- Hi Doug, Andrew here.
I'm here with one of my sons, Aaron Andrew, who is a,
an IUL specialist. If you don't know what IUL stands for,
it's Indexed Universal Life,
which is one of my favorite financial instruments without
question that allows people to accumulate their money,
totally tax free,
then be able to access that money tax free,
not just for retirement
but for all kinds of financial goals.
And then at the end of the day,
anything that you leave behind transfers income tax free and
usually blossoms.
If I died right now, I'm 70,
every million would blossom to about 2 million and transfer
to my wife, my kids, a church, a charity,
whoever I want to leave it to.
Now, nothing else does that in the Internal Revenue code.
So Aaron and my other son,
Emron are co-authors with me on our most recent bestselling
book called "The LASER Fund." It's 300 pages of charts,
graphs and explanations
and 62 actual clients stories.
But this episode is an actual story.
Because we get questions all the time.
Does IUL really work? Come on?!
Does it actually perform as well as illustrated when people
first engaged and took out an IUL policy,
what does it really look like 10 years, 12 years,
14 years down the road?
So we have this particular playlist on this channel
3 Dimensional Wealth where we have numerous episodes
to show you actual clients
and their illustrations and what they've achieved.
And I think today, Aaron,
you have a lady in the San Francisco Bay Area.
- Yes, so she was a professors and since retired,
but a professor for a long time in the Bay Area And yeah,
her and her husband came to me and wanted to set up an IUL.
So we set one of those up for them back in 2008, September.
And we're gonna look at it now in 2022. What it looks like.
- Yeah,
so this is gonna be awesome to watch what actually happened
during the first 14 years of her IUL policy.
Structured correctly, funded properly,
then it is deemed a LASER fund.
Laser is an acronym it stands for liquid assets safely
earning returns.
I want you to stay with us to the end
because I want to gift you a copy of this book
absolutely free. So stay with us
and Aaron, take it away.
I'm gonna be listening very close to what you did for this
wonderful lady.
- Thank you.
(Upbeat music)
- Okay, let's take a look at this client and see what we did
for them.
Again, this policy was started back in 2008 in September
to be exact. We scroll down here,
you're gonna be seen here on the screen.
I got my computer here and I'll be drawing here on the
screen.
But this policy was started back in September 17th, of 2008,
This policy.
Now it's got got a death benefit of about $3 million.
So $3.3 million
and we set up a bucket size to hold one and a
quarter million dollars into this policy.
So as we set it up for,
to hold one and a quarter million dollars
into the insurance policy, the IUL over this period of time.
So we go back up here,
let's just do a snapshot of where we're at right now.
So again,
these policies are structured to hold and they're different
whether we do an increase in your levels.
So it's important you get a specialist that knows how to do
this, you know, structuring this correctly and so forth.
But we structure this to hold assets that they wanted to
reposition of cash and other assets that were selling some
real estate and other things.
And basically they wanted to put in one and a quarter
million about into this policy.
So, we got her approved at a super preferred rating,
great health at age 63.
Now we're 14 years down the road.
We're gonna look at how it's done,
over those different years and so forth.
So we look at these policies, some of them have,
some of these companies have really good,
there's lots of different companies out there of course,
but this company that we're gonna look at here, we'll see,
the annual statement and see what it looks like.
So basically all these years,
anytime if she were to pass away,
the family would get about 3.3 million of death benefit
in the amount that she's insured for. All right?
And we have what's called a level death benefit,
which basically means that it stays level through the
timeframe.
And we put in this money over a five year period into the
policy and they actually had a few setbacks at one point or
just,
I don't think they sold the property at the right time.
So they took an extra year or two to fund it.
So this actually wasn't funded right on time and it still
has been performing awesome.
So right here now and this year,
if we look at this last year,
and this is again September of 2020 to September of 2021
because at the recording of this video we're in the summer
of 2022, but we haven't hit September yet
at the recording of this video of 2022 yet. Okay?
So right now we're at about,
we had $2 million in there at the end of that last year.
