How to Fund a Tax Free Retirement with Guaranteed Returns


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Whitepaper showing individuals how to fund a tax free retirement with guaranteed returns using Index Universal Life Insurance policies.

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How to Fund a Tax Free Retirement with Guaranteed Returns

  1. 1. 2013 Bison Business & Technology Solutions, LLC Walter Hines, Chief Executive Officer HOW TO FUND A TAX FREE RETIEMENT WITH GUARANTEED RETURNS Many baby boomers are facing tremendous shortcomings when it comes down to their retirement plans. While, market crashes in 1981, 2001, and 2008 have provided a rollercoaster of ups and downs in most portfolio plans resulting in below average returns. Poor choices in selecting age appropriate risk have been another factor in below average returns for most retirement plans. Investors are looking for a solution that will provide guarantees against market collapses. Index Universal Life insurance policies offer a viable solution to the problems that many people face with poor returns on their investments and disabilities.
  2. 2. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 2 © 2013 Bison Business & Technology Solutions, LLC Problem Overview Many baby boomers are facing tremendous shortcomings when it comes down to their retirement plans. During the Reagan era, corporations phased out the generous pension plans that were available to them and their parents for many years. To compensate, many sought employment from municipalities and government agencies that promised benefits during retirement, and this was a viable option for many years. Unfortunately, auditors of government, state, and city pension funds have discovered that these plans are now grossly underfunded. Furthermore, market crashes in 1981, 2001, and 2008 caused a rollercoaster of ups and downs in most portfolio plans resulting in below average returns. Poor choices in selecting age appropriate risk has been another factor in below average returns for most retirement plans. The latest market crash caused many small businesses to stop offering retirement plans due to a lack of participation among employees. Even employees that were faithfully contributing to their retirement plans have contributed far less than the maximum contribution limits. As a result many baby boomers and generation X’ers will have to work well into their 70’s in order to save enough money for a decent retirement. Many won’t be able to retire at all. They will have to work until they are forced into retirement or can no longer provide the minimal amount of production levels to satisfy company policies. Why Your 401(k) Isn’t Good Enough Due to their expenses, pensions were basically phased out by large corporations during the Reagan era and were replaced by 401(k) plans. These plans were a cheaper solution and didn’t require employers to offer guaranteed benefits to their employees during retirement. The company was no longer responsible for the employee during their retirement even after years of faithful service. Unfortunately, this left the employee that faithfully contributed to this “new” plan with an assumption that it was similar to their old plan. Nothing could be further from the truth! Qualified 401(k) plans and other similar company packages such as 457 plans, and 403(b) plans are subjected to the fluctuations of the stock market and offer no guarantees of payment to the owners after retirement. Though 403(b) plans are offered by public institutions and non-
  3. 3. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 3 © 2013 Bison Business & Technology Solutions, LLC profits, portfolio performances are still directly related to the stock market causing fluctuations in account balances. Moreover, the state and local municipalities that offer these funds are grossly underfunded (94% of Pension Plans Underfunded: Wilshire – John Sullivan). Three main reasons for these pensions being underfunded are: poor market performance, higher ratio of retirees to new employees resulting in fewer contributions to the funds, and increases in life spans as a result of technology and healthier lifestyles. Poor market performance isn’t the only reason for low retirement account balances. Lifestyles have changed, and people have also decided not to save as much money as their parents. Employees have chosen not to maximize the contributions (currently $17,500 for 401(k) plans) allotted for these plans. They have, instead, chosen to contribute just a “little bit” and not a “lot” to their retirement funds. This drastic mistake has given people the illusion of a true retirement package while, in truth, the average American will have just over $150,000 saved for their retirement. According to a study done in 2009, by Kevin Drum, in an Article published by Mother Jones, entitled Raw Data: 401(k) Account Balances for Workers Near Retirement, the mean (average) 401(k) balance was just over $160,000 for pre-retirees between the ages of 60- 69. Since the life expectancy for a United States citizen is 78.64 years, as of 2011, one can assume that having $16,000 per year (10% of $160,000) for next the ten years combined with Social Security income may not be such a bad thing for the baby boomer generation. Unfortunately, new data suggest that generation X’ers will reach 80 years of age, rather easily, and many will live to reach 90 with today’s medicine and technology. Also, the enactment of the Affordable Care Act (Obamacare) guarantees that virtually every United States citizen will have healthcare coverage by 2015. This will all but guarantee 10 additional years to the average person’s lifespan. Additionally, one must take into consideration that the monetary values listed in these retirement accounts are the mean or “average” value meaning they were most likely skewed by the minority of people in the study with much higher amounts in their retirement plans. One does not have hold a Series 6 or Series 7 Securities license to understand that $160,000 won’t last more than 10 years, and what happens if there is another market crash? There have been three (so far) during the lifetime of the author. Given the factual and historical data of the performance of most unprofessionally managed 401(k) plans, when not combined
