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If You Don’t Know Where You’re Going, You’ll Never Get There….

BubbleWhenever I consult with my clients on their retirement plans, I ask what I believe to be the two most important questions:

1. How much income would you like during your retirement?

2.What do you see as the biggest threat to realizing that income?

Sadly, too few people today ask themselves these questions.  We automatically put money into pre-determined 401(k) plans or IRAs or invest in stocks and bonds because someone told us that was what we were supposed to do, but without truly establishing final goals or expectations. As leaders and managers in the work place, if we ever tried to implement a program without establishing goals and expectations, anticipating potential pitfalls, and  ensuring that our goals were met, we can pretty much expect to kiss that next promotion goodbye.


Of all potential clients that I have met with in the last few months only one clearly stated that they would like to maintain their current salary during retirement.  No others had ever thought about asking that question. Yet how can you save towards a retirement goal when you do not know how to articulate what your goals are and what could possibly stand in the way of reaching those goals? How can you save for your retirement goals when you are not aware of the impact of taxes and inflation? How can you maximize your retirement income when you do not know how to use existing tax deductions from your 401(K) contribution to further your retirement goals?

Are we as planners doing a good job teaching our clients about retirement planning if savers cannot articulate what they are saving for? I posit to you that a critical function of a good retirement planner is the ability to educate his/her clients, and the public, on how to not just save and accumulate, but also to have tax awareness and to know how to effectively use the tax deductions derived from their contributions to a retirement plan.

Proper retirement planning is not only how much you can accumulate in savings but also being aware of taxes and how to mitigate them through a variety of options available.  When you can identify your tax deductions and understand how money not paid in taxes on earned income can be used to offset future taxes, you are effectively paying your taxes at a discount. This is how we attack the tax!

In other words, when you use your tax deduction to invest in your future, you give purpose to your tax deduction, which means you will use it towards a goal. All of a sudden, your retirement planning has gone from a monthly donation to a 401(k) plan without the knowledge of whether you would meet your retirement goals, to a thought out, goal-oriented strategy. You now attack the tax at the contribution point and the distribution stage and lay a foundation for higher income due to lower taxes.


Attack the Tax – Part Deux

Paying Retirement Taxes at Discount Prices

Man 1In Massachusetts, on some preset weekend that no one ever remembers, we forgive the sales tax up to $2,500 on most all purchases. Stores are packed, people buying everything in sight as if we’d got advance notice that Godzilla was coming. All to save 6.25%. That is $6.25 on a $100.00 purchase and $62.25 on a purchase of $1,000. Why are people out in throngs? Not because they save so much money, but because people hate paying taxes.

Fast forward to our retirement income. We will lose anywhere from 15%-39% of our income during retirement depending on our tax bracket. We accept this fate with a shrug of our shoulders. The reason Americans are so blasé about the tax we pay on retirement income is because we believe there is nothing we can do except to try and lower our tax bracket. But how do you expect to do that when you are requesting an annual income of $150,000 at retirement?

6194Attack the Tax planning methodology is the only kind of planning that presents an opportunity to pay taxes at a discount. How?   By using an Index Universal Life Insurance policy. Why life insurance?

  • Because of its tax free growth of cash values.
  • Because of tax-advantaged cash value withdrawal income.
  • Because of the guarantees in the policy, like never losing cash value because of negative stock market performance (although policy fees are deducted whether the market is up or down).
  • Because fees in insurance policies are almost always way below the taxes that we pay.

How does all of this work?  Let’s take Jane Doe as an example.

  • Age: 45
  • 401(k) annual contribution: $17,500 annually
  • Rate of Return: 6.5%
  • Inflation rate: 2.5%
  • Taxes saved over 30 yr period: $128,000

6741At age 66, Jane’s portfolio accumulates to $2.3 million. In order to ensure that her portfolio lasts her lifetime, her maximum annual withdrawal cannot be more than $139,000 in the first year, netting her $97,756 after taxes at 30%. Given her tax bracket, and assuming that (a) her portfolio continues to grow at an average  of 6.5% and (b) she lives to age 90, she will end up paying over $1 million in taxes during her retirement. The Attack the Tax planning methodology, however, at a total cost of $235,000 (or $11,750 annually) could save her more than $800,000 in taxes because she will be paying the tax from her alternative investment in life insurance.*

You do the math! Would you rather pay tax wholesale or retail?



