Blog #68: A Pretend 401(k) Plan vs.
Indexed Universal Life

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David Wolfe, a neighbor of mine, is a very successful attorney.  He is making maximum contributions to his law firm’s 401(k) plan.

Recently we were grilling steaks together, and got to talking about his 401(k).  I asked him, “If you could put more into your 401(k), would you?”

His response was, “I would.”

I asked him, “How much?”

He thought for a moment, “$50,000 for sure; maybe more.”

Case Study

Let’s make believe for a moment that he can do it.  We will illustrate David contributing $50,000 a year for the next five years to his pretend 401(k) plan.  In his 40% marginal tax bracket, it costs him $30,000 each year after deducting his income tax savings ($50,000 – $20,000).  We will compare the results to an Indexed Universal Life Policy (IUL) with scheduled premiums of $30,000 a year for five years, the same dollars as the after cost of his pretend 401(k) plan.  We will illustrate both plans at 7.50%.

At age 65, we show David making tax free loans on the life insurance policy using an indexed schedule of participating loans starting with $33,000 and ending with $65,542 at age 99.  We illustrated withdrawals on the pretend 401(k) plan that, after tax, match the same cash flow as the IUL.

There is no way the pretend 401(k) plan can compete with the IUL.  Check out the InsMark graphic of the comparison below.

A Pretend 401(k) Plan vs. Indexed Universal Life
A Look at Year 55

blog 68 A Pretend 401(k) Plan vs Indexed Universal Life comparison image

Would you rather view trend lines?

blog 68 Cumulative Payments and Cumulative After Tax Loan Proceeds comparison image

Below is a summary of the two strategies:

(1)
Pretend
401(k) Plan
(2)

Indexed UL
Cum. Contributions $250,000 $150,000
Cum. After Tax Payments $150,000* $150,000
Cum. After Tax Cash Flow
(Age 65 – 100)
$771,247** $1,921,454
Residual Cash Value
at Age 100
$0 $527,767
Overall Value to David $771,247 $2,449,221***
*40% income tax bracket
**Values expire at age 82
***318% greater

Click here to review all the reports for this comparison from the InsMark Illustration System.

Additional Advantages

Unlike the pretend 401(k) plan, the IUL has four additional advantages:

  • It provides a $700,000 life insurance death benefit;
  • If the selected market index drops, there is no loss to the policy owner;
  • There are no required minimum distributions;
  • There is no 10% penalty tax associated for distributions prior to age 59½.

Conclusion

If you are a fan of Indexed Universal Life, there is no more powerful sales strategy I can suggest to you than the comparison between a pretend 401(k) plan and a life insurance policy.  If you use it, you will never run out of prospective customers.

Prospecting

Imagine the response you would get if you ask the following question of individuals similar to David Wolfe:

“If you could invest an unlimited amount into your 401(k), how much more would you contribute annually over the next five years?”

Or this slight variation for those with no access at all to a 401(k):

“If you could invest an unlimited amount into a 401(k), how much would you contribute annually over the next five years?”

Either of these questions produces very favorable responses.  When they occur, use the Other Investments vs. Your Policy in the InsMark Illustration System to show the results your policy vs. the pretend 401(k) plan.

Note:  For those who are currently contributing to 401(k) plans in excess of the employer’s match, using life insurance as an alternative is also very effective for the portion that is not matched.  See my Blog #61 – Sacrificing Cash Flow with a 401(k) Plan for details.

Note:  Most owners of S Corporations, LLCs, or partners in Partnerships are well aware that their pass-through entities offer little opportunity for significant benefit plans.  They typically have 401(k) plans with the standard limit on contributions — like David Wolfe’s law firm.  Introduce these individuals to a pretend 401(k) vs. IUL for as much excess contributions as they desire — you’ll be well rewarded for the effort.

Why only five years of payments?  It is a short time horizon which makes it easier for your prospect to decide.  At the end of five years, do another one.  And then another.

Important Note:  Many of you are rightly concerned about the potential tax bomb in life insurance that can accidentally be triggered by a careless policyowner.  Click here to read Blog #51:  Avoiding the Tax Bomb in Life Insurance.

 

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

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Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

Licensing

To license the InsMark Illustration System, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries regarding enterprise licensing should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513.

InsMark’s Referral Resources

If you would like assistance with any InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers, and none of them require a commission split.  My only request is if a Referral Resource helps you get the sale that you place at least that case through them.

Joint Interviews

If you want or need help from a qualified producer for joint interviews with any InsMark illustration and are willing to share the case, email us at bob@robert-b-ritter-jr.com, and we will provide you with recommendations.

