- Based on 20 year historical returns,
earn 11 to 14% by diversifying on an IUL policy.
In this episode, I'm going to address
how to diversify using one year, two year
and even five year point to point IUL indexing strategies.
You're gonna be blown away
with historical returns between 11 to 14%.
By the end of this episode,
you will understand this better
than 99% of financial advisors, I assure you.
(upbeat music)
So, I'm Doug Andrew.
I've been doing this
for more than four and a half decades.
I started in 1974
helping people optimize assets and minimize taxes
and save for long term goals like retirement.
When people ask me,
what's your favorite financial vehicle
for a comfortable retirement
so people will not outlive their money?
Without question, it's a maximum funded
indexed universal life insurance contract
and many people have 10, 12, 15 of them
because they learn how to diversify
into superior vehicles.
Diversification having your eggs and many baskets
does not mean you put your eggs in inferior baskets
like money in a banker credit union
earning less than 1% interest that is not smart.
So in this episode, stay with me,
I'm going to sort of frame things here at the beginning
but stay with me to the end,
I wanna gift you a copy of my most recent
best selling book called "The Laser Fund"
300 pages of information.
But get ready, I'm going to start with the milk
and then end up sort of with the meat.
So, I call a max funded IUL
structured correctly and funded properly, a LASER fund.
LASER is an acronym
that stands for liquid asset safely earning returns.
And I compare the laser fund
to a financial Swiss Army Knife
'cause it has so many different uses,
it's like the dream solution for many financial goals.
And a lot of people will come
and use it just for the death benefit.
But most people would come to me to use it
to accumulate money tax free
and then be able to access
the money tax free during retirement,
and then when they ultimately died, it would blossom
and transfer income tax free to their heirs.
This was for retirement planning
and structured correctly, it knocks the socks
off of most IRAs and 401ks.
But it can be used for college savings,
for a working capital, for a business,
for a real estate management,
for an emergency fund,
a lump sum capital transfer,
estate planning, pension maximization,
if you're a school teacher or a police officer,
general tax reduction.
So search this channel, three dimensional wealth.
I have episodes that talk about
all of these applications
and I would recommend you subscribe, why?
Because it's free
and I post an in-depth answer
to a financial question almost on a daily basis.
And as I proceed
if you can think of somebody that would benefit
be sure and share click like, post a comment.
So, I often will ask my audiences
when I speak across the country,
what are some uses for baking soda?
Well, usually the women will say,
well, you can soak in the tub,
you take the odor out of the refrigerator,
it takes the pop out of a pot of beans and so forth.
And then the men will say,
well, I clean my battery terminals with it, yep.
And then somebody will go, oh, baking soda,
it's good for baking, yeah, the obvious.
Well, that's how I compare an insurance contract.
Don't focus on what it is.
A lot of times people say,
well I don't need insurance.
Well look at what it does,
focus on what it does.
When I would show them
how they could put money in an IRA or 401k,
in a mutual fund, in municipal bonds, in annuities
all kinds of different alternatives.
And then we would start taking out income
based on actual historical rates of return,
all of those investments would run out of money
crash and burn before their life expectancy.
A max funded index universal life policy
is the only one that would go on
until they were age 120 without running out.
And they would go, oh yeah,
I want the one on the right on this sheet of paper.
And then I would say, do you know what that is?
That's an insurance policy.
Oh, I don't need insurance.
Well, okay, quit focusing on what it is,
focus on what it does.
If you don't want the death benefit,
if you happen to die, make me the beneficiary
and they go, well, no, we want what it does.
Well then quit getting hung up on what it is.
So, in a nutshell, you can learn on this channel how,
clear back in 1980 EF Hutton
was the original brain child
behind the emergence of universal life.
They realized under section 72E, 7702, and 101A,
money inside of a life insurance policy,
accumulates tax free 72E,
you can access the money
even before the age of 59 and a half
for retirement or whatever tax free under 7702,
and when you ultimately die,
anything left in there blossoms increases in value
and transfers income tax free
and a death benefit under section 101A,
nothing else I'm aware of does that.
But see, most people would buy insurance
for death benefit back then.
Hutton said, what are we thinking?
Let's use it for living tax free income benefits.
And so they introduced universal life
where you could take the least amount of insurance,
the IRS would let you get away with so to speak
and put in the most money,
the IRS allows as fast as they allow,
and it turns into a tax free cash cow
to where if you had a million bucks,
it can generate 70, 80, 100,000 year of tax free income,
if you lived to be 120 without running outta money.
