By Joseph Schrutt CRPS, Wealth Manager CEO & Founder of Xecutive Wealth Strategies
Transcription:
Glenn Wiggle
All right, welcome back, everybody. You’ve got the financial guys again, Glenn Wiggle, Mike Lomas, and if, again, if you need us throughout the week, we do manage money for a living. We’re talking about some money today, kind of bouncing back and forth. And we are going to check in with one of our cfas, our financial analyst Peter Nielsen, in a little bit. Obviously, the feds have raised rates this week, and that’s a big deal. Hasn’t happened in quite some time. So market initially, I was nervous about it, but turned around and rallied pretty strong. So we’ll talk and check in with him and see what his thoughts are in just a little bit. Before we do that, however, we are going to check in with Joe Schrutt, who is in our life insurance department and investment department. But your focus, Joe, is really on more of the life insurance side, making sure people, number one, have the right coverage. And I want to start there before we get into some of the tax benefits of it because this is something that’s really important to Mike and I. We talked about this before the break and we had a lot of real life examples.
Glenn Wiggle
And sadly, we have. And early on in our career, you know, we had a colleague of ours that was, you know, our assistant, really, and sadly, she was killed along with her husband in a head on car crash and just absolutely tragic. It’s one of those events that, you know, almost change your, you know, it’s those life impactful events that almost change your life in a way, to really think about things differently. And they were in the mid, you know, mid late twenties, right, as a one year old child. Fortunately, Mike had written the life insurance on both of them. And so they had some coverage, $50.
Mike Lomas
They each paid us a $50 premium.
Glenn Wiggle
That’s it.
Mike Lomas
And we were able to leave a bunch of money tax free to the just born daughter a few weeks old, and, you know, nobody wants to lose their mom and dad, but at least there was something there to be able to start a foundation. So this child had money for the rest of her life, which I’m proud to say we did the right things.
Glenn Wiggle
That’s right. So, Joe, talk about some of the affordability. I mean, I think a lot of people think, oh, God, you know, you’re young, you’ve got, you got a new baby coming, you got kids, you got a house, potential, all these expenses. But it’s so important to make sure that you’re covering yourself in the event of a catastrophe. Talk to me about how cheap some of this stuff can really be.
Joe Schrutt
Well, there are two main forms of life insurance, and if you’re looking at the affordability aspect of it, you’re going to look more towards term coverage, which is temporary coverage typically lasts ten to 30 years. It’s so affordable where, let’s say, for example, a 40 year old male for $1 million, we’re assuming they’re in good health, it could be as low as $35 a month. So it can’t be there for you. God forbid, if something were to happen to you, like an unexpected death, right?
Mike Lomas
It’s like one gallon of gas or a life insurance policy.
Glenn Wiggle
You know what I mean?
Mike Lomas
Like, you know, you drive seven or 10 miles less that month. I’m joking, but very cost effective. And it doesn’t be. Look, it, we tell ourselves all the time. People come in, they say, I want to buy stocks. I want to buy bonds. Like, wait a minute, you got kids, you got children. Something happens to you, that plan goes away. And, you know, and even with higher wage earners like you think, okay, well, the higher wagers, they could easily afford $50 a month, but they don’t. They don’t. They don’t put it on the agenda as part of the plan.
Joe Schrutt
Absolutely. There are three concerns that we look at, or people look at as they go into their golden years or retirement, that is, if you were to die too soon. So we know life insurance handles that. But just like everything in life evolves, let’s look at our cell phone. It went from a suitcase phone to a brick phone to actually a mini computer in our pocket. We talk. Life insurance has also evolved to a new, modern form or new school approach where it covers that death benefit, but also, you know, people fear of running out of money because we’re living longer. It provides guaranteed income for life where. Because it builds a cash value. And then also it has that since we’re living longer. We don’t stay healthy through our retirement years, and there’s living benefits attached. So if you do become ill or let’s say, in a car accident, you can access all or a portion of your death benefit to help pay for nursing home care, home health care, even, let’s say, in a car accident, you need a wheelchair ramp. You don’t have access. You could use your life insurance policy to get access to your home again.
