I've been getting 6 to 10 percent tax-free rates of return and not
losing money due to market volatility with
IUL for 23 years. In this episode, I'm going to address the
question "Is indexed universal life worth it?"
Get ready. It's way more than worth it.
So, with an indexed universal life insurance
contract. One of my favorite vehicles that allows me and thousands of my
clients for years to accumulate their serious cash. Money they don't want
to jeopardize or lose for goals such as retirement. But it can
also be used for college funding, emergency funds,
business working capital. Also real estate management.
My favorite is what i call the laser fund.
Laser is an acronym that stands for liquid assets safely earning returns,
okay? And I've actually written a book called the laser fund. In fact,
at the end of this episode, i'll show you how you can get a free copy of that
300-page book. But for years, I have averaged on fixed
universal life where i maximum funded it. That means
I put in the most money the IRS would allow and I took the least amount of
insurance they would let me get away with. And
it turns into this tax-free cash cow. And I have earned returns averaging 8.2%
back until 1980 when it first came out.
In 1997 is when indexed universal life was introduced.
And my rate of return actually sneaked up to about 10%,
9.6, 10.07 depending upon the 20-year period you're looking at. But
even at 6% tax-free, I'm doing better than money in
the market if you think you can earn 9%.
Now, let me just share with you what a lot of people don't know. And this is
according to Dalbar who studies investor
behavior. And they study what the actual returns are that people have as far as
investment return that is possible versus investor return.
So, based on actual historical rates of return,
I have earned between 8 to 10 percent but uh
interest rates are relative. Back in the 1980s to
the 1990s, I never earned less than 11 and three quarters percent.
Now, we're in a very low interest environment. Probably 50-60 year low.
I would rather have a tax-free return of 5 or 6 percent than a taxable
return of nine. So, let me sort of share with you what
Dalbar has disclosed as far as actual investor
behavior. They said that you can take any 20-year
period in american history back to the great
depression. If you bought and held, if you put your money in the market and you
didn't let a motion come in, you would probably average a little over
9% before tax. On a tax deferred IRA or 401K, you're not
netting 9. You're going to have to pay tax on the back end on a Roth
sooner than later. But see, the net if you're earning
9 in a 33% combined federal and state income tax bracket
and if you're sitting there going, "Well, I don't pay that much in tax." You will be
because taxes are going to go through the roof. Mark my word
because of the economic stimulus, the bailouts, all of the pandemic, benefits
that we've had to pay out to people. And we have initiatives that are popular
right now. Joe Biden at the recording of this disclosed that
if he had his way, he would do away with a step up in basis on long-term capital
gains and take the capital gain rate from a federal rate of 20% up
to 39.6%. That's double, okay? So, see most people
agree that that sooner or later because of
irresponsible government spending and the printing of money, taxes
will be higher. So, If I use a third, 41 out of 50 states as
a state income tax. That's pretty much what most people pay in tax. Californians
pay more like 40%. Some of them pay over 50%. But
that means if you earn 9 on a million dollar nest egg, that's 90
grand. If you pulled out 90,000 you would pay tax of probably 30,000 and
you only net 60,000 or a net of 6%.
Do you understand that? Okay? Well, see I would rather
just earn 6% tax free than trying to have to earn
9% tax deferred and then pull out the money and pay tax. But see Dalbar
says most people don't earn 9%
because most people don't buy and hold. Most people they have their money in the
market and as soon as it starts to drop down 20, 30 percent,
(which february to march of the year 2020, it has done that in 2008, it dropped 40)
people panic. And they sell, they get out. They sell low.
And then they wait, wait, wait, wait, wait, wait until it gets up here and then they
buy high. And so, Dalbar said the truth
is the average investor in the stock market
in mutual funds, the average retiree is only earning
3.49%. 3.5%. This is why the financial services
industry came out with what is called 4% rule.
If you're only averaging three and a half percent with your money in the
market and you pull out 4%, on a
million bucks, that would be 40,000. You're going to slowly deplete that million
dollars but hopefully not before you're L/E. That means life expectancy. That's
called the 4% rule. They don't want you taking out more than 4%
because they don't want to be sued for you out living your money.
If you take out more than 4%, they may
make you sign a waiver that you will not sue them for outliving your money.
That's pretty pathetic. So, when we talk about index universal life,
i can earn 9 and net 8. I can earn 11 and net
10 totally tax-free. But it's tax-free. See, I have averaged 10.07. Actually
for the last 25 years, interest rates are low right now.
But that's been my average. In order to net
10% percent out of an IRA or 401K or money in the market. I'd have to be
earning 15 or 16 percent to then on a million bucks have 150 thousand,
160 thousand. Now, I'm going to have to put my money at risk to try to go for that much
rate of return. But if i earn 15, I'm only netting 10
after tax. I'm only netting 9 after the fees because most of these
asset managers charge at least 1%. On a million bucks that's 10
grand. See, the reason i like indexed universal
life insurance contracts is because I can take out the money tax
free. And I can more predictably earn a rate
of return of 7, 8, 9 or 10 percent. And I
don't have to put my money at risk in the market.
