Get an 8 to 10 percent payout with IUL compared to the financial services industry standard of 4%.
In this episode, I'm going to address the question "What is the 4% rule
when you're taking money out of an IRA or 401(k) in retirement?" And I'm going to share with you
some things that will help you double, maybe triple your net spendable retirement income by
not succumbing to the financial services industry standard of 4%. That's pathetic. You'll see why.
Hi, I'm Doug Andrew and I've been a financial strategist and a retirement planning specialist
for more than 46 years. And so, I've noticed being part of the financial services
industry how it has evolved through the years and most people, unfortunately, put their money
for future use such as retirement into the market in tax-deferred IRAs and 401(k)s.
And I've never owned an IRA, 401(k), I never will. I've never owned a Roth IRA, 401(k) never will.
My favorite vehicle is a max funded indexed universal life insurance policy.
And so, I always compare my favorite vehicle to the financial services industry standard. When I
started in 1974, I had a seriesOne securities license. That allowed me to sell any stock, bond,
mutual fund, you name it. And I actually had over 3000 clients in 13 western states by 1980.
My 3,000 clients were never happier than when I got them out of the market and
into max-funded universal life insurance policies where they could earn predictable rates of return
actually averaging higher than they were earning in the market. Because in the market,
some years they might make 20% but other years, they might lose 12 or 15 or 20 or 40 percent.
They were going up and down up and down. But Dalbar who studies investor behavior
says that the average investor in the market only earns 3.49% in any 20-year period since the Great
Depression. Why is it sometimes the financial services industry says, "Oh, if you put your
money in the market, you should average more like 9%?" Well, that's if you bought and held.
That's not reality. If you bought into the market and you did not let emotion come into play
and the market is dropping 20, 30, 40 percent, because when it does most people just say,
"Enough already." And they pull out they sell low and then they wait until the market comes back,
back, back, back and then they buy high. And so, Dalbar says the average person in the market
only earns 3.49%. If they bought and held, they might earn 9. Now, let's assume you could earn 9,
if you did in a tax-deferred IRA, 401(k), you're going to owe a third of that in taxes when you
withdraw the money. So, if you're earning on a million-dollar nest egg (let's say) 9%, that's
90,000. You pull out 90,000, your earnings and you pay tax of a third between federal and state tax.
Most people at 41 out of 50 states has a state income tax. So, most Americans that I've helped
in retirement that had any type of a respectable retirement nest egg pay about a third back in
taxes. So, you're not netting 9, you're netting 6% after tax. So, you have 90,000, you pull it out,
you owe 30,000 in taxes, you're netting 60,000. Or are you? No. You have to deduct something else.
Most broker-dealers, most asset managers charge fees usually at least 1% or more.
Let's just use 1%. 1% on a million-dollar nest egg is 10,000. If you're pulling out 90,000
paying 30,000 in tax netting 60, you should deduct another 10,000 for the fees on the million,
you're only netting 5% or 50,000. But what Dalbar told us is that people aren't earning 9,
they're only earning 3 and a half. And so, they established in the financial services industry
what is called the 4% rule. They don't want anybody in retirement to take out any more than 4%
in a payout because they don't want to be sued for you outliving your money. And if you're only
averaging 3.5 and you pull out 4%, you will slowly deplete your nest egg but not before your L/E
which means life expectancy. And so, that's called the 4% rule. Well, heavens, let's do the math now.
On a million-dollar nest egg, you're only allowed to pull out 40,000 a year unless you sign a
waiver that you won't sue them for outliving your money. 40,000 comes out even in a 25% tax bracket,
you're paying 10,000 in tax. You're only netting 30,000 or 3%. Because "Well, I only have 4%, so,
I'm in a lower tax bracket. Is that good?" Well, you're only netting 30,000. But what about the
10,000 in fees on the million? Now, you're only netting 2% or 20,000 on a million-dollar nest egg?
How pathetic is that? With a max-funded indexed universal life insurance policy,
I have averaged 9.6%. Let's just take it down to 9. And that's over the 40 plus years that it's
been out there. If I earn 9 and I net 8, 8% is tax-free. That's 80,000 on a million-dollar nest
egg. How much better is 80,000 or an 8% payout than a 4% payout. It's 100% more. It's double
the income. 80,000 is twice as much as 40. But wait a minute, what about taxes? What about fees?
8% is net. It's tax-free and it's net of fees. I'm earning 80,000 tax-free compared to 20,000 after
deducting the taxes and fees on a 4% payout out of a stock portfolio. Does that make sense? And so,
that's the 4% rule. I would recommend but that as you take money out of an indexed universal
life insurance policy, you can take income out and generate maybe 6% really predictably on a payout.
But most of my clients have been able to take at least 8%. And by using index loans, where you're
borrowing the equivalent of your interest out of your policy, but you're borrowing that out and
the insurance company is charging you 5% under the index loan. But they keep crediting you whatever
the index is earning. 8 or 10 percent. I've had many, many clients who have borrowed money
out of their insurance policies for years. The loan is not doing payable during their lifetime
but it's the smart way to take it out. Because they borrowed out at 5 and they keep earning 7.
That extra 2% allows them even if the insurance policy is only crediting or earning 8 to pull
out an additional 2%, 10% and not deplete your nest egg. That's not offered in other vehicles
especially in the market. So, these benefits of max-funded index universal life will usually allow
you to have double, maybe even quadruple the net spendable retirement income compared to the measly
4% rule that the financial services industry says you must abide by because we don't want
you to sue us. If this is intriguing you and you want to see actual examples and stories and
sample statements, please study, read, learn. My most recent bestselling book The LASER Fund is
flying out of our warehouse. It's a 300-page book just jam-packed with charts, graphs, explanations,
and 62 actual client stories. Don't pay 20 for the book, I'll gift it to you for free. I'll pay
for the book. Here's how you claim your free copy. Go to laserfund.com. LASERfund.com. You contribute
5.95 towards the shipping and handling and I will send out the book to you absolutely free.