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  • Writer's pictureDavid H. Kinder, RFC®, ChFC®, CLU®

"It's just not for me."

This is a different blog article because it's not necessarily specific to any one thing. It's about a comfort level about using various life insurance and annuity contracts in one's long term planning.

Generally when we hear "it's just not for me"... it's because of what we're advocating our clients to do... is so different from the mainstream traditional advice.

Eventually, the thoughts end up being along the lines of the 'what' you're being asked to do and purchase, rather than the problem we're trying to solve.

When someone starts to think "You want me to put in HOW MUCH into LIFE INSURANCE?"... the thoughts begin to be whether this is a good strategy for them or not.

Here's the hard part to hear: The problem isn't about the life insurance. The problem is about the problem... and the life insurance is the solution to the problem.

What are the problems we're trying to solve?

  1. Federal taxes and their impact on income from taxable IRS retirement plans (and all other forms of taxable income)

  2. State taxes and their impact on income from taxable IRS retirement plans (and all other forms of taxable income)

  3. Taxation of Social Security retirement benefits and the impact of income from taxable IRS retirement plans (and all other taxable income).

  4. Increased Medicare Premiums (IRMAA) and the impact of income from taxable IRS retirement plans (and all other taxable income)

  5. Wall Street volatility management through the safe withdrawal rate which will not allow you to spend much more than 2.8%. Imagine having $1 million, but only being able to spend $28,000 a year in order to reduce the risk of running out of money?? Doesn't sound like living a millionaire retirement lifestyle to me!

How are we trying to solve it? Is it about the life insurance?

No. It's about the strategic use of collateral: using other people's money backed by your own assets.

This is the magic of understanding the tax code: Using other people's money in a strategic manner... help you to avoid paying taxes on this capital. Why? Because it is not classified as 'income' by the IRS. It is simply a transfer of capital from a financial intermediary.

In my article on collateral, there are 5 primary sources and ways to use collateral:

  • Primary Mortgage

  • Commercial Mortgage

  • Reverse Mortgage

  • Margin Accounts

  • Life Insurance Cash Values

Of these five areas, only one is guaranteed by the lender to continually be worth more over time... and that's a Whole Life Insurance Wealth Contract.

There is nothing wrong with the other four areas, as long as they are understood properly and integrated into one's retirement plan. Did you know that there is one asset that you cannot by law collateralize? It's your IRS regulated retirement plan: 401(k), 403(b), 457, IRA, Roth IRA, and more. In fact, the IRS has it in their rules that if you did use your plan for collateral... your plan becomes invalid in the year you do it. (See my article on Roth IRA on steroids for more details.)

David... because this is so different, it feels 'risky'?

I can understand that. One of the ways we deal with new and different ideas... is to seek a consensus and do our research. We want affirmation whether it's a GOOD idea... or NOT a good idea.

Google will have lots of articles that are AGAINST this idea. Heck, I took one rather damaging piece and I debunked it line by line myself. (If you're curious it's here: "Stay Away From These Scam Artists.")

I'll share with you what is usually missing from these articles:

  • Little to no consideration about our national debt and the direction taxes may go.

    • While there may be a difference in tax policy, I believe tax economics says that taxes need to go up. On whom and how... will be decided by tax policy.

  • Focus more on accumulating a larger pile of money in the most efficient way possible.

    • Until I began to learn about the ripple effects of what I call "The Retirement Tax Code", I would've agreed that having more money would be best.

  • A real understanding of how life insurance for these strategies really work.

    • Often, these articles will cite a very poorly structured policy that was never designed to have it work the way it needs to work.

    • A quick example: A policy that is scheduled to 'break even' in year 22 (cash values exceed premiums paid) is not one set up for these kinds of strategies. Yet, when I read these articles, they often reference a policy like this.

Of course, I can't have this article without some recommended reading material. This article here are some great books to reference to learn more about strategies to use collateral in retirement.

I hope I can continue to be helpful along your journey to learning more about a retirement strategy that can truly be in your best interests by helping you to avoid incurring taxes if you don't have to!



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