Category: Life insurance

7 Ways To Use The Death Benefit

 

In this recent presentation, Truth Concepts™ did for The National Network of Estate Planning Attorneys we demonstrate how to determine the rate of return on the cash value of a policy as well as take you through the 7 ways to use the death benefit.

This is also a good tutorial on the use of the Funding, Diversification and Distribution calculators.

 

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Borrowing Against Whole Life Insurance at a Bank

This post originally appeared as an article on Kim Butler’s Partners for Prosperity website at www.partners4prosperity.com/collateral

We thought this to be valuable information to also share with the Truth Concepts community. 

 

We get many questions on using life insurance policies with cash value as collateral for bank loans.

First, you can ONLY borrow against a policy with cash value, such as whole life insurance. You cannot use this strategy at all with a term insurance policy.

Often, local (as opposed to large/national) banks and credit unions will lend against the cash value of life insurance. So you may want to start with your local banker.

Additionally, the banks listed below have been referred to us as providing this service nationally. Please contact them directly for more information.

Loan-to-value limits are usually 80 or 90%. (You could borrow up to $80k to $90k with $100k of cash value as collateral.) Bank rates are often lower than the interest rates for policy loans, with current rates as low as prime.

Brittnay Wittnebel
Kensington Financial Associates
2875 NE 191st Street, Suite 603
Personal AND “Direct to Business” loans
OK to use multiple policies for collateral
Kensingtonfa.com
Aventura, FL 33180
(305) 466-0577  ext. 102
(608) 346-3205

Kensington Informational Flyer

Brandon Miller
State Bank

Lines of credit from $20k
Georgia
Brandon.miller@statebt.com
404.290.0050 (cell)
404.239.8664 (office)

State Bank information flyer

Matthew Hale
Heritage Bank

Greater Atlanta Area
matthew.hale@heritagebank.com
404.933.5144 (cell)

Patricia Davino
Valley National Bank

1455 Valley Road
Wayne, NJ 07470
PDavino@valleynationalbank.com
(862) 261-3065 (direct)
(973) 934-5886 (cell)

Kathy Smith
AVP, Portfolio Manager
3490 Piedmont Road NE, Suite 700
Atlanta, GA 30305
404.814.8006 | f: 404.393.9925
kathy.smith@lionbank.com

For more information about how to use your life insurance to benefit you now, see Kim D. H. Butler’s book, Live Your Life InsuranceKim and Jack Burns’ new book,  Busting the Life Insurance Lies.

 

 

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Should I Borrow Against My Life Insurance Policy?

“Should I borrow against my life insurance policy?” Are you ever asked that question? I bet you are.

Recently we conducted an annual review with a client.  This client is a transfer client.  They moved to our town about 8 years ago.  About the same time, their other advisor retired so we were lucky.  The conversation was very informative and because of the Truth Concepts calculators, the whole truth was easily demonstrated.  Let’s join the conversation partly through the review…..

“I am going to purchase a new car this summer,” Mark said.

“Great idea.  How are you planning to finance the purchase,” I inquired.  “Remember you finance everything you buy.”

“Yes, thank you for reminding me and yes I remember that,” He replied.  “You need to remember that I am my own banker.  I plan to take a loan against my policy and finance the car with a policy loan,” He gleamed.

“Do you own a hammer,” I asked.

“What,” He said with a puzzled look on his face.  “What does that have to do with financing a car?”

“When there is something to repair around the house do you always grab your hammer to make the repair,” I said ignoring his question for the time being.

“Of course not” He emphatically said.  “I use the correct tool for the job at hand.”

“I am relieved to hear you say that,”   I said with a smile.  “Why are you not doing the same thing when it comes to your financial life?”

“What do you mean,” He asked.

“You told me you were going to finance your car using your whole life policy because you are your own banker,” I said.  “That is similar to using your hammer to do all the repairs in your house.”

“Before you get excited about that statement let’s just take a look at a few figures.   I am going to use a few calculators from my Truth Concepts software package.  This is great software for me to look at a financial question or problem from a non-subjective, whole picture point of view,” I explained.  “For starters, if we look at your policy that you purchased from your former advisor, it now has an IRR of about 3.1%.  Remember that means that your policy is growing as if it had yielded 3.1% every year since it was first started.”

