Learn how to lock in TAX-FREE 4%-4.5% long-term returns for your retirement plan!
Are you a doctor, engineer, lawyer, business owner, or other high income earner living in states like California or New York with high state taxes?
If so, you’re probably losing 35%-50%+ of your investment gains to taxes since your income is so high.
Taking risk with your investments is necessary to grow wealth. In fact, the more risk you take the more you can grow your wealth.
But taking too much risk can also lead to you losing your wealth.
After decades spent growing your wealth to get where you are now, how are you protecting it going forward?
Learning to Protect Your Wealth
But what if you could invest in safe assets and not pay any taxes on those returns?
Is that better than investing in risky assets and paying taxes?
Would you rather invest in risky assets to make 8% and pay 50% in taxes—leaving you only with a 4% after-tax return?
Or would you rather invest in safe assets to make 4% and pay 0% in taxes—leaving you with the same 4% after-tax return?
The Value of a Roth IRA
A Roth IRA is a great way to invest in safe assets and not pay taxes.
But if you’re a high income earner, you’re not able to invest in this retirement vehicle.
So how does a high income earner invest in safe assets and not pay taxes?
Whole Life Insurance: Investing in Safe Assets without Paying Taxes for High Net Worth Individuals
Whole life insurance allows high net worth individuals who are limited in contributing to a Roth the ability to invest in safe assets and not pay taxes.
Whole life insurance allows these high net worth individuals to invest in safe long-term bonds without interest rate risk.
Doing this allows clients the ability to earn a tax-free 4%-4.5% return as shown in the illustration below:
Whole life policy structured to earn 4%-4.5% tax-free
Using Whole Life Insurance for Tax-Free Retirement Income Allows for Better Planning
The more tax-free retirement income a client is able to receive, the less he or she has to pay taxes on the rest of the income he or she needs in retirement.
Since the tax system is a progressive one, the more income an individual makes the larger the amount of income that client will lose to taxes.
So using a whole life policy for tax-free retirement income, reduces the percentage of a client’s income that he or she loses to taxes!
Case Study Analysis: John and Sally, both 55 living in California
let’s say both John and Sally are single in California, retired and need $200,000 of after-tax income.
How much pre-tax income do they need to get this $200,000 in after-tax income?
Assuming that all of this is taxed at ordinary income rates, they would need $260,000 in taxable income to meet this goal. In other words, John and Sally are losing 23.1% of their income, or $60,000, to taxes!
However, if John and Sally have a whole life policy and can withdraw $150,000 of tax-free income from their whole life policy, then they will only need $50,000 more after-tax income from other sources.
How much pre-tax income do they need to get this $50,000?
Well, they would only need $54,000 of pre-tax income to get $50,000 of after-tax income.
In other words, John and Sally would only lose $4,000 or 7.4% of their income to taxes.
So by using whole life for tax-free retirement income, John and Sally are saving more than $56,000 in taxes!
Instead of losing 23.1% of their taxable income to taxes, they are only losing 7.4%!
Reducing retirees effective tax-rate by utilizing tax-free whole life distributions
By utilizing tax-free whole life distributions to partially meet their $200,000 of after-tax income, the retiree is able to save $56,000 in taxes!
What’s the catch?
You might be thinking that this sounds to good to be true.
There has to be a catch right?
Well, there is one.
And it’s a big one.
The catch here is that over 70% of people who buy a whole life policy will end up canceling it.
Most of these will end up getting hit with huge surrender charges and lose almost all of the money they invested!
This means that only ~30% are going to end up earning a tax-free 4%-4.5% on their investment.
So which group are you going to be in?
The 70% who end up canceling their policy and losing everything?
Or the 30% who end up keeping it and earning a tax-free 4%-4.5%?
The sad news is that people who are poorer tend to be the ones who end up canceling it, and people who are richer tend to be the ones who keep it and benefit from the high tax-free returns.
So if you’re wealthy and looking for a tax-free, safe 4%-4.5% investment then whole life should be something you should be looking into.
However, if you’re in a lower tax-bracket and can’t afford to invest in the policy for the long-term and make investments every year, then whole life insurance isn’t for you.
Why Colva?
Well for those of you in the 70% camp who understand why you should invest in whole life insurance, you might be wondering why you should go with Colva.
Well, Colva is first and foremost an actuarial group. This means we use our expertise in having designed and priced life insurance policies to show you, the client, how to get the highest return from your policy—even if it hurts us.
In fact, we’ve written multiple articles just like this one, and like the ones here, here, here, and that show clients how to reduce the commission paid to life insurance agents like us in order to maximize their return!
We are committed to showing wealthy clients how they can utilize life insurance products like whole life to reduce the risk in their investments, reduce the taxes they pay, improve their after-tax returns, and most importantly, INCREASE the amount of money they can spend in retirement!
To learn more about how you can achieve a 4%-4.5% AFTER-TAX return, contact us by filling out the form below:
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