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Bawld Guy Retirement Income Seminars July 3, 2015

Posted by shaferfinancial in Mutual Funds for Retirement, Retirement Income.
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Retirement Income Seminars. Jeff Brown has organized monthly seminars around the country that are focused on strategies for maximizing retirement income. As you know I have for a long time used real data to develop efficient retirement income strategies that work. For years Jeff and I have put together purposeful financial planning based on a multiple prong strategy of real estate investing and EIULs. The data on successful retirement strategies is succinct in documenting what works and what doesn’t work. The seminars present experts on all aspects of successful retirement income strategies including myself. Please look over the list below and visit the link the month of the seminar you can make. The small cost of attending could be the most important decision you make in creating a fruitful financial future.

Bawld Guy Live


Detroit, MI July 10-12
Dallas, TX August 7-9
Las Vegas, NV September 25-27
Newport Beach, CA October 23-25

Annuities and You March 21, 2014

Posted by shaferfinancial in Finance, Uncategorized.
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No where in the financial services field are there more folks arguing about where to put your money than in the annuity/mutual fund market. Well known stock salesmen [Like Ken Fisher] put out all sorts of scary information about annuities in hopes that you will give him your money to invest. So I thought I would put out my thoughts.

Annuities have their place in peoples portfolio when there is not enough funds to withstand market downturns or when there are so much funds that a save return is all that is necessary to fund a comfortable retirement. In short, it is my belief that market risk [including sequence of return risk] is the most dangerous risk out there for folks and should be addressed in a rational way. Greed is a constant of human experience and Wall Street has been using that against us for a long time. Their claims, whether mutual fund returns or stock returns, are attractive to us. But what they don’t tell us is what really matters. That is, even under the best circumstances, the stock market is a very risky place to put money that you will need at a certain time. The closer we are to that time, the more risk there is. Of course, for most people their 40s and 50s is when they have the most disposable income to capture for retirement. These two facts collide to make a dangerous stew that has proven to be a poor recipe for retirement income.

Annuities have been recently redesigned to fit into this paradox. As you approach retirement, how do you shed market risk, still get decent returns, avoid sequence of return risk, and deliver lifetime income? There are two possibilities, life insurance contracts like EIULs and annuities. Of the two, only annuities are able to guarantee that lifetime income.

Are there costs to this? Of course. The costs are you leaving on the table some potential market gains in exchange for that market risk reduction. But, here is the fundamental truth, the vast majority of people are not mentally structured to deal with stock market risk and its huge downsides. Most people, at the very least, lose sleep when the market goes down 20% or 25% or even 45%. When we look at the data of individual investor behavior we see many, perhaps the majority of folks selling low and buying high. So most people aren’t able to take advantage of the possibility of better market returns in mutual funds or stocks.

Let me outline it for the reader:
1. Human behavior causes most people to make major mistakes in investing in the market
2. Sequence of return risk, even if they don’t make mistakes, can and probably will damage retirement income significantly
3. Annuities are designed to give good returns [sometimes guaranteed] and high annual income guaranteed for life.
4. As people age, they should significantly reduce risk on money to be used for retirement income.
5. Annuities and EIULs should be considered as part of the financial planning process because of the strategies employed in them reducing market risk.
6. Using insurance products for retirement income is a more conservative choice than using stock market products like mutual funds.
7. Current 401K levels prove the veracity of #1 through #6.

Yes, I am biased because I sell fixed index annuities and EIULs. But I could easily sell mutual funds and stocks if I wanted. But, I have been clear about the dangers of those financial strategies and refuse to go along with the easy way of simply selling what is popular. Follow the popular trend with mutual funds if you want, but you have been warned.

Contact me, I am always happy to talk to people. It makes my day~

Step Up and Lock In: A strategy that works September 23, 2013

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The insurance industry has found a winning strategy for folks looking for reduction of market risk and good returns.

This strategy can be found on both the Equity Indexed Universal Life Product and the Fixed Indexed Annuity Product.

They credit interest in both these products the same way.  Each year you are credited with an interest amount that is connected to a stock index or group of indexes.  But, you never receive a negative interest credit. You do have a “cap” on how high the interest credit can be.  So each year you get an interest credit that is somewhere between 0 and the cap rate.  Now here is the important part; you are then locked in with that value.  You never lose it, no matter what happens in the market.

