Downside of the Perpetual Wealth Code? EP.100

Downside of the Perpetual Wealth Code? EP.100

Transcript:

Tom: Welcome to Wealth Talks where we talk about solutions, money and other things that create wealth in your life. John, it’s a great day today because today marks our 100th podcast.

John: That’s right! We’ve been doing it for a while now. It’s a lot of fun!

Tom: There’s not too many people that turn 100 in the world and those that do don’t live too much longer after that. So, this is an exciting time for us because we’re just feeling like we’re getting started.

John: That’s right!

Tom: So, we hope to be doing these podcasts for many, many years to come because of the great feedback and the positive results that we’re hearing from the information that we’re releasing.

And today, we want to talk about something kind of special because one thing that we hear a lot of is, what is the downfall? What is the downside of the perpetual wealth code? We can sum that up pretty quickly but we’re going to talk about that today because there is a downside.

There is always a downside to anything in life. If you’re going to learn to walk as a child, the downside is you might fall a few times as you’re getting going. If you’re going to learn to drive, the downside is you might find yourselves in an automobile accident someday. So, there is always a downside to something. And the downside to the Perpetual Wealth code is really one thing. And what is that John?

John: Not saving enough.

Tom: Not saving enough.

John: It is a very similar downfall to any other financial savings or investments that you do. It’s not putting aside enough to cover the future needs that you have.

Tom: And along with that is, not starting soon enough. Because sometimes it is difficult to save more when we’ve gotten used to consuming everything that we make. What we say is, it really comes down to the word discipline. We’re working with a guaranteed contract with the life insurance companies. Unlike an investment where you are assuming a risk, with the participating whole life insurance you’re getting a guarantee. That takes a lot of the downside away from the outside effects.

John: The outside effects on you.

Tom: But the inside effects are still very real. That is, if we look for example just at the average 401 (k) balance in the 4th quarter of last year, that’s the latest reportings, and we look at fidelity, and fidelity is the main insurance of the largest 401 (k) portfolio in the country. It says that, the average 401 (k) balance in the 4th quarter of 2016 was $92,500. Now, I don’t know about you but $92,500 would be very difficult to live on for the rest of your life.

John: Yes it would. Very difficult.

Tom: And even though Social Security is supposed to make up 40% of your income when we get to those golden years, that’s still not very much money when we’re thinking maybe it’s going to last a few years instead of just one or maybe two years.

So, the key here is people aren’t putting enough money away. Robert Shiller says that the average American saves 4% of their income for 40 years of their life and earns a 0% rate of return on it by the time they pay the taxes on it, they pay the fees to manage that money, and by the inflationary effects on that money.

So, his answer is we got to save more and that is absolutely true. He’s not the Nobel laureate in economics for anything, he knows what he’s talking about. But the problem is, where do you save that money? And John, a lot of people think that they can just save this money in a life insurance policy and just hoard it up in there and then magically when they get to be 65, 70 years old they can just draw on that and live on it for the rest of their life.

John: Sometimes people ask us about that, if I put the money that I am saving now into a life insurance policy, am I going to be able to retire on it. Well, what are you doing for retirement right now? What does it look like, what would your retirement look like without the life insurance?

We can’t expect the life insurance to do magic but here’s what it will do. It will add a slight edge on everything that you do across the board and that’s what we see really as we work with people as they put their savings, perhaps they have been putting it into a 401 (k) or maybe they’re just been keeping it under their control because they don’t know what to do with it. They don’t want to put it in the 401 (k), lock it out of their control for the next 50 years, maybe not that long, maybe 30, 40 years. But when they put that money into a qualified place it’s locked away, they cannot access that money. But when they put it into life insurance, they can still access that money whether it’s to finance purchases that they have in their life that they need to do right now and then pay those back over a period of time or whether they’re going to be financing other sorts of investments with it. They have access to that money. Plus, they get a death benefit at the same time. It’s something that you cannot do anywhere else but if you’re not saving enough not putting enough into that to start with, it’s not going to be there anyway. There has to be at least a certain amount of money going into that.

