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Can a Policy Review Save You Money? We Say Yes…

Policy Review: Lower Premium;  Increased Life Insurance, Tax-Free Income

Whenever we make a major purchase, we always look for the best return on our investment: whether it’s a car, a home, or an insurance policy.
When it comes to our tangible assets, it’s easy to see when they need updating or maintenance. Unfortunately, less tangible assets like insurance policies often get filed away and forgotten, but it’s just as important to review and revisit these on a regular basis. Here’s why you should always consider a policy review.


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Leverage Your Insurance – Get More for Less

Leverage Your Insurance – Get More for Less

Whenever we make a major purchase, we always look for the best return on our investment: whether it’s a computer, a car, a home, or an insurance policy. When it comes to our tangible assets, it’s easy to see when they need updating or maintenance. Unfortunately, less tangible assets like insurance policies and investments often get filed away and forgotten but it’s just as important to review and revisit these on a regular basis.  Here’s why.

A recent case came about from a  simple insurance review that uncovered an expensive contract that did not match the goals of the insured: too high a premium, not enough in the form of benefits.
As we talked with our client about his individual needs needs and goals, we were able to offer a solution that:
  • Lowered their insurance premium by $21,000 per year;
  • Added tax free income beginning at age 66 for a period of 20 years
  • Maintained a life insurance benefit

Leverage Options 5 - More for Less

Whether you’re looking at minimizing your tax bill, maximizing your retirement income, or options for long term care, we know we can find a solution that meets your specific needs. Give us a call at (617) 527-9736 or send us an email



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Picture8Remember the “good old days”  when after-dinner  discussion on Sunday revolved around sports, food, family, and finances? Food was all about the just-eaten meal, sports covered Mickey Mantle vs. Willie Mays, family was about that one annoying relative, and I distinctly remember finances being about smart men putting their money in Municipal Bonds.  As an adult I realize why. Because Municipal Bonds were safe and they were tax free, and setting up an option for tax free income was a smart thing to do in those days.

Somehow, that philosophy of establishing tax free income  became less popular as declining bond values were replaced with the lure of  unlimited upside growth  from the stock market. Slowly and for a variety of reasons, no one really talks about Municipal Bonds Picture9anymore and that moved the conversation away   from talking about tax free income and safety.

However, in an environment of high personal income and capital gains taxes, the importance of tax free income can never be overstated. The more tax free income you can derive, the lower you can drive your tax bracket, and  although wealth managers  convince people that they will be in a lower tax bracket when they retire, the
reality is  that we really will not be in a different tax bracket if we are expecting $150,000 or more of  retirement income. So the question I ask when working with a new  client is “How much money do you have in the tax free zone?”

The tax free zone is where assets grow and are distributed tax free. Municipal Bonds are in that zone, so are Roth IRAs as well as Life Insurance.  As a planner, I use life insurance almost exclusively when planning tax free growth and income. It is a far more flexible asset because it does not have the limits of a Roth IRA nor the low interest rate callability of a municipal bond.

Picture10What if we could target the cash value build up (as best as one can target when determining future values) so that the cash withdrawals from the tax free insurance can be withdrawn to pay future taxes on retirement income, which are usually high? What impact would that have?

Furthermore, if we believe that the stock market will keep growing, would it not be a  good idea to hedge our stock market investment from negative growth?

We found three extraordinary outcomes when we started putting people in the tax free zone:

 First, a well planned out insurance contract can end up paying the income tax on retirement income at a huge discount and withdrawal streams can last longer because of their tax free nature. When you do not pay taxes on income, you do not have to withdraw as much money from retirement accounts.

Second, by creating tax free income, we were able to keep incomes high and tax brackets lower. This was an extraordinary reality; taking the tax money you did not pay the government in the form of a tax deduction, start your tax free account creating future tax free income while lowering your tax bracket.

Third, we were able to hedge against loss.

Based on these results, Goldwater Financial created ” Planning in the Tax Free Zone” which takes a deep look at how our clients grow their money and what the tax outcome will be. We are creating tax deductions through pension contributions and using the tax savings to start alternative insurance programs that will create tax free income in the future. All of these tax reduction ideas are folded into the Tax Free Zone style of planning.  If this type of planning intrigues you, then contact us at  617-527-9736 to learn more.


