Millionaire By Thirty - Authors Blog

Don’t Give Uncle Sam an Interest Free Loan

2009-02-18T08:04:00.000-08:00

A small "Missed Fortune" being made by millions.

Do you get a tax refund each year?

How big is it? Is it over $1,000? Is it over $3,000?

I know several people who consistently year after year get a significant tax refund check every year. Most people either do this ignorantly or as a “forced savings plan”. Either way you are giving the government an interest free loan. It seems sort of backwards that if you owe the government money they charge you interest and penalties, but if they owe you they don’t pay you anything extra. Just recently we are seeing in California, and now in Kansas, that not only does the government not pay interest but for the time being, they are not going to even give you your money back at all! This is ludicrous. If they are refusing to give you back your money when they owe it to you they should then be paying you interest on that money at a minimum and should really be subject to penalties.

Well if you want to take accountability and responsibility and quit overpaying your taxes, you can simply adjust the exemptions on your W-4 with your employer. The calculations to do so can be found on the second page of the W-4. Or even better yet, you can utilize our 2009 W-4 Exemption Calculator to calculate it for you. Then simply download the blank W-4, fill it out and give submit it to your employer. Take accountability and responsibility for yourself. You can set up better forced savings plans that will actually pay you interest and that will allow you to access the money when you need or want it!

Missed Fortune - "How does a life insurance policy work"

2009-02-17T07:56:00.000-08:00

I want to take you through the process of setting up one of these policies that we discuss and teach about in Missed Fortune in hopes that that will help shed some further light on the topic. But first I need to lay a little foundation. When structuring a maximum funded contract, we have to stay in compliance with TEFRA and DEFRA. These laws were passed by congress between 1982 and 1984. They define what a life insurance policy is. Or better put, they defined a minimum cost one must incur per dollar of premium paid. They did this because prior to 1982, you could choose your death benefit. On any excess premium paid into the policy (any premium that does not have to go directly to cost) the life insurance company is allowed to pay interest or dividends. This is attractive because under section 72(e) and 7702 of the internal revenue code, the interest on the excess premiums is given a tax-deferred treatment. Plus if or when you want to access any of your excess premiums or any interest, you can access it via FIFO tax treatment or tax-free utilizing loans.
For example if you wanted to pay $100k of premium you could elect to have let’s say $10k of death benefit. The cost on for that policy would be minimal. You might have $150 that year go to expenses, but if your excess premium ($100,000 - $150) earned 8 percent ($7,988). Who wouldn’t pay a measly $150 to have the rest be tax-free? And that is just the first year; it just continues to compound every year after that. Under TEFRA/DEFRA a formula was created so that you could no longer “choose” your death benefit based on the total premium paid, but rather it is calculated based on cost. So now the question is…can you still structure the policy to minimize the cost enough to still enjoy the liquidity, safety, and tax-favored returns? The answer is yes. When structured correctly the overall cost on the policy retroactive back to day one will be about 1 percent of your overall return.
Okay, here is the sample plan:
1. Paying a total of $100,000 into a policy. ( I am going to show this being paid as fast as possible, 5 years, although the longest you would want to take would be 11 years in order to minimize cost)
2. I am going to use a 45 year old male and a fixed indexed universal life policy. This means that the excess premium goes into the general portfolio of the insurance company, but rather than using that portfolio to determine the interest rate, we can use an index (like the S&P 500). Your money is not invested in the index, we are simply using it to determine your return.
3. I will link several of these examples to actual illustrations for your benefit.

· This first illustration is to show you the policy maximum funded/minimum death benefit. $100,000 paid the first five years and a death benefit of $493,794.
· You can lower the death benefit even further after a period of time shown here.
· This illustration is showing the internal rate of return (column 4) or your return after all costs have been taken out. This is represented as an average return up to the year illustrated. The policy is the most expensive in the first year, but as we maximum fund it, it performs excellent. Over 30 years it averages back to day one 6.84 percent. With a gross return of 8 percent, that would mean the cost was equivalent to 1.16 percent.
· This illustration shows a level income withdrawal beginning at age 67 and ending at age 100.
· This illustration is comparing the insurance policy to four other alternatives. (since we cannot make those type of deposits in a typical IRA/401(k), we are assuming instead that the deposit is as if it already existed as a balance)
I hope this helps. We are always happy to answer questions. If your question is case specific, your are always welcome to call Missed Fortune at 888-987-5665.

