SAVE FOR TAX FREE RETIREMENT
Why are you putting money into an IRA or 401K? It must be for retirement since you agreed not to touch the money until you’re almost 60. But what’s the most important asset you can have in retirement?
A big bank account?
It’s a stream of income that will last as long as you do.
Retirement is using your assets to replace the stream of income you used to get from working. Retirement is about Income!
So why not save in a vehicle that is actually set up for maximum, tax-free income from the very beginning?
Draw-down vs borrow
The only way to get money out of a 401k or IRA is to physically make a withdrawal, or a “draw-down”. This means your account immediately drops by that amount, even in years when the market drops—a recipe for disaster–after all, you can’t stop living just because the market crashes.
However, mathematically, BORROWING what you need to live on and never touching the principle, allows you to take out a lot more money each year than you could by drawing it down—like double or triple the amount!
The simple spread sheets below show the difference between drawing down and borrowing the same amount from the same size portfolio with the same market conditions. The draw-down is out of money in 16 years. Borrowing never runs out of money.
It’s Just Math!
You cannot borrow from or use a tax qualified account as collateral for a loan.
What would such a plan be?
It’s called Equity Indexed Universal Life Insurance (EIUL). I like to refer to it as “Retirement Life” because it is the best accumulator and distributor of a future income stream, such as that needed in retirement.
But, before you say you don’t need life insurance, or it’s too boring or conservative, consider this:
- Today’s EIUL plans are cutting edge 21st century strategies that didn’t even exist a few years ago.
- Traditional Whole Life Insurance growth is based on bond income, or dividends. EIUL growth is based on computer driven indexes administered by major brokerage firms like Barclays and Merrill Lynch. These indexes are the result of commercial usage of super computers that didn’t exist 20 years ago.
This isn’t your grandfather’s whole life plan.
- The indexes are designed to move with the S&P 500 (with less volatility—smoothing out the ups and downs)
- The insurance company contracts with the brokerage firms to buy options on the index for the benefit you, the policy holder. When the index increases, you own the upside.
Unlike an IRA/401k, your money is protected from stock market drops. If the index goes down, your money stays the same, never drops, because your money is actually invested in the general fund of the insurance, not in the market, and is guaranteed to never decrease.
You get stock market-like returns
without the risk of ever losing money to a stock market correction.
Safe place to put money
Short of the U.S. government, the safest place on earth to put money is with insurance companies. In the history of the U.S., no A-rated insurance company has ever failed. I’ll bet you can name some banks and brokerage houses that failed.
No Government strings
Every government tax qualified plan has stipulations or restrictions:
- You can’t touch it until you’re 59 1⁄2, lest you pay an additional 10% penalty on top of the income tax.
- You have to start paying the taxes on it at age 72, whether you need the money or not, lest you pay a 50% penalty.
- You can only put in a certain percentage of your income, etc.
- Your heirs must take all the inherited IRA/401k money and pay income tax on it—at their bracket—in a 10-year period, again, subject to a 50% penalty.
- In the case of a Roth IRA, you can only contribute up to $6,000 per year, increasing to $7,000 at age 50
- If you earn over certain, random government limitations, you cannot even qualify to contribute to a Roth IRA!
Life insurance has no such restrictions. You can put in as much as you like, spend your cash at any age, for any reason.
No real benefit to tax deferral
Taxes are on currently on sale! For now, we have the lowest tax brackets since 1941. These tax rates are already scheduled to go up January 1, 2026. It Is highly likely that when you retire and need the money, tax rates will be even higher then. What’s the benefit of getting a 20% deduction today only to pay it back 30 years from now at 30% or more? In other words, every dollar paid into your IRA/401k is like giving the government a blank check to take whatever it wants. When the government invented IRAs and 401ks back in the 70s, and there were over 25 brackets all the way up to 70%, the concept of being in a lower bracket in retirement made some sense, not so today with only 7 brackets, the highest being 37%. In today’s middle- class bracket you can cut your income in half and still be in the same bracket!
Triple Tax benefit with life insurance.
Life insurance uses after tax dollars. Your money:
1) Grows tax free
2) Spendable in your lifetime tax free,
3) Transfers to the next generation tax free.
There’s a saying in the financial world, “with compound returns come compound taxes.” These tax benefits, coupled with market-like growth, exist nowhere else.
…about that loan you’ll use for your lifetime of income…when do you have to pay it back? Answer: NEVER in your lifetime.
It simply comes out of the death benefit, and the remainder goes to whomever you designate.
More income plus LESS RISK
A tax deferred retirement plan–your 401k/IRA–will always have several major, inherent risks:
1) Taxes could be high in the future when you need the money the most.
2) The stock market could drop at any time, further eroding your income stream.
3) If you have a 401k company match, it is not guaranteed and could vanish. (See 2008)
Specially designed life insurance contracts have no such risk.
The worst that can happen in the case of a market crash, is you have the same amount of money at the end of the year as you did at the beginning of the year. You and your heirs access your money tax-free, so future tax rates do not matter.