“I did not know that is what that means,” Mark said.  “How does this help me?”

“Let’s assume the car you are going to purchase will cost $30,000.  Using a future value calculator we can see what your $30,000 will be worth in 5 years,” I said turning my computer screen so he could see.

“Ok,” He said.  “My cash value should be worth $35,023.”

“Well, your $30,000 will grow to that figure.  This is an attempt to isolate the $30,000 and just see what it will do, removing additional premiums and dividend fluctuations.”  I said.

“Ok so if you take a loan against your $30,000 what is the interest rate you will be paying to the insurance company,” I asked.

When I called yesterday it was 5.0%,” He answered.

Nodding to him I inputted into the payment calculator the date to get the following:

“Based on that information you will have a $566.14 a month payment going to the insurance company,” I said.  “Furthermore you will pay a total of $33,968.”

“It so happens that I have been in the market looking for a new car as well,” I admitted.  “I went to the credit union over on Maple Street and they are offering a car loan at 2.99%.  If you were to use the credit union your payment would be $538.93.”

“And, you will pay a total of $32,336,”  I said.

“Why do you want to have a $27 dollar higher car payment a month and pay a total of $1,632 more for your car,” I asked.

Mark sat there for a moment contemplating what I had shown him.  Finally, he said, “Because I am my own banker.  When I take a loan against my policy I will have $35,023 in cash value when I am done paying for my car.”

“Was that a statement or a question,” I asked Mark.

“Well I am not completely sure,” Mark responded.

“Please allow me to ask you a few questions to help you reason it out,” I said.

“First, if you did not purchase a car or take a loan against your policy how much will your $30,000 be worth in 5 years,” I asked bringing the original Future Value calculator to the top of my screen.

“It will be worth the $35,023 we discussed earlier,” Mark said.

“Second, since your company is a non-direct recognition company, how much will your $30,000 be worth if you do take a loan against your policy cash values,” I asked.  “And by the way even if you were with a direct recognition company, we could calculate how much your $30,000 would be worth.”

“It will be worth $35,023 right,” Mark said more asking than stating.

“You are right,” I said.  “Do you see it, your cash values are going to grow to the same number regardless if you take a loan or not.”

“So here is my third question, sorry it is the same question I asked before.  Why do you want to spend $27 more a month or $1,621 more for your car by taking a loan against your policy versus getting a loan at the credit union,” I asked?

“I don’t,” Mark said.

“Right, you are your own banker.  What that actually means is you are in a position of control.  You can use your cash values if you want, but you do not have to use them.  You need to figure out the cost of capital.  It does not matter the source of the capital.  Determine the best sources of capital and then if all other factors being equal, use that source,” I explained.

“I guess this is why I need to come to our annual reviews,” Mark said.  “I am not an expert, but having someone like you and your Truth Concepts software available to me is well worth my time to meet with you.  Thank you.”

“My pleasure,” I said with a smile.  “Now let’s talk about………………..”

 

-Jason Henderson for Truth Concepts

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Am I Too Old To Buy Whole Life Insurance?

“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

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Have I Saved Enough Money?

Andrew Walberg and I had been friends since first meeting in Mr. Carlson’s government class when we were juniors in high school.  He was so much fun to be around, always positive and upbeat.  I had not heard from him in a while so I was surprised to hear his voice on the other end of the telephone.

“Hey, this is Andy.  How have you been? I’ve known you’re in the financial services business, but I have never taken the time to talk to you,” he started.  “I want to come and talk to you but first I am calling to find out if you would be willing to talk to my dad.  He is now 55 and is getting really nervous about retirement.”

“Of course I would talk to your dad.  How can we set up an appointment?”  I said.

“Well, he is right here do you want to talk to him now?”  Andy said.

“I am going to put you through to my assistant and she will set up an appointment.  Why don’t you come to the appointment also, if it is ok with your dad.”  I said.

The following week at the set time, Andy and his dad Karl, came to my office right on time.  I extended my hand and said, “Wow, it is so good to see you. How have you been?”

After a few pleasantries, we got down to business.  Mr. Walberg was overly nervous about whether he was going to be able to retire and if he had saved enough.

“I am going to tell you right now Mr. Walberg, you probably have not saved enough.  The reason I say that is most Americans your age has not saved enough.  Plus you just said you are nervous about being able to retire.”

