- This is way better than an annuity.
By the end of this video episode,
you will understand why a MEC is better than an annuity
to invest a lump sum.
Get ready.
You're gonna gain insights
into some opportunities
and ramifications
that maybe you did not know existed before.
(upbeat music)
So I'm Doug Andrew,
I've been helping people optimize their financial assets
and minimize taxes now for north of 48 years.
If you've watched very many of my educational videos
or read any of my 12 books,
my favorite financial vehicle bar none
to help people especially with long-term goals
like retirement planning,
to accumulate money tax-free,
not just tax-deferred,
and then be able to generate tax-free income.
And at the end of the day,
when they finally pass away,
whatever they leave behind blossoms
or increases in value
and transfers tax-free
is a Max-Funded Indexed Universal Life Insurance contract
that is structured correctly and funded properly.
Now, if it's structured correctly and funded properly,
which I'm sad to say over 99% of IUL policies in America
are not structured correctly
or funded properly
to do what I'm gonna show you here.
But when they are,
they qualify to be what I call a LASER fund.
A LASER is an acronym
that stands for liquid assets safely earning returns.
In fact, it happens to be the title
of my most recent bestselling book
that's flying off of our warehouse shelves
called "The LASER Fund,"
and stay with me till the end of this episode,
and I'll gift you a copy of this book,
so you can learn about several of the strategies.
Now, why is it my favorite vehicle?
Well, ever since 1980,
when EF Hutton first came up with this idea
of using a life insurance policy
structured more for living tax-advantaged benefits
rather than for the death benefit,
I've helped people optimize their assets
and increase the liquidity of their money,
the ability to access their money when they need it,
the safety on their money,
and the rate of return,
and have it be totally tax-free.
IRAs and 401ks are only tax-deferred,
and people have a rude awakening at the end of the day
because they have to pay tax
when they withdraw money out of those IRAs and 401ks.
Now, to be honest with you,
some people are not shocked.
They just sort of expected that.
I would say a lot of people are surprising me,
and I have to pay tax now on these IRAs and 401ks.
And so, many times what I'll do
is help them do a strategic rollout
out of those IRAs and 401ks,
over a five year period usually,
to get the money out of those IRA and 401ks
at today's lower tax rates,
and then invest the net after tax money
into a portfolio of LASER funds,
so that they can then generate tax-free income
that will be greater than the net after tax money
they were hoping to get out of their IRAs or 401ks,
and we make them immune
from increased taxes,
and inflation,
and market volatility by using indexing.
Now, this episode,
I'm gonna talk about how many, many people
I think in America get duped
into using annuities during their retirement.
Now, what is an annuity?
It's simply a savings account with an insurance company.
Now, insurance companies,
in fact, the overall insurance industry
is not only the backbone of America
but the backbone of the world.
This is where banks and credit unions put 30 to 40%
of their Tier 1 assets for liquidity and safety,
and banks will pay you a measly 1% interest,
and they turn around
and put some of that money into insurance companies
and earn four or 5%.
How much more is five than one?
I mean, on every million,
they pay out 10,000 a year in interest
that they borrow in OPM,
other people's money.
They turn around and make 50,000,
which is five times or 500%.
Yeah, you can bypass the middleman,
and I have video episodes that talk about that,
and put your serious cash directly
into a maximum funded IUL policy with an insurance company.
But there are some people that go,
"You know, Doug?
I'm thinking about just putting a lump sum into an annuity,
and I realize the money in an annuity grows tax-deferred."
Correct,
and if you touch it before age 59 and a half,
there's usually a 10% penalty
unless you do an immediate annuity or whatever,
but then when you turn on income,
it's now taxable as you take money out
and it's taxed LIFO,
that means last in first out.
Whereas if you put money into an insurance policy
and it is used for living benefits,
it's taxed FIFO generally,
where the first money you put in is a first money out.
Let me simplify this by using an example.
Let's say you put in $500,000 into an annuity,
and for the sake of simplicity,
let's say it's earning 10%.
Well, theoretically,
you ought to be able to withdraw
your interest 50,000 a year,
but, see that 50,000 in an annuity is your interest
even if it's not a qualified annuity like an IRA,
and so, that is the last money you're earning.
Your interest each year
is the first money coming out.
That's all taxable.
It's only when you gouge into the principle
or your basis of 500,000,
do you get a tax break
because you've already been taxed on that money?
Does that make sense?
Now, a max-funded insurance policy
where you're putting it in compliance with IRS guidelines,
if you put in 500,000 and you're earning 10%,
the first 10 years of pulling out 50,000 a year,
it's tax-free
because the first money in is the first money out.
You're recovering your basis first,
and then, you would pay tax after that
if you did it the dumb way.
The point I'm making in this episode
is sometimes people just don't care about tax.
Maybe their tax bracket isn't that high,
maybe, you know, they just think,
"Well, I want to contribute and pay tax."
Whatever. Okay?
Most people wanna save tax.
So they tell me they're thinking about an annuity,
and I go, "I wouldn't do that,"
and I'm telling them the truth.
Now, I doubt I will ever own an annuity.
I never have.
Why?
Because I can put money,
the same amount of money
into usually the same insurance company
that's offering an annuity,
and I can end up with more advantages.
Some people don't understand this.
Some advisors don't understand this.
They go, "Well, life insurance has an additional cost
that annuities don't have."
An annuity is just a savings account.
Life insurance,
you have this cost of the death benefit.
What if you die?
