The Top 10 Reasons NOT to BUY Equity Indexed Universal Life

By Todd Langford, www.truthconcepts.com Mt. Enterprise,Texas

Insurance companies have put numerous pages on the front of Equity Indexed Universal Life (EIUL) illustrations that describe the issues below, but most people (by design) will not take the time to read and understand what these pages are saying.  I would encourage you to read those pages thoroughly before depending on an EIUL policy to increase your assets or protect your family.  Similarly, Universal Life (UL) and its cousin Variable Universal Life (VUL) have some of the same problems so I’ve spelled out the issues below and placed an * next to the ones that are specific only to EIUL.  As stated earlier, all Universal Life policies are a side fund (money market for regular UL, mutual fund-like separate accounts for VUL, and index fund-like accounts for EIUL) plus annually renewable, or one year increasing premium term insurance for the death benefit.

#10  Internal costs are not guaranteed

#9    Mortality charges are not guaranteed

#8    Market drops cause double pain

#7    Late premiums kill any guarantees

#6    Dividends from the index don’t get credited*

#5    Participation ratios are often less than 100%*

#4    Returns are usually capped at various interest rates*

#3    Guarantees are not calculated annually*

#2    All of the above can be changed by the company

#1    The risk is shifted back to the insured

Now, let’s look at each of these individually and tell the whole truth about the matter.

10.  Internal administration fees charged against cash value on any type of Universal Life policy and shown on illustrations are run under current expense levels but those can change at the discretion of the company.  Since the insurance company uses this money to run its operations, as prices of office supplies and real estate go up, they may choose to adjust these internal costs after you have bought the policy.

9.  Mortality changes, what the insurance company charges for the death benefit are removed from the cash value or paid by premiums.  In UL, these pay for annually increasing term insurance costs.  This is true for any type of UL, no matter what the side fund is invested in.  The cost for this one year term insurance can be changed at any time.

8. Market drops affect the side fund negatively no matter what the side fund is invested in.  Since the death benefit is comprised of the One Year (or annually increasing) Term Insurance plus the side fund, any market drop causes double pain.  Markets can drop regardless of whether they are supported by stocks or money markets.  When the side fund is reduced by a drop in the market or current interest rates, it now has less value so more Term Insurance must be bought to make up the difference which further reduces the side fund.  Consequently you have double pain; less cash value and higher costs.

7.  Any late premiums remove any guarantees in the policy.  In most UL policies, even if the premium is finally paid, once it is late, the insurance company is off the hook for supporting any guaranteed premiums, cash value amounts or death benefits.  In many cases, the insured may not even know that a premium was late and that the guarantees have been forfeited.  Thinking about the time frame of a 50 year policy paid monthly (600 payments) ask yourself what the likelihood is of a mistake being made by the premium payer, their bank, the post office, the insurance company clerks or anyone else along the way?

 6. *  Equity Indexed Universal Life policies provide the policy holder no credit for any dividends from the stocks making up the index.  The side fund of an EIUL isn’t actually invested in the index; instead the index is used to determine the gross crediting rate for the side fund.  If money were actually invested in the index, the investor would get both the change in Net Asset Value (whether up or down) AND the dividend income.  However, in the case of EIUL, only the change in value of the index is the determining factor and the dividend is left out of the calculation entirely.

5. *  Participation ratios are often less than 100%.  As mentioned directly above, the side fund is not invested directly in the index and many insurance companies only credit a certain percentage of the increase in the market.  Known as the participation ratio, this is often reported at 80% or less meaning you are getting only 80% of the increase in the market.

4. *  Capping returns in order to keep high returns in the market from crediting too much to the side fund is a strategy many insurance companies use.  The maximum return they’ll give credit for may be at a certain percentage rate even though the index may have generated a higher percentage rate.

3. *  Guaranteed minimum returns are not always calculated annually.  Most EIUL policies have a guaranteed minimum return so that if the index drops below this rate, the insurance company will still credit at the guaranteed minimum rate.  However, with some policies this guarantee is not applied annually but instead over an “indexing period” which could be 5-10 years.  So you could have negative years in the index (below the guaranteed minimum rate) which would be applied to the side fund.  This would cause a further reduction of value in excess of the guaranteed minimum rate in one particular year and as long as the overall average rate for the entire indexing period is not less than the guaranteed minimum rate, this would still count as meeting the minimum.