Glenn Wiggle
Right. That’s huge. And the life of the long term care part is a big, big deal that accelerates, not really long term accelerated death benefits. So I gotta be careful with the language here. So always consult with an insurance professional, make sure you understand all these different policies a little bit differently. They’ve all got little tweaks and benefits and whatnot. But, you know, in New York state, we’re down to, I think, only two actual companies that provide a, you know, traditional long term care, which ultimately has become a really poor investment because you may never use it. And that’s the biggest argument for people with these new life insurance policies, with these riders, these accelerated death benefit riders. You know, you get the benefit of, you know, two things really, right? You’ve got the benefit of protecting your family, but for a lot of folks, they’re buying life insurance policies almost solely for the accelerated death benefit feature, to access that death benefit, to pay for that long term care. Stay with the comfort of knowing that, hey, if I don’t go into a long term care facility, and God willing, I won’t, you know, my family’s still going to get this lump sum at the end.
Glenn Wiggle
And so something that’s really, really important to look at. Absolutely. And a great feature that just in the last, what, 510 years in New York, those are all new types of things. So great point on keeping up with technology and new products, for sure.
Joe Schrutt
I think another feature to add to the long term care living benefits that’s attached to life insurance is your premiums are going to stay level over the time of your policy. With long term care insurance, we know how outrageously expensive it can get, and they can, they continue to increase their premiums. So you’re comfortable knowing that this is what your premium is going to be. You can cover those three main concerns and your premiums are never going to go up.
Glenn Wiggle
Right. That’s huge, Joe.
Mike Lomas
We always talk about taxes on this show. Taxes, taxes, taxes.
Glenn Wiggle
Right.
Mike Lomas
Esther Gulyas lover, she always says it’s not what you make that’s important, it’s what you keep and when it comes to life insurance policies, people forget about the tax freeness of it. Right. That is huge. And I see people all the time that say, I’ll say, what are you going to do with this money? Well, I’m going to leave it to the next generation. I’m not saying it’s right for everybody, but for some people looking at a life insurance policy as an estate builder, you know, the wealthiest families do this. The Kennedys have been doing this for years. They buy these life insurance policies, they transfer wealth to the next generation. The next generation buys a bigger policy. Buys a bigger policy. Buys a bigger policy. I would bet everything that the Clinton foundation has a nice big life insurance policy on it.
Glenn Wiggle
Except they have other people.
Joe Schrutt
That’s right.
Mike Lomas
Well, they, well, they’ve really leveraged it.
Glenn Wiggle
Yeah. No, no, they just really take it to a whole other level, Mike. Yeah.
Mike Lomas
No, it’s not just on them, but, but these families, these wealthy families leverage it. But you don’t need to have a hundred million dollars to do this. Oftentimes it’s people that have IRA accounts. They’re not even using their IRA distribution. They’re putting it in a bank account earning zero. Right.
Joe Schrutt
Absolutely. So, you know, we look at the unit party in Washington, how they’re on a print money and spending binge. There are two ways that they can address this issue. It’s either spend less and do we think they’re spending less? Let’s look at what they’re doing. They’re throwing gasoline on the dumpster fire.
Glenn Wiggle
That’s a comedian here.
Joe Schrutt
But the next one is raising taxes. So if you.
Mike Lomas
They won’t do that.
Glenn Wiggle
No.
Mike Lomas
No, they don’t.
Glenn Wiggle
That’s only the wealthy, Joe.
Mike Lomas
Yeah.
Glenn Wiggle
Steel. Elizabeth Warren’s of the world.
Mike Lomas
Yeah. So she just missed it. She just.
Glenn Wiggle
Oh, yeah.
Joe Schrutt
So if you, if you think future tax rates will be lower, then saving on, on a pre tax basis, such as a traditional IRA or your employer’s retirement plan, makes a lot of sense. I mean, I would say even if you think it’s higher, it’s important to get the, the, the matching contribution with your employer and retirement plan regardless. But let’s say if you think future tax rates will be higher, then you may want to consider a tax free retirement strategy that uses financial products like a Roth IRA or even permanent life insurance where it can, it builds a cash value and you have that access for guaranteed income throughout your life.