This strategy produces more value on a year to year basis for those who intend to use the funds at some time in the future by eliminating the “sequence of return risk” that plagues market driven products.  It also eliminates the scary downdrafts in value that lead to fear selling and major mistakes.  These products are superior “retirement income” products to any alternative current active in the market [with the exception of real estate investing, but real estate investing means taking on more risk].

You need to ask yourself why you haven’t been “sold” these products by your current financial advisors.  If you are still investing in market driven products like mutual funds for your retirement income, you need to really think about why you are taking on that risk. You need to ask your current advisors about “sequence of return risk” and the Dalbar Studies. It’s as simple as that.


Minnesota Life Equity Index Universal Life Policy Gets Better September 12, 2013

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My #1 rated EIUL is currently The Eclipse by Minnesota Life.  This month it improved the future performance by adding in a interest bonus.  As usual they accomplished this in a way that allows for better performance and safety.  Since inception 11 years ago this has been the top performer in the industry.  I think this change keeps it there.  Also of interest is that the change applies to anyone that currently owns the policy.


The way the bonus works is that a bonus interest is added to the account value every year after year 10.  The bonus is calculated by adding up the previous 10 years worth interest credits and multiplying by 1%.  Once the bonus is received it is then counted in the addition for all future years so it is a compounded interest credit.

The company has calculated that this will raise the accumulated cash and potential distributions by between 13% and 18%.  I ran my first illustration using the bonus and it really adds value.  Obviously the longer you have to get the bonus the more value.  

I also recently had a very good underwriting decision for a client, the best I have seen for this particular situation.  

When I look at which EIUL to suggest to clients I look at the entire picture:

Minnesota Life

  1. Retroactively added in a benefit to existing policy holders;
  2. Added in a bonus that provides additional performance along with safety; and
  3. Great underwriting decisions for clients.  

Three more reasons to keep Minnesota Life #1!


3 Reasons for Having an EIUL be a part of your RETIREMENT STRATEGY April 29, 2011

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There are three big questions that no financial planner can answer for you. These are what I call the “Holy Trinity” of retirement problems. Because no-one can really answer these questions, they are rarely talked about in polite company. Here they are:

How much income will I have to live on?
How long will I live?
What are the tax rates going to be?

Wealthy people who were living on their wealth were once called coupon-clippers because they got their regular income from owning bonds that paid a fixed interest rate. Those days are mostly gone, because corporate bonds are callable and if you are living off of interest from treasuries or certificate of deposits then you are starving today. Most people have been sold on the idea of mutual fund ownership as a way to retirement income. But this is possibly the worst idea imaginable because mutual funds have high variability. That means they go down, as well as up in value [sometimes 50%!]. How can you plan an income stream using a product that has such high ups and downs? You really can’t [note all the arguments over how much of your mutual fund value to use each year of retirement].

Reason #1 to own an EIUL…..
It doesn’t have the variability of mutual funds and the cash value never goes negative.

Most people save for retirement unevenly, little if any until age 35-40 then acutely after age 50 when that retirement is staring down at you. The truth is 20% of 40 year old men will die before retirement [13% of 40 year old women]. On the other end 16% of those men will be alive at age 90 with 26% of those women alive and kicking at age 90. Fully a third of 40 year olds will have the problem of dying early or living an extremely long life.

Reason #2 to own an EIUL….
If you die early [before you have completed your retirement plan] the life insurance proceeds will finish your retirement plan for your spouse and family and if you live a long life not having to pay taxes on your income will stretch your retirement income out as long as possible.

Common practice is to defer taxes to your retirement years. But no one knows what the tax rate will be in those years. With the government running huge deficits, there is a high likelihood that taxes will be a bigger factor in the future. But the bottom line is no one knows.

Reason #3 to own an EIUL
Taking out income, TAX FREE, is not only a way to pump up your in-the-pocket retirement income, but a way to eliminate a huge uncertainty [risk] in your retirement planning.