  4. 4. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 4 © 2013 Bison Business & Technology Solutions, LLC with any other investments or permanent insurance policies, they are not a very good solution for the average American. Retirement Plans offer No Protection against Disability According to statistics provided by the website Disabled World, 12.1% of Americans between the ages of 21-64 reported having a disability in 2008, and 14.8% of the population, age 5 and over, have some sort of disability. These statistics include patients with chronic and critical illnesses. Chronic and Critical illnesses such as cancer, kidney and liver diseases, and diabetes have forced many people, and not just seniors, into bankruptcy. Most qualified and non- qualified retirement plans offer no coverage for sickness and disease. Combine a critical illness suffered pre-retirement with long term care costs, and the situation becomes daunting even if one has worked closely with an Investment Advisor to maximize gains. An entire retirement plan and other investments into real estate can be wiped out in as little as 3-5 years after a major disability. A Viable Solution Index Universal Life Insurance policies offer a viable solution to the problems that many people face with poor returns on their investments and disabilities. They also can provide money for long term care expenses. These products may be used as the sole option for retirement; however, they work best as a supplemental plan to group or individual retirement plans, Social Security, and other investments such as trusts and real estate (in other words, every retirement plan should be well diversified). Index products are unknown to most outside of the insurance industry, and were overlooked for years until variable investment products such as equities, bonds, and Variable Universal Life policies took a steep nose dive during the last market collapse. Since then, Insurance Agents and Investment Advisers have suggested a more stable and higher performing option. This is why Index Annuities and Index Universal Life insurance products have taken off since 2009. The reason for the increase in sales of these products is simple…they offer guarantees.
  5. 5. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 5 © 2013 Bison Business & Technology Solutions, LLC Caution! When someone speaks of offering guarantees or an unrealistic return on an investment, they should always be viewed with skepticism. Index Universal Life insurance policies do offer guaranteed returns, but you have to follow the rules! Most insurance companies that offer IULs, state that the historical returns for these products are somewhere around 7-8%. There is a 10 year surrender fee to offset expenses and to encourage long term saving. So, if someone takes out money during the first ten years, they will incur withdrawal fees. The guaranteed return feature maybe lost depending on how much money is withdrawn. However, the upside to these plans are tremendous when compared to other investment products such as company administered retirement plans. For one, many of the insurance companies that offer IULs, such as National Life Group, offer a guaranteed minimum interest rate of 2% on their products as long as there are no withdrawals on the product during the first ten years. The “Cap” rate or maximum allotted interest is usually between 12 -14% , depending on the elected product, which means that one is able to get up to 14% interest per year on their money. There is also something called a “Floor” rate which is always equal to 0%. This means that money placed into these policies will not be affected by downturns in the market (i.e. you won’t lose your money when the market drops). This is referred to in the industry as “downside” protection. In fact your money isn’t even placed in the market. Index based products credit interest to the account based on changes in the value of market indexes. Say What? Index Universal Life products also offer protection against market losses as they have a credit/no credit interest strategy. If it sounds confusing, here is a simple analogy. Think of taking a credit/no credit course in college (typically during the summer) where one receives a “P” if they pass the course or an “F” if they fail the course, but they won’t receive a letter grade (A, B, C, etc.). This is the essence of index crediting. Owners of Index Universal Life insurance policies will not lose money during downturns in the stock market. For example, if your insurance company uses the Standard and Poor’s 500 Index (S&P 500) and it registers a positive gain in its index for the year, the owner of an Index policy will get credit equal to that amount or up to 14%, depending on the policy, for that year. If the S&P 500 suffers a lost, the holder of the insurance policy will receive no interest on their money for that year. However, they will not lose any money either, and that is the plan. In 2008, when the stock market crashed, many
  6. 6. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 6 © 2013 Bison Business & Technology Solutions, LLC people lost 40% of their entire lifetime savings. Owners of Index Universal Life policies lost nothing. That’s right, ZERO! There are several interest crediting strategies; however, the one just described is called the point to point method, and it is the most common method selected by policy owners, and the easiest to explain and analogize. Perhaps the best real life example would be to examine two people that have saved $500,000 for retirement, and each has been saving for retirement for at least 20 years. One has a 401(k), and the other has an Index Universal Life policy. Since the 401(k) plan has no guarantees to hedge against market collapses or poor performance, Investment Advisers, as a rule of thumb, will advise their client not to take out more than 7% - 10% each year during retirement. The logic is that by taking 10% or less each year from the retirement account, the owner will have a hedge against inflation and should not outlive their money. This means that the retiree would have to live on an income of $50,000 a year in addition to their Social Security benefits. Not bad, in theory. However, this leaves the owner of that account with only 10-12 years of income minus Social Security, barring no market collapses. But, there have been 3 in the last 32 years (an average of 1 per decade). Imagine going through a market crash at 69 years of age and losing 30-40% of your retirement income! In comparison, the owner of the IUL, with that same amount of cash value, and a Face Value of $1,000,000 in death benefits, can expect to receive interest on their money without fear of loss (providing they don’t take any withdrawals during the first 10 years), and have the option to receive $40,000 - $50,000 per year for life or at least up until the cut off age of 120 (this is known as the Lifetime Benefit Rider). They can also choose to take their distributions in the form of loans and receive their money monthly, semi-annual, or annual distributions tax free. The IRS allows permanent life insurance policy owners to take loans from their insurance policy free of taxes as long as it has not been deemed a Modified Endowment Contract. Thus, the owner of the IUL policy will have money for living expenses, including long term care expenses, and their heirs will still receive some money from the policy upon their death. Though the Lifetime Income Benefit Rider (LIBR) does add to the cost of the policy, and reduces the Face Value