So the end of that last year, the accumulation value,
which means the amount of money that is in the policy
had two, just about almost $2.1 million in it.
Now they have not been paying any premiums into the policy.
So premiums are not the fees.
That's what you pay into the policy as contributions or
premium into the policy.
So this last year they earned in the fixed account,
they earned about $1,200 of interest.
It's a little bit of money in the fixed account but their
indexed account. So as you learn about these,
watching these videos,
watching the videos that talk about indexing so you
understand how indexing works.
You're linked to the market
but your money's not in the market.
So in this policy we earn $218,000 of interest.
And again,
that's all tax free cause it's all under the umbrella under
the insurance. So intersection 72e 77-0-2 and 1-0-1-a,
all that money is growing tax free inside the insurance
tax deferred. It can be taxable if you do it the wrong way,
but you do it the smart way,
it can be tax free and be taken out tax free,
which we're gonna show here in a minute.
So this last year they had about $10,000 of fees, okay?
So if you really do that math,
that is really a small percentage of what they have in
there,
especially since they're not paying any taxes on any of
these gains. So they earned, you know,
over almost $220,000 of interest tax free inside the policy
and they've got 2.3 million in there at the end of September
last year. So pretty great.
Awesome. And if you look over here,
we've got some different accounts. We got
a little bit of money in what's called a two year account,
a two year indexed account.
Little bit of money in the fixed account,
some money in what's called a one year indexed account.
So through the average or through all the years of this
policy, since 2008, we basically have averaged 8%.
All right?
So 7.96 has been the average return all those years.
Now they've got more conservative as
they've hit their years in their seventies and they're in
retirement a little bit more conservative.
So back when we first started,
we had some money in a five year and a little bit more money
in the two year.
And those accounts at those times or through the life of the
policy to average 10%,
the five year account that used to have a bunch of money in
that one in the early years and they averaged 12% a year in
that tax free. And the one year account is averaged 7%.
And we had a little bit of money in an international account
only a couple years,
4% there and the fixed account's averaged four.
But overall they've averaged 8% in this policy through since
the last 14 years basically.
So what's pretty cool is if you understand here,
the client's put in just over one and a quarter million
dollars into this policy and we now have $2.3 million in
there.
So one and a quarter million up to $2.3 million right now.
Now if we look at this,
let's just go down and I can show you a couple other pages
here on this statement
is with these, you are linked to the market.
So this client has some money in the more conservative one
year indexed accounts. So these one year indexed accounts,
you can see as, I'll zoom in here,
there are different dates that we were linked to the index.
So we have some money, like there's 900,000, here's 400,000,
here's a hundred thousand on these different dates.
So it goes for one year point to point.
So if we look at these dates over here, we say, all right,
this chunk right here in December of 2019 to December, 2020,
we earned the cap of nine and a quarter percent back then on
that money. So we earned $82,000 of interest.
So all this interest right here that you see,
that interest all is from
that 200 grand of interest we earned during that year. Okay?
Now if we go to a quarterly,
this company gives us some quarterly.
So if we go to another quarterly statement that went from
December, December of 2021 to December of 2022,
you can see we're still, of course,
only one more quarter in where it's still 8%
average return here.
But you can see that in this quarter our policy charges
we're $2,400.
So that's the quarterly charges there.
We earned 58,000 during that quarter in the policy and we're
now up to two and a half million at this point through that
period of time.
Kinda skipped a quarter, but through that,
one of those quarters and this other one we're now at at two
and a half million from 2.3. So again,
the clients put in just over one and a quarter million.
We're now at two and a half.
Okay, let's go back and look at an original illustration
that we ran when we first imported this client.
So this illustration that we ran for the client is here's
the one and a quarter million we were gonna put in over a
five year period.
So you can see here at age 64 putting in $250,000 a year and
then the last little bit in year five,
that's how we were going to fund the policy.
The client actually ended up taking about six to seven years
to fund it.
So they didn't even fund it as fast as we're showing here.
And that's what's kind of neat about these is they're
flexible.
