- How this 70-year-old retiree
ended up with four times the retirement income
from his IRAs and 401ks.
In this episode, I'm going to address a strategy
called a strategic rollout that saved this person
over a quarter of a million dollars of unnecessary tax.
(upbeat music)
So, I'm Doug Andrew, and I've been helping people prepare
for a comfortable retirement to not outlive their money
now for nearly five decades as a financial strategist
and a retirement planning specialist.
Now, if you've watched very many of my educational episodes,
you'll soon learn that my favorite vehicle
is a max funded index universal life insurance contract
structured correctly and funded properly,
which less than 1% of them in America are.
But if they are,
they are qualified to be deemed a LASER Fund.
LASER is an acronym
that stands for liquid assets safely earning returns.
And it is the title of my best-selling book
that's been flying off of our warehouse shelves.
I want to gift you a free copy of this
at the end of the episode,
so stay with me here to claim your free copy,
I'll show you how to get it.
But in here, one of my favorite strategies
is to help people get money out of their IRAs of 401ks
with a strategic roll out.
This is not a rollover, okay?
A rollover is like going
from the frying pan of the fire, so to speak,
where people have money in 401ks,
they roll it over to IRAs
and they continue to delay until their aged 72.
And if they still don't need the money,
they're required to take it out
to avoid a 50% penalty on top of the tax.
And so, they start RMDs, required minimum distributions,
which I think is the worst advice for most Americans,
and hopefully you'll see why as I proceed here.
So, in my various books, my educational videos,
you'll sooner or later come across this chart
showing four buckets
because most people at retirement
they will draw from up to four different general sources.
Most people in America are relying too much,
they're way too top heavy with their money
in this purple bucket I call the investment bucket
this would be yet to be taxed IRAs and 401ks
invested in the market, okay?
And Wall Street was not designed
to create predictable income
and you're not gonna be in a lower tax bracket
when you retire if you save very much money.
And so, people have this rude awakening,
they realize they're in a tax trap
and I need to free them from that trap.
And so, they want to get money out of this purple bucket,
but they're scared to death
because their CPAs and tax attorneys,
their financial advisors are saying, "Oh
if you don't need the money yet, keep deferring, defer
you'll save tax in this given year
and then the next year."
If you ask a CPA, "Be honest with me,
over the long haul, am I saving tax
by continuing to defer to the future
when I'm convinced that taxes will likely be higher?"
And the CPA goes, "I'm convinced of that too."
Well then, why do you want me to keep deferring
until taxes are higher and then pull it out?
But see, most CPAs are only looking at this given tax year.
Well, if you don't want to pay any more tax,
you don't take anything out and don't take anything out,
but then when you add up
how much it's going to by deferral,
you realize the government has a permanent tax lien,
they get a third or more
of what that is ever going to grow to.
And so, it's the best savings bond
they ever came up with for themselves.
So, other times people might have real estate
where they get rental income.
There's a lot of real estate landlords
that they get tired of that,
and so they hire managers
or they wanna sell it, do 1031 exchanges,
but then they inherit another headache
and finally they just want out,
they pay the capital gain tax.
If they put it into my favorite vehicle, the LASER Fund,
they're shocked when they get as much
or more income than their rental properties ever did,
and they don't even have to fix toilets
and evict tenants anymore, okay?
So, but that's where some people
have some of their retirement nest egg.
Others might have a pension,
a school teacher, police officer, firefighter.
Some people rely on social security
or some people use annuities
that will guarantee them an income
that if they run out of money
they will not run out of income if they live long enough.
Okay, but this is the most underutilized,
it's the green bucket, the tax-free one.
And you'll quickly learn on this channel
and in the book I'll gift you
that there's three basic choices
most people are aware of,
Roths, Roth IRAs and 401ks.
And I've never owned one, I never will.
There might be some municipal bonds
I bet those aren't near as popular
'cause they're low yielding
and there's a lot of municipalities
that are filing bankruptcy these days.
My favorite vehicle is an MFTA,
that stands for max-funded tax advantage insurance contract.
If it's structured correctly and funded properly,
it is deemed a LASER Fund.
Okay, you'll understand that.
So, let's go into this idea.