2008-12-19T08:59:00.000-08:00

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Risk and Liquidity

2008-12-17T08:53:00.000-08:00

Whenever you look at risk, you should simultaneously be looking at liquidity. You can understand your risk exposure best by initially analyzing your liquidity. Do you have enough cash that is accessible to pay your mortgage, and pay all other bills? For how long? How about enough to allow you to ride out a downturn in the market, economy or job loss?

Be sure that you start with a sound foundation when building wealth. That starts with liquidity and managing risk. It is like the song I used to sing in Sunday School about the wise man versus the foolish man.

1. The wise man built his house upon the rock, The wise man built his house upon the rock, The wise man built his house upon the rock, And the rains came tumbling down.

2. The rains came down, and the floods came up, The rains came down, and the floods came up, The rains came down, and the floods came up, And the house on the rock stood still.

3. The foolish man built his house upon the sand, The foolish man built his house upon the sand, The foolish man built his house upon the sand, And the rains came tumbling down.

4. The rains came down, and the floods came up, The rains came down, and the floods came up, The rains came down, and the floods came up, And the house on the sand washed away.

Understanding, managing and reducing RISK is paramount in building wealth.

2008-12-16T08:48:00.000-08:00

We talk a lot about optimizing assets, and understanding, managing and reducing RISK is paramount in this process. You cannot achieve financial independence until you understand the risk exposure you have on all your assets. Once you understand all the different types of risk with your home, real estate, IRAs, 401(k)s, retirement accounts, insurance, etc.; you can then begin to learn how to manage and reduce your risk exposure.

I did not say eliminate risk. There is no way you can completely remove all risk. Even if you were able to, there would be no return nor any reward. You would remain stationary with no opportunity for growth. Risk is essential to building wealth, but it can also be its demise.

One way to manage and reduce risk is to share the risk with someone else or with another entity. That way you do not have full exposure and neither does the other party. But together you are stronger and can be empowered to do much more. The most common example of this is a mortgage on your home. But it also can be applied to your retirement accounts, life insurance, and other long term investments.

2008-10-08T19:34:00.000-07:00

These are definitely crazy times. With the market losing over 30% over the past year, and simultaneously the real estate market remaining sluggish and dropping 9.5% during the same period of time, many people may be asking the question "Where would it have been best to have my money over the past year?".

It is important to look at what has happened so that we may learn from it, and not make the same mistake(s) in the future. The single largest problem on an individual level as well as on the large corporate level was and is LIQUIDITY. Liquidity is the ability to access the cash value within an asset. If the cash value of the asset is locked up so that you cannot easily access it, then the asset is not considered liquid.

If you have read any books in the Missed Fortune series, then you will know that my dad, Douglas Andrew, learned this lesson for himself back in 1983. He did not have liquidity when things out of his control happened and he was without income for a period of time. This caused him and my mom to lose their newly built dream home in forclosure. Rather than turning sour after that horrible experience, my dad turned it into a learning opportunity and has spent much of the past 25 years teaching people how to avoid the same mistake he made while simulatenously building wealth.

If individuals had liquidity, we would not be seeing the massive amount of foreclosures going on right now. In fact there were 71,000 pieces of property repossessed in the month of June. The current problems with many of the financial institutions including AIG, Wamu, Lehman Brothers, and others is due to not maintaining a sufficient amount of liquidity.

Liquidity is the most important principle in your personal finances. With sufficient liquidity you could easily ride out both the troubles in the real esate and stock markets. Not only could you ride them out, but you could take advantage of investment opportunities while others are forced to watch them pass by.

When investing serious cash you want to make sure that the investment you are considering has sufficient liquidity, safety, and earns a good rate of return. Many people get these priorities out of order and put rate of return first. This is where you gamble and can get into trouble. As we talk about in our book Millionaire by Thirty, we prefer maximum funded life insurance contracts. When these are structured and funded correctly, they provide some of the best liquidity, safety and rate of return. You can join us for our free webinars to learn more about what to do in these turbulent times with your serious cash. Empower yourself with knowledge.

Register for our free webinar on October 23 to learn more about which house of cash you want your money in - "Three Houses for Cash - Where is all the money going?"

Or watch our past webinar on the lock and reset features of an indexed universal life insurance policy works compared to having your money directly in the market.

Visit our website at http://missedfortune.com/client/index.aspx