Is There an Optimal Balance Between Protected Assets and Growth Assets?

“Hey Mike, what is the best option for your reservoir?” Discover the various ways to fill your reservoir based on the needs of your plan. Understand all the benefits and detriments associated with products and investments such as CD’s, Treasuries, annuities, and more.

Text your questions to 913-363-1234.

Request Your Wealth Analysis by going to www.yourwealthanalysis.com.

What is How to Retire on Time?

Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.

Mike: 00:05

Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or by going to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, well, we can pretty much cover it all. Now that said, please remember this is just a show.

Mike: 00:37

Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, request your wealth analysis by going to www.yourwealthanalysis.com. With me in the studio today, mister David Fransen. David, thanks for being here.

David: 00:54

Yes. Glad to be here.

Mike: 00:55

David's gonna be reading your questions, and I'm gonna do my best to answer them. You can text your questions in at any time this week to the number. Save this. Put it in your phone right now. 913-363-1234.

Mike: 01:05

Again, that's 913-363-1234, or you can email them to hey mike at how to retire on time.com. Let's begin.

David: 01:16

Hey, Mike. What is the best option for your reservoir?

Mike: 01:20

Trick question. Yeah. There is no such thing as a perfect investment product or strategy. So it's going to be when do you start deliberately preparing for retirement. So based on what I've seen, based on my research, if you want the best growth, best cash growth over the long term period of time, I have found and you're gonna be surprised by this.

David: 01:45

Okay.

Mike: 01:45

That indexed universal life insurance is many times the way to grow your cash value faster with that protection than most any other vehicle I found. Now life insurance, it's not an investment. It's life insurance. So you can easily screw this up. You might say I've got universal life or it next universal life, and it stinks.

Mike: 02:13

Yeah. That happens all the time. So the reality is if you're looking for life insurance, you must need a death benefit or else it's probably not suitable. K. You don't buy things you don't need.

Mike: 02:30

I know there's a lot of gray area in this. Yeah. That's the by the book, the definition. If you don't need a death benefit, you you don't buy life insurance. So let's be very clear about that.

Mike: 02:40

Secondly, when it comes to life insurance, you need to consider spousal risk. So if you're gonna retire at 60 years old and you wanna file for Social Security at 70 years old, that's 10 years you're not taking Social Security. That may be an income stream. So there could be a small death benefit that's there for the surviving spouse in case you're delaying Social Security. And there's a few things that you might use a death benefit for in retirement like that.

David: 03:02

Okay.

Mike: 03:03

But you need to fund life insurance sooner than later. It takes about 10 years to get through the fees, the garbage, all of that before the cash growth becomes competitive. So if we look at the IRR, the internal rate of return, the real growth, when you consider fees and all of that, life insurance stinks the 1st 5 years. The fees are high. It doesn't make sense.

Mike: 03:29

And then in year 7 or 5 to to 10 years or so, the fees go down a little bit, but not by a lot. Mhmm. And then after the 10th year, the fees, if you do this right, fall off a cliff.

David: 03:43

Okay.

Mike: 03:44

And you've got more upside potential than you would with a fixed index annuity or with any equity linked product. So structured notes, buffered ETFs, things like that. It's got great upside potential, but you have to get the first through the first 10 years. Why is that? Because universal life, as I've seen it, front loads the fees so the insurance company make sure they make their money and then they don't care at that point.

David: 04:07

So if you're listening to this and you're, like, 75 years old

Mike: 04:10

Not worth it. Yeah. So I'm talking right now to the 40 50 year olds. If you have extra cash and you want to have a reservoir that's got better cash growth and you you need that death benefit Mhmm. That's really the cream of the crop.

Mike: 04:24

I mean, for for me personally, I love it. I love this strategy because I'm 36 years old, 37 next month.

David: 04:31

Mhmm.

Mike: 04:31

And I can structure it. And this is the trick, by the way. They don't tell you this. Even insurance, they just might not realize this. You want to fund it quickly over 5 to 10 years.

David: 04:40

Okay.