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As Markets Go Down, Look Into Index Annuities


As the stock markets are looking dismal, maybe its time to re-investigate index annuities to protect your wealth.

We hear more and more about indexed annuities in an insurance based environment and their increasing popularity when it comes to retirement planning, Yet naysayers are quick to decry them with arguments such as “what does minimum guarantee really mean?”, “too complex”, “limited  earnings because of the CAP”. But when the stock markets look dismal, those that have taken advantage of these annuities are protected.

Check out our JUNE article and the above video to understand why.



Long Term Care – The Alternative Investment

Man with TelescopeOnce upon a time, it was believed that if we invested diligently in the stock market we could more than  adequately self-insure against any potential long term risk to ourselves. Today, much like the opening phrase, this idea belongs in a fairytale.  Investing in the stock market to self-insure against long term care can be much more costly than off-loading that risk.


What you can do, however, if you are a C-Corp, is fully tax deduct the entire cost of  long term care insurance using retained earnings.  Long term care insurance is the barrier that protects your wealth from the risk of disability at an advanced age—a  risk that is much greater than most people realize as you will see below. However, by using the retained earnings of your C-Corp, you can fully tax deduct the entire cost of long term care insurance for all the key members of the company, putting benefits into the hands of the owners and the key employees, at a steep discount.

The article below entitled “Long Term Care; The Alternative Investment” from the Brighton Advisory Group—reproduced with permission—explains how this can work.

Long Term Care—The Alternative Investment

When would you have thought that long term care insurance would be considered an investment? For high net worth individuals, utilizing long term care insurance has very solid investment characteristics due to:

1)  the huge dollar upside if extended care is required; and

2)  little or no cost if care isn’t required.

In addition, many advisors feel long term care insurance can be used to reduce estate taxes and transfer wealth on a very tax-advantaged basis.

If preservation of wealth and minimization of taxes is a goal, then serious thought should be given to acquiring and having long term care insurance in one’s portfolio.  According to the Department of Health and Human Services, out of every 100 individuals living beyond age 65 20% will need care from two to five years and another 20% will need care for more than five years.

BB Piece 1This equates to a 40% chance for a husband and wife that one of them will require care for some period of time beyond age 65.  The problem with continuing advances in medical sciences is that longer life expectancies will occur and are occurring today.  In addition, diseases and  injuries that used to be fatal will instead now cause disabilities.

BB Piece 2More alarming is the fact that 21% of all women who have attained age 65 will have some form of Alzheimer’s (AD) at some point during their lifetimes and 14% of all men will also have some form of cognitive impairment.  Further studies indicate that people age 65 and older with a cognitive disability will survive an average of four to eight years once the disease has been diagnosed.  Some will even live as long as 20 years.

BB Piece 3 The cost of long term care needed for extended periods of time can run into the millions of  dollars.  The current cost of a private nursing home room can run in excess of $160,000 per year.  While the current annual cost of 24/7 home care needed for a cognitively impaired  patient is in excess of $175,000 per year.  More alarming is that since 2004 the cost of long term care has grown at the rate of 4.7% to as much as 47% depending on the type of care required.  If you do the math, eight years of care due to a severe injury or disease beginning in 2011 with a current cost of $175,000 per year could be as much as $1,612,000 utilizing a 4% inflation rate.  If you project out 20 years from now at the same 4%, those costs might be as high as $3,397,000.

These are the hard dollar costs.  If you were to examine the soft dollar costs, you would realize that every dollar spent for long term care is a dollar that has been lost in investment  return.  Those investment losses can be significant and may even equal the cost of the care itself.

If the dollars for the cost of care are drawn from a qualified retirement plan, then the distributions will then be subject to income taxes at the highest bracket.  As an example, if one needs $175,000 and must take this money from their retirement plan they would need to liquidate $291,000 in retirement assets, assuming a 40% federal and state marginal income tax rate, in order to have the needed $175,000 for care.

The worst case scenario would be those high net worth individuals who have an illiquid estate and must now start to liquidate assets in order to provide for care.  Those assets which need to be liquidated  could be real estate or stocks in closely held corporations.  This forced sale of these types of assets often involves a deep discount and significant losses.