 For example, if the minimum guaranteed rate is 2% inside a 5 year indexing period, you could have crediting rates of +13, -10, +10, -8 and +9% which would validate the promised guarantee because it would average more than 2% per year over the 5 years.  The implication is that you cannot have a negative return, but as shown in the example below, you can have a negative return as long the guarantee is not calculated annually.

You’ll notice another example below of the same interest rates, but with $100,000 of existing value instead of $10,000 per year of cash flow into the account.

 2. At the discretion of the company any of the above factors can be changed at any time for the benefit of the company even after the policy has started.  This is really one of the scariest aspects of all types of UL.  There is no way to calculate what the outcome might be.  Even if you analyzed the policy under the current structure and found it to be a viable tool, future changes could cause future problems.

 1. Where as typically the point of all insurance purchased is to shift the risk from the insured to the company, all types of UL shift the risk backwards or from the insurance company to the insured.

 With a mutual life insurance company, a whole life policy gives you a share of the entire profits of the company via dividends.  The carrot being sold with EIUL is that it might exceed the return of a whole life policy.  Yet this begs the question: How could the insurance company pay out more than the profits of the company and still be in business?

 It has been explained to me that the insurance company buys options in the market to cover the risk of potentially having to credit any portion of high market returns in the index that exceeded their general portfolio rate to policy holder cash values.  If this was a sound investment strategy, why wouldn’t the insurance company use this strategy on their overall portfolio?  I think the insurance company knows that the stock market is going to under perform their portfolio rate over time.  This could reduce EIUL profits and increase the profits of the company, which then get distributed as dividends to whole life policy owners.

 As a whole life policy owner,  I should be pleased that EIUL could contribute additional profits to the company which might increase dividends to Whole Life, my concern is that EIUL policies are going to create a detrimental effect on the life insurance industry as a whole.  I believe this may be the next major blight on the industry since under funded Universal Life (UL) so heavily promoted in the 1980’s.  The unfortunate outcome is that any negative media affects the entire industry because the media doesn’t differentiate between the new faulty products and the old tried and true whole life products that have been around for close to 200 years. As we know, the biggest danger with negative press is that is causes panic and the people will think the entire life insurance industry is bad and many perfectly structured whole life policies could get cancelled to the detriment of the policy holder and their family, just like what happened in the 1980’s.

 Remember #2 above, since the insurance company has the ability to change #10- 3, they can always keep the Universal Life policies from outperforming their portfolio.  Why would I want to take the safe portion of my assets and the protection of my family and expose it to risk?  Doesn’t that defeat the whole purpose of insurance?  In my mind, I buy insurance and shift the risk to the insurance company, because they are experts at mitigating that risk and storing the cash to support it.

 If you are seriously considering purchasing an EIUL product, please make sure you read and understand all the risks you and your family are assuming.  Because of the complexity and numerous moving parts for this product, many of the people selling it that I’ve spoken with don’t even understand it themselves.  For me, I prefer a number of simple, guaranteed, tried and true whole life policies.  These protect my Human Life Value and store my cash in the most efficient manner I know.

On the Borrowing Calculator, just left of the first loan, there is a blank white space where you can place your mouse and it will switch to a hand.  If you click on this, you’ll see the IRR on the entire deal you are looking at on that calculator.

Visit some of our favorite links as we will update the list below with our fav links:

Global Financial TV

http://www.youtube.com/user/globalfinancial2080?feature=mhum#p/a/u/0/K5WpOknON9Q

http://www.youtube.com/user/globalfinancial2080?feature=mhum#p/u/1/uv7rBfVsZeE

The Economic Value of Certainty-LIS Article Les McGuire

Washington Post Mensa

New Stock Market Terms

www.bigeye.com/griffin.htm scroll down for a talk by G. Edward Griffin author of The Creature from Jekyll Island

From Bloomberg TV- The Truth Behind Hidden Fees

You Tube Videos – Get the Whole Truth

Part 1   http://www.youtube.com/watch?v=08UPQ3JaRek

Part 2   http://www.youtube.com/watch?v=94eDjL4ciVE

Part 3   http://www.youtube.com/watch?v=x1NPUf2Q-sw

Fee Articles – “Where Should You Be Investing Your Money?” and Forbes’ “The 401(k) Fiasco, Congress Sheds some Light on Fees and it’s About Time”

http://www.insuranceproshop.com/NL/2-3-09.html.

http://www.forbes.com/2009/09/03/mutual-fund-update-personal-finance-401k-reform.html