Creative use of EIULs October 25, 2010

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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. I received a call from an individual who was interested in an EIUL. He was in his middle 50s and had some wealth he wanted to move into a place that would produce tax-free income down the road. He suggested that we look at his son as the insured [30 years old]. Intrigued, I ran the numbers on both him and his son. I thought the IRS corridor rules would even out the excess insurance costs on him [since he was older] causing the overall expenses to be about the same. I was wrong, the expenses were less for the policy on his son. And here is the kicker, in addition to expenses running .5% lower; there was a strong secondary benefit. After, the father had taken out 17 years of income, the policy would continue on the son. So that meant that if the son gave the policy a 5-10 year pause, he could start taking out income himself in his early 70s! Talk about a win-win situation. The parents could take out income for their retirement lifetime, and then the son could do the same. Why hadn’t I figured that out before???? Thanks to my new client, we have a whole new way of strategizing the use of EIULs.

Why EIUL? July 19, 2010

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As most of my readers know, I am a big believer in equity indexed universal life insurance as well as a seller of it.  I have my own EIUL [AVIVA] as well.  Over the last 6 years of ownership it has performed exactly as it was advertised too.  Over the last few years, since I decided to sell the product, I have learned quite a bit about the product.  Here are some key points for anyone interested in the product:

1. It is permanent insurance, therefore has all the good and bad of an insurance product.  Primarily the bad part is the front loaded expenses [over the first 10 years].  So this product is not one to be entered into on a whim.  This is a decision you make and live with.  Now the good part.  If you have dependents or heirs then the insurance aspect is a great bonus to most retirement plans.  How many 401Ks/IRAs do you know of that will pass on 5 to 10 times the invested value to your spouse?  But most of all that is why you really don’t need to worry about the front loaded expenses.  If you die prematurely, no one will worry that you paid a lot of expenses in the first 10 years will they?  In the long run the expenses will cost you between .5% and 1.5%.  This is actually below the average expenses from the mutual fund industry.

2.  When structured correctly, there will be no income tax owed on money to retrieve from the policy.  Perhaps the biggest attraction for folks is this characteristic.  What will be the income tax [both state and federal] when you need the money? Since no one can predict it, this takes a big uncertainty away.

3.  The cash value [excess premium] in your policy is not invested in the stock market, but can get similar returns.  This is perhaps the biggest misunderstanding out there about EIULs.  The strategy is not even close to investing in mutual funds. First, if the market index goes down, your cash value doesn’t.  No negative returns means less variability which is the retirement income killer.  Yes, you are capped in your ability to capture positive movements [currently 15% for the Minnesota Life product], but when you run the numbers your overall return is higher using this strategy than simply mirroring the stock index.

4. Because the cash value doesn’t go below 0, there is less panic in the product, therefore less temptation to change.  When we look at actual behavior, people are their own worst enemies.  The actual returns gotten by real live people in mutual funds is 5-7% less than what the actual market gives.

5.  This product is not for everyone.  If taxes are not of concern for you then this product probably is not for you.  If you are a “do-it-yourself” investor that loathes expenses and feels they can ride the ups and downs of the market [many people think they can, but data tells us that their actual behavior is something different] then this product is not for you.

6. This should not be your one and only savings/investment vehicle.  I have posted many times on my three legged approach; EIUL, individual equities, real estate.  Point being this should be your conservative part of your portfolio, with internal returns expected around 8%.

Been traveling! July 9, 2010

Posted by shaferfinancial in Finance.
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I have been making my annual pilgrimage to the mountains of New Hampshire.  There has been one major change for this year.  We have no plans to return to Florida at this time.  Events dictated this decision, even it has been very hard leaving our Florida friends.  But excitement reins as we are looking forward to my son’s new school, spending time with old and new friends, and skiing a full season.

We arrived just in time for 4th of July.  The small town we live in has a great parade and celebration.  The heat wave [and we don’t have air conditioning] started a couple of days ago so we have been spending lots of time in the river [Saco], lakes and pools to try to stay cool.

On the financial front, all my stocks have been holding up well as the market emotion erupts forcing it to go up and down with much force.  Several people have contacted me this last week about EIULs.  I enjoy working with all on structuring EIULs in the best way for my clients [as opposed to the best way for an agent].  I still believe for most people, an EIUL is a superior vehicle for retirement income over 401Ks and IRAs funded with mutual funds.  The last couple of years have made this clear.

Hope all is well with you all!

From New Hampshire to you!

