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By Thomas O'Connell

Is there a perfect retirement strategy? Of course, the answer is no, and I would hope you'd stop reading any article that claimed there was. However, there are some retirement strategies that are inherently more advantageous and appropriate to help you reach your goals and objectives. The strategy I have in mind is one that Ed Slott, CPA, (also known as America's IRA Expert) continually makes the case for as being the most underutilized loophole in the American tax code.

In Barry James Dyke's book The Pirates of Manhattan, Dyke provides many examples of how it is a strategy that wealthy families have used for centuries and businesses large and small have leveraged with great success. Banks take advantage of it every day and it is a strategy that American families can use.

Before I talk about that strategy, I clients what their idea of a perfect investment looks like. The most cited attributes they mention are: high rate of return, consistent rate of return, conservative, liquid and accessible, guaranteed, tax benefits (tax-free), no risk, creates income or cash flow, creditor protected, inflation protected, control, transferable, easy to manage, no hidden fees or penalties, reputable and private.

Wow, that's quite a list. No single strategy is going to be able to have all those things so let's look at the typical retirement vehicles recommended and see how they stack up:

Stock market -- This could include individual issues, ETFs, mutual funds, etc. Some of the obvious advantages would be the potential for a relatively high rate of return (on average, over a long period of time, historically), very liquid, and dividends could create an income stream or cash flow. You might get some tax benefit if you utilize a government-controlled plan such as a 401(k), IRA, Roth IRA, etc. But you might also be giving up liquidity, cash flow, transferability, control and privacy in so doing. The obvious disadvantages are lack of guarantees, which many of you have felt on numerous occasions over the past decade or so. Costs and fees are sometimes unknown or not transparent. Stocks are sometimes not easy to manage, are volatile and have an enormous amount of risk. Know anyone who lost 30-50% of their 401(k) value in the last big market crash? One big tax benefit you may get out of owning stocks is the step-up in basis on any appreciation during your lifetime for beneficiaries who may inherit the stock asset. However, plans such IRAs, 401(k)s and the like never receive a step-up in basis.

Bond market -- Also known as fixed income. Bonds also come in various formats such as ETFs, mutual funds, individual issues, and in various types such as government- and corporate-issued. Considered a more conservative approach, bonds have many of the same advantages as stocks but also come with disadvantages. Even though the interest rate may be guaranteed, there's no guarantee that a company or government entity can pay it, rising interest rates may decrease the value of a bond and a fixed rate may not protect you from higher inflation. Bond assets may also need to be in the government-controlled type plans to reap additional tax benefits.

Real estate -- On the surface this can be and has been an appealing alternative. It certainly can create a cash flow and income. It may be more conservative in nature, may provide a consistent and perhaps higher rate of return than fixed income vehicles, and can have some inflation protection. Beneficiaries may receive a step-up in basis, as mentioned in the section about stocks. Real estate, however, doesn't come without risks. Liquidity can be a huge issue if you need to sell quickly, and most often tax benefits such as deferral or tax free are unattainable. Management of real estate can be very difficult. Who wants a 3 a.m. call complaining about a clogged toilet when you're 85 years old? Finally, there is no guarantee that property values will go up.

Gold, silver and other commodities -- Today this has taken hold as a popular alternative because of economic and geopolitical reasons but many downside aspects need to be understood. It may be difficult to get these assets, as with real estate, inside government-controlled plans. So, tax benefits may be difficult to attain. Precious metals are very volatile in value and may not create cash flow unless you sold them. They have no guarantees, liquidity maybe questionable and therefore risky.

Cash, money market accounts, CDs, checking accounts, etc. -- The obvious benefits are safety, liquidity and guarantees. This is what some advisers call lazy money, that is, money that is having an easier time in retirement than you are. In this extended low-interest-rate environment, cash is no longer king in my opinion, and people may have lost money because of inflation and lost opportunity cost.

Please don't interpret the above as a dismissal of any of those assets. They are tools and can be effective tools when used in the appropriate context. Some investors will believe certain attributes of an investment are more important than others and will want some money in these investment classes and we're all for that if it fits your plan.

However, if we look at all those attributes in our "perfect investment," there is one tool or strategy that they come closest to describing and that tool is dividend-paying or participating whole life insurance from a mutual company.

Nelson Nash, L. Carlos Lara and Robert Murphy, in their book The Case for IBC, use the analogy of whole life insurance being like the Captain Kirk (of Star Trek fame) of investments. "Our reference here... the Captain was the most well-rounded and consequently the one who would be the best to deal with a generic crisis. Sure, the Mr. Spock was smarter and stronger, Dr. McCoy was better at healing an injury, and Scotty knew more about engineering. But in general, Kirk was pretty good at everything and had no serious deficiencies, which is why he was the captain."

Of the 16 separate attributes described in our hypothetical perfect investment, dividend-paying whole life insurance meets 14 of them quite effectively. We know it is conservative, consistent, liquid, has guarantees, is sheltered by stock market losses and volatility, can create income, cash flow, and reusable capital, has certain tax benefits, in some states creditor protected, private, reputable (has been available for over 150 years), controllable, easy to manage and transferable. The two downsides could be the high rate of return perception and inflation protection. But then we must ask the question: Compared to what?

When you consider that you receive an increasing guaranteed cash value every year and the dividends from the insurance company, though dividends are not guaranteed, neither can be taken away once they are paid. There are life insurance companies that have paid dividends for over 100 years consecutively. Finally, when you factor in the potential for uninterrupted compounding interest and the opportunity for tax-free distributions, those modest rates of return look pretty good.