One year they only put in 200,000 another year they didn't
put in,
they put in maybe like half the money and then they caught
up down the road here in year six and seven because these
things are flexible but the money wasn't all in there at
once. So when they put in one and a quarter,
we did it over a seven year period and not exactly like
this, but if they had done it just like this,
the projections that we ran back when we first met with the
client is if we're in year 14 over here,
that would be this year right here.
So we would be at an accumulated value of 2 million 4-63.
So $2.4 million and I showed dropping the death benefit by
the way.
So one thing you can do in these policies is we can drop the
death benefit after so many years to lower the fees and
expenses.
Remember a minute ago I showed you that the fees are running
about $10,000 a year.
So the client has $3.3 million of insurance.
We haven't dropped it like I showed here,
but if we do drop it,
we can drop it to real close to the cash value because
the cash
value is now two and a half million.
So a second ago when I showed you the cash value,
let's go back here for a minute.
So right here on the numbers, as of this last quarter,
we now have two and a half million dollars inside the
policy.
So two and a half million dollars,
we're still in the middle of the 14th year all but in this
example we go back to the original illustration that we ran
for the clients and that 14th year is right there at two and
a half million.
So we're ahead of schedule based on this and the client took
a little bit longer to fund it so they didn't even fund it.
If they would've funded it faster, they'd even be,
even higher than two and a half million probably.
But right now we're at two and a half just above what we
projected back then in this example and we haven't reduced
the death benefit
because the client is kind of sitting there
right now and saying this, they're saying "well you know,
"this policy is only costing me", look at this last quarter.
So this last quarter we didn't earn much interest as we
scroll over here,
we did not earn much interest yet inside this policy this
last quarter because the money's in other quarters and the
market's gone down.
And in this example our fees are only $2,300 this quarter
they've got two and a half million dollars in there.
The client's like, "yeah,
"I don't wanna reduce my death benefit,
"I'm in my mid seventies now if I reduce that,
"I could lower fees a little bit, but that's a small,
"small fee for three point to to have it blossom."
So if she passed away today,
the two and a half million would blossomed to 3.3 million.
So one thing to understand as well is the client is only
paying for cost of insurance.
That's the difference between two and a half million and
3.3 million.
So again, if we reduce the death benefit,
that cost would go down to like maybe 300 or $500 a quarter.
It would go down to really, really low
if we drop that death benefit to maybe like 2.6 or
2.7 million to just above the cash value.
But in this example,
the client doesn't want to do that because the cost is so
cheap in this example. Now let's move forward and look at,
so we're head to schedule from where we were.
Let's now take a look at what if we decide to start taking
some income from this.
So this client has not decided to take out tax free loans
from the policy, but they can if they want to.
So this example right here is what we call an in-force
illustration.
That is showing the client that what if they decided to,
they put in 80,000 this last year,
but a little bit more money into the policy,
that's this 80,000 right here.
But if they wanted to,
they could take out $194,000 a year tax free all the way to
age 100. So right now we are at 77.
At 78 we can start to take out a hundred and we can start
this year if we wanted to,
but this is just a projection using a very conservative
projection going forward of what if we only earned 5% 5.2 we
can take out $194,000 a year tax free.
And this example shows taking out a loan the first year and
then switching over to what we call withdrawals.
This is withdrawals to basis because life insurance is FIFO
first in first out,
but then we switched after we've taken out our basis,
we can go back and take out loans at this point and at that
point we would've taken out 4.4 or excuse me,
that's the net outlay.
So we would've taken out the 1.4 of the 3 million so we
would've taken out four and a half million dollars. Yeah,
one, three, four,
yeah four and a half million dollars outta the policy
tax free at this point.
And they put in just over one and a quarter million at this
point into the policy.
So in this example. That's an example,
they took out 194,000 at a very conservative projection and
wanted to keep or drain it to age 100. Okay?
And if we go to the next example, this client
has decided they just put in 80,000 this last year.
So the client wants to continue to put in money into the
policy or premiums we call it.
There's an example of what did they kept putting in a
hundred thousand dollars a year
where our death benefit over here,
over here on the right we put in a hundred thousand dollars
a year our death benefit's gonna eventually increase,
so for example at age 93,
let's say they do that for 10 more years or so,
we get down here and we've got seven and a half million
dollars in the account.