(1) Index Universal Life (IUL) with a 10% cap annual point to point

(2) Illustrated values assume a 5% rate of return

(3) Premiums for IUL last 20 years

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Solving IRA Tax Hurdles

ProtectionWealthy people save money in retirement accounts not because they are counting on these assets to fund a comfortable retirement, but  because of the valuable tax deductions they offer.  However, after years of aggressive investing these very same IRAs have accumulated significant funds which will pose significant tax challenges without careful and creative attention.

According to some estate attorneys and CPAs, an IRA can lose as much as 80% of its value as it passes from one generation to the next because of multiple layers of income and estate taxes, especially if the beneficiaries elect a lump sum payout.  Clients can stretch their IRAs and/or put them in a trust to delay the taxes, but unless they donate the entire IRA to charity, they will pay taxes.


A powerful solution for reducing the multiple layers of taxes on an IRA involves the proper use of an indexed annuity. A skillful adviser will integrate this income producing asset into estate, insurance, and even charitable planning. Some indexed annuities (speak with your adviser for individual product details) offer three compelling features which create the opportunity for this extraordinary solution to the IRA tax problem:

  1. Money deposited in the first year gets a bonus the day the indexed annuity is issued.
  2. A guaranteed income rider feature:

 (a) locks in growth of principal, at a certain percentage rate, for a defined period of time, but only for income purposes.

(b) assures that the annuity’s starting balance will grow to a known value by the time the investor wants to trigger an income payout

(c) allows the investor to trigger income any time during the contract.

3.  A high income payout rate offers an attractive and predictable income stream which in turn can be used to cover both life insurance and long term care insurance premiums.

 This particular strategy gives the client the ability to create a tax-free legacy using taxable IRA dollars – a much smarter use of money. 

While the client will pay an annual income tax on the IRA distribution – perhaps about one half of the annuity’s annual payout – he or she will significantly leverage this relatively small out-of-pocket expense to create tax-free life insurance for their heirs as well as tax-free long term care benefits for themselves. And if the client lives a long life, the IRA’s cash value may dwindle to zero, and future income and estate taxes on this asset would disappear altogether. And that is the ideal situation.  In the intervening years  however, the client has leveraged a predictable and guaranteed life income stream into two significant insurance assets while nullifying the tax on the principal.



Attacking the Tax – Not Just for Big Business – Part 1

6194As small business owners, we are usually so focused on growing our business and gaining new customers that it rarely surprises me when I see business owners pay less attention to how they can use business tax deductions to leverage money back to their family.

And that is understandable – with the day-to-day problems of running a business today, and putting out fires on a daily basis, people don’t stop to take the time and think about what their tax deductions are and what they can actually do with them.

In reality, business tax brackets can be substantial, with some states spilling over the 551450% tax mark. What does that mean?  In a state with a 50% tax mark, a $1 million tax deduction results in a total of $500,000 in taxes not paid on $1 million of earnings.  In many cases, tax deductible planning is not recommended because it produces a bigger tax down the road, when it is time to pay back the tax deduction – and many planners choose to avoid this option.

However, by being proactive in attacking the tax you can actually CONTROL how much you actually pay in taxes and when.  You can effectively optimize your tax planning by maximizing your tax deduction with either a Captive or Defined Benefit Pension.  Indeed, if you fall into any one of these categories, as listed by Robert Bertucelli, CPA , Captive Benefits could be an ideal solution to attack your tax:

  • Profitable business entities seeking substantial annual adjustable tax deductions;
  • Business with multiple entities or those that can create multiple operating subsidiaries or affiliates;
  • Businesses with $500,000 or more in sustainable operating profits;
  • Businesses with requisite risk currently uninsured or underinsured;
  • Business owner(s) interested in personal wealth accumulation and/or family wealth transfer strategies;
  • Businesses where owner(s) are looking for asset protection

In the example below, we show how we apply the deduction to discount the estate tax. Next week, we show you how we apply the deduction to offset the income tax.

