Infinite Banking concept

[DHK]

Sure, I understand.

Let me ask you a trick question: Which person would you rather be?

Person A) has $1,000,000
Person B) has $500,000

Which person would you rather be?

 

[Allen Trent]

Has putting all your eggs in one basket worked for anyone?
Even LEAP advocated to take up to the match in your 401k.
One thing I will say is that for me as I am in somewhat of a retirement mode, looking back I would rather have put less money into qualified plans.

Agree. Same for me as I wont need all the money I saved in qualified plans. But someone saving 5k or 10k per year is unlikely to accumulate excessive funds they wont need in retirement. But if they do have a pension, inheritance, etc I can definitely see diverting some into life plans. But, today, many employer plans offer Roth 401k option to help part of that issue also.

I am sure those of us on this forum or debating this are not the agents pushing people saving 5k per year in a 401k to divert all of it to a WL or IUL, but there is a ton of that being suggested in the marketplace & it doesn't take much time to see a lot of the IUL videos on you tube that tend to give that idea. we can even see it sometimes in the questions that come on this forum from new agents or some consumers.

 

[Allen Trent]

Sure, I understand.

Let me ask you a trick question: Which person would you rather be?

Person A) has $1,000,000
Person B) has $500,000

Which person would you rather be?

OK, I will bite. I would rather be A that is married to B.

 

[DHK]

Fair enough.

Here's the rest of the story:

Person A) Their $1,000,000 is in an IRS qualified plan and can take out $30,000 a year (3%) FULLY TAXABLE.

Person B) Their $500,000 is in life insurance... and can get $30,000 a year TAX EXEMPT.

Now, which person would you rather be?

I've found that where your money is... is far more important than what it earns, according to the tax code for income tax purposes.

 

[Tahoe Ray]

Fair enough.

Here's the rest of the story:

Person A) Their $1,000,000 is in an IRS qualified plan and can take out $30,000 a year (3%) FULLY TAXABLE.

Person B) Their $500,000 is in life insurance... and can get $30,000 a year TAX EXEMPT.

Now, which person would you rather be?

I've found that where your money is... is far more important than what it earns, according to the tax code for income tax purposes.

Still rather be A since 30k isn't paying any taxes anyway (for now).

Not to mention that your 6% withdrawal on B makes a lot of assumptions. If you're going to give those assumptions on B, let's put them on A as well and assume that they can get a bond portfolio generating 5% annually with minimal risk to principal.

That's why these comparisons hold no water in my book. They favor one side giving them all the benefits of the product/strategy and takes an aggressive stance towards the competition (diminishing its benefits).

Why not have 1.5m in A and B?

 

[Allen Trent]

Fair enough.

Here's the rest of the story:

Person A) Their $1,000,000 is in an IRS qualified plan and can take out $30,000 a year (3%) FULLY TAXABLE.

Person B) Their $500,000 is in life insurance... and can get $30,000 a year TAX EXEMPT.

Now, which person would you rather be?

I've found that where your money is... is far more important than what it earns, according to the tax code for income tax purposes.

Well, with those #s, for sure I would want less money that gives me tax exempt. But, B is not tax exempt. it is only tax exempt if I properly manage distributions during my life to make sure the policy doesn't lapse, etc & the insurance carrier can produce illustrated dividends to produce the $30,000.

Also, in A, why would I only take 30K. Wouldn't a properly diversified portfolio show that more like 40k (which might net $30k after tax) could be pulled. Or, in reality, during the GO GO years of retirement take more, then dial back in Slow Go & dial back again in No Go years.

In reality, I am person C. I have some of all, plus I have some after tax investments. So, rather than taking too big of tax free loans from my life insurance that depletes my tax free money to my heirs, I would take money from each of my buckets of qualified, roth, After tax investment & life insurance to manage tax brackets.

PS--the average American wouldn't pay tax on $30k from qualified funds in retirement either. Standard deductions would wipe away most of that & then a large portion would then be in the next tax bracket. The tax free/tax exempt play is actually best suited for big savers & high income. 401k savings for average to low income is still a great tax play. But, they should also have some permanent life insurance in my mind, but not put all $3-$5k they can save each year into permanent life

 

[Allen Trent]

Still rather be A since 30k isn't paying any taxes anyway (for now).

Not to mention that your 6% withdrawal on B makes a lot of assumptions. If you're going to give those assumptions on B, let's put them on A as well and assume that they can get a bond portfolio generating 5% annually with minimal risk to principal.

That's why these comparisons hold no water in my book. They favor one side giving them all the benefits of the product/strategy and takes an aggressive stance towards the competition (diminishing its benefits).

Why not have 1.5m in A and B?

you said much better what my thoughts are. this is why I think it is disingenuous to compare as it always seems to have a false rate of return on 1 or the other, taxes on 1 that may not exist to that segment of the population, etc.

C or D seems to always make more sense to me than an absolute of A or B

 

[DHK]

That's not the whole story - and you all know that (as do I).

It was just to spark a conversation and a thought process.

Now you're rationalizing the rest of it and filling in your own blanks.

You're looking at it from an asset management perspective, rather than how the tax code is looking at it.

I'm not saying you're wrong - but I am saying that there's more to the story of how wealth works and the tax code than you're putting into your thought processes.

 

[DHK]

Look, I've done my own calculations on a middle income family scenario and on a capital equivalent basis, one would need to earn 14.5% per year on their investments to equal what life insurance can do on a tax-exempt basis. Yes, taxes, market volatility, and investment management fees erode that much wealth. And the higher the income and tax brackets, the more this performs on a capital equivalent basis in plain vanilla whole life insurance.

Now, don't misunderstand me. Life insurance does NOT earn 14.5% per year. But per the tax code, the outcome of tax-exempt cash flow, that asset can spend like it did earn 14.5% in an IRS regulated retirement plan.

Amazon product ASIN B0842YHBT6

 

[Tahoe Ray]

That's not the whole story - and you all know that (as do I).

It was just to spark a conversation and a thought process.

Now you're rationalizing the rest of it and filling in your own blanks.

You're looking at it from an asset management perspective, rather than how the tax code is looking at it.

I'm not saying you're wrong - but I am saying that there's more to the story of how wealth works and the tax code than you're putting into your thought processes.

I have all of my money in May WTI futures so I'm all good.