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“I wish I would have known the whole truth about whole life insurance 40 years ago so I could have taken advantage of all the benefits you have described to me,” a brand new prospective client said to me. “I love what you are saying and it makes so much sense, but I am just too old to implement what you are talking about. At my age, it will just be too expensive.  But it scares me to death thinking about running out of money.”

“Many of our clients say exactly what you just said, ‘I wish I would have known about this _____ (fill in the blank) years ago,'” I replied to George.

George had been referred to me.  I had spoken with him on the telephone a number of times, but today was the first time we had ever met in person.  George was 70 years old, but I would have never guessed hearing his voice over the phone. The last time I talked with him, he insisted we meet the next time my travel brought me to his hometown.  When I discovered I had a conference that would bring me through, I arranged a meeting with him and his wife, Barbara.

“Let me tell you a story,” I continued.  “There once was a 6th-grade class that was learning about aerodynamics.  The teacher told the children that at the end of the section, they were going to have a test that would be taken in teams of two students.  No one said anything but they all were thinking ‘oh I hope I do not get paired up with Tommy.’  Tommy was a rather rowdy and rough boy who didn’t seem to do well in school.  Some of the kids thought he had a learning disability, while others thought he just did not care to apply himself.  The second to last day, the teacher announced the teams for the final exam to be taken the next day.  To Jed’s surprise, he was the one who was paired with Tommy.”

“The next day the teacher told the children to get with their partner as they all headed outside for the test.  It was a warm, but slightly windy, spring day.  The class was led to the playground and each given a piece of paper.  ‘You are to make from your sheet of paper something that will adhere to the principles of aerodynamics we have learned about during this section of our science unit.  When you have completed your task you will be judged by how far and how straight your creation flies.’  Jed was terrified as he had noticed that Tommy didn’t seem to pay much attention during science.  Jed asked if Tommy had any ideas and Tommy replied he had none.  Jed hurried to the teacher and asked if he and Tommy could go last.  While the other students worked quickly to fold, cut, tape, and sculpt their papers, Tommy just sat there.”

“At long last, it came time for Jed and Tommy to be tested.  Jed had folded a masterpiece of an airplane which he proudly stepped to the line and threw as best he could.  His airplane did not go the furthest, nor did it go the straightest, but it was one of the top 4.  The two of them could still take first place if Tommy would have only made an airplane and been in the top 12 of the class.  Tommy walked up to the line and just stared into the distance for what seemed like a really long time holding his untouched piece of paper by the corner.  He finally grabbed the paper and wadded it up into a ball and chucked it.  His ball of paper went twice as far and straighter than anyone else’s.”

“George, I want you to be like Tommy for a moment,” I said.  “Tommy had been taught all the laws of aerodynamics.  He violated most of them, but the one thing Tommy did have was imagination.  You have been taught and ‘consumerized’ to think in certain ways, but right now, let’s use some imagination.”

“Okay, I can do that,” George replied.  “You have taught me a lot of great truths about what you do.  So I’m open to what you have to say.”

“Ok, great. Thank you for your vote of confidence,” I smiled at him. “The first thing we are going to do is make an initial statement about whole life insurance:  ‘I can spend my legacy money while I’m living by acquiring a simple permission slip.’”

“George, you have done an amazing job saving for retirement. You have accumulated a sizable nest egg of 2.5 million dollars,” I complimented him.

“Yes, but that is also the amount of money I want to pass on to my heirs. I don’t have anything else to put into a life insurance policy you’ve been telling me about. I’m too old for that to work.”  George explained.

“Okay, well, for now, let’s concentrate on what you have saved. We’ll call that your legacy money,” I said. “Typical financial planning says if you can make your legacy money earn 4, you will never run out of money. If your account is growing at 4% your nest egg’s value will stay the same and you can pass that amount on to your heirs.  Take a look at this Distribution Calculator,” I said pointing to my screen.  “How much net spendable money will you have after you pay your taxes?”  I asked.

“Looks like $76,360, which is about $15,000 more than what we spend currently in a year,”  George said as he reached for Barbara’s hand.

“I am happy to hear that. This typical strategy will work if you only take out and live on the earnings of your nest egg each year.  The scary thing is, what if your nest egg earns zero – or worse – loses money one year, are you prepared to go without any money that year?”  I grinned at the two of them. “Not to mention that this also ignores the loss of purchasing power of your money each year – inflation often has a big impact on retirement income.”

“Inflation is something we should not ignore. My older sister is on a fixed income and they are scrambling all the time to determine what they will cut out of their lifestyle just to make the money last.”  Barbara said.

“I know what you mean, and that’s exactly what I’m talking about. It’s painful for me to watch people in that situation, and it’s happening more and more often.”

“Let’s take a look at a different approach – a “wad up the piece of paper and throw it” kind of approach,”  I said.  “I am going to input another scenario and propose you take out $220,000 a year.  As you can see you will have a net spendable amount of $196,000 for about 15 years.  Under this current plan, you have to die when you are 85.  Can you arrange that?”  I joked

“Well if I had a crystal ball and I knew for sure, I would go along with this plan, but we simply do not know,” George said.  “Let me ask you something: is the calculator correct here saying I will only pay $292,328 in taxes, while under the typical plan I pay $945,596?”

“Yes, those numbers are accurate.  I guess you get the difference instead of Uncle Sam,” I said.  “And, I agree with you about not having a crystal ball, so we are not going to spend the entire $196,000 each year,” I said. “I am proposing that you purchase a whole life insurance policy for $110,000 a year and then live on $83,360 a year, which is slightly more than the typical plan.  I am going to include the life insurance premium in the calculator and it looks like this:”

“You have my attention, keep going,” George encouraged me.

“Now that looks like you simply have $10,000 more a year to live on, but if you look at it from a percentage point of view, this plan we are talking about is a 14% increase in your net spendable income over the typical plan,” I pointed out. “If you do not spend that much, you will save it and have it as a hedge against inflation later on,” I said.

“Please remember, at age 85 your $2.5 million will be spent.  To keep you at the $83,000 we will start taking withdrawals from your life insurance policy of $60,000 a year,” I said pointing again to my screen.

This allows you the peace of mind that you will never outlive your money,” I said.  “Now, please notice the amount you will pass on to your heirs when you pass away.  Has it increased?” I asked.

“It is higher until I am 89, then it is a little less… can you scroll down for me?”  George asked.

“Ah, that is better.  Well, the amount to my heirs goes below the amount I told you I wanted to pass on when I am 89.  I am not sure I like that,” George said.

“Remember what I said our beginning statement was?  I can spend my legacy money while I’m living by acquiring a permission slip,” I said.  “The life insurance gives you permission to spend your legacy money, as well as some other assets you have.  For example, you have a wonderful home that is paid for.  Do you think the kids would mind if you use some of the equity to help support yourself?” I asked.

“No, of course not,” Barbara added.

“With this death benefit in place, you have permission to use the equity in your house to help you live a little better.  When you get to 89 – and I hope you are still healthy at that age – you could enter an agreement for a reverse mortgage. This should easily grant you about $50,000 a year, and it’s not taxable.  Take a look at what this does to the amount you pass on to your heirs,” I said.

“Hey, I like that! It does go below the $2.5 million for one year but then starts to increase again.  I like this permission slip,” George smiled.

“Do you feel like Tommy yet? Can we just take the typical plan and wad it up into a ball like Tommy did and throw it?”  I asked.

“I sure do. Let’s get started!”  George said. Barbara agreed.


-Jason Henderson for Truth Concepts