Retirement Planning

Maximizing Retirement Benefits Using Life Insurance



I recently had a conversation with a longtime client who had some life insurance set up prior to his retirement. He’s now ready to retire and he called me to discuss his options for his pension. He has a defined benefit pension plan through his employer. And he wanted to know which was the best choice for him as far as leaving survivor benefits for his spouse.

Well, the good news was that because he had such a large amount of life insurance. That life insurance will be more than enough to replace his pension without having to take a reduction in his monthly pension. His life insurance is now paid up and consequently, he has a guaranteed death benefit. He doesn’t have to take a reduction in his monthly pension to leave his spouse a survivor benefit.

You see, a lot of times people view life insurance premiums as a cost, not an asset. However, when you have a specially designed whole life insurance policy designed for cash accumulation, it’s both an asset as well as a death benefit. You’re able to access cash value via the policy loan provision while you’re alive and take advantage of those living benefits as well as take advantage of the death benefit so that when you pass, the main beneficiary receives a death benefit.

You see, you’re able to purchase death benefit dollars, with pennies, the premiums paid. What this allows you to do is take more risk in other parts of your portfolio. your I.R.A., your 401k or your pension plan.

In the case of our client, he had a defined benefit pension for $5500 per month. However, his wife is a lot younger than him, almost 15 years. So the defined survivor benefit was going to cost him about 1,500 dollars per month, meaning that instead of getting $5500 per month, he was going to get $4,000 per month. And he said, Tim, I can’t afford to retire on $4,000 per month. I can retire on 5500. What are my options?

Well, it was really simple because he had a paid-up life insurance policy that he had funded for over the past 20 years. He was in great shape. He had a guaranteed death benefit that would have more than compensated his spouse if and when he dies. They’re able to maintain the $5500 per month and provide the survivor benefit through the death benefit of his life insurance policy that he would have had to have paid for had he taken that survivor benefit through his retirement system.

Not to mention, because this is a specially designed whole life insurance policy designed for cash accumulation. He also has access to the cash values via the loan provision while he’s alive. So if he wanted to control the financing function, let’s say, for vacation or their child’s college education or anything else while they’re still living, he has the ability to do so and access that cash value on a tax-favored basis.

And you may be wondering what impact would accessing those cash values have on the death benefit. It’s really simple. If you die while there’s a policy loan on the policy, it will be reduced dollar for dollar against the death benefit. In essence, the policy loan is just an advance on a portion of the death benefit.

This really underscores the flexibility and the options you have when you get to retirement. You get to use the money prior to retirement, but now you have options. And those options can help to make your retirement lifestyle so much better. When you access life insurance policy loans, they’re not recorded anywhere for the IRS to see, meaning they don’t increase your taxes.

So what taxes will they not increase?

There’s no increase in your federal income tax. There’s no increase in your state income tax. There’s no increase in your Social Security offset tax. There’s no increase in your Medicare premium, which, let’s face it, is a tax. As well as in most states, The death benefit passes federal income tax-free. And in most states, the death benefit passes outside of probate and outside of estate and inheritance taxes. So when you add up all the taxes that you’re not going to have to pay. That’s a huge way to make your money go a little bit further.

If you’re interested in making your cash flow and your money, now and in retirement, more efficient, schedule your free strategy session today. Or if you’d like to learn exactly how we put this process to work for our clients, check out our free web course right on the homepage, The Four Steps to Financial Freedom.

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

Cracking the Code to Properly Save for College

Have you ever wondered how people afford sending their children to college? Sometimes the first child is manageable, the second is tight. And by the third or fourth child, it’s downright impossible. Today, we’re going to talk about how to set yourself up financially to send your children to college and afford that college tuition. 

The cost of college education has been rising at a rate that is significantly higher than the rate of inflation. Basically, that means that what it’s going to cost you to send your children to college is growing much faster than the income that you’re earning. But here’s the deal. If your income grows fast, that factors against you when you’re filling out the FAFSA, the Free Application for Federal Student Aid.