Case Study:  Plumbing Business owned by husband and wife, S-Corp, with 8 employees and $10 million in revenue.

While the business had their liability umbrella coverage, an actuarial study uncovered substantial risks that were not covered by this insurance and were being essentially self-insured after tax dollars. By forming a Captive Insurance Company, we were able to achieve a number of results:

  • The business could now protect themselves against these once self-insured risks, and also deduct the cost via their Captive Insurance Company. The tax deductible amount:  $1.2 million.  This represents the Captive Insurance premium determined as a result of the study made by actuaries experienced in Captive risk management.
  • Since the company is an S-Corp, the tax deduction was passed to the owners. They used the tax savings (>$500,000) as follows:
    • $250,000 was gifted to an irrevocable life trust;
    • The trust purchased a $25 million second to die insurance policy on the husband and wife owners for the benefit of their children;
    • $250,000 was net profit

 Summary:  the result of forming a Captive Insurance Company for this business saved them more than $500,000 in taxes not paid.  The owners used half of this amount to purchase a $25 million life insurance policy, owned by a trust so that the asset is out of their estate, for the benefit of their children. The remaining $250,000 was effectively net profit in cash from taxes not paid.

Next week, we continue our “Attack the Tax” theme by showing you how we can help you pay the income tax on created family wealth at a steep discount.

 Disclaimer: Only tax advisors can properly advise on  tax related issues. Competent attorneys and CPAs should always be consulted when considering a Captive Insurance Company. Estate attorneys should always be engaged when creating insurance trusts and competent insurance brokers should be consulted for policy considerations.

15 Retirement Facts & Figures

Did You Know?

With today’s economic climate, how we will manage financially in retirement looms large for many people, with many people taking a long, hard look at their retirement strategy to see how survivable their nest egg really is…

Today, 85% of Americans are worried about their retirement prospects. The following Facts & Figures give you some idea of retirement in America today:


23141.  28% of Americans have less than $1,000 saved for retirement. The amount of workers saving for retirement is at its lowest level since 2001.

2.  Just 50% of workers and 52% of retirees said they could come up with $2,000 if an emergency arose within the next month.

 3.  You’ll need to have saved 8X your final salary by age 67 if you want to maintain a lifestyle similar to the one you had while working.

4.  There are 567 ways to claim Social Security. Do you know which one will maximize the lifetime benefits for you and your spouse? The Social Security Handbook has 2,728 separate rules governing your benefits.  Choosing the right Social Security benefits at the right time is one of the biggest financial decisions you will ever make.

5.  Baby boomers will be the first generation since the 1930s that will be worse off in
their older years than their parents. They will also be the first generation in history entering retirement saddled with debt, including unpaid balances on their credit cards with 58% of workers and 44% of retirees reporting having a problem with their debt level. 56% of retirees had outstanding debt when they retired.

6.  One-third of US households between 30 and 59 won’t have enough money for retirement, even if they work until 70.

7.   Nearly 3 in 4 cite “rising healthcare costs” among their top retirement fears.


8.  60% of US bankruptcies are due to medical bills, yet 78% of these bankruptcies HAVE insurance coverage.

9.  One third of households ended up completely dependent on Social Security. One third of retirees are relying on credit cards to cover basic living expenses.

10. The financial wakeup call of the recent recessions has amplified the very real risks of aggressive investment strategies.

11.  When asked, “Do you believe there is a retirement crisis in this country?” an overwhelming 92% answered affirmatively.

12.  55% with significant savings fear going broke in their retirement but are not willing to cut back to save more for retirement.

13.  81% of retirees feel a retirement plan is very important yet only 18% had one.