  7. 7. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 7 © 2013 Bison Business & Technology Solutions, LLC (death benefit) of the policy once the policy owner begins taking distributions. It is a free option, and it does not entail a major upgrade in cost to the policy owner. Index Universal Life Policies offer Protection As mentioned, Index Universal Life policies offer financial protection against market collapses. They also provide money for the payment of medical bills for cancer patients and others that suffer from chronic illness. Policies provided by the National Life Group, Pacific Life, and American National Insurance Company (ANICO) allow owners to have access to up to 2% of the Face Value of their policies per month as long as minimum premium payments are made on the policy. In the hypothetical example of the owner with $500,000 of cash value saved in their IUL policy, they would have access to $10,000 (equals 2% of $500,000) per month to help with expenses for cancer. Also, there are allotments for the care of owners that experience critical illnesses suffered from car accidents, surgeries, and other injuries. The owner can also take up to 2% of their Face Value for these illnesses, as well, as long as they continue to pay the minimum premium amount for their policy. Additionally, there is a Terminal Illness Rider which allows anyone that is diagnosed with a terminal illness, and given two years or less to live, the option to take up to 90% of the Face Value of their policy in cash. These riders are available without extraordinary expenses to the policy owner. Long term care is another issue that becomes a challenge for families that have elderly parents and grandparents. By utilizing the LIBR, policy owners won’t have all of the financial concerns of their parents should they require assistance in their advanced age, because they will have the option of having a lifetime of income to offset the expenses of long term care. Even after receiving income for over 20 years after the last premium payment has been made, income will not stop until the death of the owner. Owners can choose the Lifetime Income Benefit Rider and receive money up until the age of 120. Yes, by law, insurance companies that offer Index Universal Life policies must guarantee the income until the age of 120!
  8. 8. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 8 © 2013 Bison Business & Technology Solutions, LLC Finding the Right Adviser There are positives and negatives to every product; however, used alone or combined with a qualified retirement plan, IULs offer the best strategy for retirement available at this time. No other product, including Variable Annuities, can offer minimum guarantees of 2% and cap rates up to 14% per year (cap rates determined the maximum interest rate that can be earned each year). Being able to partake in market gains without the downside of market loses will have an incredible impact on your money. Never suffering a loss due to poor market performance will mean the difference between being able to retire on time and not being able to retire at all for many people. An Index Universal Life policy combined with a group or individual retirement plan along with Social Security benefits offers the best possible chance of not running out of money during retirement. However, unlike other retirement plans, IULs offer guaranteed returns, lifetime income options, and protection against disabilities. This is the best way to fund a tax free retirement with guaranteed returns. To get more information on Index Universal Life insurance policies, retirement planning, and strategies for tax reduction, contact Bison Business & Technology Solutions at (310) 631- 1106 or (310) 346 -0850. You may also visit our website at or email us at
  9. 9. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 9 © 2013 Bison Business & Technology Solutions, LLC Terms & Definitions Qualified Plans - A plan that meets requirements (non-discriminatory) of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries. Non-Qualified Plans – Any type of tax-deferred, employer-sponsored retirement plan that falls outside of the Employee Retirement Income Security Act (ERISA) guidelines. Non-qualified plans are designed to meet specialized retirement needs for key executives and other select employees. These plans also are exempt from the non-discriminatory and top-heavy testing of qualified plans. 401(k) plans - A (qualified) retirement savings plan that is funded by employee contributions and (often) matching contributions from the employer. Contributions are made before taxes and the funds grow tax-free until they are withdrawn. 457 plans - A type of non-qualified tax advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. The employer provides the plan and the employee defers compensation into it on a pre-tax basis. 403(b)- A retirement investment plan for employees of certain non-profit organizations in which a contributor defers taxation on contributions until after withdrawal. 403(b)s are employee benefits, and workers must have a sponsoring employer such as a public school or a church in order to take advantage of one. Index Universal Life insurance policy - A type of permanent life insurance, primarily in the United States of America. Under the terms of the policy, the excess of premium payments above the current cost of insurance are credited to the cash value of the policy. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, as well as any other policy charges and fees which are drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer, but has a contractual minimum rate of between 2% and 4%. When an earnings rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy is an "Equity Indexed Universal Life" contract.