We call inflation the stealth tax because we don’t see it on our tax returns, but it affects each and every single one of us. When it comes to the cost of college, not every family is going to pay the same amount of tuition for the exact same school. You see, it’s calculated based on four factors: parent’s income, parent’s assets, children’s income and children’s assets. So when it comes time to send your children to college, you want to make sure you keep those numbers looking as low as possible.

But the question becomes, how exactly do you do that? How do you set your family up in a position so that you’re paying the lowest legal amount you have to your to send your children to college so that you could get out ahead in the long run?

What you’re trying to do is maximize the amount of federal aid that you receive. And if you do that in so doing, you’re making your money more efficient. What we’re trying to do here is show you how to send your children to college with minimal impact on your ability to save for your future and with minimal impact on your current lifestyle.

But here’s the issue. Traditional methods of paying for college and saving for college are going to leave you pinched. Here’s a secret, 529 savings accounts count against you when it comes to federal aid application. So by doing the right thing and saving for your children to go to college because that’s a major capital expenditure, you’re actually decreasing the amount of aid that your family’s going to qualify for because you did the right thing to save for college. 

If it seems like you’re damned if you do and damned if you don’t. I got news for you. That’s the way they set it up. You see, everything that served you well financially up until the point your children are applying for federal aid, will work against you going forward after the application for federal student aid. 

No parent should have to choose between sending their child to their dream school and funding their own retirement. But unfortunately, that’s what it comes down to a lot of times in these college funding situations. Because you know what wasn’t factored into the FAFSA calculation? How much money parents are paying towards their own debt on a monthly basis. And clearly the amount of debt you have is going to impact not only your lifestyle, but your ability to pay for your child to go to college, especially if you plan on doing so without derailing your own retirement. There’s only so much cash flow to go around.

If you have a lot of debt payments, there’s only so much leftover at the end of the month. What happens is a lot of parents are forced to decrease their retirement savings at the time they’re sending their children to college so that they’re able to finance the cost of college tuition.

Here’s the solution.

You really should be looking at ways to make your money more efficient because the more efficient your money becomes, the better prepared you are to take on or tackle this increased expense of sending your child or children to college.

At Tier 1 Capital, we look at things through the lens of control. Are your financial decisions putting you in more control of your cash flow and assets or in less control of your assets? Whoever controls your cash flow controls your life.

No parent wants to stand in the way of their child pursuing their dreams but we see so many times where children have to make a decision between almost bankrupting their parents and pursuing their dreams.

So what are some practical steps you could walk away with and apply?

Number one is to look at where you’re giving up control of your money unknowingly and unnecessary. We call these wealth transfers. The five areas that we focus on are taxes, mortgages, how you’re funding your retirement, how you’re paying for your children’s college, and how you’re making major capital purchases. And let’s face it, isn’t college a major capital purchase?

Number two would be to build in flexibility to your plan. First, you find the inefficiencies, regain control of that cash flow, and then save in an area where you own and control. And the importance of that is the flexibility to send your children to college to pay for vacations, to pay for any expenses that come up, and then eventually also use that money to retire without the restrictions placed on accounts by the government for example.

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

4 Key Questions to Ask Before Signing Up for a Whole Life Insurance Policy

So you’re thinking about getting started with a specially designed whole life insurance policy designed for cash accumulation. Maybe you want to expand your business or protect your family, or you want to get started with the infinite banking concept. Today, let’s dive into the four questions you need to ask before you sign the final policy papers.

Let’s get started with question number one. Do you like the agent? This agent is going to be with you for the life of the policy, and it’s important that you have a good working relationship with this person before you sign the contract. And that’s why it’s important to have a key conversation with your agent to make sure the agent understands exactly what your goals and objectives are. If not, you may end up with a policy that doesn’t meet your needs.