Most IRAs and 401ks can't do that.
There were three tax citations
passed back in the 1980s,
TEFRA, DEFRA, and TAMRA.
Now those are acronyms
but they're tax citations that basically tell you
you have to have a commensurate amount
of life insurance attached to the account
or it will not be tax free
under these sections of the code.
TAMRA says, in order to have tax free income,
you have to fund it over five installments
or four years and one day.
So let me explain that, TEFRON, DEFRA says
you have to have insurance
but it's a lower amount as you get older.
So, the actual cost of insurance gets cheaper
as you get older, when you structure it correctly
have you ever seen an insurance policy
that gets cheaper as you get older?
Then you haven't seen months structured
right under TEFRA DEFRA.
TAMRA says, you have to spread out the funding
over four years and one day,
if you're over age 50 approximately
in order to have tax free access.
So, I compare this to like a bucket as a metaphor.
So, if an IUL policy is a bucket
because IUL was introduced in 1997
when interest rates started coming down
and you link your return to an index,
I'll show you that in just a second.
So, if this bucket is your repository, your insurance policy
you want to be grandfathered, so to speak,
to put in as much money
as you think you might want to
without having the insurance company have to refund it.
So, let's say you're 60 years old
and you want to reposition 100,000.
Now it could be 500,000,
it could be a million,
it could be 10 million.
But under TEFRA and DEFRA,
if you're 60 years old and a male
if you want to be able to put in 100,000 bucks into this,
you would have to have about two and a half times
added in insurance.
Now you can buy way more life insurance than that
with 100 grand, that's not the objective,
your objective is to have the least amount of insurance.
The IRS will let you get away with
so this 100,000 grows tax free.
So, it's about two and a half times that,
TAMRA says, well if you put in the whole 100,000
in one fell swoop, it will grow tax deferred.
But if you want to take out tax free income,
you have to spread it out
and it's usually about 20% a year.
So you put in, in this example about 20,000
the first day of the first year,
20,000 the first day of the second year,
third year, fourth year.
So, after four years and one day,
the first day of the fifth year,
you put in the last 20,000
and now you've complied with TAMRA,
what does that mean?
That means that 100,000,
if you just let it sit and grow,
you know, I've had clients do this for years
and they've averaged 9.6%,
rule of 72, your money will double
every seven and a half years.
So, 100,000 doubles to 200,000
in seven and a half years,
another seven and a half, it doubles to 400,
400 doubles to 800,000 and so forth.
I've had many people that have done this
and they end up with a million dollars or more tax free
at the time in life they're gonna now use that money.
And a million dollars can generate at 9.6%,
96,000 a year or eight grand a month
of tax free income without depleting principle.
But many people earn more than that,
and that's what I'm gonna show you right now.
So, with indexing that was introduced in 1997,
let's say you have a million dollars in your IUL policy,
and the insurance company is only earning
let's say 5% interest on that money
because interest rates are low.
They put your money where?
AAA, AA, bonds, mortgages,
on shopping mall and skyscrapers.
And so, back in the 1980s
they were earning 11 and three quarters to 15.5%,
and they paid me that much
on my universal life policies.
But then interest rates
started coming down, down, down in the '90s,
so they introduced indexed universal life.
This is not an index mutual fund,
your money's at risk in the market
with an index mutual fund,
indexing is a strategy.
So, if they're earning 5%,
they usually need one of those percentage points for them,
and so the net return might be four.
So on a million dollars in a year
they could pay me 40,000, it's tax free,
I can take it out, it's tax free,
I can let it compound and grow,
now I have 1,040,000 that's growing the next year.
But if I feel bullish about America,
I can link to an index or indices of my choice
that they offer.
And a lot of these insurance companies
offer 10, 12, 15 indices.
What's an index?
Like the S&P 500, Standard & Poor's 500
the Dow Jones, the Russell 2000
the Barclays US Dynamic Balance Index.
Now, when you link to an index
you're not telling the insurance company
to risk your million in the market,
your million has to stay safe
in the insurance company, earning four in this example.
What you're giving up or relinquishing
is the 4% interest on your million, the 40 grand,
they don't have to keep that on hand,
you're letting them use that,
and they are going to fund an options budget
so that they'll have the wherewithal
to pay you whatever the S&P does if it goes up.