103 Page White paper on using Life Insurance to Insure our Human capital and how helpful it is in  Asset Allocation as well.

http://www.acrobatplanet.com/non-fictions-ebook/ebook-lifetime-financial-advice-human-capital-asset-allocation-and-insurance.html

Interesting WSJ Admission Article on  529 Plans, so Many Flunk Out

http://online.wsj.com/article/529 Plans

WSJ Article on How many Fees your Mutual fund is Charging You

http://online.wsj.com/article

The descriptions of the 4 “loan/withdrawal” source drop downs are as follows:

ACT CASH: removing money from the account via withdrawl

ACT LOAN:  borrowing against the account itself

ALT LOAN:  borrowing against another asset outside of the account

MKT LOAN:  borrowing from the market place, home equity, car dealership etc

This Todd Langford  going  over the Truth Concepts calculator called the borrowing strategy.

What we are going to be showing today is the power of having the client pay themselves, just like they would the bank.  We’ll use a car loan as an example that is borrowed against the savings account and take a look at that versus marketplace loans like you’d receive from a bank and help the client understand the best place to borrow money.

Let’s look at this out over a 30 year time frame, so in illustration period I’ll put in 30.  We won’t be concerned about any existing dollars in the account let’s look at starting from now this individual’s going to save $20,000 a year and in this savings account they can earn 2.5% and that’s going to be taxable earnings we put a tax bracket in here of 30%.  What we can see is if he continues this savings at earnings and tax rate he’s going to end up at the end of 30 years with about $793,999.

 At this point let’s go ahead and add a loan to this.  I’m going to click on Loan/WD 1 and the amount, let’s say a car purchase so $30,000 we’ll purchase it in 3 years so not right away, we’ll purchase one vehicle and we’ll pay this back over 4 years.  Right now it’s showing us the loan but no loan interest because we haven’t put in the interest information. 

The next thing I’m going to do is go to the Loan/WD Payback rate and this is independent of whatever the rates are thats are being charged.  This is the rate that will determine the payment we pay back with.  What I’m going to start with is 8%.  If I do that, it’s going to show me a $9,000 payment on an annual basis that I would pay this loan back.  The Market Loan Rate this will be whatever the going rate is, let’s say for example that right now on car loans the bank is charging 8% and I would use 8%.  The Alternate Loan Rate, this might be a special that is going on like right now General Motors 2.9% rate.  If I put 2.9 in here, it will calculate the payment based on a 2.9% loan charge, and that’s going to be $8,253. 

What we see here is future account value stayed the same because the source of the loan was the Market.  We didn’t touch this account at all, we used the bank or whatever funding source that was available.  What if we were to take advantage of this loan rate like we talked about with General Motors?  If I change this source to the alternate loan it will use the 2.9 rate, since we chose a payback rate of 8%, the calculator will assume that 2.9% went to General Motors in this case, and any excess on that payment is going to go into this savings account and we see it in the Extra Payment Lost or Found column.  So we $1,006 each year for these four years.  The difference is rather than having $793,999 like we would have without this loan strategy, instead what we will have is $800,156.  What happened under this scenario we used a cheaper loan source, but paid it back based on the market rate and we got to reap the benefits of that difference in the payments, we were able to take advantage of the opportunity for a cheaper loan.

We would have another option here.  What if rather than using the 2.9% with General Motors, we chose to fund this ourselves, use this 2.5% asset here.   Whatever the earnings are, in this case the 2.5% if I take money out of here to fund it for myself I give up the ability to earn that 2.5%.  The result is exactly the same as if I had borrowed money at 2.5%.  So let’s see what happens.  If I change my source to Account Cash and rather than $1,009 in additional payment going in each year, we have $1,227 going in each year and the difference is we boosted this future value by about $1,500.  We end up with $801,506.  That’s where the difference is with this particular calculator.  As we create loans, start to finance things using our own assets, and finding the cheapest source for money, as long as we follow through the banking concept of paying our self back and paying ourselves the market rate or more, we’re going to be able to reap the benefit of those cheaper rates. 

We might decide maybe we want some discipline we could pay it back at 12% if I do that then it’s going to put additional dollars in here, it’s going to be $806,520.  This added another $5,000 over this timeframe just because we committed ot making payments at a higher rate.  You’ll notice we didn’t use any info over here in this box the Account Loan Rate.  The reason is with a savings account it does not have the ability to borrow money if we were ot use this account more like a life insurance policy then these items would come into play, Life Insurance policies have loan provision that come with it, and if we have a direct recognition company, then we might have a difference in what the earnings rate was overall on the life insurance on the borrowed side versus the non borrowed side.  So, this would give us the ability to adjust the earnings rate on the borrowed versus the non borrowed. 