Number two is you need to answer the question within yourself How do you plan on using the policy? And does your policy meet your needs? With most life insurance policies, you’re going to be building cash accumulation, but you want to make sure upfront that you know how your policy is going to perform over time.

For example, with monthly contributions to your policy premium. It’ll take some time for your policy to grow and accumulate a cash value. So with that, it will take a little bit more time before you have enough cash value to loan against that policy cash and go out and achieve your financial goals. That’s why it’s important that the agent understands exactly what your needs and objectives are to make sure that the policy fits your needs.

In most policies that are designed for this cash value accumulation or the infinite banking policy, you could expect about 50% of the premium contributions to be available for policy loan within that first policy year.

Number three is to look at your contract and make sure it’s not a MEC or a modified endowment contract. Modified endowment refers to a contract status that the insurance company must perform on an annual basis. Basically, the insurance company just needs to make sure that it is performing like a life insurance contract versus an investment.

Number four is to confirm you’re with the right type of company. You want to make sure your company is mutually owned, dividend paying and non-direct recognition. Mutually owned means that the policy owners are owners of the company, not stockholders.  Dividend paying is important because the policy owners are the owners of the company, they’re entitled to dividends if the insurance company makes a profit that year. And non-direct recognition, meaning that the policy performs exactly the same way, whether or not a policy loan is taken. 

It’s really important that you have the answer to all three of those questions when choosing a life insurance company, because some mutual companies pay dividends but they are direct recognition, meaning that they’ll give you a lower dividend if you borrow. And the point is this: if you intend on borrowing, you shouldn’t be penalized for borrowing.

If you’re looking to get started with the Infinite Banking Concept check out our latest YouTube video. We do a deep dive on the four questions that you need answered before you place that policy in force. Once you have satisfactory answers to all of these questions, you’re going to be in a great position to move forward with your whole life insurance policy designed for cash accumulation.

If you’d like to learn more about how to get started with the infinite banking concept or getting started with a cash value life insurance policy designed for accumulation, hop on our calendar for a free strategy session.

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

5 Core Elements to Financial Security

Have you ever consider what impact external elements are going to have on your ability to thrive and retire one day? Let’s talk about the five core elements that have a huge impact on our financial security.

Have you ever heard, ask a better question and get a better answer? This applies to financial planning as well. If you’re asking the wrong financial questions and having the wrong financial discussions, you’re never going to land with the right financial solution. We learned many years ago that the traditional financial planning industry isn’t having the right financial discussion. 

It was obvious from the beginning that the traditional planning process was and still is, based on math. The industry was using math to achieve future financial assumptions and accumulation results over a period of time. And let’s face it. Math is math. When done properly, it’s right. But here’s the problem. When applied to the future, the core elements change the results dramatically. 

There are actually five core elements that are going to impact the accumulation of your wealth. Those five elements are risk, taxes, regulation, inflation and depreciation of the dollar. All of these elements are going to have a dramatic effect on the accumulation of your money. $1,000,000 today is not going to have near the buying power as $1,000,000 in 30 years.

But the problem is the industry is still using that math and saying, “Hey, you’re going to have $1,000,000”, and you’re thinking, I’m going to be able to have $1,000,000 based on today’s core elements. The problem is we don’t know what those core elements are going to be 30 years from now. Heck, we don’t even know what they’re going to be two years from now. And here’s the problem. Many of the financial solutions offered up by the financial services industry contain these five elements.

That’s why it’s important to protect your money from as many of these core elements as possible, namely, risk and taxes. Control what you’re able to control and the rest will fall into place. 

You need to focus on controlling what you’re able to control, because, there are other elements that we aren’t able to control that are going to impact our financial security in the future. But, by controlling the things that we have the power to control, we are able to stack the odds in our favor.

But here are the questions you really need to ask.

Which of these five core elements do you want in your plan? Which of these five core elements do you have control over? Are the solutions you’re being offered, are they eliminating these core elements or are they feeding these core elements?

