If you can't beat them, join them.

I have always loved the saying, If you can't beat'em, join'em. It doesn't apply in all areas of life, but in some cases it may make more sense than fighting multiple Goliaths as a lowly David. Last week a client of mine shared a video with me from the research of a Harvard Professor. In the research the professor discusses some mind shattering statistics and also shares our collective perception of the rich. What is shown is so mind blowing it is hard to really grasp.

What if you were David and you were asked not to fight Goliath, but to fight thousands of Goliaths all at the same time? This is what investing on your own is like these days. In this video it talks about how the wealthiest families in America, the top 1% own 50% of the Stocks, Bonds and Mutual Funds. While the bottom 50% own .5%.

If you had 100 people in a room, 1 person would hold 50% off all of the retirement playing chips. 50 of the 100 if they all banded together would hold half of 1 retirement chip. That is crazy! No wonder we see such large positive and negative swings in the market. A very small body of people control how the markets move.

Since 401k's and IRA's became the number one savings vehicle for the majority of Americans, they have put themselves on the battleground with these large stakes players. Now I am all for cheering on the under dog and hoping the little guy wins. In the grand scheme of money I am still a little guy like most Americans. However, in this case we aren't talking about a fight or a race, we are talking about your retirement. You only get one shot at getting this right. Those that get to retirement age and decide they need to start over are too late usually. This is not a game you goof around with.

I talk with people on a regular basis that will never be able to retire. They know it and they know I know it. They have simply run out of time or they took too big of risk with their money, only to have it not pan out well. I talk with people that let the HR person that makes $10 an hour tell them how to properly fund their retirement and that person learned it from the company managing the money. At what point do you look out for your own best interest? At what point do you take the reigns of your future?

Some people see lost money. I see lost money, but worse, lost time.

 For many people it is not too late. They simply need to get educated, take control and get their money into a winning strategy. There are 3 major killers of wealth:
1. Losing money
2. Inflation and rising cost of living
3. Taxes

Of the common strategies for creating a stream of tax free money, which are you using now?
What percentage of your money do you have in protected strategies that can't lose money?
How much of your portfolio do you currently have in strategies that can't safely get double digit returns?

These are some great questions to ask yourself. I find questions are better than answers because they make you think and stretch and reevaluate. There are incredible companies out there that own the other 49.5% of the Stocks, Bonds and Mutual Funds. Companies that have been around since before the Stock Market and have strategies that protect you against loss, have potential double digit returns and don't risk throwing your money out the window ever few years as the market rides up and down.

The question isn't should you be in our out of the market, but how much should you have in the market? If the lions share is in 401k's and IRA's that are in the market, then the lion's share is at risk for loss. I don't share these things to motivate people, but to educate people. We don't need motivation or someone to inspire us. We need educations and understanding. We need knowledge. Knowledge is power, knowledge is what helps people make good decisions with proper information. I have much to share with you, if you're interested. At times I ask too much reading and studying of my clients, but in the end they thank me because their money is safe and they understand how it is going to grow and be protected.

Cheers,

Stephen Gardner

Retirement planning with Life Insurance

I still remember vividly the moment when Brett Kitchen, Author of the Best-Selling Safe Money Millionaire book, told me that Life Insurance was a good place to save for retirement. I laughed and shrugged the idea off immediately. After all I was a huge Dave Ramsey fan and he says life insurance is not a good investment. For the record I am still a big Dave Ramsey fan. I think his advice on getting out of debt should be mandatory education for every citizen in America and certainly for our Leaders in Washington, D.C..

So lets explore the idea further. According to Barry Dyke, author of The Pirates of Manhatten, Life Insurance companies were the primary custodians of American savings until Wall Street started marketing Mutual Funds and 401k's. In the Casino Age we live in now, Wall Street will spend as many millions of dollars as they need to market a program into success. However be sure not to look behind the curtain or you will see the foolishness of the system.

I tend to believe numbers since math is hard to fudge and math is the universal language. I want to run a comparison of a 50 year old male saving money in an IRA or 401k verses saving money in a life insurance contract with tax advantages.

50 year old man putting $500 a month away for 20 years at 8%.

 

50 year old man putting $500 a month away for 20 years at 8% minus 2.5% fees.

50 year old man putting $500 a month into Life Insurance for 20 years at 8%

20 years in IRA/401k at 8% grows to $274,571 assuming no losses.
20 years in IRA/401k at 5.5% (8%-2.5% fee=5.5%) grows to $209,209 assuming no losses.
20 years in a Life Insurance plan at 8% grows to $193,154. Contractually cannot lose money.