Another option here would be to apply this excess payment we have directly to the loan first before going to the savings to see what type of impact that would have.  So I can do that by clicking Apply extra payment to the Loan.  What we see is not a big difference between the two.  Depending on the amount of the loan that will impact whether it’s going to be beneficial to apply the excess payment to the loan or not, and we can use this calculator to determine which is going to be best.

Another option that we have is we chose to do one loan.  Typically if we do a car loan we might do one of those every 4 years, therefore we can change the number of the loans and extend that out.  We could do this over the timeframe total of 6 cars.  It’ll put 6 total loans in here and we can see what type of impact that will have to our bottom line.  If we put 6 loans in here we end up in this case with $857,606 rather than $794,000.  We also have the opportunity to inflate these cars.  We can do 5 additional loans as many times as we want to in the space of whatever our illustration time is.

So what this calculator does in summary is illustrate the principles of banking both borrowing and paying back with varying interest rates, strategies, and money sources.  It enables us to show the client  different scenarios all summarized into one or one simple scenario.  This is a powerful calculator for showing how we can gain control over our own debt and the missing component when people are talking about getting control over their debt, is the part about paying it back. 

At our 2 day truth trainings we spend another hour or more on this calculator showing additional strategies, examples, and ways to use it.  So join us at Truth Concepts.com for one of those trainings, we look forward to seeing you there.

How do I tell about the Dow in 100 years?

In the year 1900 the Dow Jones Industrial Average was 65.29. One hundred years later it was 11,600. Using a Rate Calculator from Truth Concepts we can see that 65 (the calculator doesn’t round internally but it prints that way) growing to 11,600 over 100 years is 5.32%. So the Dow has averaged 5.32% over those 100 years.

What if we looked at the next 100 years?

Now we use a Future Value Calculator, put 11,600 in as the Present Value and the 5.32% for the Annual Interest Rate and we can see the Dow will have to be at 2,067,964 in the year 2100 to have averaged a 5.32% annual interest rate during the next 100 years.

Bold italics are the client’s answers

I’m glad we get some time together today.  We are going to be using software to numerically prove the truth about how money works as it grows and to discover the most efficient way to get your money to work as hard as it can.  Before we begin I have a few questions.

If we were meeting here 3 years from today, what has to have happened for you to feel pleased with your progress?

I’d like to have my money working harder for me, feel like I have financial options

Ok, what is the biggest danger for you now?

The loss of my 401k value, don’t know where to invest

I understand, what is your best opportunity right now?

My business is decent, and  I enjoy my work,

That is great and something to be grateful about for sure!  Are you conceptual or analytical?

Both actually…I know that’s an  unusual combo but its helpful

So, what do you think builds more wealth, increasing the rate of return

or decreasing the costs to build that wealth?

increasing the rate of return …that’s what I’ve always been told by the media and my other financial advisors

Response: well let’s take a look, I’ll pull up a Maximum Potential Calculator and we’ll figure it out.  This is from a suite of calculators known as Truth Concepts.  It enables us to be very transparent in our work with you by showing the gains as well as the costs.  You can actually buy the software yourself if you so choose at www.truthconcepts.com .

We use it to analyze all sorts of things about your finances as you can see here on this list of calculators, but for now lets look at the issue of returns versus costs.  

MAXIMUM POTENTIAL CALCULATOR:

We’ll look at a Period of 35 years and you said your Income as $100,000.  It should Increase at least 4% a year if not more and for starters we’ll set an after tax Earnings rate of 5%.  You can see on the right hand side that if you didn’t have to eat or pay taxes or spend money in any way, your Maximum Potential would be 16 million. 

Now, watch what happens as we add Truth to the situation.  Right here in the middle we have Total Taxes at 40%, that’s everything, fed/state/sale tax/property tax you name it.  Notice how 2.9 million of taxes dropped the savings down to 9.8 million.  That is opportunity cost in action which we’ll talk about in a few minutes.  For now lets stay focused on this issue of increasing returns or decreasing costs being the better way to build wealth. 