My money is safely tucked in the insurance company and they credit me
based upon what the market does without my money at risk
in the market. That's called indexing. I would encourage you to watch episodes
that explain indexing because this is so powerful
that can help you earn these rates of return that I've talked about.
So, universal lie first came out in 1980. It was the brainchild of EF Hutton.
They weren't in an insurance company. They were a brokerage firm.
And instead of trying to earn 12% for their clients in the stock market in
mutual funds and have them only net 7 or 8
percent after tax and fees, they were the ones who said, "Golly, why
don't we just have people put their money
directly into a maximum funded life insurance contract? Let's have them
take the least amount of insurance that the IRS will let them get away with
and put in the most money and they can earn 11 and net 10."
Now, I mentioned in in the 1980 to 1990 era
i never uh earned less than 11 and three quarters percent. I earned as high as
15.5%. But if I earned 11, I netted 10. People would put i
$500,000 into one of these they would net 10, they could start
pulling out 50,000 a year tax-free immediately. Now, this was so
good that some of the brokerage firms couldn't compete
and the banks and the credit unions because these paid higher interest, they
were safer. Insurance companies are far safer
in ratings than most banks and credit unions. They paid higher interest, they
were tax free and they actually blossomed in value when you
die. They can't compete with that. But they
wanted to slow the flow. But actually this is where a lot of banks and credit
unions that borrow our money when you put money
into a bank or a credit union. You're sort of lending them your money.
And they're not putting your money in a vault. Where are they putting it?
Do you know they put 30 to 40 percent of their tier one assets
back into insurance companies. And so they borrow our money and pay us, well,
1%. And they turn around and make
5, 6, 7 percent tax free. How much more is 5
than 1? Don't say 4. That's 500% more. I t's 5
times. So, the reason why when people ask me
"Is index universal life worth it?" I go, "Well, would it be worth earning a
rate of return of 8 to 10 percent tax free rate of return that every
million when you are ready to retire or you need money
can generate 80 to 100 thousand a year of tax-free income?
You compare that to any money in an IRA, 401K
in the market. And you would have to be earning 15 and 16 percent,
is that worth it? And you take less risk. You have less volatility.
You make money when the market goes up. You don't lose when it goes down. It's
totally tax-free. It's been grandfathered in the internal revenue code for over a
century. Is that worth it?" And people go, "Whoa! I've
never heard of this. I've never seen this
before." Isn't that sad? Well, in my circles, this is what is used. It's
the most incredible instrument to accumulate money tax-free for
retirement but when you take out the money it's tax-free. Those
are provided under three sections of the internal revenue code that i explain in
other episodes and I also teach in many of my books.
I've authored 11 books thus far. And my most recent book is called The
Laser Fund. Now, indexed universal life was
introduced in in 1997. And in this book, I talk about indexing.
That's not index mutual funds. Prior to 1997, for 17 years,
I averaged about 8.2%. But when indexing came out, it jumped up
to a little over 10%. Has been the average.
But interest rates are relative. Right now, with interest rates way
low, you can borrow on a house in the 2 and 3 percent ranges.
You may only earn 5 or 6 percent tax free.
But if you understand rebalancing, you can tweak the rate of return up 2 and
3 and 4 percentage points. The point is this: In 2017,
we had many clients uh lock in gains of 16
tax free on their index universal life. Some earned 25%.
Now folks, it means if the next year the market dove, they didn't lose
the 25% they made the year before. That's called lock-in and reset.
I wish I had more time on these YouTube videos. But this is why iId like you to
click up here and watch additional recommended
episodes so you can learn. But just remember this:
In an indexed universal life insurance contract that you structure properly and
fund correctly, every million can generate 60,000
up to 100,000 a year of tax free income
without depleting principle if you live to be 120.
Is that worth it? If you want to know more,
that's why I wrote this book. It's called The Laser Fund.
Laser is an acronym that stands for liquid asset safely
earning returns. This book teaches you how to
diversify and create the foundation for a tax-free retirement.
It's actually 2 books in 1. This is 200 pages,
14 chapters. All kinds of charts and graphs if you're a left-brained thinker.
If you learn more by stories, you flip it over and this has 12 chapters,
about 100 pages with 62 actual client stories.
This book retails for $20. I'll buy the book, okay?
Claim your free copy by going to laserfund.com. That's L-A-S-E-R, fund, ".com".
You simply pay $5.95 shipping and handling which honestly doesn't quite
cover that. But folks, I'm passionate about educating
people like you. I'll fire out a book. I'll pay for the book you pay the
shipping and handling. There's other options in there if you
like to listen and learn or watch and learn.
But this will be the beginning of you getting several epiphanies into
opportunities that maybe you didn't know existed before.