Blog #142: Increased Taxes Are Coming

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Bob Ritter's blog 142 image 1 increased taxes are coming

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Note from Bob:  I’m swamped with designing and testing some major enhancements to our illustration software coupled with preparing for the 2016 InsMark Symposium in Las Vegas scheduled for November 4 & 5.  Consequently, I will be releasing my Blog a little less often for a while.  I think you will like this one.

Ron Grove, an attorney friend practicing in San Francisco, is very concerned that Washington will severely increase taxes to cover the monstrous, hyper-growth of the current federal deficit of 19+ trillion?  He brought the following Letter to the Editor to my attention that appeared in the August 12, 2016, edition of The Wall Street Journal:

My quick internet search revealed that the total of the U.S. federal debt, plus the unfunded liabilities (Social Security, Medicare, etc.) is on the order of $120 trillion.  A second search showed that the total net worth of the entire 300 million-plus U.S. population is only about $75 trillion.

You can imagine my surprise (and shock) when I realized that even if the federal government took every dime from every U.S. citizen—rich, poor and in-between—it still wouldn’t have enough money to pay everything it owes.  This gave me an entirely new perspective on our country’s current financial situation.

Avoiding this catastrophe is the main theme of David McKnight’s outstanding book, The Power of Zero, in which he discusses techniques to reduce retirement income tax brackets to zero which, in the process, frees Social Security benefits from taxation.  If you haven’t read it, you should.

My recent Blog #140: Zero Taxes for Social Security - InsMark Style featured how our Wealthy and Wise® users can accomplish these same results for their clients.

Let’s look at one of our most popular illustrations, Various Financial Alternatives from the InsMark Illustration System, to analyze the potential impact of skyrocketing income taxes and a simple way to avoid them -- with IUL.

Case Study – Don’t Burn the Nest Egg®

case-study-dont-burn-the-nest-egg imageRon Grove, my attorney friend, is age 45.  As part of his retirement planning, he has decided to acquire $527,035 of indexed universal life insurance (“IUL”) with a max-funded premium of $25,000 scheduled for 20 years.  At retirement (age 65), he intends to draw cash flow of $100,000 a year from the policy using participating loans.  The IUL death benefit is increasing until retirement; level thereafter.  Values are projected at 7.00%.  You’ll see why he chose IUL in a moment.

There are several alternatives available to Ron.  He is in a 40% marginal income tax bracket and assuming stable income tax rates for the moment, let’s see how his IUL compares to these three alternatives matching the IUL premiums and the $100,000 a year in after tax cash flow starting at age 65:

  • Taxable Account at 7.00%;
  • Tax Deferred Account at 7.00% (an indexed annuity);
  • Equity Account at 7.00% growth; 2:00% dividend.
Various Financial Alternatives
(Stable Income Tax Rates)
Image 1

blog-142-img-1-various-financial-alternatives-stable-income-tax-rates

To match the results of the IUL:

  • Taxable Account needs a yield of 16.43%;
  • Tax Deferred Account needs a yield of 10.55%;
  • Equity Account needs growth of 9.14% plus the 2.00% dividend.

Click here to review the full illustration from the InsMark Illustration System.

What happens if income taxes increase considerably?

Let’s next suppose that by the time Ron retires, his tax bracket has jumped to 80%, a devastating increase (but not as high as WWII when it rose to 91% and stayed that way until 1964 when it decreased to 70%.)

Various Financial Alternatives
(Income Tax Rates Increase to 80% by Retirement)
Image 2

blog-142-img-2-various-financial-alternatives-income-tax-rates-increase-to-80-percent-by-retirement

To match the results of the IUL:

  • Taxable Account needs a yield of 24.38%;
  • Tax Deferred Account needs a yield of 16.39%;
  • Equity Account needs growth of 9.65% plus the 2.00% dividend.

Click here to review the full illustration from the InsMark Illustration System.

“OK,” asks the cynic, “what if income tax rates go way down?”