When it comes to financial security, it’s an important to protect your assets from all of these elements that you’re able to. If you’d like to learn more about how you can protect your assets from these five core elements, schedule your Free Strategy Session with us today.

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

Strategy to Accomplish a Debt Free Lifestyle

In today’s economic environment, with high interest rates and high inflation, anyone could end up with a credit card balance. But the question is, how do you get out of that debt as quickly and as efficiently as possible? And how do you do it in a way where you actually come out better off than you were before?

Whether you’re buried in debt or you’ve accumulated more debt than you’re comfortable having. You want to get out of debt as quickly as possible. But following conventional ways of getting out of debt leaves you with no money and leaves you more frustrated after the debt is paid off than you were before you started paying off your debt.

Think about it. Conventional wisdom teaches us that debt is bad and that we need to get out of debt as quickly as possible. And the way most people think about debt, that means putting all of your extra cash flow towards that debt to bring it down to a zero balance as soon as possible.

But we need to be able to enjoy life along the way, even if we have accumulated more debt. And more importantly, we also need to be able to save for the future so we don’t end up in this situation again.

That’s why it’s important to think outside the box so that you can get your debt paid off as quickly as possible and begin to save or put yourself in a position where you have access to money so you can also enjoy the benefit of having a good income. 

We were speaking with a client this week who made a great income $200, $300,000 a year, but he has $1,000,000 of debt. And he asked if is there a way I could actually manage this and still retire, because he’s 59 already.

This is our favorite part of the job. Showing people how to get out of debt more quickly than originally planned. Plus, saving for retirement.

Conventional wisdom teaches us that you need to put all your money towards debt. But if we don’t break that debt cycle by saving outside of the debt, even if he knocks out the million dollars of debt, at the end of the day, using conventional wisdom would only leave him at the zero line and no better off for retirement.

And here’s the point If he focuses all of his free cash flow to paying off his debt, he can’t begin to save until his debt is paid off. He is violating one of the key variables of compound interest. He’s giving up his time. And this is not a mutually exclusive choice. You can start to save and you can pay off your debt quicker if you do it the right way. 

You see, all you have to do is add one extra step since you already have a pretty good income. All you have to do is redirect some of those debt payments into an account that you own and control and have access to. It’s only adding one extra step, but that one extra step makes a huge difference over a lot of time.

You see, this client had 12 payments leaving his control every month, and all you need to do is to stop one of those payments from leaving your control and redirect it back into your control. And when that happens now, you can reverse the flow eventually on all 12 of those payments.

By using a specially designed whole life insurance policy designed for cash accumulation. This client is able to tackle his debt while saving simultaneously. You see, you start by redirecting one or the extra debt payments towards the policy. Start building up that cash value, that pool of cash that you own and control. And once you have enough, you pay off your smallest debt and then you have a free debt payment that you’re able to redirect into your policy to knock down that policy loan.

So now in the policy, we have the premiums building the cash value as well as the policy loan repayments, building that cash value. And what happens is exponential as we continue knocking down each and every single one of those 12 debts, we have more and more cash flow going towards our control instead of away from our control as it is now.

And that’s why you can get out of debt quicker using this method because you’re filling up your cash value with two hoses. One, your premium deposits, and two, your loan repayments.

Have you accumulated a huge sum of debt or just more debt than you’re comfortable carrying? Well, there could be a way to get out of debt faster by adding one extra step.

You see, instead of pushing all your money to outside entities, credit cards, banks, mortgage companies by adding this one extra step and paying yourself first. You could break the debt cycle in your life so you’ll be less dependent on banks, credit companies and other outside sources for access to money and instead have a pool of cash that you own and control to take back the finance function in your life.

