WHAT WAS COVERED
0:12 – Episode starts. Life insurance death benefits while still alive.
2:45 – Using whole life insurance for efficient retirement planning.
8:30 – Whole life insurance growth rate.
13:46 – Using life insurance death benefit for retirement planning.
19:41 – Retirement planning and life insurance.
25:04 – Using whole life insurance for investment and tax planning.
30:34 – Using whole life insurance for investment returns.
35:25 – Using whole life insurance for investment.
Whole Life Timeline (Part 1): https://youtu.be/TQzJbw4yo8E?si=378czi0f7mhGh9dU
Whole Life Timeline – Volatility Buffer & Asset Acquisition (Part 2): https://youtu.be/WTcSPbLYUzY?si=iD4wP5FjTjA8128R
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——————————————————————————————————————————- 0:12 0:32 0:34 1:12 1:56 2:20 2:31 3:59 4:07 4:28 4:33 6:23 6:43 8:02 8:15 8:48 8:52 9:56 10:06 11:18 11:21 11:42 11:43 12:52 13:44 15:01 15:16 15:24 15:36 17:12 17:37 21:35 21:50 23:24 23:28 23:44 23:56 23:59 24:06 25:55 25:57 28:46 28:49 30:07 30:14 34:01 34:20 34:56 35:18 This Material is Intended for General Public Use. By providing this material, we are not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact one of our financial professionals for guidance and information specific to your individual situation. Sound Financial Inc. dba Sound Financial Group is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Insurance products and services are offered and sold through Sound Financial Inc. dba Sound Financial Group and individually licensed and appointed agents in all appropriate jurisdictions. This podcast is meant for general informational purposes and is not to be construed as tax, legal, or investment advice. You should consult a financial professional regarding your individual situation. Guest speakers are not affiliated with Sound Financial Inc. dba Sound Financial Group unless otherwise stated, and their opinions are their own. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Past performance is not a guarantee of future results. Each week, the Your Business Your Wealth podcast helps you Design and Build a Good Life™. No one has a Good Life by default, only by design. Visit us here for more details: yourbusinessyourwealth.com © 2020 Sound Financial Inc. yourbusinessyourwealth.com ———————————————————————————————————————————
Full Episode Transcription
Hello, everyone, and welcome to the sound financial group podcast. My name is Paul Adams. And while you’ve seen me a few times wildly unsupervised, I am back with my good friend, business partner, extraordinary financial advisor, and a man with incredibly good taste in polo shirts. Corey Shepherd.
Now wonderful to be back.
I know, well, we’ve got a fun conversation for our audience today, Cory, and we’re going to be talking about how to spend the death benefit of your life insurance policy while you’re still alive. Now, oh, I’m going to say this more than once, because it will get locked up in people’s thinking. This is not a viatical settlement. This is not selling your policy to somebody, this is not you, letting your insurance company give you a lifetime income because you stated you have a terminal illness, this is none of those things. And
for those who don’t know, a viatical settlement is this funky kind of financial product where you can sell your insurance policy to someone else. So they give you money now, to hold on to your insurance policy to get the death benefit when you die. So they make it they would continue to pay the premiums if there were premiums due. So it can weird people out because it’s like, you wouldn’t want a mobster to have a life insurance policy on you. So the general stranger, normally, you have to have an insurable interest to get a policy on someone meaning there’s generally a reason why you’d rather have them alive anyway. So it can weird people out. But that’s not what we’re talking about.