I don't think I need to point out that stock market is a Roller Coaster with unpredictable ups and downs. What the market giveth it taketh away. When you lose money in the stock market you don't only lose money, you also lose your most valuable resource, time. If you lose 5-10 years of money and compounding growth time, it can adversely effect your retirement nest egg.

Quick little image to demonstrate the ups and downs of the market.

So if you could get 8% in each of the above scenarios you would be $81,417 ahead of the life insurance plan if you could find a fund with no fees. You would be $16,055 ahead of an account that earned 8% minus fees. Or you could have $193,954 without any worry of the ups and down, the pit in your stomach of opening your annual statement, hoping it isn't another year of losses. Plus you have a life insurance contract that pays out tax free when you are ready to start taking money out of the plan.

I for one cannot guess with any accuracy what taxes will be like in the future. Who knows, they may be lower. With $16 Trillion in Government debt and coming off 2 major Middle Eastern wars, I am not sure how they could go anywhere but up. However I am not a fortune teller or tax advisor.

According to the Wall Street Journal 55% of all the tax-free money saved within life insurance contracts is owned by the top 10% of Americans. If this doesn't show the trail of bread crumbs to where the wealthy are saving their money, I don't know what does. Meanwhile families in the bottom 50% own 6.5% of this asset class. Why is that? Why would the middle class shy away from a proven asset class that is dominated by the wealthy and the only barrier to entry is your health. Anyone at any income could own one of these plans. Is there any chance that Wall Street wants this information buried or distorted. Are there any celebrity figures that would tell you to run away from this asset class?

I know Wall Street absolutely doesn't want you putting money into these plans. They want your money in the next hot stock or mutual funds where they can make a killing off their clients while their clients take all the risk. Dave Ramsey openly detests any life insurance that isn't term insurance. He is a huge fan of Mutual Funds that get 12%. A few problems are the fact that most mutual funds don't earn 12% as he claims, the mutual funds have huge fees that will eat into your retirement money and his target market are people trying to get out of debt. Most debt that isn't good debt or strategic business debt is carried by the bottom 50% of the population and we can see that they only own 6.5% of this asset class. The plans I work with have averaged 8.85% for the last 25 years and 8.35% in the last 10 years alone. See Dave Ramsey's official feelings on Life Insurance here. I have nothing to hide by you seeing his opinion, I just ask that you do research and formulate your own opinion.

"The bewildering array of choices among nearly 5000 equity funds has ill served investors. The returns incurred by the average equity fund since 1984 have averaged just 2.7% per year, a shocking shortfall to the 9.3% return earned by the average fund. The result is that the average fund investor has earned less than one-quarter of the stock market's 12.2% annual return." -John Bogle, Founder and Former CEO of The Vanguard Group. To read more from John Bogle now that he has retired, see my other blog post here.

The plan in the example above shows a stream of tax-free income of $22,005 coming back out of the asset until age 120. While it is true you may be able to save a little more in an IRA or 401k than a life insurance policy, it is not safer and will not kick off a life time of money. In fact once you start pulling income off your qualified plans, you still have to pay the taxes you have put off for 20 years.

So let's say you have $209,209 after 20 years and want to get the same stream of income as the life insurance plan. Assuming a 25% tax bracket you would need to pull $29,340 out of your plan and pay $7335 to Uncle Sam, leaving you with $22,005. Well that is completely doable, unless you want to go back to work in 7.13 years. You see if you pull $29,340 out of your plan you will run out of money in 7.13 years, unless it is growing still and in that case you had to take risk to keep in growing. You could take risk and add on 1-3 years, but you run the risk of losing 30-50% if the market drops like is has every 7.2 years on average.

Lastly, one advantage to using life insurance is the actual death benefit. What happens if the 50 year old male in this examples passes away early. Now his family loses out on his income and he didn't have the needed years to build up a nest egg. The life insurance would cover that with a tax-free payout.

Life Insurance has been used by the wealthy and business owners as an incredible tool for over 100 years and it is still an incredible place to safely grow your money and provide you with income during retirement. Set an appointment to let me show you how your personal plan could look, grow and give you peace of mind in retirement. The safety and tax benefits of life insurance are unmatched.

Cheers,

Stephen Gardner
888-638-0080