Man-JugglingEnter long term care insurance to solve the investment risks.  It is possible today to purchase a long  term care policy that will return  100% of premiums plus interest at a current gross crediting rate of 4% guaranteed if one does not need to use the monies invested in the long term care policy for care. Naturally, any benefits that are used will reduce the amount returned at the time of death or surrender of the policy.  Therefore, the only cost of the long term care insurance if care  is not needed becomes the opportunity cost of the money, i.e. the  earnings the premiums and/or the re-positioned assets could have generated had they been invested.  However, this is offset by the guaranteed crediting rate of 4%.

In addition, the US government and many states allow for a tax credit and/or deduction against premium payments made.  Thus, if viewed as an investment the policy has the capacity to supply millions of  dollars in benefits while the cost is limited to the opportunity cost of the premiums.

Why is it that more than 90% of those eligible to purchase long term care choose to self insure?  The  reason is that most of the policies sold today are non-guaranteed annual premium policies.  The rub is, if you do not need care or utilize the policy, then all of the premiums will have been lost; therefore, when considering long term care insurance it is imperative you seek out a policy which will

1)  guarantee that the premiums will never increase;

2)  provide an interest crediting rate on the monies deposited to pay the premiums;

3)  have a 100% return of premium if the policy is not utilized or a return of unused premiums if part of the policy is used to pay benefits;

4)  provide additional leverage of a death benefit in addition to returning the unused premiums with  interest.

If the above parameters are followed, then the only cost to protecting your family from the emotional, physical and financial consequences of a long term care need is the opportunity cost of the money transferred.

For more information on Long Term Care options, contact us HERE or call us at (617) 527-9736 and ask to speak with Barry Goldwater.

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Deferring Retirement Income with a QLAC


To find out more about deferring retirement income with a QLAC check out our QLAC Bulletin HERE or contact us at (617) 527-9736.

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Man with  TelescopePrivate Financing has long been a concept that estate planners have used regularly, but it has become even more popular recently. With low interest rates, transferring wealth can now be done with less capital, less cost, and less administration.

The mid-term Applicable Federal Rate (AFR) is the interest rate that applies to private financing transactions where the loan term is greater than three but no more than nine years. The rate has increased slightly from its 2012-2013 lows, but is still lower now than its historic averages1 – making now an attractive time to take advantage of wealth transfer arbitrage.

 Who might take advantage of this opportunity?

People with large estates may have a need for larger amounts of life insurance than what can be purchased with their annual exclusion gifts and they may object to the gift taxes associated with gifting the additional dollars to an Irrevocable Life Insurance Trust (ILIT)2.

Private Financing may be able to provide an alternative method for funding these annual premiums. This strategy may be considered for those who have exhausted their lifetime credit or those who want to use that lifetime credit to gift other assets.

Once an irrevocable life insurance trust is established, cash can be loaned on an annual basis or in a single sum to pay premiums. Because the loan is usually coming directly from the insured and going to his or her ILIT, collateral is not required as it would be with a commercial loan. Once the loan is made, the trust will invest the assets.

All income received over and above the required annual interest payment could be used to purchase life insurance inside the trust. This loan interest is based upon the current AFR, so the lower that rate is, the more attractive the private financing  concept becomes. This lump sum loan strategy may not work as well for individuals in their early 70s and older and will generally only be a fit for individuals with large amounts of cash at their disposal.

CoupleLet’s consider the example of a wealthy married couple who are both age 65 and healthy3.

They can set up an ILIT and seed it with a $500,000 gift4. The ILIT will then purchase a Survivorship Universal Life policy on their lives with a $5,306,479 face amount and $151,198 premium due annually for nine  years5. The ILIT borrows the premium from the Grantor for a total loan of $4.5 million. The ILIT’s annual interest payments are received income tax  free from the trust to the Grantor. With a nine year loan term, they can lock in mid-term AFR. For our example, we are assuming this to be 2%. After the term, the loan will be paid back in full.

Private Finance Chart

For appropriate individuals and families, the current environment may present an excellent opportunity to put needed insurance in place.