We are not using any extra cash flow. This is all cash flow that’s built in our clients income, cash flow that’s already currently being used to repay the debt. It has actually no impact on his day to day to add this one extra step. But, what it does have an impact on is his future and his family’s future. Although we’re paying off the same amount of debt and we’re using the same cash flow, at the end of the day, we’re left with a pile of cash that the client owns and controls and is able to use. Whether it be down the line to finance future purchases, go on vacation, make an investment, or even further down the line to fund his retirement.

That’s why our process to get you out of debt quicker allows you to one, get out of debt. Two, get out of debt quicker. Three, begin to save today so you can take advantage of the magic of compound interest. And number four, we can show you how to get all those policy loans paid back so that when you go to retire, you can use that money to supplement your retirement income.

If you’d like to learn more about exactly how our process works, check out our free web course, The Four Steps to Financial Freedom. And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Tax Benefits of Cash Value Life Insurance

We often talk about the living benefits associated with cash value life insurance. Wouldn’t the best way to make sure your money goes as far as possible and as as efficient as possible be by protecting it from taxes?

Before we get started, let’s address the elephant in the room. Are you able to deduct premium payments toward your life insurance policy? The answer is a big fat no. You may be wondering why. Well, let’s think of it this way.

If you were to deduct this small premium payment over here while you’re still living it would cause this huge guaranteed pile of money, the death benefit to be taxable to your named beneficiary.

One of the hallmarks of life insurance is that you could take pennies in premium and turn them into dollars in death benefit. That is maximum leverage. By getting a tax deduction on the pennies, you get a taxable bill on the dollars. That’s not a good trade off. It simply doesn’t make sense.

So although you may be looking for strategies for living tax benefits while you’re alive, it doesn’t make sense to sacrifice the tax free death benefit in the long run. Here’s another key. There are so many tax advantages to owning cash value life insurance, and we’re going to go into those right now.

First of all, tax free access to policy loans via the policy loan provision. And keep in mind, all loan proceeds are, in general tax free. Using the loan provision allows you to tap into that cash value, to use it for whatever you want to use it for. Whether it be to send your kids to school, grow your business, do a home improvement. It’s a contractual guarantee, meaning you don’t have to justify what you’re using the money for because you’re guaranteed access to those policy loans via the contract between you and the life insurance company.

Another big benefit is that the cash value does not have to be reported on the FAFSA, which is the Free Application for Federal Student Aid. Meaning when it’s time for your children to go to college, the money that’s stored in the life insurance cash value isn’t going to be reported and isn’t going to be counted against your college tuition aid. There is not even a question on the FAFSA form to disclose cash value in your life insurance.

Another tax benefit is that the policy cash value is able to grow on a tax deferred basis as long as it’s in the life insurance contract. That’s why we talk about using policy loans so much, because not only do you have access on a tax free basis via the policy loans, but you also have tax deferred growth within the contract.

So you’re able to experience continuous compound interest on that cash value even after you access it through the policy loans, for example. What that means is when you access a loan on your life insurance policy, your money continues to grow as if you hadn’t borrowed.

A life insurance policy loan is a collateralized loan. You’re not borrowing from the policy, you’re borrowing against the cash value. And the cash value is the collateral. But here’s a caveat: that only happens if your policy is what’s known as non direct recognition, meaning that the insurance company will not penalize you by giving you a lower dividend if you have a policy loan.

The companies we typically deal with are non-direct recognition, meaning the policy is going to perform the same for our policyholders, whether or not they have a life insurance policy loan outstanding or not. But it will vary from company to company.

Another tax benefit is the fact that distributions from a life insurance policy in retirement will have no federal income tax, no state income tax, no Social Security offset tax, and will not be counted towards your contribution for your Medicare premium. That’s four taxes that you will not have to pay if you access your money through your policy in the proper way.

With a life insurance policy, all of the premiums that you pay into the contract are accessible on a tax free basis. It’s basically a return of premium. Anything that grows over that contributed amount is going to be fully taxable as income, but you could get around that by accessing it through policy loans after that basis is used up.