“Ok, you are probably right,” Mr. Walberg said.  “But one of my main questions is should I start saving more?”

“The short answer is yes,” I said grinning.  “But let’s take a look at where you are at currently.  I am going to use my Truth Concepts software – in particular the Qualified Plan calculator.  I am going to ask you a few questions so we can get an accurate feel for where you are now and how to get to where you want to be.  First question:  When did you start your current job?”  I asked

“I changed jobs when I was 34, and have worked at this place ever since,” he answered.

“And how much would you say your adjusted gross income has averaged?

“Probably right about 100k.”

“So did you put money in your company’s 401(k)?”  I asked

“Well, I had to work there for a year first, but yes, as soon as I could I started to put money in.  And I rolled $25,000 from my previous company’s program,” he recalled.

“Great.  You have been wise to set that money aide.  I will put those numbers here,” I motioned to my screen.  “How much have you been putting into your account every year?”

“Well, when I first started the company would match us 100% for the first $3,000.”  Mr. Walberg said. “I just figured I would go for the match and double my money.  I have done that faithfully every year since.”

“Great. Do you know what kind of return you’ve had on that account?”  I asked him. “If you’ve been lucky probably around 8%.”

“I am not completely sure what my returns have been,” Mr. Walberg said.  “It goes up and down. Some years it seems like it goes up only by the amount I put in, but the last statement said something close to 6% I think.  Go ahead and use 8%.”

“Now, you said your adjusted gross income was right at $100,000,” I said.  “I will enter that here. Now, let’s look at my calculator.”

“Almost a million dollars?” Mr. Walberg exclaimed.  “If I had that much I would not be here talking to you. I don’t have that much in my account.  Nor have I enjoyed almost an 11% return on my account.”

“This calculator is doing calculations just based on what we put in.  With a nice match from your employer, it seems like there should have been a 10.79% gain.  However, there are a few factors we haven’t incorporated yet.  Before I discuss those though, I wanted to show you this number,” I explained.  “You may not have been given all the information when you signed up for the 401(k).  You see all these years you have been paying management fees.  Generally, those fees, paid from your account, are in the ballpark of 4%.  But to be on the conservative side I will put 3%,” I finished and motioned to my screen.

“That number is pretty close to what I have, but still a little high,” Mr. Walberg said.

“Before we make any changes, I want to point something out,” I told him.  “Mr. Walberg…”

“Please, just call me Karl,” he interrupted.

“Ok, Karl.  Did you notice that the rate of return on your account dropped from 10.79% to 7.87%?  In other words, those fees you have been paying have basically wiped out the match you got from your employer. Notice here that the amount of management fees of $206,016 is very close to the benefit from your employer match of $214,931,”  I explained as I pointed to the various numbers. Those fees result in a reduction in your account balance by half a million dollars.”

“Ouch!” he groaned.

“Yes, that’s a painful realization, but don’t get down on yourself.  You have done the best you could with what you knew,” I said to him.  “Not to throw salt in that wound, but remember this money will still be taxed.  If you walked away today and just paid the income tax, ignoring the 10% early withdrawal penalty, how much would you have?” I asked.

“Only $300,000?  that is definitely much less than I was thinking.  I appreciate you trying to console me, but this isn’t going to work – I should have saved more,” he lamented.  “Which is the main reason I am here.  I am now 55 and can add $15,500 – as ‘makeup contributions’- to my current $3000 contribution, so that would make it $18,500 a year going into my 401(k) for the next 10 years until I retire. Do you think that’s a good idea?” he asked.

“Well, I like to input the numbers so you can see the whole truth for yourself. Let’s look and see if that information helps you make the decision,” I suggested.

“If you continue to do what you are currently doing – $3,000 with your employer match for another 10 years – you will have $352,881 after taxes,”  I said pointing to my screen again.

“Now, if you increase your contribution to $18,500 how much will you have?”  I asked.

“Almost a half million,” Karl said looking at his son.

“Okay, use that calculator there on my desk and subtract the amount that will result from your current path ($352,881) from the amount you’ll have if you contribute $18,500 every year ($490,481),” I said.

“The difference is $137,600 dollars,” Karl announced.

