Nothing is good or bad until we have something to compare it to. So let’s illustrate my point. If you paid $1 million for your home and it grew at the compounded rate of 21.25 percent for a thirteen-year period, it would be worth $12,242,291. How many people do you know make this type of tax-free return? No One!
Only investment grade designed life insurance can provide this type of return. In “The Secret Asset” I tell a story about Grandpa John who passed away at age eighty-three, the original life expectancy at the time of purchase, the internal rate of return would have been 13.81 percent tax free.
The tax equivalent return you would have to earn to net 13.81 percent is 21.25 percent in the 35 percent tax bracket. Think about that. What other investment/business do you have compounding year in and year out at 21.25 percent pretax annually? Real estate? No way. Conversely, if Grandpa John had died prior to the average life expectancy of eighty-three, the return would increase. So, when Grandpa John died at age seventy-nine, the IRR return was a whopping 25.25 percent tax free. The tax-free equivalent yield you would have to earn to net 25.25 percent would be 35.35 percent in the 35 percent federal tax bracket!
How much life insurance do you own in your portfolio?
There is a little known tax code that allows individuals and businesses to over fund life insurance contracts and take the excess money after fee’s and expenses and invest those assets in the S&P index w/o dividends or mutual funds. More importantly IR-code 7702 allows you to tax defer those gains indefinitely!
Case in point, $100,000 invested at 8% over 30 years delivers $478,931 in a taxable investment but in a tax deferred investment delivers $1,006,266. Do you want $478,931 or $1,006,266?
The secret is Internal Revenue Code 7702. Think about it, never having to pay tax on interest, dividends or capital gains ever again. You should be asking the hard question now, How do I get my money out without paying taxes at withdrawal?”
The answer is simple, “It’s your money inside the life insurance contract so you can just borrow it out at a net-zero cost.”
Just look at this illustration example from Chapter 19 in “The Secret Asset” for my brother Michael age 31:
Life Insurance Retirement Strategy Using
Indexed Universal Life Insurance
(Michael, Age 31)
Annual Premiums: $50,000
Scheduled Years to Pay: 20
Total Premium Paid: $1,000,000
Annual Distributions Age 66-80: $432,900
Scheduled Years of Distributions: 15
Total Distributions: $6,493,500
My brother puts in $1 million over twenty years and then he can withdraw $6,493,500 million tax free over fifteen years based on our example. That’s a 6.4-to-1 tax-free return on his investment capital and all the time his life insurance is still in place.