- What successful folks know.
In this episode,
I'm going to address why tax-free
is better than just
tax-deferred IRAs and 401(k)s.
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My name's Doug Andrew,
I've been a financial strategist
and retirement planning specialist now
for more than 48 years.
Helping thousands of people
optimize their financial assets,
minimize taxes and empower their true,
or what I call their authentic wealth.
Most people have come to me
through what I call the financial dimension.
They do not want to outlive their money,
and they realize at retirement that they're in trouble.
Many times they find themselves in a tax trap,
and I need to free them from that tax trap
caused by deferring,
deferring money in traditional accounts
like IRAs and 401(k)s,
because they were duped.
Being told that they would likely be
in a lower tax bracket when they retire.
And so we have to employ strategies
like strategic rollouts,
to get their money out of those IRAs and 401(k)s.
The tax is over and done with sooner than later,
and the net after-tax money repositioned
into something that's gonna be tax-free from now on.
Then ultimately get reimbursed
for all the money they shilled out in unnecessary tax.
Now, this is explained in my 11th book.
I've been very blessed in my life
to have authored thus far, 12 books.
I'm working on my 13th.
They've all become best sellers.
And my 11th book,
I'm gonna gift you at the end of this episode,
so stay with me.
You don't have to pay 20 bucks for it on Amazon.
It's called The Laser Fund.
It's a 300 page book
that retails for 20 bucks.
I will gift you a copy.
And as I proceed here,
be sure and click like or post a comment,
share it with somebody,
so that we can make sure that the people
who really need this information
can have access to it.
And when you subscribe to this channel
click that little bell,
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which I do almost on a daily basis.
So let's talk about what these successful folks know.
First of all,
I learned from many mentors
that management of anything in life,
in one word, is predictability.
And I learned that from a mentor named Marshall Thurber,
and he was mentored by Dr. Edwards Deming.
And he's the total-quality management engineer
that transformed predictable quality
off of assembly lines in automobile factories.
When I was a kid, anything made in Japan
was like junker cheap.
And he went over to Asia,
and because of the big three in America,
Ford, Chrysler, and GM,
laughed at him when he said,
"You better shape up on predictable quality."
And they didn't take him serious,
and so he went to Asia
and he met with Toyota, Honda, and Nissan,
and said,
"You've got to create predictable quality."
And hence we missed the boat in America
and now they became the big three unfortunately.
You can read the full story in my book.
But let me illustrate what I mean by predictability.
I want you right now to see
how good you are with simple math.
And you can use a cheat sheet if you want,
but you gotta pay very close attention.
I want you to pick a number right now in your head,
a whole number between one and 10.
Okay.
Have you got a whole number between one and 10?
Okay.
Whatever that number is between one and 10,
let's start with that number,
and I want you to double it.
Now add eight to that number.
Now divide that number in half.
Now subtract the original number you started out with
from that last number.
You should have the final number in your head now.
Now, I want you to take that final number
you arrived at,
and pick the corresponding letter of the alphabet
that that number represents.
So if your last number ended up being one,
that would be the letter A.
Two, would be the letter B.
So pick the corresponding letter of the alphabet.
If your last number was three,
that would be letter C.
Four would be D.
Five would be E, okay.
Have you got the letter of the alphabet
that your last number represents?
Okay, now take that letter of the alphabet you arrived at
and pick a country whose name starts with that letter,
and use the American name for that country,
not the European or the foreign name for that country.
And let's choose a country in Europe or the Baltics.
Okay?
It's gonna be towards the beginning of the alphabet.
So A might be Austria.
If your letter was B,
that would be maybe Belgium.
C, Czech Republic.
D, Denmark.
E, England, or Estonia.
F, France,
G, Germany.
H, Hungary.
I, Italy or Ireland, okay?
Have you got the country?
Now take the last letter
in the name of the country you came up with,
and the last letter in that country's name,
and pick a zoo animal
whose name starts with that letter.
Have you got a zoo animal that starts with the last letter
in the name of that country?
Okay.
An animal that's not indigenous to the United States
but you'd probably find in a zoo here.
Now take the last letter in that zoo animal
and pick a common fruit that starts with that letter.
Okay?
I know what 80 to 90% of people come up with,
let's see if you did.
Denmark, kangaroo, orange.
Okay?
Did you come up with that?
Maybe Denmark, koala, apple.
If you did not get four for your final number,
you need to brush up on your math, okay?
Now, what I just demonstrated was predictability.
Not a hundred percent of people
will come up with Denmark, kangaroo, orange,
but I created predictability.
So what successful people know
is how to be able to create predictability.