So recapturing your cost basis is actually called FIFO. First in, first out. The first dollars you take out are considered the first dollars you put in, which would be your cost basis. Which is a huge benefit.

What are the tax benefits of life insurance? The money goes in with after tax dollars, the money grows on a tax deferred basis. You can access the money through the loan provision on a tax favored basis. When you take distributions in retirement, the first dollars out are considered the first dollars you put in, which means you can recover the money you put into the policy on a tax free basis.

Then in retirement you can over your basis, you can take money out through the loan provision and again, avoid the taxes, state income tax, federal income tax, Social Security offset tax, no increase in your Medicare premium. Then when you pass away, the death benefits pass outside of probate, in most states, and in most states pass outside of state inheritance or estate taxes.

Finally, when you die, the death benefit goes to your name beneficiary on a federal income tax free basis. And here’s the point It’s not about rate of return, although the rate of return is really strong. It’s about maximizing what the tax code allows you to take advantage of.

So let’s summarize where we are so far. You put money in a life insurance policy with after tax dollars, the money grew on a tax deferred basis. You are able to access it through the loan provision on a tax favored basis. You put the money back in, you took it back out again however often you want.

Now you go to retirement time and guess what? No state income tax, no federal income tax, no Social Security offset tax, no increase in Medicare premium. So we got you through into retirement with tax advantages and now you pass away. The death benefit passes to your name beneficiary on a tax free basis. And in most states, the death benefit is not counted towards probate and it will pass outside state inheritance or state estate taxes.

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

Planning for the Expense of a College Education

When it comes to funding college tuition for your children, sending one child to college is expensive, sending two is almost manageable, and sending three could be downright impossible.

The cost of college for your family is based on a calculation done by the government. It’s calculated using the parent’s income, the parent’s assets, the children’s income and the children’s assets. The more you make typically, the more you’re going to spend.

So when you’re sending your first child to college, it’s pretty expensive. And when you get into sending multiple children to college, it could not only be expensive, but it could also totally derail the retirement plan for the parents. 

And on top of that, we have the issue of fairness. You see, from what we’ve seen from our experience, the youngest child usually gets shortchanged. The oldest child has the most money because, let’s face it, the grandparents, the aunts and uncles, they all put money aside for the future of the first child. Not to mention they’re first in line. So they get first dibs on Mom and Dad’s cash flow.

Did you notice in the four factors you use for the FAFSA calculation? Not a single one of them had to do with the parent’s debt. So if the parents have a lot of debt, whether they be car payments, mortgages, boat payments, credit cards, that doesn’t factor it all into the formula for college aid.

But now we have the issue with each child, as we go down the ladder, there’s usually less money set aside for the younger ones, and the youngest usually has the least. 

So there are a few factors to consider here. Number one, is your child picking their college or are the parents setting guidelines on what they’re able to afford for each of the children? Number two, how much money is being set aside for each of the children, and is that sustainable throughout the life of the parents? And is that enough to get your children through college without derailing your retirement income?

A lot of times parents that we see are faced with the choice of sending their children to their dream school or funding their own retirement income. No parent should have to make that choice. 

So what’s the key? What are the keys to setting yourself up for college success to make sure your children could be successful and you could retire someday?

Well, the first is to start saving and to start saving early. Ideally, you want to be putting away 20% of your income and living within your means so that you’re able to fund college but also live comfortably. 

But let’s face it, there’s only so much cash flow to go around 20% sounds great, but how in the world can you do it when you’re struggling to get by today? And you know that somewhere down the road your children are going to want to have the opportunity to go to college. And college isn’t getting cheaper as time goes by.

Well, the key is to start where you are. Start saving what you can and start saving it on a consistent basis. And then as you progress and maybe you get a raise, you’re able to save more and more towards your goals. And that’s where we can help you. We help people identify where they’re giving up control of their money unknowingly and unnecessarily.

If you’d like to learn exactly where you’re giving up control of your money and how you could make it more efficient, check out our college page on our website, where we go through a deep dive of how we use this process for our clients.