Yeah, yeah. One other fun thing of vital cold setting settlements, if anybody’s listening and you’re like, I’ve got a life insurance policy, I don’t need would somebody buy it from me? Possibly. They want you to be either super old, or terminal, like terminal, like you’ve had a doctor say you’ve got 18 months to live. So there’s some cases where
I might say, Yeah, that might be the thing that would be useful for you, but tends to be when you’re really have no other choice. Yeah, it’d be how I would say it. Yeah,
yeah. Because we had any other money, what you would do is just spin down the other money, knowing the death benefit is coming in for sure. There’d be no reason to take a partial amount of death benefit to then ultimately have somebody else receive your death benefit. Yeah. So what are we going to talk about? What we’re talking about today, is the way to use your assets, and your life insurance together in a strategy. Now, I think it’s important that we talk a little bit about what goes wrong, and why this doesn’t come up. The reason it doesn’t come up is we have an entire landscape of financial institutions and financial education, even for consumers or what people learn in school. That has a lot to do with you buy this vehicle to do this thing. And there isn’t much conversation, except for in business finance, that, hey, I’m making a financial decision. What other impacts might it have across my other assets? Now, again, that’s a very normal discipline inside of business. It’s not a normal discipline when it comes to personal finances. And it’s not a normal discipline, because it interferes with the capacity to teach someone to sell. Because it’s so much easier to say, here’s this thing you have. And this is our recommendation on this thing. This is our recommendation on your 401k. This is our recommendation on your life insurance. This is our recommendation on your mortgage, you get my point. Instead, this is a
one to one kind of a one to one thing to advice situation. Check off the list, which we
we kind of refer to for those of us that have been in conversations with Corina, you’ll hear us talk about it is micro advice. Because it’s dealing with one small segment of everything that somebody has to deal with with their money. And we’re expected make a decision only based upon that segment and not the rippling effects that happen across the balance sheet.
Now that can impact on the financial junk drawer. Yeah.
Well, and and the thing is that sometimes it doesn’t mean anything. It’s not a problem. If the assets aren’t coordinated, it might not create inefficiency. But oftentimes the things we see when a client goes through our processes over here, they’re spending $3,000 to you know, on interest or fees or taxes, and then they’re doing something else over here to create a deduction of $3,000 and they wonder why they feel like they’re swimming tied to a tree when it comes to their money. And it’s all because they have little inefficiencies that are adding up. But by taking into account the entire balance sheet of somebody, we can come up with strategies that make the entire thing more efficient. And this is an example of one of those strategies today. Yes, we’re giving away the keys to the kingdom. Yes, this episode will probably be listened to more by other financial advisors than our clients. But we’re glad. Because what we want for anybody that gets a chance to listen to this is that you might be able to adapt this into your financial life. So what is this? What are we going to talk about? We are going to talk about using whole life insurance on your balance sheet as a strategy to have a more efficient retirement this whole life do more than that? Yes. Do we have time to cover it all today? No, that’s it. So we’re going to talk about utilizing whole life insurance, we’re gonna utilize it in a different way. You see, your typical advice around whole life insurance is that what you ought to do is build up a lot of cash value by age 65, then start taking tax free loans starting at age 65. In hopes that one day you will die. And the loan is alleviated when the death benefit pays.
That’s it’s also called the piggy bank and hammer strategy, right? Like, you know, that the piggy bank and then smashes that bank with a hammer at age 65? Like, that’s really what it’s talking about. I’ve heard that a lot. But no, I’m calling before I just made it up. Well,
and the benefit that people talk about is is tax free loans is not a bad thing. But it is the smallest possible return we can have from a whole life policy. And what I mean by smallest possible return, would it work? If you’re listening and you have say, a million and a half dollar home? Could you sell your home for $800,000? On like, offer up today? Yes. Yes, you could? Would that be the best use of your money? No. So just because you can do something doesn’t mean it shouldn’t be contrasted with or compared to other things. So we’re going to start by looking at a regular life insurance policy. And there we go. Now, look at this, the new computer is working like it’s supposed to. So what we did here is we took a healthy 40 year old male, and we have them putting $40,000 A year into a whole life policy. Now I know what you’re thinking $40,000 A year into a life insurance policy? Poll, you are bananas? There’s no way I’m going to do that why I go Get Cheap term insurance for like two grand, why would I do that? You’ll see why. Now, by the way, I don’t know that you would do this. What I am going to do is share with you why really wealthy, sophisticated people do a lot of this. And you might not have a
good example of, you know, like, you can flex it higher or lower for whatever your financial picture might be. We’d like to give examples that can kind of triangulate between a few different financial
places. So absolutely. So here’s our person, they’re putting in $40,000 a year, I’m gonna walk you through the early stages of a life insurance policy, I haven’t done that for the audience in a while. So I’m going to play here, Cory, like, this is your life insurance policy. So you did this and you put in $40,000. And at the end of the first year, you have $31,000 of cash value. And then you call me, you immediately say terrible things about my mom. Because like Paul, I put $40,000 in this, I only have $31,000 more in cash value. And then we we rego over the entire strategy
can be better than that for me right now. Yeah. And I just
And then imagine court calls, super upset, terrible things about my mom. And then I send him a copy of this episode, reminding him of the entire strategy, and he’s good for another year. Okay. Now the next year, he puts in another $40,000. And the cash value increases by 35. The next year it increases by 33. Now, is it that bad? I mean, the first year cost like eight grand second year cost like four grand then it costs about seven grand. And it really takes in this case until you’re seven where it’s making money faster than we put it in. But nobody sends us tax form. Maybe just like building any other business or going out getting advanced degrees, so that you could earn more than your peers. Similarly, we had to have some time to build this vehicle. You’ll see why that’s important in a moment. Now, if we go all the way out to age 65, and let’s think of it in that traditional way. We have $1.5 million of cash value at age 65.