Mike: 04:41

And then you want to drop the death benefit. Why is that important? If you drop the death benefit, there's less risk to the insurance company. If there's less risk to an insurance company, there are less fees associated with the policy. If there are less fees associated with the policy, there's more cash growth potential.

David: 05:00

Yep. That makes sense.

Mike: 05:01

So I'm not quoting rates here, but let's just how do you measure these things? Well, look at the bond funds, your bond fund ETFs. And how much have they averaged over 10 to 20 years of growth? Dividends reinvested, the whole 9 yards. What's their average growth?

Mike: 05:17

And then run an illustration over a 20 year period of time. And which one had more cash growth depending on your health, depending on your age, depending on the carrier. That's a very honest calculation. And then you can determine for yourself, is it right or not? But if it's structured correctly, if you lower the death benefit, if you have time to fund it by tracking the dollar amount that's accessible to you.

Mike: 05:43

And people hate this.

David: 05:45

Mhmm.

Mike: 05:46

People hate it because they don't wanna believe it. People hate when I say this because there's no way that could be true because they don't want it to be true. Because they've been told their whole life, life insurance sucks.

David: 05:56

Mhmm.

Mike: 05:57

Whole life is what they're used to. Universal life has been structured not so well for many, many years. But if I'm to be a fiduciary, my job is to tell you the comparative analysis between the dollar amounts that you have access to to generate income from in the future. My job is to tell you the differences of different investments or products that offer principal protection. So, yeah, I'm gonna lose business over admitting this.

Mike: 06:24

I don't care. Because my job is to be honest and say it as it is, and I just back it up with simple math. Yep. I shouldn't say so. My math is actually quite complicated because you have to ask for things you don't know to ask for to get the fees and then do a real comparative analysis anyway.

Mike: 06:39

But that's the point. So the best one is is there. Now I wanna point out a theme here. When we're talking about the reservoir, we're talking about different investments or products that offer principal protection and growth potential. They lack liquidity.

Mike: 06:54

There's really 2 groups in this. There is indexed options. So if the market goes up, you increase in value. Your cash value grows. If the markets go down, you don't make anything.

Mike: 07:07

And then there's fixed options out there. So it doesn't matter what happens. It's growing at a fixed rate.

David: 07:14

Uh-huh.

Mike: 07:14

So fixed rates are CDs, treasuries, and fixed annuities. The rate is predetermined. It's growing at a certain rate. It is what it is. Mhmm.

Mike: 07:24

Over the short term period of time, they have a better chance of growth because we don't know the future of the market. But when you look past 5, 10 years, index products, because they have market participation, have more growth potential, but you're taking some risk because they're not guaranteed to grow at a certain rate. They're only gonna grow if the markets go up. There there's no way to cheat the system here.

David: 07:48

Right.

Mike: 07:48

That's why you blend these things together. That makes sense?

David: 07:52

Mhmm. Totally.

Mike: 07:53

So in my mind, if we're looking at this from a most growth potential to least growth potential of all the different products, assets, investments that will be out there, I have found that if it's structured right, index universal life might be one of the better ones of the reservoir options, then it's gonna be fixed indexed annuities. If you pick the ones that do better cash growth with no fees, not the ones that have better income options.

David: 08:18

Okay.

Mike: 08:19

And that's a whole conversation unto itself.

David: 08:21

Alright.

Mike: 08:22

Then you've got structured notes, buffered ETFs. So the security side of things, and not all of them offer principal protection. Some of them just have a lot of protection, but not all protection.

David: 08:32

Okay.

Mike: 08:32

Like there's an event that could happen that would lose the protection. Look into the details of of, like, these buffered ETFs and structured notes because they can blow up in your face if you buy the round one. And those are all the indexed versions. Then you've got your fixed products. So that's your fixed annuities, your CDs, your treasuries, and they all kind of weave in and out of which one's best.

Mike: 08:55

And then the lowest one in normal situations would be a high yield savings or a money market. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist.

Mike: 09:19

Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.

David: 09:31

Learn more about Your Wealth Analysis and what

Mike: 09:33

it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.