By BOB CUNNINGHAM
Today is Independence Day… and I’m not referring solely to celebrating America’s independence from England, achieved in the 18th century.
As we enjoy family and friends, perhaps eat a little (or a lot of) barbecue, and sit back to enjoy the local evening fireworks display, we should also keep in mind that in personal finance/money management, independence is everything.
Consider this: In the ‘revolution’ of money today the smart people are the rebels who seek to break away and do their own thing, paying as little of taxes as possible, while the metaphorical Redcoats are represented, ironically, by the American government.
This column is not intended to be unpatriotic – heck, few people are more red-white-and-blue than I am – but when it comes to finance, our society has been led down a road that tends to serve the best interest of, shall we say, the kings more than the common folks.
Virtually every personal finance educator and guru I know says to rely heavily, or even solely in some cases, on government savings and retirement programs and their alleged tax-favored benefits. They cite 401Ks, IRAs, 529 plans, and others – all government sponsored programs with strict rules associated with them – as your best choices to put money away for the future.
Well, Ladies and Gentlemen, I’m here to tell you flat out that there’s a better way for all of it. It’s a strategy that, despite significant nay-saying from the “in crowd” in the personal finance community, has been utilized literally for centuries by some of the wealthiest individuals to walk the planet. And yet, it’s a system virtually anyone with just a little bit of money available to save can utilize.
What is this glorious solution to all of our money problems? It’s… wait for it…
WHOLE LIFE INSURANCE
OK, let me back-up a moment. Whole life insurance is NOT the answer to all money problems. I was exaggerating for emphasis… trying to create a dramatic moment. But it IS, far and away, the best approach to managing your personal wealth.
Oh, and when I refer to whole life insurance, what I should actually be writing is “the right type of whole life insurance, properly structured.”
In the space I have here, I can’t go into full detail on how it works, but I can give you some basics and attempt to explain why you’re much better off with this approach rather than Uncle Sam’s.
“Having money is nice, but having the independence to do with it what you wish, and when you wish, is truly priceless.”
The cliff notes version is that properly-structured whole life insurance can allow you to have a cash value fund which can be used for literally anything you want with very few restrictions; have a specific, measured rate of return (over and above the money that goes toward the actual insurance itself); be able to access those dollars legally, at any age, with no income tax due; have the ability to enjoy that access while at the same time those dollars continue to work for you as if you never touched the funds; have this money possibly not count as income or assets for purposes of outside financing qualification or student loan assistance if desired, etc.; and several other benefits.
Let’s briefly take each point above individually:
1) Can be used for anything with very few restrictions. Because you have access throughout, you can use the money for whatever you want. So having one account for retirement income, another for college savings, and still another as a health savings account, etc. is unnecessary unless you prefer to go that route. The only guidelines are that you can’t always put into the policy as much as you want, or risk it becoming an investment account (referred to as a Modified Endowment Contract) by law rather than an insurance policy, which would essentially convert the policy into government control. To get around this, simply open another policy. And if you’re not personally insurable, someone else can be the insured and you still own the policy and the associated control. How cool is that?
Government programs, by the way, have maximum investment allowances of which you cannot circumvent by opening another account. It’s one per customer, and once you’re maxed for your yearly contribution, that’s it ’til next year.
2) A measured rate of return. You will know in advance what the minimum performance of the savings will be because the correct type of policies offer that aspect, with the only variable being the annual dividends paid out. And as we go into this strategy in more detail down the line, you’ll learn how to pick the right sources for your policy(s). Government programs rely directly on Wall Street, and we all know how volatile the stock and bond markets can be at any given time. Isn’t it better to know you not only will avoid loss of principal or interest forever, but that you are assured your account will grow annually as long as you maintain at least the minimum premium?
3) Access your money income-tax free. The money in your cash value can be accessed completely free of income tax using two different strategies – withdrawing the dividends paid, or borrowing against the account. No age or credit requirements. And get this… policy loans never have to be repaid, or can be paid back solely at the policy owner’s discretion. It should be noted, however, that the savviest long-term strategy for using whole life insurance cash value is to systematically pay back any loans taken. Government programs all restrict and regulate how you can access your own money, whether it be age 59 1/2 on the front end, or forcing you to take withdrawals from an account – even if you prefer not to – when you turn 70 1/2.
4) Access your money and still have it actively working for you. You can’t beat this have-your-cake-and-eat-it-too feature. Because funds borrowed from cash values actually come from the general pool of the insurance company, not your policy cash value specifically, you can borrow funds up to about 90% of your cash value for a major purchase (a car, for example) and at the same time, the funds are still growing within the policy as if you had never taken the loan at all. This, Friends, is better than paying cash for a car because you avoid losing the opportunity cost. And it’s obviously preferable to attempting to secure outside financing for a purchase because of the control you retain “borrowing from yourself.” Try borrowing against your retirement account and see if they will credit you interest earned as if you didn’t take the loan. Ain’t happenin’.
5) The money doesn’t officially count as assets. I’m going to tread lightly here because I’m not a tax lawyer or accountant, so be sure you do your own due diligence if you opt to initiate this strategy. In essence, my point is that you might be able to legally exclude life insurance cash values when requested to list assets for applying for certain types of outside financing, and as part of estate settlements and personal liability. But again, check on this yourself – I am NOT telling you this is a broad benefit.
I hope I’ve sufficiently introduced the whole life insurance strategy to you, and awakened you to the definite availability of legitimate, preferred savings alternatives to government programs. Like any other form of saving and investing, the earlier you get started the better off you will be long-term.
Maintain your independence! God Bless America. And as always, thank you for reading.
DISCLAIMER: This post represents the author’s opinions only. In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment. Results are never guaranteed. Utilize the information as you see fit, make all money decisions at your own risk.