If we assume that Ron’s tax rates drop down to 20% at retirement (a hard-to-accept assumption), here is what happens:

Various Financial Alternatives
(Income Tax Rates Decrease to 20% by Retirement)
Image 3

blog-142-img-3-various-financial-alternatives-income-tax-rates-decrease-to-20-percent-by-retirement

To match the results of the IUL with what I believe is an impractical long-range tax bracket assumption of 20%:

  • Taxable Account needs a yield of 14.73%;
  • Tax Deferred Account needs a yield of 9.15%;
  • Equity Account needs growth of 8.91% plus the 2.00% dividend.

Click here to review the full illustration from the InsMark Illustration System.

“Wait a minute,” says the cynic, “Ron could put $41,667 a year into a Solo 401(k) and that would cost him the same $25,000. He’d then have $41,667 working for him.”

OK, let’s look at that with a Solo 401(k) yielding 7.00%.

Various Financial Alternatives
Solo 401(k) Substituted for the Taxable Account
(Income Tax Rates Increase to 80% by Retirement)
Image 4

blog-142-img-4-various-financial-alternatives-solo-401(k)-substituted-for-the-taxable-account

To match the results of the IUL, the Solo 401(k) needs a yield of 15.47%.

Click here to review the full illustration from the InsMark Illustration System.

“Now I got you,” says the cynic, “what if tax brackets drop to 20%?”

OK, let’s look at that. We’ll replace the Taxable Account with the Solo 401(k).

Various Financial Alternatives
Solo 401(k) Substituted for the Taxable Account
(Income Tax Rates Decrease to 20% by Retirement)
Image 5

blog-142-img-5-various-financial-alternatives-solo-401(k)-substituted-for-the-taxable-account

To match the results of the IUL with what I believe to be an impractical long-range tax bracket assumption of 20%, the Solo 401(k) needs a yield of 8.40%.

Click here to review the full illustration from the InsMark Illustration System.

Conclusion

With taxes stable, or taxes up, or taxes down, indexed universal life (“IUL”) is unaffected.  If you don’t want to expose your retirement funds to the politicians in Washington, there is a superb way to do so - acquire a large amount of IUL.

 

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If you obtain the digital workbook for Blog #142, Click here for a Guide to each of the illustrations.

 

Licensing InsMark Systems

To license any of the InsMark software products, visit our Product Center online at or contact Julie Nayeri at Julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President - Sales, at dag@insmark.com or (925) 543-0513.

For help on how to use InsMark software, go to The Quickest Way To Learn InsMark.

InsMark’s Referral Resources
(Put our Illustration Experts to Work for Your Practice)

We created the Referral Resources listed below to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice.  All are IMOs and InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software.  They will utilize your choice of insurance company, and they do not require a commission split.

Mention my name when you talk to our Referral Resources as they have promised to take special care of my readers.  My only request is this: if a Referral Resource helps you get the sale, place at least that case through them; otherwise, you will be taking unfair advantage of their generous offer to InsMark licensees.

Save time and get results with any InsMark illustration!

Testimonials

“The InsMark software is indispensable to my entire planning process because it enables me to show my clients that inaction has a price tag.  I can’t afford to go without it!”
David McKnight, Author of The Power of Zero, InsMark Gold Power Producer®, Grafton, WI

“The reason I use InsMark products is because they are so good at explaining financial concepts to all three parties: 1) the producer trying to explain the idea; 2) the computer technician trying to illustrate it; 3) the customer trying to understand it.”
Rich Linsday, CLU, AEP, ChFC, InsMark Power Producer®, Top of the Table, International Forum, Pasadena, CA

“InsMark’s Checkmate® Selling strategy is still one of the most compelling tools to bring a client to a definitive decision, based on their best case alternatives!!!  Solid mathematical comparisons that prove the validity of our insurance solution!!!”
Frank Dunaway, III, CLU, Legacy Advisory Services, Carthage, MO

 

Important Note #1:  The hypothetical life insurance illustration associated with this Blog assumes the nonguaranteed values shown continue in all years.  This is not likely, and actual results may be more or less favorable.  Actual illustrations are not valid unless accompanied by a basic illustration from the issuing life insurance company.

Important Note #2:  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.

Important Note #3:  The information in this Blog is for educational purposes only.  In all cases, the approval of a client’s legal and tax advisers must be secured regarding the implementation or modification of any planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.

