy during those first few years. If that sounds like you stick around to the end of this blog post because today we’re going to do a deep dive and you’ll know exactly what to expect going forward. The first step is understanding how the policy is designed and the three key components.
The first is the base policy. It’s the actual whole life insurance policy within your contract. And with that, during the first few years, there’s not going to be much cash accumulation. But that’s why we have the other two components.
The second component is the term rider. And with the term rider, we increase the death benefit, but it allows us to put extra cash within the policy.
And the third piece is a paid-up additions rider. And that’s where the actual cash value is growing, in that paid-up additions rider.
So again, the three components are: the whole life policy, which allows us to do all of this magic, the term rider, which allows us to stuff more money into the policy, and then the paid-up additions, which are actually the equity that we get in the early years.
And it could be thought of as a single premium whole life policy under the cover of a term policy within the whole life policy. So, as we mentioned earlier, the base policy and that term rider, they’re not going to have much cash availability within those first few policy years. But with the paid-up additions rider, the amount that you’re contributing to the rider on a monthly or annual basis, you can expect about 85 to 95% of that to be available immediately for access via policy loan. You see, that’s the money you could access to pay off debt, make a major capital purchase like a car, a wedding, a vacation, or use to take advantage of an opportunity that presents itself.
So, here’s the key: With or without the riders, the paid-up additions, and the term rider, the whole life insurance policy would eventually become efficient. After the first few years, that base policy is going to become efficient and generate cash value within itself on a guaranteed basis. But, the paid-up additions rider allows us to supercharge the policy so you have immediate access to cash value.
And keep in mind, when Nelson Nash discovered the infinite banking concept, there was no such thing as paid-up additions riders. So, he was looking at it purely from a perspective of a base policy, and he was starting policies out that had no cash for two or three years. And that’s the key. He was thinking long-term.
You see, this is a long-term concept that will put you in control of your money, your cash flow, and, ultimately, your life. So walk away from this blog knowing this, you’ll have access immediately to 85% to 95% of whatever you’re contributing to that paid-up additions rider, whether it’s on a monthly basis, an annual basis, or a one-time jump in. But also keep in mind that the longer you have the policy, the better it gets. And because of that, over time, you’ll have access to more and more of the money you put in, as well as the earnings on that money.
Additionally, you have to keep in mind that as that base policy matures, the paid-up additions rider may not make sense anymore. So you’ll want to look at this in a few years. And then once we drop that paid-up additions rider, you may want to start a new policy and begin this process all over again.
If you have a policy and you’re wondering how to access the cash or what the growth is like within it, be sure to visit our website at tier1capital.com. Also, if you don’t have the policy and you’re thinking about starting one, we’d be happy to help. You can schedule your free strategy session at tier1capital.com today.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
Did you ever think about what would happen to your retirement nest egg if you happened to retire during a down market? Everyone knows the cardinal rule: never do a double negative. Never take money out of your investment account during a down year. But where does that money come from if it’s not coming from your investments? Stick around to the end of this blog to find out.
Will you be retiring in a down market? Keep this in mind. Since 2009, the market’s been only down once, and that was 2018 when the market was down about a little over 4%. Now, the average bull market lasts seven years. But here we are 13 years later and the market’s still chugging along. So the question again is, will you be retiring in a down market? Now, conventional wisdom tells you to either invest in safe assets if you’re concerned about a down market or to balance your portfolio. Maybe 40% bonds and 60% stocks or 60% bonds and 40% stocks. But they don’t tell you what happens if the bond market is down at the same time the stock market is down.
Here’s a question, where is it written that you have to lose 50, 60, 70% of your portfolio in order to earn money? Why not choose an asset that’s not correlated to the stock or bond market? So that you’ll get a reasonable rate of return and you’ll have liquidity, use, and control of that money so you could access the cash to supplement your retirement income when there’s a down market giving your portfolio a chance to regenerate or to regrow itself without having the double negative of a market loss and an annual withdrawal.
The point is that conventional portfolio solutions have downsides, and those downsides can be detrimental to your nest egg. A better solution may be using a specially designed whole life insurance policy as a volatility buffer to protect your nest egg so you don’t have to make a withdrawal in a down year ever again. It allows your portfolio to regenerate itself, to grow back, and it still gives you the income you need in retirement.
We’re going to take a look at why you would want to utilize cash value life insurance as a volatility buffer to supplement your portfolio. Let’s say you have a hundred-dollar portfolio and your portfolio loses 20%. Well, now you’re down to $80. But did you ever think how hard you have to work on that $80 in order to get back to even? You lost 20%, but you got to earn 25% of the $80 in order to get back to $100.
Now, let’s throw in taking money out of the portfolio to supplement your retirement. You have the same hundred-dollar portfolio, the same 20% loss. Now you’re down to $80, but you take out $10 to supplement your retirement income. Now you’re down to $70. You have to earn 42% on the $70 just to get back to even. As you could see your money has to work that much harder just to get back to even or else you’re going to run out of money faster. Here’s the key, make sure your money is working smarter, not harder. Using a specially designed whole life insurance policy as a volatility buffer is a great way to get the most out of your retirement savings.