The accumulation value and the surrender value are the same.
But if we pass away the seven and a half million
blossoms to 7.6 because seven and a half million is
already included in your death benefit. So in this example,
this is another scenario that the client could do.
Another scenario
is paying no more premiums and not taking money out.
The client hasn't needed the policy for income yet.
So they haven't been taking out money,
they've had some extra money laying around.
So they've been looking at putting some money back,
putting more into the policy now.
So in this example shows putting in 80,000 here and then in
this example not reducing the death benefit and the death
benefit's gonna actually start to go up because the cash
value has grown so high at this point.
So we let it sit till age 93,
it's got $5.8 million and this is if we only earn 5.2 again
the policy has averaged about 8%
since they opened the policy 14 years ago.
So we don't know what the future's gonna do,
but right now it could earn
two or 3% over the next 20 years
it could earn 10%.
We don't know what it's gonna earn depending on the indexed
accounts that they choose and so forth.
So in this example if you go to age 100 we'd have about
eight and a half million dollars.
So it's pretty neat just looking at different examples.
Here's one more that what if the client wants to maintain
around $2 million and just earning a conservative return,
we can take out $150,000 a year and maintain around
$2 million by age 100.
So there's a neat example of as well of taking out 150,000 a
year and not paying any more money into the policy and
taking out that 150 tax free. And again,
this is not show up on your tax return anywhere,
it's not a tax loophole.
It's all legal under the IRS tax code using an IUL in this
manner to generate tax free income and retirement.
And so in this example, just to summarize,
this professor in the Bay Area decided to
reposition her and her husband decided to reposition a
one and quarter million dollars over a
seven year period into one of these IULs.
And as they did that,
we are just on track with the projections and now at this
point the client can decide to let it keep growing and leave
behind a lot of money to their heirs or they can decide to
start taking out tax free income anytime that they want to.
And the fees are only on two and a half million dollars
inside there.
The fees are only $10,000 a year that are covering the
difference between two and a half million and 3.3 million
right now of insurance.
And that insurance cost is gonna go down as the count grows
and there's less insurance risk. Okay?
So it's pretty neat when you look at the details here of how
it can perform through time and how this client has looked
through the years where it's on track and we can take income
out or we can let it keep growing.
- So you can see why this is one of my favorite financial
vehicles. Thank you, Aaron.
So what really stood out to me in this example is the
flexibility.
I have a beatitude blessed are the flexible for they shall
not be bent outta shape.
This couple intended to fund this over five years, okay?
About a quarter of a million a year for five years.
But they ran into some setbacks, life happens.
And so instead of getting in the one and a quarter million
and five years, it took seven years,
but still at the original projection by the 14th year you
had projected that they would have,
was it 2.3 or 2.5 million in the projection.
- About just over 2.4 million. Just over 2.4.
- Yeah. And even though they,
they didn't get it all in there until
the end of the seventh year you add another seven years and
what they put in one and a quarter was worth double that.
Okay? Two and a half million.
Now that's pretty incredible and it's really conservative at
the average rate of return was just just under 8%.
But I don't know if you noticed when Aaron did a
hypothetical income of a hundred and ninety-four,
95,00 a year.
- Yes.
- You take 195,000 out of a two and a half million dollar
asset and
it lasts till age 100. Okay?
That's a payout of just under 8%.
If that two and a half million dollars
was in an IRA 401K portfolio in the market,
the advisor would only show a 4% payout.
4% on two and a half million is only a hundred thousand.
And that would be taxable.
They might only net 65,000. In this illustration they
could pull out nearly 200,000 tax free if they wanted to.
And the longer they wait, the better it is.
- The neat thing is they don't have to like RMDs, right?
They don't have to take money out if they don't want to,
where you're forced to in your IRAs and 401Ks
- Yeah. So this is why we love IUL.
Check out the other episodes on this particular playlist.
Does IUL work?
Absolutely! This couple is thrilled.
(Upbeat music)