14.  70% of those with a written retirement plan are confident they will have enough saved for their retirement, compared to 44% for those without a plan. According to Wells Fargo, those who have a written retirement plan in place accumulate 3X as much in retirement assets as those who don’t.

And finally….

15.  If you reach 65 in good health, you’ve got a 50% chance of living to 85 (men) and 88 (women) and a 25% chance of living to 92 (men) and 95 (women).

in today’s world, people spend more time planning christmas and holidays than they do their retirement – how about you?  do you know what your retirement plan looks like? 
Sources for this data include: US News & World Report, Life Inc., 44 Social Security Secrets Every Baby Boomer Should Know, Employee Benefit Research Institute, Insurance Journal, USA Today, Money Morning, Center for Retirement Research and others

Charitable Gift Annuity – A Win-Win for All

In the world of non-profit fundraising, Charitable Gift Annuities fall into the scope of Planned Giving but are often regarded with skepticism because they require more in terms of education, planning, negotiation and counsel than most other gifts.

Yet Charitable Gift Annuities offer opportunities for discussion that yield benefits not only to the charity but also to the donor beyond a one-time tax deduction.

So what is a Charitable Gift Annuity?  Simply put, it is a donation to a charity that not only offers a tax deduction for the donor, but also creates an income stream which can in turn be assigned to any individual or entity designated by the donor.

4018A conversation about a Charitable Gift Annuity can occur from many angles but possibly the most attractive angle is when it can be coupled with a discussion regarding Roth IRA re-characterizing. What does a Roth IRA have to do with a Charitable Gift Annuity?

Quite simply it shows a donor how they can:

  • Give a significant donation to their favorite charity;
  • Get a tax deduction on that donation;
  • Use that deduction to create tax free income from a ROTH type of investment;
  • Leave heirs more of a legacy;

Here’s just one example of how John & Jane Doe used a Charitable Gift Annuity to benefit both their favorite charity and the re-characterization of their own assets:

Chart 2

These are the conversations that clients are interested in having. The charitable gift annuity is a clear and fairly simple concept and since the 2008-2009 meltdown, older clients in particular are looking for guarantees and solutions that take their retirement income out of harm’s way and offer more risk averse options. This gift annuity strategy is suitable for those who have charitable intentions and who want to create income from the gift while still alive. This is clearly the kind of solution planning donors will appreciate hearing about because it expands a charity’s ability to offer concierge type services to their donors and trustees.


How Much Money Do You Waste?

In an affluent culture such as ours, it’s hard to think about – let alone track – how much we waste. From simple day to day waste like the $3.00 cup of coffee we buy 6535every morning and only half-drink, to the half-eaten sandwich, to the unused or forgotten subscriptions that are “automatically” renewed year after year.

On a grander scale, what about the tax deduction you get from your 401(k) contribution? How many people are actively using this deduction to leverage income in their later life? Practically no-one. Yet here is a small pot of essentially “wasted” money that can be turned into an income stream that can supplement your social security and pension income.

Firstly, in the interests of full disclosure, I am an insurance solutions planner. That means every problem I solve will have an insurance-based solution. Are there other financial options available? Of course, but as an insurance planner, I meet people all the time who either do not understand the leveraging aspects of insurance or distrust the product for reasons they cannot articulate.

First things first:  if you’re contributing to a 401(k) plan, you are – by default – getting a tax deduction from the government which means you have a certain amount of cash in your paycheck on which you did not pay taxes. So here’s a quick look at how you can leverage insurance to use that deduction and supplement your retirement income.

Imagine this scenario:


In our scenario, John gets an $8,000 tax deduction based on his annual contribution to his 401(k).  Simply put, by putting this money towards an insurance policy TODAY, by the time John retires, he will not only have “saved” the taxes due on that income (a total of $42,000) he will also have earned a tax free supplemental income of $15,000 per year.

Could he have put this deduction money into a mutual fund? Yes he could, but by doing that, he is effectively replicating what he’s already doing in his 401(k) and opting for a non-diversification strategy with not nearly as much leverage as life insurance. In addition, taxes – whatever they may be – will be due at the time of withdrawal.