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

How to Reach Your Financial Position A

When you’re starting off in business, your goals are certainly different than when you plan on exiting your business. But the question becomes how do you build within your business to get to your business Position A?

We define Position A as having enough cash outside of the business equal to the value of your business, so that your exit or your retirement is not dependent on your ability to sell the business.

Now, when you’re growing the business and you’re just starting off, it’s important to reinvest the profits back into the business so you could explode the business and grow so it could take care of you and your family.

But reinvesting your profits back into the business creates its own set of problems. According to the Bureau of Economic Analysis, 80 to 90% of a business owners wealth is tied up in the company and that makes their money inaccessible for things like repairing equipment, hiring new personnel, or growing the business.

However, as a business owner, we all have life hopefully outside of the business. You have a family, you have other goals. Maybe you want to send your kids to college, travel the world, retire one day. When all of your money is tied up within the business it makes these other goals very complicated.

And I would argue that the number one stressor that all of us face when it comes to money is not having access to it to do the things we want to do. According to a study by Intuit, 61% of business owners struggle with cash and 69% of business owners sleep less due to cash concerns.

Now, it’s one thing when you’re starting off your business to be stressed about money, but when your business is doing well, your business should be able to also take care of you. And it all comes down to how we’re using our money, how to get to position A so that you’re able to live your life now without financial stress and the health problems that come with stress, but also to know that your business is going to be able to take care of you throughout your entire life.

 

We recently had the good fortune of helping a client of ours who had been with us for 37 years retire. He had an offer on his business and it was an offer he literally could not refuse. But the great thing was he waited for the best offer. Why? Because he was in Position A. He had enough cash equal to, actually greater than, the value of his business so that his retirement was not predicated on his success of selling the business. His retirement was predicated on the success he had for the past 37 years.

When you’re not dependent on the outcome, you’re able to make clearer, better financial decisions. And the way to get to that position is by taking care of the business in the beginning, but also saving outside of the business so that you’re able to take care of yourself and your family and your financial future.

If you’d like to get to your Position A so that you have enough money saved outside of your business, as well as a thriving business, because too is better than one. Be sure to check out 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.

How Important is a Clearly Defined Succession Plan?

Being in business with your family could get tricky. For example, a recent study showed that two thirds of small business owners plan on passing their business down from one generation to the next. Yet, of those respondents, only 18% had a business succession plan that was clearly documented and communicated within the business.

There are two main reasons why business owners fail to plan for the future. The first is that they literally don’t think that they can afford to retire. 37% of respondents said that they didn’t think that they could afford to retire from their business. And we all know that cash flow is the lifeblood to any business. So it makes sense if you don’t have the cash flow to try to avoid it. But what if there was a way to find that cash flow within your current expenses to fund this planning?

If you’ve worked for the last 30 or 40 years, building your business, the last thing you want to do is strap the business with payments for retirement plan for you. But at the same time, you’ve put your blood, sweat and tears into this business for the last 30 or 40 years. You deserve to use that business for retirement. So it’s a double edged sword.

The second reason that business owners fail to plan for their succession is, they don’t want to let go. Statistically, business owners retire later than their employees and later than the average American. On average, a business owner retires at age 72 versus 66 for their employees and 64 for the average American.

If you think about it, it makes sense, though. A lot of times when people start a small business, the reason why or one of the main reasons why is because they want to be in control. They want to be in control of their own destiny and their livelihood. So the very thought of giving up control can cause stress and anxiety for the business owner who’s been in control for 30 or 40 years.

However, holding on for too long can have some negative side effects. When a business owner stays on too long, there are three negative effects. Number one, it can slow the growth of the company. Number two, it can limit your successors. People aren’t going to wait around forever before you decide to retire. Additionally, they’re not going to put their heart and soul into growing the business if it’s only helping you and not benefiting them. And third, it can literally bankrupt the business. And think of this. Business failures have increased by 226% over the past decade.