Tom: That’s exactly right! And John, we just got interrupted here because Jessie is filming something very special because this is our 10th anniversary as well. Not only is this our 100th podcast but this is our 10th anniversary. Hi Jessie!

Jesse: Hey! How’s it going? I don’t mean to butt in on you guys but I’m glad you have some time to say hello to the camera. What are you guys talking about?

Tom: We are talking about the discipline it takes to make a retirement work. Whether we’re using traditional funds or whether we’re doing life insurance, the fact is that it takes discipline on our part to save enough money so there’s going to have money there for us in the future.

Jesse: Oh very good! All right and I see some video equipment set up here, what is this about?

Tom: Well, Gracine and I are going to be recording a video this afternoon about universal life insurance policies.

Jesse: Oh, we just talked to Gracine. So, that’s what that’s for. All right, well I’ll let you guys get back to your podcast and see you later! I’ll close this door for you again.

Tom: And for those of you listening to the podcast make sure to check out this video that Jessie’s releasing. It’s about our 10th anniversary. He is giving an office tour this morning. So, that will be what you need to check out. You can check out our YouTube channel. Google McFie Family InsuranceYouTube and it should come up for you.

Let’s get back to the fact that there is a risk factor in anything that you do in planning for the future.

John: There is!

Tom: And what we’re trying to do with the Perpetual Wealth Code is to decrease the outside risk. And we do that by using the life insurance contract that is guaranteed. But there is a risk on the inside always because there’s nothing keeping you from spending this money and never paying it back.

There’s nothing preventing you from not putting enough into it so that when you get to those golden years and expecting this windfall of money, for there not to be enough there for you. And that is the sad point that we see so many times, is that people come to us later in life maybe in their 50s, maybe in their early 60s and say, “Oh I’ve got $98,000 in my 401 (k), and if I buy this policy is that going to make my retirement real happy?”

John: For people starting later, it could improve some of their options that are available both between now and then and when they retire. But it’s not going to be the only solution.

Tom: No it isn’t.

John: They’re going to have to save more if they want the type of income that they’ve most likely been used to over those years depending on what their income is.

Tom: Well there’s going to come a day when we can’t do what we do on a daily basis, even if we love what we’re doing, we’re not going to be able to do it as fast and as hard and as long. That is what our retirement income should replace, is the lack of building. But at the same time, the older we get the wiser and smarter we should get about how we manage money.

So that’s why we encourage people not to just use the life insurance policy as a savings vehicle, it’s a great savings vehicle, but you cannot hoard up enough money to live happily ever after in retirement, because of taxes, inflation and fees, okay. And we eliminate some of the fees with life insurance by saving it, but you cannot eliminate taxes and you cannot eliminate inflation altogether. And so, what our goal is, is to minimize those things down to the vanishing point, as Jack Bogle says in his book, Don’t Count On It. And to do that, you have to keep that money flowing.

John: Yeah, so when somebody is using a life insurance policy for savings and for building up for the future, one question often arises. Well how much am I going to be able to take out of the life insurance policy and still have it be sustainable in my golden years? There are several different ways that you could take money for a life insurance policy.

We talked about this a little bit last week and when we talked about withdrawals versus policy loans. You can’t take withdrawals up to the cost basis on a life insurance policy, that’s everything you paid in premiums and there’s no taxes on that. Then you could switch to policy loans as long as the interest on those policy loans is going to be sustainable, not cause the policy to lapse. For a short time you can take out greater policy loans than that.

But here’s the thing. If you need more money to live on, than what you can get in a policy loan and keep the policy in force, that’s the ideal option. But if you need more than that, if you need to live on some of the principal that you have saved during these years, there’s always the option of rolling what’s left in the cash value over to an income annuity, that’s guaranteed for life. Right now, we’re not seeing annuity rates very good, so perhaps in 15, 20 years when you actually need to do that, hopefully annuity rates will be better. Now is not the ideal time to purchase an annuity.

Tom: They key here is that’s all if.

John: We don’t know, so we want to keep the options on the table.

Tom: Nobody knows, so we’ve got to keep the options open and the discipline to put more money in than, you know we talk about affordability and comfortability all the time when we’re designing policies.

John: And that has to be there.