“Okay, now reason with me a minute. For 10 years you are going to put an additional $15,500 dollars per year into your account or a total of $155,000 to get a net gain of $137,600,”  I asked.  “Does that make sense to you?” I continued.

“Well, of course not. How is that even possible?” Karl said, clearly frustrated.

“You have to remember that a portion of that additional $15,500 each month is actually Uncle Sam’s money he is allowing you to put into the account,” I explained.  “But be certain, he collects his money at the end. Are you open to an alternative approach?”  I asked.

“Sure, especially if it beats this,” Karl smiled.

“How about you go ahead and pay your taxes on the $15,500 now – that would leave you with a net of $12,090.  Then put that $12,090 into a tax-advantaged vehicle like a whole life insurance policy,”  I said.

“Why on earth would I want to do that?”  Karl looked more frustrated than ever.

Smiling, I said, “Before you rush to judgment, hear me out.”  I called up an illustration for a maximum funded policy using the $12,090 per year as the total premium.” As you can see here, in 10 years you will have $127,393 in cash value.”

“But that’s less than the $137,600 I would get with my 401(k),” Karl was quick to point out.

“Yes, you are right, it is a bit less” I assured him. “But let’s talk about that cash value for a moment. Your cash value is essentially tax-free, with the continued growth being tax advantaged.  Do you think taxes are going up in the future given all the debt Uncle Sam is building up?”

“Money to pay for the government debt has to come from somewhere,” Karl commented astutely. “Money in my 401(k) would still need to be taxed.” Karl’s face changed. “If taxes are going up I might end up with less than the $137,600,”  he mumbled. “I guess being tax-free and tax-advantaged could be valuable.”

“In addition to the cash value, you will also have a quarter million dollars of paid-up, permanent life insurance,” I said. “How much do you think it would cost to get a term life insurance policy for $250,000 for the next ten years? About $6,000.  So the extra cost for the whole life policy is approximately $4,000. But guess what happens the first year after you retire – when you are 66?  Your cash value will increase about $5,000 even though you do not put another dime into it.  And, it will continue to increase that amount – or more – every single year.”

“Whoa, that is actually a smarter way to go because I wind up with retirement money and the death benefit that increases every year. I’d come out way ahead,” Karl realized.

“Another benefit you need to consider is the fact that no one will be telling you when and how you must remove the money. Are you familiar with required minimum distributions?” I asked him.

“Yes, my uncle was blindsided by that a few years back,” Karl said. “I have a question, what if I decide to keep working; can I continue to contribute to this whole life policy?” Karl asked.

“Yes you can and the numbers shown here will just get better,” I confirmed.

Finally, Andy chimed in, “That policy builds more money each year.  Maybe I should do the same thing and put money there instead of maxing out my contributions.”

“That is a great idea Andy; we should look at numbers for you as well. Let’s set up an appointment.” Turning to Karl I said, “For now, let’s get the paperwork completed for your account.”

 

-Jason Henderson for Truth Concepts

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How To “Retire” With Enough Money, Plus a $4,588,332 Cushion (John & Jane Jones Pt. 9 of 9)

Time has a way of flying by. John and Jane were now 71 years old. This meeting was going to be one of the most important meetings I would ever have with them. This meeting was certain to prove to them that following my advice all these years was going to pay off.

As a result, I did a little extra preparation for the meeting by gathering information about the current cash values of their policies and their other assets. Their 401(k)’s had about $470,000 combined. The cash value of their life insurance policies was $4,588,332. This figure did not include the policies they had purchased for their two sons because they had given the policies to their sons as Christmas gifts a few years back after the boys had helped repay their student loans to the policies.

The business John and Jane had purchased and run for 10 years had been sold and the net proceeds from that sale were $184,000. I also opened the file with notes from all our meetings and read through it. I came across an interesting page of notes from the first meeting. They were 24 years old, newly married, and had $20,155 of credit card debt when they first came to see me at the insistence of Jane’s parents. John had wanted to get rid of the “terrible whole life policy” Jane’s parents had purchased for her when she was a baby.

He was insistent they needed a higher rate of return to get anywhere financially in life. In my notes, I had written a question I posed to them during that meeting: “Do you think it would be possible for the two of you to have $3,000,000 in assets by the time you are 70 years old?” Neither had thought it possible, regardless of the rate of return.