Just to be clear, we are not speaking about the traditionally designed whole life insurance policy where you pay a premium for the maximum amount of death benefit, which will limit the economic benefit of such a policy. You know, your mom and dad's insurance. Instead, we are speaking about a whole life insurance policy that is specifically engineered in the Infinite Banking Concept (IBC) style as described by Nash's book Becoming Your Own Banker, and further supported in How Privatized Banking Really Works, by Lara and Murphy, as well as The Case for IBC.

In the IBC design model, we reverse engineering the contract benefits to maximize the cash value component and minimize the death benefit component within the limits of keeping all the contract tax benefits.

The IBC model is more about the way you think than an actual product. If you can be open-minded and allow for the possibility of another tool for your toolbox, you will find enormous advantages and actual living benefits to this concept; and there really may be an infinite number of ways to make it work for you and your family. But today, we are here to speak about how it fits in your retirement.

According to the Congressional Budget Office's July 2017 report, they expect personal income tax revenues to increase by 27% through 2022. In other words, with $200 trillion of unfunded liabilities and a $21 trillion of total national debt, taxes are going higher. David Walker, former Comptroller of the United States, has repeatedly warned that to pay for all this, tax rates need to be doubled -- immediately. That means tax brackets between 20-74%, not the current 10-37%.

With that in mind, Slott often asks, "What's better than tax-free?" The simple answer is nothing. That is one of the huge living benefits of an IBC-designed life insurance policy. It can fund your capital pool with smaller taxable premium payments in return for larger tax-free distributions in the future. There is an adage that rings true today, "pay tax on the seed and reap the harvest for free."

For those who may think that whole life insurance is too expensive, the fact is that the premium is not the same as the cost. In whole life insurance, the actual cost of the insurance is only a part of the premium, and even those costs are based on term insurance costs. Their logic would be the same as saying your monthly mortgage payment only goes into the banks' coffers, when each mortgage payment you make buys you a little more equity in your home.

Tom Hegna, in his various books and public discussions, makes the case that mathematically and scientifically, it is near impossible to have a happy, healthy and successful retirement without some kind of guaranteed income. Since the 1970s we have seen an accelerated abandonment of guaranteed income streams, also known as pensions. When a retiree awakens on Jan. 1 of every year knowing that their basic bills are going to be paid, it brings a certain level of comfort and contentment. There are only two vehicles people can turn to that will make that happen -- annuities and cash value life insurance. Of the two, only life insurance allows for that income to potentially be tax-free.

Another important factor Hegna makes about having a successful retirement is mitigating longevity risk. This, he argues, is the worse risk of all (with no argument from me) because it is a multiplier of all other risks. The longer you live the more market downturns will affect you, the more inflation will erode your purchasing power, the more sequence of returns can decimate your portfolio, the more likely you'll be in a nursing home or need a nurse at home and so on.

A properly structured life insurance policy(ies) can't eliminate all those risks but it can mitigate all those risks, including the long-term care problem. Today, insurance companies are providing riders and options in life insurance contracts that will allow for their use anywhere there is a confinement in a nursing home or whenever nursing services are needed in the home. These special riders and options are far less expensive than traditional long-term care type policies. I love the line Hegna uses, "Don't leave your kids assets, leave them life insurance! It's less expensive and you get to spend all your money."

Lastly, the true way to financial and economic success is by controlling your own personal economy. Ever need a loan for something? According to research done by Nash, the average American spends nearly 34% of their income on interest payments and finance charges to banks, credit cards, etc. And how about all those forms you need to fill out in blood to get that loan? Once you make those loan payments, that money can never make you money ever again. But what if there was a way to recapture some of that interest you pay to the banks, or have a guaranteed loan when you need it? Maybe you're thinking you'll just pay cash then. Once you pay cash for something, that money can never make you money ever again either, so you still have no control of your money and now need to add in lost opportunity cost to the equation.

A well-designed life insurance policy is an 'and' asset. When you put money into a traditional tax-qualified plan, you may not be able to use it for decades without paying taxes and possible penalties, even if you spot a good investment opportunity. But if you practice this strategy, you have the rising cash value and you can easily borrow against it to buy a car, a home, pay for college, buy gold or a stock, etc.

It is the only asset available that allows you the leverage to make a capital purchase and continue earning a return and even recapture some of the expenses associated with traditional purchasing options. It may even help you increase your returns on other investments.

Like I said at the outset, it isn't perfect. It isn't for everyone. But for many, it's worth looking at.

About Thomas J. O'Connell. Thomas J. O'Connell is the president of International Financial Advisory Group, Inc., which offers retirement planning, wealth management and insurance services. O'Connell is based in Rockaway, N.J., and has been a part of the financial services industry for more than 30 years. He is part of Ed Slott's Master IRA Advisory Group, the Infinite Banking Institute and the Wealth and Wisdom Institute. He also holds Series 6, 7, 63, 65, and 24 securities licenses, along with a life and health license in 12 states, including New Jersey, New York and Pennsylvania. Investment Advisory services provided through Comprehensive Capital Management, Inc., a Registered Investment Advisor. Certain representatives of CCM are also Registered Representatives offering securities through APW Capital, Inc., Member FINRA/SIPC. International Financial Advisory Group, Inc. is independent of CCM & APW. Insurance services offered by representatives of International Financial Advisory Group.