Then if you put, let's say this much wood,
in the fire, so to speak,
then in 15 minutes,
if you do it right,
your match won't go out.
You'll get this many BTUs of heat back.
Okay?
What you want to create
is predictability with your money.
That you can predictably have liquidity,
safety, and predictable rates of return
that historically have outpaced inflation.
Because you're linking your returns
to the things that inflate.
And so you're wanting to use predictable methods
to not outlive your money.
And I teach how to do that
in the book I'm gonna gift you at the end of this episode.
Now, I've also noticed
that successful folks understand the three marvels
of wealth accumulation.
If you don't understand these,
unfortunately you'll be one of the masses,
what many advisors call "financial jellyfish".
We call 'em "strivers".
They will always have too much month
left at the end of their money, okay?
And the advice that's given to those people is,
you know, act your wage,
cut up your credit cards, and so forth.
Now, I'm talking about people who are beginning to arrive
at the state of financial independence,
a maturity to live on less than what they earn.
And they usually learn three marvels.
The first is compound interest.
This is what, you know,
Einstein said was the Eighth Wonder of the World.
But Rothschild said,
"No, it's compound interest tax-free."
So tax-free accumulation is what Rothschild said
was the Eighth Wonder of the World.
Why?
Because a dollar doubling 20 times,
to two, four, okay?
Eight, 16, 32.
A dollar doubling for 20 periods
will grow to a million bucks if it's tax-free.
If it is taxed as earned, okay,
like most people save in America,
a dollar doubles to $2,
and then you pay tax in a 25% bracket,
you only have a buck 75.
A buck 75 doubles to three 50,
you pay tax on that.
You'll only have $72,000 instead of a million.
That's the way most Americans save,
'cos they don't understand this.
In a 33% tax bracket,
you'll only have 27,000 instead of a million,
at the end of 20 doublings.
So the second marvel is compounding tax-free.
The third marvel of wealth accumulation
is a little bit harder for people to understand,
but it's called safe, positive leverage.
Now, leverage without liquidity is stupidity.
What is leverage?
It is basically the ability
to own and control assets like your house,
maybe with very little
or none of your money actually tied up
or at risk in the asset.
You're leveraging,
but you're keeping your money liquid and safe,
but you're owning assets that you control.
And then when they go up or appreciate in value,
you get to benefit without your money being tied up
or at risk in that in case the real estate crashes.
Now, that's another topic,
but those are the three marvels of wealth accumulation.
Now, let me show you the third thing
that smart, savvy people understand,
the successful people folks know.
There are four phases of retirement planning.
A lot of people don't think about this.
There is the contribution phase.
This is where we're contributing money to accounts.
Maybe IRAs or 401(k)s would be traditional ones,
but you're sockin' away money.
And that overlaps the accumulation phase,
where it's hopefully growing
with interest in dividends or whatever.
And then you have the distribution phase,
because someday you're gonna start taking
distributions or withdrawals out of that.
And too many people go into withdrawal
when they hit this one,
because they thought they were gonna be
in a lower tax bracket and they're not.
And then none of us are getting outta here alive.
I mean, out of this life.
And so we usually leave behind something
that would've sustained us had we lived longer.
And so you have this transfer phase,
as anything you leave behind is transferred to your spouse,
or your non-spousal heirs;
your kids, grandkids, a Church of Charity or whatever.
Let's go through these four phases,
and I'm gonna outline five different saving alternatives.
Okay?
The first is the worst,
and yet it's the most common way Americans save.
It is taxed as earned investments.
Like I said, you're taking
after-tax earnings that you make every,
you know, in salaries and wages,
and you're taking after-tax money
and you're putting it into a bank
or a mutual fund or a credit union or somewhere.
And every year, you're paying taxes
on the interest or the dividends.
That is after-tax money and you're taxing it every year.
And then any gains are taxed when you realize them.
And then when you die, it's taxed.
Taxed, taxed, taxed, taxed.
That is the most common way people save.
And that's the example of a dollar doubling
and being taxed as you go;
it's only worth 27,000 when you could have had 1,048,000.
Okay?
Now the next method is where we take after-tax dollars
and we put it into something like a tax-deferred annuity.
Now an annuity is simply a savings account
with an insurance company,
but it's only tax-deferred when
you start to access the money.
You have to pay tax on the annuity
when you annuitize it or take out income,
and it's taxed LIFO; last in, first out.
So if you put in, let's say $500,000 into an annuity
and you immediately wanted to start taking out income,
and let's say you're earning 10% to keep it simple.