For more information Private Finance options, call us now at (617) 527-9736 or click here to contact us.



1 http://apps.irs.gov/app/picklist/list/federalRates.html.
2 Trusts should be drafted by an attorney familiar with such matters in order to take into account income and estate tax laws (including the generation skipping tax). Failure to do so could result in adverse treatment of trust proceeds.
3 Case studies are offered to show how we can provide insurance solutions in the advanced sales marketplace. Results may vary, and this example does not guarantee a similar result.
4 The interest earned inside the trust is assumed at 4.0%, a 40% estate tax rate is assumed, and 100% of the note is includible in the Grantor’s taxable estate.
5 Prudential SUL Protector, based on a 65 year old male at preferred non-tobacco and 65 year old female at preferred non-tobacco in the state of Alabama. Illustration run May 22, 2015.


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Leverage and Options

Man-JugglingMy mother was more concerned about teaching me common sense than wondering if I would have a college degree. Why? Because she could measure common sense. So, when we were kids, if someone said “lend me a quarter and I will pay you back a dollar next week”, you loaned the money and this was how you learned the concept of leverage using common sense.

According to Webster’s college dictionary, one of the definitions of leverage is “the use of a small initial investment to gain a relatively high return.”  In even simpler terms, leverage is being able to get something on sale; to purchase two for one, to get a tax deduction, to turn a small premium into a large death benefit or, as is the case in Massachusetts, to not pay sales tax for one entire weekend on purchases up to $2500.


Smart business owners with an understanding of leverage start pension plans. The tax deduction associated with business pension plans leverages what they save for retirement by discounting the cost of saving. If you put away a dollar and it costs you 70 cents, you can see the leverage associated with these plans.

Additionally, when we buy life insurance, we effectively buy dollars  for pennies. My $250,000 life insurance policy has a $3000 annual  premium. For every 12 cents I spend, I am promised a dollar.

One can achieve even more leverage with a life insurance policy that combines long term care insurance into one premium, one policy two catastrophic events strategically managed. The cost is a 15%-20%  higher premium.

To offset the cost of LTC in a life policy, you can get annual discounts for a healthy  livingJigsaw lifestyle and the discounts range from 7%-20% – in many cases, equal to or greater than the additional  premium of a long term care benefit to a life insurance policy. In other words,  life insurance + healthy living = life insurance + LTC benefits at no additional cost
because  we are leveraging the premium down with discounts.

By planning with insurance leveraging concepts, you are re-monetizing your existing clients with strategic advice while expanding your planning platform. The adviser practice of the 21st century will need an expanded planning platform and we will address this in our upcoming series of posts.

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Why Annuities are Gaining in Popularity

JigsawWe’re hearing more and more about indexed annuities in an insurance based environment and their increasing popularity when it comes to retirement planning, Yet naysayers are quick to decry them with arguments such as “what does minimum guarantee really mean?”, “too complex”, “limited earnings because of the CAP” and—my particular favorite—”beware of agent bonuses”.

But when it comes down to it, it’s difficult to argue with hard numbers and proven results.

So what exactly is an Indexing Strategy in an insurance based environment? This kind of strategy has two key components: a CAP or limit as to how much you can earn when the market is good and a protective floor of ZERO when the market is not good. How is this different to the S&P Index?  The S&P Index spreads the investments evenly between 500 different stock companies. There’s no cap, so it lets you keep all the gains when the market is good, but when the market is bad, you suffer the loss.

Now look at the chart below: this graph is based on ACTUAL CREDITED RATES for the period shown on a particular product* over the period 1998-2014.  It shows how $100,000 would have performed during this period had it been invested in the S&P (with dividends) and the actual credited rates of the Indexed Strategy.

With the Insurance Indexing Strategy, you can see that in the years when the market loses money, you’re protected from losses due to fixed zero floor.  The same doesn’t apply if you’re invested in the market.

 When it comes down to it, it’s difficult to argue with the numbers:

IS Graph 300 dpi

*This graph is based on actual credited rates for the period shown on the Index-5 product from American Equity which has since been replaced
 **Past performance is no guarantee of future performance and should not be relied upon as such