Best Retirement Strategy for Passive Investors? July 22, 2009

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For regular readers, they understand I encourage all to become active investors.  But, for some they will never want to be anything but passive investors.  That is fine, but it becomes even more critical to make good choices as to strategy and product because it will need to carry you through boom times and recessions.  That is, of course, one of the insidious facts of mutual fund investing that most people do.  Mutual fund investing is great in boom times when the stock market is moving up over long period of times.  In fact, it is during the 18 year bull market [1982-2000] that mutual fund investing made its name for itself.  But what most people don’t know is how much of an anomaly that time period was.  Look at this chart for the reality of how often the market goes down.

What most people don’t realize is that investing for the long run in mutual funds works really well when the market is going up year after year.  But it works much less well when the market has down periods every decade or even every 7 years like is does normally.

That is why I ask people to consider equity indexed universal life insurance as an alternative.  You see when you have normal markets [ups and downs] this product works at least as well as mutual funds even with higher front-end expenses.  And if the market has several down periods in a decade, it works better.

Take the last 10 years for example:

The market  returna [S&P 500 with dividends] is the first column.  The following two columns compare how much you would have have in an EIUL with 16% ceiling and 0% Floor compared to a no-expense mutual fund starting with a $1,000 investment :

1999  +21.1%                     $1,160                    $1,211

2000 -9.1%                        $1,160                    $1,101

2001 -11.98%                   $1,160                     $968

2002  -22.27                   $1,160                      $753

2003 +28.72                  $1,345                       $969

2004 +10.82                  $1,490                       $1074

2005 +4.79                     $1,561                       $1,125

2006 +15.74                   $1,805                      $1,302

2007  +5.46                    $1,903                      $1,373

2008 -37.22                    $1,903                      $862

Quite a difference over the last 10 years, which is exactly the point.  Since no one can predict what the next 10 years will do, for folks who just want a general purpose strategy that will perform well under all market situations, the EIUL is far superior.  [Note, I didn’t include expenses for either product.  The up front expenses for the EIUL are higher and will dampen performance compared to the mutual fund, but the lower expenses will not produce better results except under an “all bull” market time period.]  Then there is the sleep factor with the EIUL never going less than 0, people should be able to sleep better!

Where do EIULs belong in your Financial Plan? March 16, 2009

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Let’s assume for a second that you have constructed a financial plan.  Now let’s assume you have put that financial plan into action.  Where do equity indexed universal life insurance policies belong in that plan, or do they belong in that plan?

First off all plans should have what I call a wealth creating part that goes along with a wealth preservation section.  Now others label them differently, for example David Lewis has a great post on his blog on permanent life insurance, where he labels the two parts investments and savings.  Now I have some small quibbles with his strategies, but the post really does a great job talking about why permanent insurance is not the bogeyman many so called financial experts think they are.  EIULs fit into the wealth preservation side of the equation.  Other wealth preservation possibilities are savings accounts, certificate of deposits, annuities, mutual funds, government/municipal bonds, corporate bonds, etc.  Since this is the playground for EIULs, you can ask two questions and come up with what is the best product for you:

What are the tax ramifications? and

What is the most likely rate of return vs. risk?

Savings accounts, CDs both are extremely safe but give meager returns.  They are also taxable.

Government bonds like the I bond also will barely allow you to beat inflation and is also taxable.

Municipal bonds give low returns but are not taxable and have increased risk in the current environment.

Corporate bonds give better returns, but have a tremendous interest rate risk at the present moment as well as general risk.  In fact some of the corporate bonds really belong over in that investment category, paying double digit returns for you taking substantial risk.

Annuities, give meager returns, but have some tax deferral qualities like 401Ks and IRAs.  They also have significant fees involved and surrender fees if you want to make a change in the early years.

Mutual funds can be tax deferred, and may give better returns going forward.  They have high risk as many folks are finding out now.  In fact the latest Dalbar study found that at 5 year, 10 year and 15 year lookbacks the average mutual fund investor actually lost money, while at 20 years they failed to keep up with inflation.

That leaves EIULs in my opinion as the best wealth preservation vehicle.  Returns above what one would have gotten in all the other vehicles with a 20 year look back [including mutual funds at this time], legal tax avoidance, financial protection against the grim reaper and easy access to your account no matter what your age are a few of the positives.  Now, does it make sense for everyone?  No.  Does it have front loaded, significant fees?  Yes.  Will it outperform all the other alternatives at all times?  No.  But it does most of the time, including a current 20 year look back.

Call me for a more in depth discussion on EIULs.  It is a product that is really coming of age in this environment!

727.804.9271 or dave@shaferwealthacademy.com