If you’d like to get started with a specially designed full life insurance policy for accumulation as a volatility buffer in your situation, be sure to visit our website at tier1capital.com to get started today. Feel free to schedule your free strategy session. And remember, it’s not how much money you make, it’s how much money you keep that really matters.
What would be the safest way to make your money last longer in retirement? Wouldn’t it be to reduce or eliminate your tax obligation? Stick around to the end of this blog and we’ll show you how to use a specially designed life insurance policy to reduce or eliminate your tax obligation and keep the government’s hands out of your retirement.
When people come to me with their yet-to-be-taxed retirement accounts: 401K’s or IRAs, they’re literally shocked as to how much taxes they’re on track to pay in retirement. The reason they’re shocked is that that’s not what they were told. They were told that they were going to be in a lower tax bracket in retirement. So let’s take a look at exactly what happens when you’re making contributions to your IRA, 401K, 403B, or your other qualified retirement accounts.
Basically, you’re putting a piece of your income into these accounts and you’re deferring the tax into the future. As your account grows and the interest accumulates, eventually you’ll have a large pile of money to use for your retirement. But what happens is, as that money is growing, so is your tax obligation. Here’s the key to utilizing specially designed life insurance to help supplement your retirement. We know what taxes we have the potential to avoid. We just don’t know what the rates are.
There are six potential taxes you could avoid by using these specially designed whole life insurance policies. That includes:
Federal income tax
State income tax
Social security offset tax
There’ll be no increase in your Medicare premium
In most states, you’re going to avoid probate and state inheritance tax.
So what would it look like and how would we proceed to move money from forever taxable in a qualified retirement account to never taxable in a specially designed whole life insurance policy? Basically, after age 59 and a half (so you could avoid the 10% penalty for withdrawals prior to age 59 and a half), we would start taking distributions to fund the annual premium on your life insurance policy.
The key questions you need to ask yourself are basically, do you think taxes are going up in the future? Do you think that with everything that’s going on in our country, and keep in mind we’re $30 trillion in debt, do you trust the government to do what’s in your best interest or what’s in their best interest? And if you think taxes have the potential to go up really high, here’s the question, do you want to pay those taxes? And I bet there’s not a lot of people that asked you that question. But the key is you have a choice. What choice will you make to make sure that your money lasts longer in retirement?
If you’d like help designing a specially designed whole life insurance policy for cash accumulation to help your retirement go further and keep the government off your payroll. Be sure to visit our website at tier1capital.com to get started today. Feel free to schedule your free strategy session. And remember, it’s not how much money you make, it’s how much money you keep that really matters.
Have you ever heard of a modified endowment contract or a MEC?
Well, stick around to the end of the blog, because today we’re going to do a deep dive into the nitty-gritty of MEC contracts.
Basically, a modified endowment contract or a MEC is a life insurance policy that gets stripped of its tax advantages because it doesn’t pass the seven-pay test. The seven-pay test is a test used by the IRS to determine whether or not your policy will become a modified endowment. And the seven-pay test is really simple. It compares the amount of premium needed for you to pay up the policy in the first seven years. If the premium you actually put into the policy exceeds that, then your policy is determined to be a modified endowment contract. Once a MEC, always a MEC. If you put one penny more than is allowed by that seven-page test, your policy will always be a MEC and it will always be stripped of its tax advantages. So what are the tax implications of having a modified endowment contract or a MEC?
Basically, once the policy goes from being a life insurance contract and crosses that imaginary MEC line, it goes from being a life insurance contract to being treated as a non-qualified annuity. As with any non-qualified investment, a MEC, any distribution taken from a MEC will be considered ordinary interest or a return of the interest earned. That goes for any distribution, whether it’s a dividend distribution or a policy loan, which generally aren’t taxable. But if your policy is a MEC, the distribution can be taxable.
Additionally, just like a non-qualified annuity, any distributions or policy loans or surrenders prior to age 59 and a half are subject to that 10% penalty. Despite losing some of the tax advantages of life insurance when you have a MEC, there are some situations where it makes sense to go for the MEC. Particularly, if you don’t plan on accessing the cash value prior to age 59 and a half. Or a lot of times it makes sense if you have assets that you need to shelter from the expected family contribution, FAFSA calculation.
So when wouldn’t you want your contract to be a modified endowment contract? You wouldn’t want your policy to be a modified endowment contract if your plan is to access the living benefits of the policy, whether it’s to make major capital purchases, educate your children, or supplement your retirement. If you have enough time to do the planning and you plan on accessing the living benefits of a life insurance policy, you would want to avoid a MEC at all costs.
It’s easy with the way we designed the life insurance contracts for cash accumulation to avoid that MEC. But sometimes people have a large lump sum of money that they want to put in immediately, and we have to split that up over several years so that the policy doesn’t become a MEC and we could take advantage of the tax advantages and the tax shelter offered by a life insurance policy.
But one of the things that I’ve found is the MEC issue is much to do about really, not a lot. The key is this number one, the MEC status could be avoided with proper planning and design, and that’s where we can help you. Secondly, keep this in mind. Whether your policy is a MEC or it’s not a MEC, you still enjoy the tax-free death benefits that are given to life insurance policies. And because of that, it still creates a nice little tax advantage.
If you’d like help designing a life insurance policy for cash accumulation or a modified endowment contract, be sure to visit our website at tier1capital.com 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.