Now, they're the number one purchasers
of options in the world, they buy them hourly.
What this means is simply,
if the S&P goes up 8%,
they will pay you 80,000 on your million,
how can they afford that?
Because 40,000 of options, easily double to 80,
they're big boys and girls,
they know what they're doing.
If the S&P goes up 12, they'll pay 120,000.
They may cap you based upon the price of options
but there are also some strategies
where you can do no cap.
And we've had clients that have been credited 25%, 61%,
even using a strategy called multipliers
which I explained on another episode on this channel,
you could earn 153% in the year 2021.
Let's just keep it simple right now.
The point is, if you guess wrong in the market tanks,
the options expire worthless
but you didn't lose your million.
And see, that's why we get more concerned
about the return of our money
instead of the return on the money
when things get bad so far so good.
Now, indexing then allows you to diversify
into superior strategies.
I could diversify and have that million dollars,
I could have 300,000 linked to the S&P
300,000 to the Dow Jones,
300,000 to the Russell 2000
and leave the last 100,000
sitting in the insurance company, earning four,
I could do that.
But you can diversify between indices,
or in the ways that they link it.
So, you can link one year, point to point
which means if you linked in March of the year 2020,
when the market dropped 30%
one year later in March of 2021,
people who did that
they were able to earn up to the cap.
But if they chose the no cap option,
they ended up getting 61.33%
incredible tax free rate of return.
So, that is a one year high cap, or maybe no cap.
Maybe they capped you at 11%.
A good IUL professional will help you understand
how to diversify.
But let's say you put 40% of your money in that,
40% of the million is in that one,
40% is in a two year.
That means you're waiting two years
to measure how much the S&P went up.
And maybe there's a 19% cap,
but that's 19% over 24 months.
Let's say you have a five year.
Now, five year means
that you wait five years to see what the market did,
there is no cap
and they will pay you whatever the market did in five years,
and that's called a five year indexed account.
Now, if you diversify, you may go 40% in this one,
40% in the two year, 20% of the five year.
If you did that based upon 20 year periods
historically, you would've earned 11.3% average
crediting rate by going 40, 40, 20,
that's diversifying between one year,
two year, and five year point to point.
Do you know what my sons,
who are professionals with IUL
told many of their clients to do?
Hey, let's just have 50% half of it in the two year
with a 19% cap,
the other half in a five year, with no cap.
If this is for long term goals,
you may want to consider this
because the average is 14%
based upon 20 year periods, hello, tax free.
So, this is the message,
you diversify by using several LASER funds.
I own several, my wife does,
you can have two or more products or different companies.
I use three or four different companies.
You link to different indices,
the S&P, the Dow Jones,
the Barclays US Dynamic Balance Index.
You utilize various indexing strategies like I've said
and you rebalance by meeting annually with a professional.
When you do that, your rates of return
will go from 7% up to nine, up to 10,
even 14% and some years, 61% and 153%,
this is incredible,
and most financial advisors in America
get a deer in the headlight,
look, when I talk about this
'cause they're never trained to do this,
they're trained to churn your money in the market
because they make money
when they churn your money.
And all too often there's no predictability
when your money's in the market.
So here's what I want you to do,
claim your free copy of this book, "The Laser Fund,"
it's my 11th book.
It's been flying off of our warehouse shelves.
It's actually two books in one.
This side is about 200 pages,
14 chapters that has all the charts and graphs
of how to diversify and create the foundation
for a tax free retirement for example.
If you learn more by stories of examples,
you flip it over and read this
about 100 pages, 12 chapters.
It has 62 actual client stories.
You can read both books.
But here's how you claim your copy,
you go to laserfund.com
L-A-S-E-Rfund.com or click on the link below.
And you contribute a novel amount
towards the shipping and handling
I'll cover the rest of that cost,
and I will pay for the book.
I'll fire out a hard copy to you.
If you like digital,
or you want to listen and learn or watch and learn
there's options also for that,
there's even an 18 hour masterclass
that dives deeper than the book
taught by me and my two sons that are co-authors,
they've been doing this for two decades with their clients.
Now folks, be sure and check out
some of our online events, webinars
and even our virtual teaching,
like Retire by Design.
This is about your brighter future,
and to make sure you don't outlive your money
during your golden years.
So, here's to your brighter future.
(upbeat music)