This series is designed to show you strategic rollouts.
So, this is getting money out of this purple bucket
and getting the taxes over and done with sooner than later,
and then putting the net into here.
I recommend no more than 30% of your money
still be in here by the time you retire,
and many people don't want anything in there,
and so we help them do that.
I would recommend no more than 30%
come from your real estate
because they're not always gonna have tenants in them.
0-80% could be guaranteed
depending upon your risk tolerance and your needs.
But I would recommend that 40-60%
of your income not even show up
on the front page of your 1040 tax return, it's tax-free.
So, folks, this is a three-part strategy.
I'm gonna show you an example here in just a moment,
how we strategically repositioned
this man's retirement funds,
getting the taxes taken care of sooner than later
or stringing them out with RMDs.
The second thing is we reposition the money
after tax 'cause he didn't need it to live on
into something that's tax-free from now on
and it was a portfolio of LASER Funds
indexed universal life.
And at the end of the day, when he passes away,
it will reimburse every dime that he would've paid in tax,
but we actually incorporated for him the third strategy.
We were able to offset
the bulk of the tax liability incurred during the rollout
by resurrecting tax deductions he had been killing.
People go, "What are you talking about?"
Okay, here we go.
This was a 70-year-old man
and his spouse had already passed away
and he was turning 70 and a half
and he had $600,000
in yet to be taxed IRAs and 401ks.
And he had this financial advisor planner
that had had that 600,000 in there
all the way from 2000 to 2012.
And if you are not aware of that time period,
that was the Great Recession,
and 9/11 terrorist attacks, and then the 2008 crash.
And so, that 600,000 dropped below 360,000 twice
from 2000 to 2012, and it was barely back to 600,000.
That's why we call it the lost decade or 12-year period.
So, he had seen that 600,000 go down over 40% twice
and it was barely back to 600 grand.
Did he made anything? No.
Now, his advisor says, "Well hang in there,
just hang in there,
the market will always come back, didn't it?"
Well, okay, but because of that market volatility
he was told to only take 4% a year
because the broker dealers
do not want you to illustrate any more than a 4% payout.
If this person doesn't need it,
they don't wanna be sued for you outliving your money
because he had virtually earned nothing
over the previous 12 years.
But DALBAR says, "Oh, if you're in the market and so forth,
you'll probably average 3.5%
between the turmoil of the ups and downs
and buying and selling."
So, that's called the 4% rule.
So, the advisor says, "Sir, just take out 4%."
Now, 4% on 600 is 24,000,
so let's just use that.
He pulls out 24,000 a year in a 33% bracket,
he pays taxes of 8,000,
he's netting 16,000 out of 24,000
out of a $600,000 investment
to buy gas and groceries, prescriptions, golf grain fees.
Now, when he came to me with this
and that's what his advisor said to do, that's pathetic,
that's unacceptable to me.
Okay, and if he died,
then this goes to his children
and they have to pay tax on that within 10 years,
so the net after tax benefit to the children
is still 400,000
because he is gonna be slowly depleting that, okay?
That is what his advisor told him to do.
Follow the herd, this is what you should do.
Well, when he came to us,
I said, "Listen, let's take out 12,500 a month
out of this 600,000, that's 150,000 a year."
He goes, "I'm gonna have to pay tax on that."
I said, "That's what we wanna do."
We wanna get 150 grand out
because I think and we were able to help him
get a return of about 8.25%.
So, he was able to pull out 12,500 a month, okay?
Over a five-year period.
Which actually if you calculate that, that's 750,000.
I thought he only had 600.
Well, we helped him make it extra 150,000
on his money while he was getting it out.
Okay, he was gonna hopefully do that,
but not if he's only earning 4% of the market.
So, we essentially got out 750,000.
Now, at a minimum I said, "It's gonna hurt
but you're gonna be so glad you did this."
You pull out 150,000 a year,
you pay tax of a third, of 50,
you only have a net of a hundred.
I want you to put that 100,000
into a portfolio of LASER Funds,
and it will accumulate tax-free
and it has this death benefit that comes along for the ride.
Well, what does that mean?
I'll show you.
So, he rolled out 750,000.