Tom: And it’s got to be affordable to you, but you’ve got to stretch your comfort zone, because people today are not putting enough money away. Now, that’s the beauty of the whole life insurance policy. It’s not like buying an annuity, it’s not like buying into your 401 (k) or an IRA or a Roth. This is money that you can actually access and this is the key.

Is that accessing the money in your life insurance policy and leveraging it to help you recover the cost of interest that you’re losing when you pay cash for things or that you’re losing when you use someone else’s money. It’s so important because that literally forces you to save more money without feeling the discomfort in your lifestyle right now. That allows us to answer Robert Shiller’s admonition to save more money.

John: Yeah, because people are used to monthly payments. So, if we create a savings vehicle where we then leverage that savings to finance things that we have to purchase in our life and then set up on a payment plan, now you’ve created a way to save more but it’s part of your lifestyle at the same time.

Tom: Yes. And really the whole idea behind the perpetual wealth code is to teach you to be money managers, really good money managers. Because savings is great, it’s important, it’s fundamental to being able to be a money manager because there’s not a lot of people out in the world that are going to dump their money in your lap and let you manage it for them.

So, you’ve got to save your own money, and that’s what retirement plans are for anyway, that’s what social security is doing for you already. It makes it easy for you because it withdraws it from your check. That’s what the 401 (k) does, it just takes it from your check, it forces you to save without you really knowing what’s happening. That’s why those plans are so popular.

John: And then lock it away where you can’t get to it.

Tom: Right, but this is the perpetual wealth code encourage you to voluntarily give up more of your income now so that you can manage it while you’re living, not let someone else manage it. And the management of that money between now, and the time that you do have to slow down in retirement will give you a lot more money for those years to replace the fact that you can’t work as hard, as long and as hard as you’re doing right now.

John: I would say that that manageability factor, that being able to manage the money yourself, that’s the biggest benefit and the biggest downside at the same time because it comes back down to you. A lot of people do not have the discipline to manage that money.

Tom: There’s that word again, discipline.

John: You have to set your level of comfortability with your discipline and how you will be able to manage the money to determine whether you should take a policy loan to manage that money or whether you should leave it there.

Tom: Yeah. And some people still just want to use the life insurance as a savings vehicle and that’s fine.

John: They’re getting the death benefit.

Tom: They’re going to get the death benefit for that and they’re going to have some money there that’s going to augment their retirement. But it’s just not the best that they could do. So that’s why we encourage people to look at how they can recover the cost of opportunity they’re losing or the interest they’re losing and try to recover that. That’s why large corporations, that’s why large banks, that’s why nonprofit organizations are using life insurance and that’s why you as an individual should be using it too to get an extra bang for your buck. And when you do that, things again look better for you in the future.

Not only does it look better for you in the future, if you start that management process now it almost goes on autopilot and so it can continue to happen in your senior years and continue to recover money that you would normally lose in your senior years as well.

So, what is the biggest downside for the perpetual wealth code, it’s discipline. And the discipline is on your part because the contract is guaranteed, we’re working with a guaranteed contract with a life insurance company, so the discipline to save and the discipline to manage the money once you have saved it. That is the key, the biggest risk in what we share and you just need to know it’s straight forward, we’re not ashamed to tell you.

John: That’s right and remember, even though it’s the biggest downside, it’s also your biggest asset as well. So just manage it right and it’s going to become a huge tool, the possibilities are really limitless, it’s up to you to determine the limits. It’s your limits more than anything else that’s going to limit it.

Tom: Well, until next time when we’re going to talk about more solutions, money and things that create wealth in your life. Thanks for joining us for this 100th podcast and don’t forget to check out our 10th anniversary video that John talked about earlier.

John: Yes that’ll be on YouTube, Google McFie Family InsuranceYouTube and our YouTube channel should come up and you’ll be able to find that video. We’ll also be sending it out by email, so you can go to our website, life-benefits.com. Fact if you go to subs… I think its called subscribe.life-benefits.com, it’ll take you right to the page where you can sign up to get our weekly email updates directly to your inbox and you’ll be sure to see that video next week when it comes out. Alright be back next week.