Grow Financial Security & Independence
Crisis-Tested Strategy for Establishing a
Core Financial Asset
The Legacy Benefits of protection against premature death and superior wealth transfer provided by Universal Life Insurance (ULI) are well known; however, here's how the Living Benefits, not so widely known or publicized, can work for you:
In its basic form, ULI is a type of permanent life insurance based on a cash value that accumulates over time. Structured properly by insurance professionals with specialized training and certification, there are various types of ULI that can be tailored to meet all of your long-term financial goals.
One type of ULI known as "maximum funded" fixed indexed universal life (FIUL) is an effective way to accumulate cash for anticipated needs such as college tuition or guaranteed retirement income that you cannot outlive. While offering competitive rates of return and liquidity (i.e., instant access to your cash value whenever needed), FIUL also offers these important long-term planning advantages:
- Growth with Safety: You have the flexibility of growing the cash value of your policy by either tying the interest credited to the annual performance of a major market index such as the S&P 500 -- this is known as the Indexing Method; locking in a competitive guaranteed fixed rate of return which is declared annually; or choosing a percentage allocation between the two crediting methods.
With the indexing method of a FIUL policy, the allocated portion of your accumulated cash value is never directly invested in the market, and you have up-front, contractual guarantees from a wide selection of major insurance companies that will provide, at all times, Safety of Principal and Locked-in Gains as credited.
The Best of Both Worlds: We have been in a volatile economic environment for years now. And it's anyone's guess how long it will continue. Decisions you make at the outset will determine outcome. Where and how you place your core financial assets is the first, critical decision to be made in determining your long-term financial stability and security. The two traditional approaches whereby you are asked to either sacrifice safety for potential return or sacrifice return for safety are not the only ways to go. Indexing allows you to take advantage of positive market cycles when they occur, while having a step structure of safety in place that will automatically prevent losses and protect against getting caught short if the cycles turn negative at the wrong time in your life.
New York Times Best Selling Author, Douglas Andrew, explains Indexing (3 min. video)
- Major Tax Advantages: The cash value of a FIUL policy grows on a tax-deferred basis. You have access to tax-free distribution of the accumulated cash value of the policy in the form of loans that are structured to be repaid out of the death benefit of the policy. From day one of the policy, there is the added protection of a tax-free death benefit that will blossom and pass on to your heirs.
What matters at the end of the day is not how much you make, but how much you get to keep, enjoy while living and then ultimately leave behind to those of your choosing.
The 401(k) Question: Taxes on your Seed Money or Harvest Money?
Time Magazine and MSNBC - Why It's Time to Retire the 401(K) (3 min. interview)
Read Time Magazine Cover Story
Think of the tax-deferred contributions you would make to a qualified account such as a 401K, IRA, 403B as your Seed Money. Your Harvest Money would be the sum total of contributed principal and interest growth over the period of time you are investing in these type of accounts.
From a long-term financial planning perspective, consider if it would be more advantageous to pay less taxes now on the smaller amounts of your Seed Money, and instead redirect the after-tax amounts of these contributions into a non-qualified plan that offers the growth-with-safety and long-term tax benefits of the FIUL strategy outlined above.
With the traditional qualified plan approach, taxes are deferred until years later when you start or are required through IRS mandated RMDs (Required Minimum Distributions) to begin liquidating these qualified accounts. In what appears to be a rising tax environment where you may have to pay a higher tax rate in the future -- or even if tax rates were to remain level -- you will certainly pay more taxes later on the larger amounts of the Harvest Money. For most people, that means at a time in life when you have passed your prime earning years and are relying on fixed income from your retirement savings.
When thinking about the change in approach from qualified to non-qualified, important factors to consider are: your age; levels of matching contributions from your employer; and the type of investment options available in an employer plan. Some employers are reducing or eliminating their matching contributions, and the investment options they provide that meet the safety standards of Financial Conservation may be limited. In the case of Roth conversions, careful consideration should be given to the tax liabilities that will be created. Also, be aware that the rules governing qualified plans and Roth conversions are changing -- you need to stay informed.
Uncle Sam thinks long term, so why shouldn't you? With the qualified plans, he's more than happy to give you a tax break now on your Seed Money, knowing he has a lien on these accounts that will yield a much bigger payday later when you start tapping into them and he gets to tax the larger amounts of Harvest Money. And, of course, there's the potential that he can also change the rules to suit his needs, so think about getting "grandfathered-in."
You can only get two out of three. On the question of tax breaks, you can only get two of the following three: tax-deductible contribution; tax-deferred accumulation; or tax-free distribution. The qualified plan approach gives you the first two. FIUL gives you the second two, not to mention the additional benefit of growth with safety outlined above.
Which two out of three would you prefer?
CBS 60 Minutes Segment - "Retirement Dreams Disappear With 401(k)s"
Inflation & Interest Rates
To maintain purchasing power, the interest you earn on your money will, at the very least, need to keep growing ahead of inflation. The ebb and flow of interest rates are in part a function of the prevailing rate of inflation. If as a result of current governmental policies we are anticipating a rising rate of inflation in the years to come, laddering is one method where you are not committing a large portion of your assets at any one time and are able to maintain flexibility as interest rates fluctuate. Here's how it works:
- Laddered Annuities & ULI Policies: Using a combination of single premium immediate annuities, multi-year guaranteed and fixed indexed annuities or various types of UL policies, for short, medium and long term needs, the method of laddering allows you to diversify away many of the risks which lay seen or unseen in today’s fast-changing economy, while freeing up capital at regularly scheduled intervals. Compared to laddering with non-qualified (after-tax) accounts like CDs where you earn double compound interest (i.e, taxable interest), with annuities or ULI policies, taxes on the interest earned are deferred during the term so you are earning triple compound interest.
The idea is to spread monies that earn rates of returns over successively longer maturity dates, with each position typically the same size as the next, and there would be a roughly equal time interval between each maturity. This works on a revolving basis so that when one position matures, unused proceeds should be reinvested out at the longest maturity term you have established according to a timetable that suits individual needs.
Market Watch Article - “Inflation Hits Hard When You Can Least Afford It”
Family Security Plan
Providing financial security for the younger and older generations in the face of any future market, global and human uncertainties is of growing concern for many families. Based on standards of Financial Conservation, the goal of such planning is to pool and leverage with safety combined family resources in order to accomplish the following:
- Increase the supply of funds currently available to each generation without incurring additional expenses or change in out-of-pocket cash flow.
- Reduce or eliminate risk to family capital.
- Maximize tax efficiency.
- Create by multiples the amount of wealth transfer that will pass from generation to generation.
Every family has its own story. We look forward to spending the time necessary to familiarize ourselves not only with financial details, but, of course, the more important human elements that are unique in each and every situation.
Strategy of Side Funds
Learn the strategy of optimizing and protecting the equity in your property by separating and placing a portion of it into a side fund that meets the safety requirements of Financial Conservation. By repositioning part of your equity in this manner, it is now able to earn a rate of return; you have flexibility and liquidity with that equity that you did not have before; and the separated equity is shielded from depreciation during any down cycle in the market. FIUL policies described above are often utilized for this strategy.