So think again about what YOU can do with the money you waste:

  1.  Do nothing – the money will be absorbed into everyday expenses and go towards those half-drunk cups of coffee and half-eaten sandwiches;
  2. Put that deduction money into traditional investment options (with either a limited or unknown rate of return) and pay an unknown tax rate on that investment at the time of withdrawal;
  3. Put that deduction money into an insurance option and withdraw a supplemental tax free income upon retirement.
 What would you like to do?
Disclaimer:  Values are based on Penn Mutual Illustration, Accumulation Builder Flexible Premium Indexed Universal Life policy. These are non-guaranteed values with an assumed growth of 7% annually in an S&P Indexed strategy account. Tax deductions and tax bracket references are  for illustrative purposes only and may differ depending on individual tax brackets.  Nothing here should be construed as tax advice. Only licensed tax advisers give tax advice.

4 Dirty Secrets I Will (Never?) Tell You


I recently read an article advising me of all the terrible secrets that I – as an insurance broker – am supposedly withholding from my current – and potential – clients. As a career broker with an unblemished record, I was interested to learn what these skeletons in my closet are…I was disappointed.

Ultimately, I questioned why a financial planner felt it necessary to write an article attacking the sales distribution methods of life insurance. Surely that smelled suspiciously of “when the debate is lost, slander becomes the tool of the loser” (all credit to Socrates for that one!) But let’s get back to my dirty secrets….

#1   “Beware the Insurance Agent who gets paid 100% on Commission!”

Quite why one should beware was never really made clear but the article implied that the broker/client relationship was a win/lose scenario, with only the broker winning. Isn’t that a little bit like saying you shouldn’t drink Coke because the CEO of Coca-Cola makes money whenever you make a purchase?

It is the responsibility of the insurance broker to offer the product that will best meet his or her client’s budget and family or business needs. Ultimately, it is the client who will determine the value of the purchase. The real question a potential client should ask is not “How much commission does my insurance agent get” but “Do I trust my insurance agent to look after my best interests?”

#2   “Your are Probably Over-Insured.”

Here’s the supposed scenario as suggested in the article:

  • You earn $100,000 per year;3408
  • The insurance agent offers you a $3 million life insurance policy KNOWING that this amount is too high;
  • You finally purchase a $1 million life insurance policy;
  • The agent wins because he walks away with something.

You have got to be kidding, right? The agent did not care as long as he walked away with some kind of sale?

If you have the right insurance agent, here’s what should really happen:

  • The insurance agent and the client determine the insurance need BEFORE recommending a policy;
  • The policy recommendation should be based on the income requirements of the surviving family, combined with any fixed rate of return the family would earn on the insurance, as well as the tax that they would need to pay.
  • Then – and only then – should the amount of insurance be discussed.

#3   “Whole Life Isn’t a Good Investment, Nor Is It Good Insurance”

Whole Life naysayers love to tout the advantages of term insurance coupled with investment in a good index mutual fund, stating that this will yield a better return, as well as offer more insurance.

In reality, Whole Life insurance is a majority bond investment and as such, should NEVER be compared to a mutual fund in terms of yield. The key to Whole Life is LONG TERM and a good adviser should not suggest a Whole Life Policy to any client looking for short term investment results.

On the other hand, if you ARE thinking long term, Whole Life can surprise you with a pot of money down the road based on bond returns, potential dividend distributions and an increasing death benefit.

#4  “He’d Rather Sell You an Annuity than a Life Policy”

That’s a little like saying a Realtor would rather sell you a mansion when you came in looking for a low-rent apartment. These two products are widely different and meet two very diverse client needs. No good insurance broker would try to replace one with the other.

Ultimately, the question that seems to arise time and time again is “Do I trust my insurance broker to look after my best interests?”  To reiterate one of my personal mantras and a favorite quote which you have no doubt read in previous posts: to have people entrust to you the safety of their hard-earned income is a privilege.


Man 1“Whoever is careless with the truth in small matters cannot be trust with important matters.”

Albert Einstein