So I notice at 65 You put 40,000 in and that grew by 111,000. That That
wasn’t lost on you know, it’s not. Cory, I know, sophisticated tax question. Does the insurance company send anybody a 1099? Because they got, you know, $111,000 of cash value growth? They do not. So they absolutely do not. So we’re getting a chance to have this money grow inside of a tax exempt environment. But what is important is let’s look at the actual return, we have 25 years $40,000 Year 15391451539145. Let’s see if I can remember that. So I’m just gonna get a simple interest rate calculator. Looks like already had some numbers in it. So my apologies, I’ll clear that up for you guys. All right, present value zero, because we’re starting with zero. And we’re going to put in $40,000 a year. And the future value is 1534. And then 115899914. We have a very sophisticated audience score. I don’t want comments down, people telling me that I
rounded down Yeah.
So that’s a 3% rate of return. And so this is the reason why we here Oh, whole life insurance is a terrible idea. You put in $40,000 a year, it’s only worth 1.5 million. That’s a little over a 3% rate of return and Berber Berber. Even really, I’m leaving again, I
don’t care how mad people
mad Dave Ramsey gets. This is why YouTube if you guys subscribe to our show, like this episode, YouTube goes over and hides Dave Ramsey’s newspaper, in his neighbor’s yard. That’s how that’s why you guys should like and subscribe, which this is a good time to remind everybody like and subscribe because other people will bang on their desks about how terrible some strategy is having never, ever reviewed that strategy with any level of detail. Except their cameras have better mounts than mine and don’t flop onto my Tesla during the show. So two things, little mental note. If we get 10 subscribers from the show, I will mount my camera better. If not, it’s going to fall again in a future episode. So to heck with y’all. But this is the reason why people freak out and they say, Oh, you could do so much better. There’s $40,000 went in there and a good growth mutual fund would have you guys will know who my impression is of if you watch a bunch of financial media.
Good that at 3.1% rate of return at a 30% tax rate would be like earning about four and a half percent in your IRA, which is not great compared to the market. But if this was money that would have otherwise been in a savings account for the last 25 years, then now I’m like, well, that’s not that bad for the safe money. That’s exactly. So the context that we’re comparing is really important. I mean, no one ever said that bonds are awful, because they don’t get as much rate of return as stocks. The bonds are different in a portfolio, or going to a different place in the portfolio. And that’s the cash here. But again, we’re not going to focus all on the cash. today. I just wanted to throw that out for the angry people. So they don’t knock their cameras over.
You don’t want angry people knocking their cameras over. That’s crazy. So we have 1.5 million. But there’s this other thing out here this $3.3 million with a death benefit. And what everybody does is they start taking money from that cash value number. And what they don’t realize they’re doing to the whole life policy is they’re like I remember hearing this horror story of these urban legends used to always go around like before we had Snopes. Right. Before we had Snopes there’ll be urban legends of things like somebody hides under your car. And when you go to get in your car they reach out and cut your Achilles and permanently disabled you or whatever you get. You never heard those stories as a kid. No, I never heard that one that goes from growing up in Maine at least I grew up around some like places we live we’re okay suburbs, but there were some mean cities around and so I get these crazy stories. So it reminds me of that in that the insurance companies and the financial advising professionals often recommend what people do is begin to take money out at age 65. It is cutting the Achilles heel on your life insurance right before it has the potential to run the rest of the race on was better than any other asset could?
I did, I did hear that story is about that guy Achilles, who was like pretty much immortal, except for that one little part of his heel. And then yeah, that was his weakness. Like I did hear. I didn’t know that’s strong.
Did you? Did you hear the story about his cousin both of these?