“InsMark”, “Wealthy and Wise” and “Don’t Burn the Nest Egg” are registered trademarks of InsMark, Inc.

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More Recent Blogs:

Blog #141: Strategic Philanthropy

Blog #140: Zero Taxes for Social Security - InsMark Style

Blog #139: Finding Clients For Large Case Premium Financing… JUST GOT EASIER

Blog #138: The Quickest Way To Learn InsMark

Blog #137: More On “The Best Policy for My Client”

 

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 #141: Strategic Philanthropy

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(There are no InsMark presentations used in this blog. It is a an informational blog only)

Getting Started with InsMark Training Video

blog 141

Mark-A-Trewitt imageThis week we are featuring Mark A. Trewitt, CLU, ChFC, Founder and President of Integrated Financial Solutions Group, Plano, TX.

Mark has authored a book entitled “Integrated Generosity for Faith Based Families” that should resonate with every user of InsMark products, regardless of their faith orientation as the planning principles are universal for charitably minded clients.

It is with great pleasure that I am providing you access to the 21-page Chapter 7 titled “Hockey Sticks, High Net-Worth Permission Slips, and Achieving Maximum Impact for Smaller Estates”.  Mark is a veteran InsMark / Wealthy and Wise® user.  In the case studies contained in this chapter of his book, he provides exceptional examples of the flexibility and power of Wealthy and Wise (including graphics), in respect of modeling and projecting client planning scenarios and outcomes.

Integrated-Generosity-book-image-Mark-A-Trewitt imageI recently received my copy of Integrated Generosity, and have found it to be a stunning evaluation of strategic philanthropy.  The book is specifically directed at High Income / High Net Worth business owners and families who are of Christian faith, but it contains powerful thoughts and examples for those of any faith who wish to increase the impact of their generosity during their lives, but need a “roadmap” to do so.  The sub-title of the book “Moving from Involuntary Philanthropy Toward Intentional Stewardship and Directed Generosity” is one that Mark hopes is easily “decoded”.

Mark has shared with me his plans for a “broader” edition of the book that is not faith specific, with an anticipated publication date of 2017, which will incorporate contributed content from some of the most well-known and respected authorities in philanthropy and generosity space.  I’ll let you know when it’s available.

Integrated Generosity is a book that will likely end up in the hands of your faith based clients, as numerous Christian ministries are lining up to send this book to their boards and “champion” donors to stimulate conversations on generosity and planned giving.  Wouldn’t you rather they receive that message from you?  Mark has agreed to extend the ministry bulk volume pricing to any InsMark user and/or Blog subscriber.

You can review additional information at www.integratedgenerosity.com.  There you may register for the full eight-segment white paper series (excerpts from the book), or purchase your own copy of “Integrated Generosity for Faith Based Families” (e-book or paperback).  At the very least, connect with Mark via LinkedIn and follow “Integrated Generosity” via the LinkedIn company page.

Marketing Assistance:  If you wish to be a part of local “implementation teams” to respond to requests for planning assistance from prospective clients in your area who have read “Integrated Generosity for Faith Based Families”, please contact Mark through the website above.

Licensing InsMark Systems

 To license any of the InsMark software products, visit our Product Center online at or contact Julie Nayeri at Julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or (925) 543-0513.

InsMark’s Referral Resources
(Put our Illustration Experts to Work for Your Practice)

We created the Referral Resources listed below to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice.  All are IMOs and InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software.  They will utilize your choice of insurance company, and they do not require a commission split.

Mention my name when you talk to our Referral Resources as they have promised to take special care of my readers.  My only request is this: if a Referral Resource helps you get the sale, place at least that case through them; otherwise, you will be taking unfair advantage of their generous offer to InsMark licensees.

Save time and get results with any InsMark illustration!

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

“InsMark is an absolutely mind blowing experience.”
Larry Gustafson, InsMark Platinum Power Producer®, Denver, CO

“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

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More Recent Blogs:

Blog #140: Zero Taxes for Social Security – InsMark Style

Blog #139: Finding Clients For Large Case Premium Financing… JUST GOT EASIER

Blog #138: The Quickest Way To Learn InsMark

Blog #137: More On “The Best Policy for My Client”

Blog #136: Taking Care of a Rainmaker

 

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