  10. 10. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 10 © 2013 Bison Business & Technology Solutions, LLC Annuity - An annuity is a terminating "stream" of fixed payments, i.e., a collection of payments to be periodically received over a specified period of time. The valuation of such a stream of payments entails concepts such as the time value of money, interest rate, and future value. Variable Annuity -An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. Series 6 License - A general securities license that allows the licensee to sell mutual funds, closed-end funds, and unit investment trusts. The National Association of Securities Dealers (NASD) issues the license after the applicant passes the appropriate test. Continuing education requirements also must be met. Series 7 License -The Series 7 license is the most comprehensive of several securities licenses that permit an agent to communicate with retail investors. For this reason, many account managers, analysts, and other executives in the employ of a registered Broker/Dealer hold Series 7 licenses. To satisfy the securities dealing requirements of some states, Series 7 license holders must also hold either the Series 63 license or the Series 66 license, depending on the state the licensee works in as well as the state his/her clients reside in. To provide investment advice for a fee, a stockbroker or series 7 holder is required to complete the investment advisor law exam. Lifetime Income Benefit Rider – Provides a cash benefit for the life of the insured, in most cases, if certain conditions are met, including but not limited to the insured's attained age being between age 60 -85. Insufficient policy values, outstanding policy loans and other considerations may also restrict exercising the rider. Modified Endowment Contract – Type of life insurance policy whereby the premiums are greater than that required to pay seven annual premiums for an ordinary life insurance policy. (This is better known as the seven-pay test.) This test is used in an effort to eliminate the dumping of large sums of money into limited payment life insurance in order to gain a tax advantage investment. Prior to the passage of legislation in 1988, the policy owner could make withdrawals from the cash surrender value on a tax-free basis. If the policy does not pass the seven-pay test, withdrawals from the cash value are taxed as ordinary income plus a 10% surcharge.
  11. 11. How to Fund a Tax Free Retirement with Guaranteed Returns A White Paper Page | 11 © 2013 Bison Business & Technology Solutions, LLC Companies American National Life Insurance Company ( - American National offers a broad variety of life insurance, retirement annuities, accident and health insurance, pension plan products and services, credit insurance, and property/casualty insurance for personal lines, agribusiness and targeted commercial exposures. Products are distributed through career agents, independent marketing organizations and multiple line exclusive agents as well as direct distribution channels. Bison Business & Technology Solutions ( - A privately held company, Bison Business Solutions, was founded in 2009, and incorporated in 2010 as a Limited Liability Company and renamed Bison Business & Technology Solutions, LLC by Walter M. Hines and Henry Akinlude. Today, Bison Business & Technology Solutions provides Life, Health, Disability, Long Term Care, Medicare Advantage, Worker’s Compensation, and Retirement Planning to individuals, families, and small businesses. Our affiliates provide services in Accountancy, SEO, Social Media, and Informational Technology. National Life Group ( - National Life Group is a diversified family of financial service companies that has successfully forged a strong identity as a product innovator offering personalized service. Companies in the group offer a comprehensive portfolio of life insurance, annuity and investment products to help individuals, families and businesses pursue their financial goals. Pacific Life ( - For more than 145 years, Pacific Life has been helping to protect individuals and families from financial risks that can affect their investments, retirement savings, and businesses. Pacific Life offers life insurance, annuities, and mutual funds, with a variety of investment products and services, all of which provide. . . The Power to Help You Succeed. Bibliography Raw Data: 401(k) Account Balances for Workers Near Retirement Other helpful info - by Kevin Drum, ( data-401k-account-balances-workers-near-retirement) 94% of Pension Plans Underfunded: Wilshire – John Sullivan, ( ) Disabled World (, *The actual cumulative average performance of an IUL product with a 12% cap rate, along with a 100% participation rate, and an 0% Floor rate based on historical values of the S&P 500 from 1984 – 2010 equals 7% per year.