Now, and the joke that Paul just told didn’t pass the compliance department, so we had to cut that out, you can call him directly. If you’d like
to hear that. I’ll tell you, I’ll tell you all about both of these. Okay, so people talk about the cash value as the main thing that they want to take it out as loans, it cuts the Achilles heel on the policy slows its growth forever, meaning your family ultimately doesn’t get 3.3 million, they get whatever, this this, this, these distributions that retard the growth of the policy, you get some version of the death benefit, that’s less that Not to mention, if you take out too much money from a whole life policy too early, it can lapse, leaving you with a large tax bill. Now, what can we do differently, we want to teach you to use the death benefit, the $3.3 million number. But how do we use that? Well, we have the benefit that this is guaranteed that if you have a guaranteed asset, it could be utilized as a current dollar, as long as it’s guaranteed. So a deferred asset, as long as it’s guaranteed, can be used as a current dollar. Think of a very simple example, if the company that you your spouse workforce said, Hey, we want to give you a big bonus. I can’t give it to you for two years, but you’ve been awesome. We’ve got some people from an escrow company and the bank, and we’re all signing papers, this money is going into an account half a million dollars for you December 31 2025, a little over two years from now. If it’s totally guaranteed, even if they fire you, it’s totally guaranteed. Could you do something different? Corey, if that happened in your household over the next two years, if you knew half a million dollars was guaranteed coming in? Absolutely.
I mean, a lot of people, a lot of people do that. With their tax return. They file taxes like January, February, they find out that they’re getting $10,000 back. And the IRS takes two months to send them the money, but they’re already spending it before it comes in. Yep. So we do that actually a lot more than you might realize. Listener
indeed. And so what we’re going to do is use this death benefit at what I’m fixing the camera again, oh, I don’t know what that noise wasn’t just made. Sorry. That was like the most, that was the weakest noise I’ve ever made my life. So what we’re going to do instead is utilize the death benefit. How do we utilize it, we utilize our other assets, just like we had a half a million dollar bonus, if you had $50,000 in savings, you could redo the kitchen, because you know you can replace that savings. Well, we can do the same thing. And what we’re pulling on to utilize the death benefit is actually something that was done back in 1946. By General Electric. And what they did to fund the executive retirement is several other folks this was during the price or wage freezes of World War Two, they needed to add some ancillary benefit to their executives. In this case, it was an extra pension. But how could they do it because the stockholders would be upset if they just laid out ton of extra money. So the way they designed it was we take the reserves to the company, we invest part of those reserves into whole life insurance on these executives, then we can give them a little more income in retirement, because we know it’s guaranteed the death benefit will pay that is what they coined at the time the inevitable game. The inevitable game shows up refills the pot, we can retire the rest of the executives. Now unfortunately, somebody died like six years into that. And GE like funded their entire pension liabilities for many years as a result. In this case, we’re going to use something different. We’re going to use the other assets on the balance sheet to be able to change how we spend money but to best understand that it’s going to be easiest if we start with how do most people retire period. Okay, so most people listen to somebody like Dave Ramsey, Suze Orman, their mechanic, their CPA, you name it, somebody said, what you should do is buy Tiktok Yeah, you should buy term and invest the difference. So the person arrives at old age with $3 million of investments and no life insurance. And what have we all been told, never spend your nest egg you got to live off interest only. I don’t know why I learned that when I was like, under 10. I remember first hearing that. So we have Are $3 million of capital we’ve talked about before, why the distribution rate is 4%. It’s the highest sustainable distribution rate we can count on. That’s $120,000 a year that has to be taxed. And assuming that somebody has some other money and some social security coming in, we’re just analyzing this chunk of $3 million at a 30% tax rate, leaving them at $4,000 a year to spend. Now, the thing I want to bring to everybody’s attention that is like the biggest, I don’t know, can can we say, conspiracy? I think it’s conspiracy. Conspiracy. baracy. Works will do the George Carlin version of conspiracy. It’s not that they’re all talking to each other. And they have, they just all have the same interest. So they’re going to act in accordance with one another. Thank you, George Carlin. How they do that is, every financial institution is telling you don’t spend your nest egg and build up that asset and then take interest only all through your retirement. And if you do, you spent your career working hard, like drinking Maalox, when the market wasn’t good, you know, like talking to paying somebody like us to help you do better with your money, all these things to get your $3 million. And if you take your after tax distributions of $84,000 a year and you live 20 years from retirement, you will only have enjoyed 1.6 8 million. Let me say that again, shorter, you saved up 3 million you live to age 85, you only enjoy about half. And that’s actually still reasonable.