“John, Jane it is great to see you,” I greeted them with a warm smile and firm handshake.

“It is good to see you as well,” John replied. “Is it ok if we retire now?”

“You have certainly learned to be more direct in your old age,” I joked with him. “No, it is not the time to retire, but it is time to enjoy some passive income for a while. If you retire, according to one definition of the word, you are “taken out of service.” You still have a lot to give back to the community and to your grandchildren. How are they by the way?”

“Absolutely the cutest grandchildren on the planet,” Jane bragged. “If I knew having grandchildren was so much fun, I would have had them first!”

“For many years I have been telling you that when you understood the whole truth, sound financial decisions would be easier to make. I have a calculator that will help guide you as you start to live off your assets. It is called the Distribution Calculator. I have already loaded some information.

“What are we looking at?” Jane asked.

“The $654,000, is the total of your 401(k) balances ($470,000) added to the net proceeds from selling the business ($184,000). I am assuming you are going to get 5% return on that money and that you will live on the interest being generated by this amount of money. Of course, there is Social Security of about $50,000. So your net income will be around $77,055 per year.” I explained.

“That is not as much as I thought we would be able to have,” John said. “We haven’t been extravagant with much. We have saved roughly 12% of our income during our working years. Why isn’t there more?”

“You are also impatient in your old age,” I jokingly said. “But you are hitting on something that most of your peers are facing. Well, your peers who have not had the good fortune of working with our office. You, on the other hand, in addition to that amount, also have the cash values of your life insurance policies. Those are powerful and empowering assets. I am going to change this calculator to show an alternative use of your 401(k)’s made possible by your whole life insurance policies.”

“As I said before, the number labeled “Net Spendable” on the left side of the page, $27,055 per year, is what you will be able to spend if you live off the interest generated by your sum of money. Most people are locked into this scenario because they do not want to run out of money – which, by the way, is the biggest fear of people your age.

“The numbers on the right show how much you’ll have to live on each year by spending the interest and the original principle.”

“Wow, that is $20,000 more a year. It is almost twice as much as the numbers on the left,” John said.

“The numbers on the right are getting larger every year. Why is that happening?” Jane asked.

“On the right, you are withdrawing principle and interest from the account. Each year your principle is reduced the interest earned is also reduced, which require fewer taxes to be paid.” I explained.

“What happens when we are 92?” John asked. “Remember the life expectancy thing we did several years ago? I am supposed to live to 110. Will we be out of money?”

“The reason you can enjoy the spend down technique is that you have $4,588,332 in cash values of your life insurance policies. In other words, the cash values act as a cushion to you so you can spend all of your $654,000 you have worked so hard to save.”

“There are so many options for you because of those policies. For example, if you think you needed more income, you could annuitize $1,000,000 of your cash values today and have a guaranteed $60,000 a year income for as long as you live. That would bring your annual income somewhere in the neighborhood of $160,000 a year for 20 years and then reduce to about $110,000 when you are 92 ($60,000 from annuity plus $50,000 Social Security). But remember, you would still have $3.5 million in cash values that keeps growing.” I said.

“These are some impressive numbers. There are a lot of trips to the snow cone shack with the grandkids in those numbers. I cannot tell you what a relief it is to not worry about of running out of money. As you said, many of our friends are scared to ‘retire’ because they fear running out of money. I feel bad for them,” John lamented.

“Do you recommend that we annuitize $1,000,000 of our cash values?” Jane asked. “I don’t think we need that much income.”

“That is the whole point. You have OPTIONS. You get to decide what you want to do and when you want to do it. As long as you don’t do anything really crazy, you will never run out of money. That thought should not only be comforting, it should be exciting.” I said.

“Are you saying you are not going to be around to help us avoid something really crazy?” John asked.

“I am NOT retiring if that is your question. I love what I do and I love helping people understand the whole truth about money and then benefitting from that knowledge to become truly financially free.” I sort of boasted.

“Thank you. I am serious. Thank you for everything,” Jane said.

“Yes we could never thank you enough,” John added.

As they left, I thought about their last statement. Yes, I had made commissions working with John and Jane but that wasn’t the most valuable thing. The process of teaching them and having such long time friendships had a value I could not put a price on.

 

-Jason Henderson for Truth Concepts

 

 

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