Mike Lomas
All tools, folks. Doesn’t mean you do it. Doesn’t mean you don’t do it. But we always say, folks ask us all the time, what do you think about this? I heard this is good. All tools, they’re all good. They just need to be used appropriately. Right. And absolutely should be part of your overall consideration in your asset allocation.
Glenn Wiggle
Yeah. I’m going to hold Peter to the next segment, but I wanted to, because I want to ask a few more questions, and you mentioned Roth and that, so that kind of triggered me to talk about this for a sec. We hear this all the time. What do you guys think about converting to a Roth Ira? Right. And oftentimes, you know, people that start thinking about that have determined at that point that they probably are not going to need all of the assets. And so oftentimes they’re looking at this conversion because they figure, well, I’ve got to take money out anyways. I might as well start doing it even before I’m 70. So usually it happens when it starts in their sixties. And this way I can move it to a tax free and I’ll leave it to my kids tax free as opposed to being taxable and maybe at a lower rate, my lower rate versus their lower rate. The problem with that, that I’ve seen, and we’ve run the numbers on this, is that it takes time for an investment to recover those taxes. Right? So think about this. You take out $100,000, you convert it, but you’re in a 25% tax bracket.
Glenn Wiggle
If you can’t pay the taxes outside of that conversion, well, now you’re only converting, you know, really 75,000. Right. You’ve got to make back now 30 some percent to just get back to even before you go on to having. So you’re talking about potentially years and years and years and years down the road before that really makes sense, right. But if you look at it, you’re not going to use it, especially if you’re like, I’m just going to do this because I want to leave the Roth IRA to the kids. Using a life insurance policy as opposed to using a Roth IRA conversion makes way more sense if you are healthy, right? Because what happens is you’re going to take that same money out of your IRA, you’re going to pay the same taxes on it. But now instead of doing one big lump sum, you can probably take out ten or 20 grand to achieve the same hundred thousand dollars tax free. Or what if you did want to take out 50 or 60,000? We’ve had clients take out $100,000 a year and put it into a life insurance policy. Well, now you’re talking about leveraging a tax free death benefit the very next day, right?
Glenn Wiggle
No. A dozen years to get back to even the next day, that policy is going to be levered up to be in the millions of dollars. Right. So if you’re going to leave that money to kids and you’re thinking, thinking about doing a Roth IRA conversion utilizing a life insurance in its place is just almost a no brainer. Again, if you qualify and if you’re healthy, you’ve done a bunch of those, right, Joe?
Joe Schrutt
Yeah, absolutely. Actually, what life insurance does with the cash value component, you avoid market volatility. So if you’re going in with a Roth, you could avoid that market, sorry, market volatility, because you’re connected to the s and P. But I like to say zero is your hero, right? So it’s indexed, so you have a ceiling and then you have the floor. So the ceiling may be capped at 12%, 9%. So you’re, you’re gaining when the s and P goes up, as the s and P drops, zero’s your hero. It’s really 2.5%. You’re not losing your gains, so you’re constantly compounding your growth and you won’t lose your gains. And you actually, it’s tax free. It’s there for you tax free if you need it.
Glenn Wiggle
So these are our equity index type of products. So not the old variable products that go up and down and in down markets. Some of those blow up on for. So you don’t really sell any of those anymore. The new index gives you a floor in this case and some cases zero, some cases one or two or two and a half percent. And then of course there’s a ceiling as well. Joe. For more information, they can call you at the office, 833 fin guys, or go to our website, the financial guys.com. Joe, thanks so much for joining us today. We really appreciate it.
Joe Schrutt
My pleasure. Thank you.
Glenn Wiggle
All right, we come back on the other side of the break. We will check in with Peter Nielsen, who is one of our chartered financial analysts on the.on for lasting financial prosperity and peace of mind. Remember, success in business is important, but so is success in personal finance.