But a financial institution got to charge whatever fees and expenses on the full 3 million the entire time. And that’s aligned to interests that George Carlin would have been talking about if he was talking about this exactly
right. And the thing that like, a little more like talking out of school here, if Cory and I go to a conference, that’s a traditional financial planning conference, they almost inevitably will say something like Get to know your clients, children, so you can manage the money, like their game is not to manage the money for the rest of your life, their game is to manage them money for ever. Yeah, now. Let’s look at an alternative. So we know we only get to enjoy a portion of the money we spent all this time accumulating. Even though we have three minutes. Now the good news is our family gets $3 million. That ain’t bad. But we didn’t get a chance to really enjoy our money. So let’s change the scenario slightly. Let’s say let’s say I’ll just use me as an example. Let’s say I come in from the garage, and I’m working on something in the garage. And I’m like wiping some grease off my hands or whatever. And I say, Honey, I got a great idea. I was looking at our finances, we have $3 million capital work, we can take 120 off a year, we’ll net about $7,000 A month 84,000 a year. You know what I’d like us to live a better lifestyle. I’d like you to be able to go get your hair done a little more often. I’d like us to go visit the grandkids a little more. So here’s my plan. I think we should spend all my all our money based upon my lifetime, I should be dead by age 85. So we’ll just spend it all down. It’d be fine. We’ll spend twice as much money. Now, Cory, what would you guess my wife says to me after that.
Before After the frying pan is fine across the kitchen? Well, yeah. After
she calls Cory. She’s like, you’re no longer our financial advisor. I’m gonna work with Cory now. And I’d probably have to sleep on like, I’ve never, I’ve never been forced to sleep on the couch. I think this would do it. If I made that suggestion right. Now there’s,
oh, God, she knows. Just the pure statistics is she’s likely to live longer than us. So even if that works out perfectly for you. What about what about her?
It’s exactly what I say. Or and that’s one about the kids. Like,
what about the kids? We don’t believe anymore? What if you actually live a few days, months, years longer than you thought?
Then for one of those three reasons my own wife would be like we’re listening to Cory now. Not you. Okay. But so we all agree if I suggested we spend all the money, she would say no. Same scenario, except as I come in from the garage, before I throw out my strategy is spend all of our money based upon my lifetime. What if I reminded her, Hey, you remember that whole life insurance that we got tons of years ago? I want you to know that policy is in the big orange Rubbermaid container that’s on the top shelf of the garage. And she’d look at me probably like, Y’all are looking at your phone right now. Like why would that matter? And then I say that guaranteed death benefit will be there when I die. Then I bring up we should spend all our money so that she can Never the lifestyle she wants. She’s gonna be wholly more supportive. Well, let’s see how much better it really is. Some clicking on distribution to here you’ll notice, same amount of money $3 million, same earnings, same 120,000 of interest the first year. But look at that withdrawal. It’s not 120. It’s 220. Oh, and the taxes are the same the first year. Why? Because they were the same amount of money, they earn the same interest. We just took out some principal this first year. And we continue to withdraw principle on a consistent ongoing basis, not from our life insurance. Keep in mind, this is $3 million in an investment portfolio. One of the biggest things people do when they hear this is like, oh, so I’m talking about like, Yo, the life insurance is where Cory, where is the life insurance policy.
In that orange Rubbermaid, or,
you know, yeah, stored on your phone and the PDF or whatever you’re looking at my mouth. I like my orange Rubbermaid container, we’re sticking with it, you know, it’s in the orange Rubbermaid container. We haven’t taken any money out, because of the existence of the life insurance policy, another asset completely separate can be spent differently. And this is what we’re doing, we’re spin this right down to zero. So you have 3 million, that is slowly withdrawn down to zero, where there’s something unique about the principle of investments that we hold in our name, like they’re not in a retirement account. All of that principle is likely tax free, or very lowly tax, because we had to pay taxes every year as the capital grew. So it’s $3 million of capital can be spent down to zero. And in fact, we now spend 3.9 million of our 3 million. Now we’re out of money, but we got to spend way more money. Now if the story stopped there, I would agree with anybody’s bother or upset about this episode. This is not where the story ends. This is where the story of the $3 million of assets that we spent down ends, that’s just an investment portfolio. But remember, this thing has been cooking along in the background while we’ve been taken all the income. And if we’re out of money in our investments at the end of Age 85. Well, then, at age 86, I have 505 point 4 million of cash value. It’s growing by $211,000 a year a totally sustainable distribution point. Oh, by the way, what’s the taxation? Will we take it out of here, if we do it the right way. 000 taxation, so we take that as tax free income, and we still have $6.3 million of death benefit for our family. So we’re fine if we outlive age 85. So then how useful this is like basic high school or college 101 chemistry and science is that we’re going to we have a control group and an experimental group. So let’s go back and look at our control group. Next to our experimental group now, sorry, guys, a little bit of this last column was cut off. But you know, it’s just a comparison between the two of how much more comes out of scenario two, it’s a lot more. Okay. So our person that lived off $3 million of assets got to enjoy 1.6 8 million. Well, our client that was able to spend down their investments, with the exact same rate of return, was able to distribute 3.9 million.