So, we’ll set Debt Service at 34% as statistics show the average American family spends about 34% of their income in debt service.  Now were down to 4.2 million.  And we’ll set Life Style at 23%.  Ouch, now we’re down to 494,000.  Lets change Other to Gifts at just 1% and here in the middle we have what most people are doing, which is saving 2% of their income.  Now I see you are saving more like 10 or 15% and I commend you for that! But if this picture were true, there would be 329,000 and you can see that is not even one years worth of income  (which is 379,000)  So, on the right we’ll stay focused on that 329,000 figure. 

 Again, lets stay focused on our question here:  Can we build wealth more effectively by changing the 5% net annual earnings rate on the left or by decreasing costs in the middle?

Again, right now I’m not including inflation to keep this simple.  On the left hand side, lets try changing our 5% to say 10%.  I know it might mean increasing risk, but lets try it.  Before I do, you watch the 329,000 on the far right.  Going from 5 to 10% did what?   Brought it up to only 885,000. That’s horrible! At least it’s two years of income, but that won’t cut it.

You are right, so lets go back to 5%.  What if we reduced costs.  Now when I say that, are you thinking I’m going to ask you to eat out less?

YES!   

Well, lets see if we can find ways to reduce costs that don’t reduce lifestyle.  What if we shifted our assets around a bit and were able to reduce taxes to 35%?  What did that do? 

It changed 329 to 1.1!

And what if we reduced debt down to 24%? 

IT MORE THAN DOUBLED! 

Yes and look how much we are saving? 17%.  So reducing costs which allowed us to save more, enabled us to build wealth much more effectively than increasing returns.

This is a good example of that first Prosperity Principle we spoke of last meeting.  We called it THINK and reminded you that prosperity thinking is often opposite of what most people do in the economic world.  Here most people think chasing high returns is the way to wealth.  Now you know that reducing costs is the way.  And you are clear that  its not lifestyle costs we are wanting to reduce, but taxes and debt costs.  Reducing taxes and debt costs which enables us to increase savings will build wealth more effectively.

Next question for you:  Do you remember the third Prosperity Principle of MEASURE as it is related to opportunity costs? 

Ahh, NO

 That’s not surprising, again, its because most people (including the media and most financial advisors) never take opportunity costs into consideration when making economic decisions.  Lets take a look at how people buy cars.  We’ll pull up this Automobile Calculator that shows the true cost of paying cash.  What do you think of the statement that you finance everything you buy?

I’m not sure I understand it.

I didn’t used to either.  So let’s figure out if it’s true.  If you finance everything you buy, then you either pay someone else interest or you give up interest you could have earned.

A good friend of mine says you pay up or you pass up.   Let’s take a look

AUTOMOBILE PURCHASES…THE TRUE COST OF PAYING CASH.

 I’m going to say you had an account with $200,000 in it that you designated your “car buying account” and it was earning a net 5%.  We’ll look at a 20 year time frame and say you bought a car every 4 years for $30,000.  No increases or sales tax yet, we’ll keep it simple.  Over on the right, your account of 250,000 would have grown to $530,000 if you hadn’t bought any cars.  And we know that 5 cars at 30,000 each would be $150,000.  Yet you can see on the right the account is not 530,000, its 250,000.  That is a $279,000 difference.  Why did $150,000 worth of cars cost you $279,000? 

  I’m not sure

Ok, lets work through it.  Going back to the statement “you pay up or you pass up interest”  in this case, didn’t you pass up interest, the 5% that the account was earning, on the $150,000 you took out of it to buy the cars.  Over that 20 year period of time, that $150,000 could have turned into $279,000.  That is opportunity cost.  We must measure it so we know what we are dealing with and then we can do something about it.

 ? So now, tell me what is your least favorite money spot right now? Your 401k,  your mortgage, your life insurance, your stock account, anything?  Lets take a look at what is really going on there.   What is working about that investment? What is not working about that investment?

 OR ? So now, tell me, is there an economic decision you are getting ready to make?  Let’s take it through a calculator so you have the whole truth about the matter.

The Truth Concepts Borrowing Strategy Calculator illustrates the principles of banking with varying interest rates strategies and money sources.  Here’s a tip for that calculator:

Toggle off or on the “Future Account Value with NO Loans” by clicking on it. 

Top middle also has an ROR feature that is OFF but can be turned on by clicking in the grey space to the right of the clear button.

Right Click on the 5 “Loan/WD” buttons at the top to re-title them for example: 1. Cars 2. Wedding 3. Child’s Credit Card,  Etc.