That would be 50,000, but you have to
pay tax on that 50,000 from the very first withdrawal
and thereafter because the last money you're earning
is the first money coming out.
That's LIFO; last in, first out.
But you only get a tax advantage if you leave it there,
but then it's taxable when you take it out,
and it's taxable when you die, okay?
So if you were gonna be
running a race around a mile, let's say,
and we call this the million dollar dash,
we want to know which is the best vehicle
where we net a million bucks.
Taxed-as-earned investments;
you are CRAWLING around that racetrack.
If you're using tax deferred accounts like annuities,
unfortunately I think you're walking around the racetrack.
Wouldn't you rather be at least jogging?
Well, there's two ways to jog.
The first one is traditional IRAs or 401(k)s.
What's happening with a traditional IRA or 401(k),
you get to put in pre-tax dollars
into a 401(k) or tax deductible contributions into an IRA.
So you're getting a tax break
on the seed money, so to speak, okay?
'Cos if you were a farmer and you had the choice
of buying your seed in the springtime,
and you could...
get a tax break on the price of the seed.
But you plant, you cultivate,
you irrigate, you work hard.
And then in the fall of life,
you harvest your crop.
And now you agree to pay tax
on what you sell your harvest for.
So you got a tax break on the seed and as it grew.
But then when you went to harvest,
you have to pay tax.
And when you die, you pay tax.
So you only get two green circles.
That's a traditional IRA or 401(k).
Well, I would rather pay tax on the seed...
and enjoy the harvest without tax.
So this is like a Roth,
but something far better than a Roth is what I call a,
"max funded tax advantage
section one-oh-one, a, alternative".
It's what I nickname "the Laser Fund",
and I'm gonna gift you a copy of that book
here at the end of this episode.
You're funding it with after-tax dollars like a Roth,
but it accumulates tax-free,
and you can access it tax-free.
And Roths do that,
but Roths have too many strings attached.
You can only put in a certain dollar amount
or a certain percent of your income.
Into an MFTA...
I could design it to accommodate 300,000 a year!
I don't have to put in 300,000,
I can put in 30, 30,000
but I can make up the other 270,000 anytime I want.
You can't do that with a Roth.
If I put in 300,000 into one of these,
I could, four days later, pull out 200,000.
There's no penalty.
There's no tax.
You can't do that with a Roth.
You have to wait five years until you're 59 and a half.
But see with the laser fund,
you get to use indexing
and participate when the market goes up,
and not lose a dime when the market crashes.
'Cos your money is not at risk in the market.
And when you ultimately die, this one blossoms.
If I died right now,
I'm gonna be 70 here in a couple of months,
every million I would have in this
would blossom to about 2 million,
two and a half million in transfer tax-free.
There's not a Roth around that'll do that.
I like three green circles,
which is 50% or more than a traditional IRA or 401(k),
and it's way better than these.
Now, there are strategies in my various books,
that if you like to have your cake and eat it too,
you can do that.
And you can actually resurrect deductions that
maybe you've killed,
and use some tax strategies to be able to have
indirect deductions on the front end.
But don't ever do that at the expense
of triggering tax on the back end.
Four green circles is incredible.
Three green circles is 50 to a hundred percent better
than a traditional IRA or 401(k).
So that's what I mean in this episode.
Tax-free, okay...
is far better than just tax-deferred,
which is down here.
You get a tax deferral,
and in a traditional IRA or 401(k)
you're only getting a tax break on the seed money.
But during the harvest you're getting clobbered,
and you're not gonna be in a lower tax bracket,
if you save very much.
Does that make sense?
So here's how you can learn more,
if this is resonating with you.
I want to gift you a copy of this 300-page bestselling book,
and you don't need to pay 20 bucks for it on Amazon.
Here's how you can claim your free copy.
Simply go to L-A-S-E-R,
laserfund.com
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 hard copy to you.
It's two books in one.
This side is about 200 pages,
14 chapters with all kinds of charts and graphs.
If you're more of a right-brained learner,
you learn by stories.
You flip over to this book,
and this is about 100 pages, 12 chap-
with 62 "chicken soup for the financial soul" stories,
so to speak.
So you can learn by stories, how it works.
If you wanna use both your right brain
and left brain, read both books.
But claim your free copy.
And then while you're in there,
there's options if you would rather
or like to, in addition,
listen and learn, watch and learn.
I learn by all these mediums.
There's also a way to engage
and attend online educational webinars.
And also you can even pick the brains
of some of the top financial strategists
that I have trained,
and they will not charge you for their time.
You can set up an appointment to see
how any of these strategies may apply to you
in your particular set of circumstances.
But this is about your brighter future.
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