And we know the amount of tax how much
half the amount of tax Yeah, oh, just about 424 versus 720,000. Yeah. So what happens if, let’s say, We gave our First Person $6 million. Let’s say that they because they didn’t know in whole life insurance, they were able to save more money, they, let’s say their extra $40,000, your accumulated them an extra million or $3 million of capital, we’ll talk about what rate of return that would have taken. But here’s our analysis. Now, they got to take out 4.8 million and enjoy 3.3 million spendable and they can leave $6 million to their heirs. Whereas our person that could spin down the money. They still took more with half as much capital. Why? Because they had the financial backstop and guarantee of the whole life insurance that gave them and this is why Universal Life, variable universal life. None of those things work because it has to have the guarantees of whole life insurance for you to feel confident I’m literally going to spend millions of dollars on my money, because I have a guaranteed backup plan to that spin down.
And remember, they’re still leaving behind more to their heirs, you have to spend more and leave behind more. Exactly
right. That’s just what I was gonna go through next. There it is. So we still get to leave 6.3 million to our family. So we had 3 million of assets and 3 million of death benefit at age 65. Then we’re able to spend all 3 million of assets and still have 6 million of death benefits to leave our heirs. Except we spent more money. Now we spent more money in this environment I just showed. But what if taxes got worse? What if you’re a pretty successful or you just lived in California? And taxes were 50%. How did both fare? Well, our person was 6 million now only has 2.4 million of income. Whereas our person that was able to invade the tax free principle of their investments had 3.7. Well, what if Okay, I’ll put taxes back to 30. What if interest rates just for whatever reason, in the future, we couldn’t sustain 4% distribution had to drop to three? Well, this person took 3.7. And this person only took two, they, the person on the left has $6 million in investments, and is still not taking as much. And what if God forbid, for either a long period of time or a short period of time, you had both high taxes and the inability because of markets to take a 4% distribution? Well, then our person was 6 million only gets to enjoy 1.8 million, just get that wrap that around your head. And our person that got to spend down money still has three and a half million. You see the person in the interest only, like strategy in retirement is literally like somebody just jumping on a roller coaster me like, I hope this thing doesn’t beat me up too bad. So what you get the opportunity to do, if you build it this way, is that you have the opportunity to have real income from your assets on distribution that you control that you don’t have to have a high rate of return for. And you still leave the money to your kids. Now, other things that would have happened along the way with this entire strategy is we wouldn’t have had the cost of Term insurance from ages 40 to 65. Because we would have owned whole life insurance to cover that. Right. Right. We didn’t offset that at all. Yeah, if you guys go back to our whole life timeline episode, we also at some point, when we had enough cash value in this life insurance policy, we could have just like somewhere right around here, we could have said, Hey, we don’t need to keep $100,000 in the bank at some low percentage. Every year, we got the life insurance handle it. So we could invest that 100,000. That’s another external rate of return. We could use our life insurance supplement the bonds in our investment portfolio. That’s another external rate of return. Because now our investment portfolio is getting higher returns between now and age 65. There’s multiple opportunities across a lifetime that with this much money in cash, we might have been able to acquire business, real estate, done first trust deed lending, or just saved our own Athens. But from some financial tragedy, because we had so much cash, all of those things come out. But here’s the most important thing. What’s the rate of return on this? If we’ve just proven that a whole life policy as long as you have the other assets? That’s key, you got to have other assets? What is the rate of return on the whole life policy? Well, let’s go back to that little calculator we did earlier on an interest rate. And we have zero present value $40,000 a year. annual payment and future isolation.
