Posted on September 8, 2010 @ 9:54 am - Written by BawldGuy
Written By — David Shafer
Academics in the 1950s and 60s started defining investment risk as total variation of returns. I think that is fine, as far as it goes. But for some reason, when Wall Street started selling mutual funds they forgot to tell their customers about variation of return risk. As you know if you have been reading my posts, one of the positive attributes of EIULs is they reduce variation by not going below 0 and capping the gains at 15% [current Minnesota Life cap].
Why is this so important?
Two reasons. First negative numbers hurt more than positive numbers help. And second, large losses take time [sometimes large stretches] to overcome. Now the assumption is in your accumulation phase most people have that time. But, in real life it doesn’t work that way. For example, last year 11% of all those with 401Ks took a loan out against their 401K and the total percentage of folks with 401K loans went above 22%. That doesn’t count the folks that took out cash and paid the penalty or totally closed their 401Ks! In real life, folks have to access their retirement accounts for a variety of financial crisis. Read the rest of this entry »
Posted on August 31, 2010 @ 5:54 pm - Written by BawldGuy
Much is said about retirement plans at social and/or family gatherings. It’s sometimes an uncomfortable conversation considering the current context of the economy the last few years. Long time readers know what I think about 401Ks/IRAs — they don’t make sense no matter how ya look at ‘em. ‘Course, if you have one, or three, and can’t quite make yourself bail out, given the taxes and penalty you’d shoulder, I understand. It’s still the best thing for most folks to do — but I empathize with their thinking. Heck, I have clients with self-directed plans who I’ve helped invest in real estate. It’s my job to do the best I can with the cards my clients deal me.
I write on a couple other real estate related blogs, one of which I’m gonna link to tonight. There are a couple posts — one in which I directly address the issue of gutting your 401K/IRA. The other builds on that one, in the sense that I demonstrated that what I tell you and my clients to do, is the same thing I just told my own daughter and her new husband.
I encourage you to read those posts at your leisure — and in the order in which I linked them. Digest what was said, read any comments and replies, then come back here, if the spirit moves ya, and let me know your thoughts. After reading them you’ll know one thing for sure — I’m consistent. 
Meanwhile, back at BawldGuy Ranch — gimme a call, will ya? For Heaven’s sake, where ya been? Let’s see what’s possible in your specific situation. Besides, I need a fix. Go ahead — enable me. 619 -889-7100 will do the job. Have a good one.
Posted on July 26, 2010 @ 10:03 am - Written by BawldGuy
Written By — David Shafer
History has pointed out that those who sell mutual funds [and stocks in general] tend toward an idealized view of the future that can be rightly called Pollyannaism [having an overly positive view]. While those selling Life Insurance tend to be exactly the opposite, perhaps alarmist in viewpoint. I try to stay in the middle of those two extremes by cementing my strategy into real life experience and data. This “middle-way” will provide the basis for this post.
When comparing two different retirement strategies it is best that we strip away as much of the hyperbole as possible, so I will not demonize those that push either side. 401Ks were originally designed as an avenue to get additional compensation to corporate upper level management. As such it was thought as simply one of many points of compensation, but one that took special consideration about immediate taxation. Long-term tax issues were best dealt with by strategies designed by tax accountants and attorneys. Since those meager beginnings, 401Ks have become the only retirement plans for the majority of workers. Note, that they were not designed to be the majority retirement plans that they have become. So as a retirement tool, they will always be a little off. Most people fund their 401Ks with mutual funds. The mutual funds offered within corporate plans are both limited and have high expenses. In fact, among corporate offered mutual funds the expenses are extremely high, 3% on average. Read the rest of this entry »
Posted on July 21, 2010 @ 5:57 pm - Written by BawldGuy
Written By — David Shafer
I always find it amusing when folks forget about the important things and instead concentrate on the minutiae. Not that the details aren’t important [they are], it’s just easy to go off the reservation getting into the small details. Whenever I talk to people about EIULs we start by talking about overall strategy. Once we have an understanding of overall strategy we can then talk about how an EIUL might fit into the big picture. But inevitably, clients want to delve down into the details of EIULs, and sometimes we get lost in those details. Because its my business to totally understand EIULs and to communicate that to clients, I often have to draw it back to the big picture. Sometimes I fail at that. Like recently when a potential client wrote me that he and his wife had decided to fund her 401K instead of fund an EIUL. We had gotten so wrapped up in the numbers inside the EIUL that we forgot the real reasons for choosing an EIUL [taxes, doesn’t drop below zero, etc.].
If you think that EIULs might fit into your overall strategy, let’s talk. But let’s remember why we like EIULs so much!
BawldGuy Here: Dave underlines a great point, which I try to make here as often as possible. Much of what keepin’ your eye on the ball, is simply keepin’ the big picture sharply focused. The idea in your overall Purposeful Plan is to retire sooner rather than later — with more rather than less — and with as much of your income as possible either tax sheltered or tax free.
The rest? Mostly happy talk.
Posted on June 22, 2010 @ 10:15 am - Written by BawldGuy
Written By — David Shafer
Frankly, most of the talking guru’s you find on television aren’t worth the time to watch. One exception is Ed Slott. He bills himself as the IRA expert and really knows what he is talking about. He is a CPA and isn’t one of those CPAs who sells insurance and investment advice. He is simply about taxes. He is a big believer in using life insurance as a way to avoid having to pay taxes. In fact, he calls it one of the golden nuggets of financial planning. Read the rest of this entry »
Posted on June 7, 2010 @ 7:31 am - Written by BawldGuy
Written By — David Shafer
I pride myself for educating folks about the world of finance and the ins and outs of EIULs before they commit to the strategies I suggest. Sometimes this leads to losing a sale to less honest folks, but I need to sleep well at night. Interestingly, this also leads to very smart individuals calling me up and having discussions with me that lead to new and better ideas. This happened recently. Read the rest of this entry »
Posted on June 2, 2010 @ 12:34 pm - Written by BawldGuy
Written By — David Shafer
The biggest advantage for using EIULs is not necessarily the tax advantages. It is the sequence of return issue that most investments suffer from. This is why I believe that EIULs along with investment real estate is the best combination investment out there. Read the rest of this entry »
Posted on May 24, 2010 @ 7:22 am - Written by BawldGuy
Written By — David Shafer
A potential client this week asked me some important questions about the flexibility of the equity indexed universal life insurance policy. He asked me, “What would happen if they ran into financial difficulty down the road and wanted to skip some premium payments?” Universal life insurance has much more built-in flexibility than the old whole life insurance policies. If you run into financial difficulties you have several options.
1. Since I structure my policies in a way that minimizes the life insurance component, you could choose to pay a minimal amount that would cover the insurance costs and other costs which, if your are beyond the first 10 years of the policy, would be less than 5% of the planned premium [less than 25% if within the first 10 years]. You could continue this until your financial situation gets healthy again.
2. You could just stop making premium payments if you are several years into the policy because you have some cash value built up, which would cover the policy costs. Later you could catch up by making larger premium payments.
3. If you were over five years into the policy you would have built up enough cash value that would allow you to access your cash value via a policy loan and use that to make premium payments and have additional cash to make other payments like a mortgage. This reserve of cash is accessed free of penalties. Then when you get financially healthy again you can pay your policy back to get on schedule for your retirement.
*One note. Loss of job is the most common financial malady, but disability is second most common. If you are on a monthly premium then I probably suggested you add a rider, which would pay the premium while you are disabled. This rider is cheap and can protect your retirement!
As you can see there is flexibility built into the EIUL. Proper planning requires this flexibility and EIULs deliver it.