Our specialty is helping business owners plan a strategy to set them up for retirement success, as well as set the next generation up for success within the business. We do it in three steps. First, we show you how to regain control of your cash flow so that you can utilize that cash flow to help fund your exit strategy without taking away from the viability of the business.

Secondly, we can help you to incentivize key personnel to stay on, to help you to grow the business and fund your retirement without bankrupting the business. And more importantly, these plans could help incentivize key personnel to maintain their production, help grow the business, but also provide them with meaningful benefits to secure their financial future. And number three, we’ll help facilitate the difficult conversations that have to be made between family members and key people so that everybody’s on the same page and everybody’s pulling in the right direction.

The bottom line is this: with proper planning, business succession can go smoothly. It could take care of the founding generation and generations to come. If you take care of the business, the business will take care of you.

If you’d like to get started with this type of succession planning, check out our website at Tier1Capital.com 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.

Saving and Eliminating Debt by Leveraging Your Current Cash Flow

I would argue that the number one source of financial stress comes from not having access to money when you really need it. The perfect example of this comes when you end up in too much debt than you could afford. It ties up your monthly cashflow and leaves you in a position where you just are trying to get out. But often people neglect to save and secure their own financial future before getting out of debt.

Total household debt is up to $16.9 trillion for Q4 of 2022, and of that, nearly $1 trillion is credit card debt. Credit card debt had grown by 6.6% in Q4 over Q3. That’s the largest quarterly increase ever recorded.

It’s clear that Americans are being squeezed from every angle. Inflation is up. Interest rates are up and savings is down. It’s getting harder and harder to make ends meet. So it’s no wonder that people are charging on their credit cards. But when you charge on your credit card, what are you actually doing? You’re obligating your future income to pay off that credit card debt and with the interest rate so high, some credit cards are 25 to 30% APR these days. It could be a very heavy interest expense, but it’s what people need to do to get by. However, once you’re in credit card debt and you’re trying to get out, the natural reaction is to put all of your monthly cashflow, all of your extra money towards that debt because it’s draining you.

What people neglect to take into account is that even if you got all that credit card debt paid off, you’re still just at the zero line. You’re no more financially secure than you were when you were buried in debt.

You went from a position of having very little cash flow and no access to money, and now you’re out of debt, but you’re still in a very precarious situation financially.

This is why we think it’s important to both pay off your credit card debt, but also save for your future, to accumulate a pile of money that you own and have full liquidity use and control over to protect you and your family.

58% of Americans have less than $5,000 in savings and 42% of them have less than $1,000 in savings. Most families out there have a very difficult time absorbing a $400 medical bill. And let’s face it, how easy is it to rack up $400 in medical bills today?

Parkinson’s law says that expenses rise to meet income. So if you’re not diligent on saving your raises, guess what’s going to happen? Your expenses will rise to meet your income.

Another way to look at this is with the student loan debt. A lot of people stopped paying their student loans during the pandemic because of the forbearance. Didn’t they in essence, give themselves the raise? What’s going to happen when those payments resume and their cash flow is going to be pinched for the amount that they’re going to have to repay back to the student loans?

You know, we talk about this all the time, but really, there’s no such thing as a free lunch. Our capital also has a cost, and sometimes we don’t recognize that. In essence, what’s happening is we’re taking care of our current lifestyle wants and completely ignoring our future lifestyle needs.

One of the ways we help our clients is by using specially designed whole life insurance policies designed for cash accumulation so that they’re able to build a pool of cash that they’re able to leverage to pay off their credit card debt and achieve their other financial goals without interrupting the compound interest curve.

If you’re interested in learning more about how to manage your debt and your savings, check out our website at Tier1Capital.com to schedule your free strategy session today. Or if you’d like to learn more about how exactly we will put this process to work for our clients, check out our Four Steps to Financial Freedom Webinar right on our homepage.

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