Oh, sorry, Paul. Oh, go ahead. I was while you were filling it in the first or this first calculation we did. Right, there would be what we would call an internal rate of return. Yes, it’s very common. And what Paul is doing now is what we might call an external rate of return of only
one of the external rates of return. Yes, for those of you that are interested, you can go review we’ll put a link to it in the description, the whole life timeline video where you go into some of this more in depth, and how to produce some of these other rates of return outside of your whole life policy, the external rates of return, and it works with existing Whole Life policies. You don’t have to own a new one. So the cash value is growing at 3% with no taxes on it, but our rate of return for the whole life policy is 8.28%. If we can use the cash value and the death benefit.
Now, that’s that ain’t bad. That’s like a 12% The equivalent return in many states in this country with the state income tax is what they are. And as a risk adjusted rate of return that really ain’t bad. Yes, is where you would normally have to go to try to get that amount of rate of return over a long period of time and the risk you’d have to take.
Absolutely. And if you add in some of those other rates of return that we talked about the whole lifetime line, it can get even higher. But this is thinking. There’s two reasons why nobody’s going to tell you this. Okay. First reason nobody’s going to tell you this is the financial institutions don’t want you to handle your money this way, very simple. They don’t want you to handle your money this way, because they know they don’t, because every single financial advisor, when trained by the financial institutions they deal with are taught how to sell individual products. And when they’re taught to sell individual products, than its sales, conversation, overcoming objections started by snug coaching. Second, well, the most profitable thing for financial institutions that you could do is buy term invest the difference have your multi millions of dollars locked up in your investments at age 65, only taking interest only off and hopefully leaving the entire corpus of your money to your children, so they can manage it in that lifetime, too. Oh, by the way, term insurance is the most profitable product life insurance companies sell. Why? Because only one in 200 have a claim. Now, whole life starts to look a little better if we can get people to start taking loans at age 65. So when they get actually old enough to ultimately die, there isn’t as much death benefit. So by doing two things, we are spending down the money with a financial institution who manages money. So who doesn’t want that fidelity BlackRock, Vanguard, you name it. While simultaneously we’re letting that life insurance policy get as big as possible. So that life insurance company has to pay a huge claim at the end of our life, and that the financial institutions when managing money doesn’t have as much to manage, because then if I spent all my money while my kids get his my life insurance, they get to choose their new asset manager, they get to choose with their investment strategies, they won’t just automatically fold into whatever I was doing before, such that that financial institution still gets to manage their money. Like there is a lot against you learning this. And this is why when you hear people say negative things about whole life, you rarely hear anybody actually come with the numbers. Like I don’t like we do enough business every year, I don’t need any effect. We don’t allow, if you want a whole life policy, like give us a call, and you’re going to get a whole life policy, we won’t do it. Like unless you engage us for our intellectual property and hire us as your coach and advisor. And there’s a fee for that. We’re not selling and whole life policy, we don’t care what you do with this. We do care that more advisors who bring it out to the world. Because when you hear people poopoo whole life insurance, it’s often done. Like you’ve heard on some of our prior episodes where we looked at Dave Ramsey talking about it, it’s done with condescension, it’s done with some version of talking about it like you’re an idiot if you don’t understand this. And yet, there is a very, very strong case for it to be a significant part of somebody’s financial picture. And we can get to that with the math if somebody will let you do the math, right. So if you have an advisor that won’t sit down and do this math with you, and instead just gives you pithy responses, there’s good reason to leave doesn’t mean you got to come to us, but you ought to find somebody else. If they can’t answer you with indisputable math, and point to independent scholarship that makes their point, it’s a good time to run. With that. That completes our TED talk on how you can spend the death benefit of your whole life insurance policy. And I do hope you guys take the time watch the whole lifetime line video, you can go to that video and download the white paper. Alright, so in the description, you’re gonna see a link to the whole life timeline video, she might be able to put the white paper also linked in there, if not go to the whole life timeline video, and if you can download it from there. But the thing is, like educate yourself on this. This might be one of the single most effective tools to get you near double digit returns on your money relatively safely over the span of your career in a discipline, super boring part of your financial strategy that just happens to work really well. So with that, I know Cory was whispering to me that he hopes that this episode has been a contribution to you being able to design and build a good life. Don’t forget to like and subscribe and I mean like it right now. I’m not hanging up until you do. I thank you for it.
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