Well, yeah,
but if you maximum fund a life insurance contract,
you actually will usually have a death benefit coming along
for the ride,
but that death benefit,
if you structure it correctly,
usually only uses up about one of the percentage points
of the interest that you're earning
over the life of the life insurance policy.
Let's say you own one for 20, 25, 30 years.
So for many, many years
I've earned an average of 11% or greater.
If I earned 11,
I was netting 10.
So I'm earning a net rate of 10% tax-free
on a max-funded insurance policy.
Whereas with the same insurance company,
they were only offering on their annuities
maybe seven or eight or 9%,
and I'm going, "Well, what's up with that?"
Well, it's interesting insurance companies
that offer annuities,
even indexed annuities,
which means your money is safe in the insurance company,
but if you want,
they're linking it to an index like the S&P 500
or the Dow Jones.
So when the market goes up,
you get to benefit,
but when the market crashes,
you do not lose.
And I love indexing as a strategy,
but usually with indexed annuities
because of the price of options and so forth,
the caps on what they will pay you might only be,
you know, 8%.
So if the S&P goes up eight,
you'll get eight,
but if it goes up 10 or 12,
you're capped at eight.
Whereas with the same insurance company
with indexed universal life,
the cap might be 10 or 11 or 12.
So if the S&P goes up 12,
you earn 12.
Now, you might earn 12 and only net 11,
or you might earn 11 and net 10,
but that's better than an annuity
that's only earning eight
because it's capped at eight.
Does that make sense?
But what else comes along for the ride
with the insurance policy?
A death benefit.
So, sometimes people go,
"Oh yeah, well, I can access money tax-free,
but you know what?
I think I just wanna put this
into an annuity is what I was thinking,
and it'll be tax-deferred
and if I need the money,
I'm okay with paying tax,"
and I go, "Well, why would you do that?"
Because if you want the safety of an insurance company,
and you're wanting to grow tax-deferred,
you can create a MEC.
What's a MEC?
A modified endowment contract,
and this is where you can put in a lump sum,
let's say 500,000.
It could be a 100,000, 500,000, or a million,
but you put in $500,000 into an annuity.
It's gonna grow, hopefully, tax-deferred.
And if you start turning on income,
you're gonna have to pay tax on what you withdraw.
Okay?
If you create a MEC
that means you still accumulate your money tax-deferred.
If you access money out of it,
you're gonna have to pay tax just like in an annuity,
but you're potential for rate of return is greater
with an indexed universal life than with an indexed annuity.
But what's another advantage?
Well, with the life insurance,
it will blossom when you die,
an annuity doesn't usually blossom when you die.
So, let's say a 60-year-old
who puts in $500,000 into a max-funded IUM,
you could get a ton of life insurance for that.
Yeah, you could probably end up
with two and a half million of life insurance,
but if you want growth,
no, you take the least amount.
Well, at age 60,
the least amount of insurance you could get away with
might be a million dollars
if you're putting in 500,000.
So if you do put in 500,000,
and you die even a day after you put in 500,000,
your heirs get a million dollars
and that's totally income tax-free.
The annuity is not,
and the annuity if you die with 500,000 in it,
you just leave behind 500,000.
So I often ask people,
"Why would you leave behind this
when you could leave behind double that
if it doesn't cost you anything?"
And people say, "Well, isn't life insurance more expensive
than an annuity?"
Well, there's an extra cost there,
but usually you're making more money
using indexed universal life
than if you use an indexed annuity.
And so, you're actually covering the cost
with the greater rate of return.
But if you wanna maximize what you lead behind,
I would take the life insurance policy any day
because it will leave behind maybe double
what you have in there.
Whereas an annuity,
when you die, just leaves behind X.
I'd rather leave behind 2X.
Does that make sense?
So, sometimes we don't think through things,
and I can show you
that even if you create a modified endowment contract,
which simply means your money grows tax-deferred,
and if you access money,
you're gonna have to pay tax
on any of the income you pull out.
You could have avoided that by funding it over five years,
but if you don't care about that
then choose the max-funded indexed universal life
because it will blossom when you die,
and the cost of insurance is totally covered
if you structure it correctly.
So if this is giving you some insights into opportunities
that maybe you didn't know existed before,
people begin to go,
"Oh, that's why Doug Andrew says
he has never owned an annuity
and probably never will."
Yeah, why would I do that
when I can use the same amount of money
into a max-funded indexed universal life
and have all the benefits of an annuity
and a whole bunch more.
Okay?
If you want to learn about this,
study this book called "The LASER Fund."
I wanna gift you a free copy.
This is a 300 page book,
which is actually two books in one.
This side is about 200 pages,
14 chapters,
with all kinds of charts and graphs and explanations
of how to diversify
and create the foundation for a tax-free retirement.
If you learn more by stories,
you flip it over
and this side has 100 hundred pages, 12 chapters,
with 62 actual clients' stories
of how the LASER fund can be used
for all kinds of financial goals,
not just retirement,
college funding for your kids and grandkids,
emergency funds,
working capital for business,
on and on and on.
And so, here's how you claim your free copy.
You simply go to laserfund.com
or click on the link below,
you contribute a nominal amount
towards the shipping and handling,
I'll cover the rest of that cost.
I'll fire out a copy to you,
hard copy, 300 pages.
But if you like to listen and learn
or watch and learn,
there's options there,
and you also may want to check out
how you can talk to a professional
that will help you understand how this may apply
in your particular set of circumstances
or you can learn
on one of our many online educational webinars.
But this is about you and your brighter future.
(bright music)