Now, if he paid tax of a third, 250,
he had a net of 500.
500,000 in the LASER Fund
without even adding any interest on that
500,000 he can based on historical
rates of return since the Great Depression,
he could pull out 8% of 500,000,
that's 40 grand a year tax free without depleting principle.
How much more is 40 than this?
A lot more.
It's actually a 10%,
he could could pull out 10% without depleting principle.
10% of 500,000 would be 50 grand.
How much more is 50 than 16?
50's tax free.
But no, I couldn't just stop there,
I'm a tax strategist.
This guy didn't really need this money,
he owned a bunch of rental properties and what was he doing?
He was taking the positive cash flow
and sending it against the mortgages
'cause he thought having those rental properties
be free and clear
when as soon as possible was the best strategy
until he came to a tax strategist.
And I said, "Hey, let's resurrect some tax deductions
you've been killing on those Schedule Es."
Those, the rental, the tax return Schedule E
or it could be an LLC, or whatever.
I said you can deduct that interest
if you refinance or you sell and you buy another one,
don't pay cash.
So, what did he do?
He had several rental properties
and he was able to refinance
each of these to a million dollars, okay?
And some of these,
he only owed like 50 or 100,000 on.
He refinanced because he had been killing the tax deduction.
Every million dollar mortgage he took out
on his rental properties and only took a few of these
to totally offset the tax on his rollout.
He borrowed at 4.5% interest,
which is 45,000 on a million.
Because of his tax bracket,
that saved him a third of that in tax.
So, his net cost out of pocket out
of a 4.5% mortgage is only three.
Okay, it's 33% less than a 33% bracket.
This was his net cost on 1,000,000, 3%.
Why do banks pay you 1%?
Because they turn around and reinvest
and loan it out at five.
They make five times what they pay you.
I said, "You could borrow a million
and you pay three,
and you keep earning nine in your LASER Fund."
Okay, he's actually doing more than that.
How much more is nine than three?
Don't say six, it's 300% more.
He said, "Doug, I was already making tons of money,
now I'm making 300% more.
On every million, I'm making three times
what I pay in interest.
Oh, my heavens,
how come I was so stupid to kill all those tax deductions?"
But what happened as a byproduct?
All of that interest was not a foe, it was his friend,
because he was able to refinance
about three and a half properties
and resurrect enough deductions
to totally withdraw 150,000 a year
out of his IRAs and 401ks tax-free.
He subjected it to tax, the 150,
it was washed away with a 150,000 of interest expense
on his tax return.
And frankly, he was making money
by double dipping by this strategy.
And because he was able to get out
all 750,000 tax-free.
So, what did that mean?
It means that with 750,000 gross
because we got it out without tax.
At 8%, he can pull out 60 grand a year tax free.
At 10%, which he's been earning and averaging,
he could pull out 75,000 a year tax-free.
How much more is 75 than 16?
When he dies, this blossoms to 1,200,000.
This one is only 130.
Why would you generate this much
during your retirement when you could generate this or this?
And why would you leave behind
at the end of the day this much out of your IRAs
when you could leave behind three times that?
That's the simple question.
So, folks, if you wanna learn more
about how to maybe resurrect deductions and so forth,
you can read stories like this
in the book, "The LASER Fund".
Here's how you claim your free copy.
You simply go to laserfund.com
or click on the link below
and you contribute a nominal amount
towards the shipping and handling.
I require a little bit of skin in the game.
I'll cover the rest of that cost
and I will pay for the book.
I'll fire out a hard copy to you,
but this is actually two books in one.
This side is all the charts and graphs and explanations
if you're a left brain learner.
If you learn more by stories and examples,
you're a right brain learner,
you flip it over and read this one.
This has 12 chapters, about 100 pages
with 62 client stories like the one I just told you.
If you want to use your whole brain, you read both books.
But you can check out how to listen and learn,
watch and learn,
check out some of the online regular free webinars
that we teach, but you can even schedule an appointment
with an IUL specialist to see how a LASER Fund
may benefit you and they can show you a strategic rollout
RMD analysis report.
If you're thinking you're gonna take RMDs, think again,
get one of those reports, they're free.
(upbeat music)