How do I figure out if I can get ahead by earning 6% if I have an 8% loan? 

At first glance, the answer is obvious, you don’t get ahead.  However, sometimes we get confused and think that since an account (say at 6%) has an increasing balance while a loan (say at 8%) has a decreasing balance, we might be able to get ahead.  Let’s look at it to see the whole truth of the matter. 

Take a $100,000 account earning 6% over 20 years.  Future Value: $320,713.

We know it earned $220,714 worth of interest.  This is calculated by taking the  $320,714 total and subtracting the $100,000 initial investment.

Now let’s look at a loan for $100,000 at 6%.

We can see that our loan payment is $9430.76 and if we multiply that by 20 years, we get $188,615.20, so we know that we paid $88,615.20 in interest.  So an incorrect deduction would be that it would make financial sense to have 6% earnings while we are carrying 8% debt, but this is only because all of the facts are not presented.  Let’s take a closer look.  The only way to make valid financial conclusions is to have exactly the same cash flows and time periods in each of the comparisons we are trying to make.

Under those guidelines, if we take the $100,000 and pay off the loan at 8%, then take the payments of $9430.76 that we no longer have to make loan payments of and pay them instead to the 6% account, in 20 years, we have $367,731, instead of $320,714 in the earlier example. 

So while it is true that we pay less interest ($88,615.20) than we earn ($220,714), that is only part of the truth.  The whole truth is that cost of money does matter and in the above example, our costs are greater than our gains.  This is the whole truth, even though we earned more interest than we paid out in interest.  There is a $47,017 improvement by paying off the 8% loan with the 6% account and redirecting the freed up payments to the investment.

One critical issue left over is liquidity.  Obviously $100,000 in an account leaves us in a more liquid position initially than $9430.76 being contributed to an account every year.  But eventually the investment account with $9430.76 being added annually will over take the account with $100,000 being contributed up front and will exceed it by $47,017 in the 20^th year.

So if initial liquidity is a concern, then it may be worth giving up some of the $47,017 gain to be in a more liquid position.  However, it is not true that there is a mathematical advantage in having a higher rate of interest on your debt than on your earnings.

Let’s use a Cash Flow Calculator from www.truthconcepts.com to tell the whole truth about what happens to an account when it gets taxed. We’ll put in $20 in 1913, the year the tax system started. We’ll show the account earning 20% per year.

We can see below that the account has $798,784,476 (that’s $798 million) in it.

This assumes no taxes or management fees were taken out during this time. 

If we adjusted the account for inflation, assuming a 4% annual rate, it would have $18,502,442  ($18 million) in it assuming no taxes or management fees.

It’s interesting to note that this income tax was intended to be temporary when it started, was only at 8%, and affected only the upper income earners.  The person who owned this account was in a 50% average tax bracket over those 96 years, using the table below as a guide.

So, applying the 50% tax bracket to the $798 million account would cut it in half, right?  NO, it brings it down to $188,247.  Notice below in the government only gets $188,227.

How is that?  It’s due to the fact that taxes are predatory or confiscating in nature.  Every time taxes are taken out of the account, those tax dollars can no longer earn the 20% rate of return the account is earning.  This is also known as opportunity cost since the tax dollars lose the opportunity to earn interest.  Let’s see what dropping the tax to 40% would do.  Watch both the End of Year Account Value on the far right and the Tax  Payment in red next to it to see how to increase both the owner of the account’s estate and the government’s take as well.

Lowering taxes to 40% shows the owner at $1,061,598 and the government at $707,719.

Lowering taxes to 30% shows the owner at $5,806,250 and the government at $2,448,384.

Lowering taxes to 20% shows the owner at $30,831,664 and the government at $7,707,911.

Lowering taxes to 10% shows the owner at $159,111,913 and the government at $17,679,099.

Lowering taxes to 5% shows the owner at $357,715,937 and the government at $18,827,154  If we really want the government to get the most, we’ll try 6.65%.

So we could surmise that if one is talking about 20% rates of return, a 6.65% tax bracket is the most efficient.  According to our studies, if we are talking about a 9% rate of return, a 15% rate of taxation is the most efficient.

So now that you know the whole truth about the matter, what do you do with this information? Focus on accounts that do not get eroded by taxes and/or implement strategies that mitigate the taxation on these types of accounts such as taking dividends, interest and capital gains in cash instead of re-investing them.