Testimonials

"InsMark is the Picasso of the financial services world — their marketing savvy never fails to amaze me."
Doug Peete, Past President, Top of the Table, InsMark Silver Power Producer®, Overland Park, KS

“The InsMark Illustration System has significantly enhanced my life insurance production scope.  I feel I can now present my ideas with superb backup support material.”
Ross Hoffman, Ventura, CA

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More Recent Blogs:

Blog #67: Filling the Pothole in Wealth Planning

Blog #66: Buy Now vs. Buy Later Video

Blog #65: An Exceptional Video on Retirement Planning

Blog #64: More on Single Premium Immediate Annuities

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3 Reasons Why It’s Profitable For You To Share These
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Robert B. Ritter, Jr. Blog Archive

 

Blog #67: Filling the Pothole in Wealth Planning

The logic of maximizing net worth as part of asset distribution for retirement cash flow is largely overlooked by almost all advisers.  Welcome to a video on this subject produced by Steve Savant, National Marketing Spokesman for Ash Brokerage, with Don Prehn, Senior Consultant to InsMark.

In their video, Steve and Don explain the mechanics behind the study I did in Blog #8: The Pothole in Wealth Management, Good Logic vs. Bad Logic™.

You can view their five minute video below.  It will be enlightening.

Blog 67 Video with Steve Savant and Don Prehn on the logic of maximizing net worth

On the same subject, click here to visit my Blog #8 if you’d like more detail.  I have an eight-minute video embedded within Blog #8 that takes you through the Wealthy and Wise® software to demonstrate how Good Logic vs. Bad Logic is created.

The video within Blog #8 closes with a good analysis of a Roth IRA conversion coupled with a Wealth Replacement Trust that you won’t want to miss.  Let me tease you with a couple of graphics from the video in Blog #8.  See below for a comparison of Strategy 1 (Bad Logic) with Strategy 3 (Good Logic + Roth IRA Conversion + a Wealth Replacement Trust funded with $2 million of survivor life insurance).

Bob Ritter Blog 67 Filling in the Pothole net worth comparison graph

Conclusion

You do not want your clients presented with a Good Logic vs. Bad Logic™ analysis by another adviser.

Licensing

To license Wealthy and Wise, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries regarding enterprise licensing should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513.

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Blog8.zip

Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

Referral Resources

If you would like assistance with an InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

Joint Interviews

If you want or need help from a qualified producer for joint interviews with any InsMark illustration and are willing to share the case, email us at bob@robert-b-ritter-jr.com, and we will provide you with recommendations.

Testimonials

“Merely having a great tool is never powerful in itself – it is knowing how to use it and being inspired to use it which creates the power to achieve.”

Phil Barnhill, InsMark Gold Power Producer®, Minnetonka, MN

“Bob Ritter is the most knowledgeable practitioner of advanced markets.”

Hector May, CLU, ChFC, CFP®, InsMark Platinum Power Producer®, New City, NY

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More Recent Blogs:

Blog #66: Buy Now vs. Buy Later Video

Blog #65: An Exceptional Video on Retirement Planning

Blog #64: More on Single Premium Immediate Annuities

Blog #63: Sometimes You Just Need a Good Calculator

Blog #62: Review of the Rescue Plans

 

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive

 

Blog #66: Buy Now vs. Buy Later Video

Steve Savant is National Marketing Spokesman for Ash Brokerage.  (Ash is an InsMark Agency Platinum Power Producer®).  Recently Steve produced a series of videos with Don Prehn, Senior Consultant to InsMark, regarding several of my Blogs.  I think Steve and Don did a particularly good job regarding Blog #50: The Cost of Waiting by delivering an effective explanation of the significant dollars lost by delaying the purchase of life insurance.

I thought you would like to view it, and you can do so below.

Blog-66-buy-now-vs-buy-later-video-graphic

Click here to visit my Blog #50: The Cost of Waiting for a more detailed discussion of this concept plus a close look at illustrations and graphics.

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Blog50.zip

Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

Licensing

To license the InsMark Illustration System, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries regarding enterprise licensing should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513.

Referral Resources

If you would like assistance with an InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

Joint Interviews

If you want or need help from a qualified producer for joint interviews with any InsMark illustration and are willing to share the case, email us at bob@robert-b-ritter-jr.com, and we will provide you with recommendations.

Testimonials

“InsMark is an integral part of my business and has been for many years. A great partner!”

Jeffrey Berg, InsMark Platinum Power Producer®, Edina, MN

“InsMark is an absolutely mind blowing experience.”

Larry Gustafson, InsMark Platinum Power Producer®, Denver, CO

seperator bar

More Recent Blogs:

Blog #65: An Exceptional Video on Retirement Planning

Blog #64: More on Single Premium Immediate Annuities

Blog #63: Sometimes You Just Need a Good Calculator

Blog #62: Review of the Rescue Plans

Blog #61: Sacrificing Cash Flow with a 401(k) Plan

 

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive