How can IUL outpace inflation? By the end of this video episode, you will understand
how a max funded IUL links your returns to the
things that inflate. By rebalancing your portfolio with a professional advisor
you can actually earn returns that are greater than the inflation rate at any given time.
So, I'm Doug Andrew I've been a financial strategist retirement planning specialist
now for north of 48 years. If you've watched any of my other educational episodes. One of my
favorite financial vehicles that allows people to accumulate their money tax-free and then be able
to access money tax-free not just for retirement anytime and when you ultimately pass away it
blossoms increases in value and transfers tax-free is a max funded indexed universal life insurance
policy. We call that IUL. Now, indexed universal life is my favorite because it allows the policy owner
to be able to link their returns to an index or indices of their choice so that
they can outpace inflation when inflation starts to get out of control.
And this has helped me to always earn at least five and a half percent greater than the
inflation rate at any given time. In fact, even clear back in 1980. Now, I started in 1974 and
back then Jimmy Carter the inflation rate got up to double digits and so when inflation was at 10
I was actually earning 15 and a half percent in my normal universal life. Well, that was nice because
I was outpacing inflation. But then interest rates started coming down and that's why in 1997
indexed universal life came out so that people could continue to link their returns to the things
that were inflating and you'll understand this as I proceed. Inflation, I don't like it any more than
probably you do but it doesn't hurt me. It actually helps me. If you understand that if you have your
money in a bank or a credit union earning let's say one percent you're like metaphorically rowing
upstream at the rate of one mile an hour and the current of inflation if it's coming down at
3, 5, 7, 15, you're going backward. Inflation is what I call the hidden tax and it's the second big danger
that causes most Americans to outlive their money in retirement. So, at the recording of this episode
the actual inflation rate in the previous year 2021 was over 15 percent. Now, some people argue and
say, "Oh no, the consumer price index said inflation was only 5.8 percent that's why social security
recipients only got 5.8 or 5.9 percent increase", I go, oh brother if you haven't been around
back in the 80s because of Carter. When inflation started getting out of control the federal
government could not afford to pay social security recipients the actual rate of inflation and so
they changed the way they calculate the consumer price index. In a nutshell, instead of comparing
the same basket of goods to the identical basket of goods the next year apples to apples
they changed it from apples to oranges. So, they actually have the right to change the comparison
from let's say filet mignon steak one year to hamburger the next year because it's still
red meat and they get away with this. So, when they reported with the consumer price index in the year
2021 that inflation or the CPI went up 5.8. You can pretty much triple that and you'll get the
real rate of inflation because many people realize that gasoline went up 50% or higher sometimes 100%
in some areas, prescriptions, used cars, all kinds of things went through the roof, okay.
That's not what this video is about, it's about how do you protect yourself. So, let's go back to
indexing simplified so that we sort of pick up where maybe you've left off in other episodes.
Let's say you have a million dollars accumulated in an IUL policy just to take a snapshot in time
and you can extrapolate from this. Whether you have a hundred thousand or ten million. If you have a
million dollars of cash value in the policy you know that the insurance company. Because
if they're earning a lower interest rate on their general account portfolio where they invest their
money in triple a, double a bonds, and mortgages, and shopping malls, and skyscrapers, and so forth. Let's
say they're earning four percent. So, you can settle for whatever the general account portfolio rate
is and if they're earning four they might need one of those percentage points for their profit.
I mean, hello? They're in business for a profit. So, you may only net three percent. You can take three
percent tax-free which is actually three times what banks are paying and they'll charge you tax
on that sooner or later. But if you feel bullish about America remember you can say take my four
percent interest on my million my forty thousand and I'm willing to give up that for short interest
but don't put my million at risk. So, your millions stay safe in the insurance company earning four.
They don't put that in the market but you're linking your return to an index like the S&P.
That's why this is not an index mutual fund this is a strategy. They take the 40,000 of interest
they're earning on your million and they don't have to hold it for you because you said you can
have it. They fund an options budget and so they buy upside options in the S&P. So, if the market
goes up eight percent they can pay you 80,000. They can afford to do it because your
options double or maybe they tripled to twelve and so maybe you earned 120,000 that year. But the
insurance company can afford to do that because of the options. Some years you choose no cap and so
like in 2020 to 2021 a lot of our clients made 61% net because they chose a no cap, okay. They didn't
cap the amount by keeping the protection on the floor. You can link your returns to an index or
indices. You can diversify with different indices. So, in this episode, we want to talk about how do
you outpace inflation? You do it by rebalancing and diversifying. So, let me give you some examples. Many
times the sharp IUL professionals my two sons are two of them they will allocate 40% of their
clients in a one-year high cap index. You will be capped at maybe 11% on that one. If the market goes
up higher they only pay 11 but they protect you zero is your hero you have a protected floor.
40% might be in a two year. So, you wait for two years before you see what the difference in the S&P is
or the Dow or whatever and that's a 19% cap because they have 24 months that they measure
and maybe 20% in a five year. So, you wait five years to determine how much is the
market up or the S&P higher than it was five years earlier. There is no cap with that one.
This is a very common a simplified diversified way to do an IUL policy, okay. If you had done this
okay the average crediting rate in any 20-year period based upon how long this has been
around and even hypothetically even before it started in 1997. Your average return would have
been 11.3 percent. That outpaced inflation during those periods because inflation
was around 3%. We outpaced inflation all the way through at 11.3. Sometimes my sons will say put
fifty percent in the two year and fifty percent in the five year. Because we think right now with the
volatile market you'll come out ahead and sure enough the average return is fourteen percent.
In any twenty-year period okay for the last several decades. 14% of inflation was eight or nine.
You would have outperformed or outpaced inflation by five percentage points, okay. A lot of Americans
have not been able to do this they've been losing ground. They've been earning even in the market
only three and a half percent and inflation now is five, six, seven, eight, nine, ten, eleven, twelve,
fifteen percent. What about the year 2020 when Covid19 pandemic hit and 2021? When
my son saw the opportunity in March of 2020 when the market dropped 30% they told their clients link
to a no cap one year point to point, okay. So, you do that and there are
charges or spreads. So, this is where we had clients that got 61.33% in one year. A client that had
800,000 in March of 2020 ended up with 1,380,000 one year later. Made over half a million
in his indexed universal life policy because he was able to link and the market did go up
66.33% but they subtract five percentage points that's called a spread and he netted sixty-one
point three-three percent. Many of our clients did. But then there is such a thing as a multiplier. You
can actually tell the insurance company, "Hey, you know, instead of capping me at a zero, zero's your
hero", that if the market crashes you didn't make anything but you didn't lose. You can go, "You know
what, I don't want to lose 40 percent if the market drops 40. But I'm okay losing seven and a half.
If I have a million I'm willing to go down 74,000. So, I still have 925,000 but I don't want to
lose 400 grand". So, it's sort of like the reverse. You're saying cap me at no more than seven and a
half percent loss but now they take that seven and a half percent on your million and that's
an extra 75,000 to add to the other you know 40,000 for an options budget. if you let them do that
and the market goes up they'll pay you 2.7 times this is called a multiplier. They'll pay you 2.7 times.
If the market only went up 10 they'll pay you 27%. They'll subtract a seven and a
half percent and you net what 19 and a half? Yeah, you outperformed inflation at 15. But in actuality,
there were people that earned the 61 percent and they got 2.7 times that. They ended up netting 153%
tax-free. Does that outperform inflation at 15? Yeah, by 10 times. Sometimes you can say, "Well,
you know what, I'm willing to lose as much as 5% on a million. I'm willing to go down to 950,000",
and if you give them that much for the options budget they'll pay you 2.14 times whatever it
does. So, if the market went up 10 they'll pay you 21.4 minus the 5%, okay, which is over 16. Folks, this
is how you can outpace inflation. But you cannot do it if your IUL policy is not structured correctly
or funded properly. So, post a comment on here share this with somebody who really ought to watch
these episodes. But as you prepare to meet with an IUL professional ask them to show you how to
diversify and how you can choose different indices and diversify maybe between three or two and maybe
some years to even choose to opt for a multiplier or a no cap based upon is the market down
and the chance of it going back up is much greater than than trying to pick up from here and go up. No,
if it goes down that spells opportunity and that's the beauty behind meeting with an IUL professional
who knows what they are doing and stays on top of it. So, the message here is diversify.
Owning several laser funds. Using two or more products or companies. Linking to different indices.
Utilizing various indexing strategies and rebalancing often with a professional. That is
the key. That's why I plead with you to meet with an IUL professional who knows what they're doing.
So, make sure you refer to this book The Laser Fund. I have some chapters in here that talk about this
very concept. But if you have not claimed your free copy yet be sure and go to laserfund.com or
click on the link below. You contribute a nominal amount towards the shipping and handling and I'll
pay for the book and fire it out. There's options there to listen and learn and watch and learn. But
when you meet with an IUL professional they will help you understand what all this means with your
numbers. With your assets in your particular set of circumstances. Here's to your brighter future.