Why Realtors Are Turning to Indexed Universal Life For Cash Accumulation

Every working realtor knows that their industry is unlike any other.  Each and every sale is dependent upon the functioning of several independent parties.  For example, once a prospect has decided to put an offer in on a new home; the bank must approve the credit and financing, the appraisal must come in at needed value, and the seller (listing agent) must agree to the terms of the sale.  Only when all of the stars are aligned can the sale be facilitated.  Without close attention to detail, it is unlikely for the close to happen.  

Since every real estate agent is commission based, most realtors look for 3 main components with respect to investing long term.  First, the product must be liquid.  Every commission based realtor knows first hand there can be down times from close to close.  Liquidity is precious during periods of stagnant sales, especially in off-season months.  Second, the product must be protected.  In cyclical volatile markets like we are experiencing today, the concern of losing your money can be quite the burden.  Third, the product must be flexible to accommodate sporadic funding throughout the year.  Its impossible to tell when all your closes will happen throughout the year, making flexibility of funding an important part.    

For these reasons, more realtors than ever before are turning to uncapped strategies within indexed universal life (IUL).  IUL strategies allow for flexible funding and uncapped earnings that are very attractive.  With a couple of strategies that exist today, there is no limit on how much interest can be earned through annual reset.  Annual reset allows for market upside while eliminating all of the market downside.  In fact, from 01/01/2001 to 12/31/2015 many IUL policies would have averaged an annual rate of return of over well over 8% before the cost of insurance is taken out.   Liquidity is also a vital component of an IUL policy.  Over 80% of the funds can be accessed at any time during the year for needed liquidity.  Every other tax deferred vehicle that's available comes with a penalty from the IRS if a withdrawal is made prior to 59 1/2 years of age.   Finally, and most important, is the capability to have your IUL policy structured to allow for withdrawals exempt from federal income tax.  Since all IUL policies come with an accelerated death benefit, if properly structured IUL policies can allow for a personal loan to be taken against the death benefit that will not have to be repaid until death.  Upon death, the loan is deducted from the face amount (death benefit) and the remainder is passed on to your beneficiary tax free.  Its no surprise that these “living benefits” have attracted several commission based employees as an avenue for long term growth strategies.

To learn more on how an IUL strategy can benefit your practice, please feel free to email me at CalB@SafeMoneyAustin.com.  

Will This Election Set Back Your Financial Timeline?

Historically speaking, most presidential elections have resulted in market downturns, especially when a lame duck congress is present. If you don't believe that the market will feel the pain for a couple of months prior to the election in November, I suggest you take a second look. There are a couple of reasons why another recession lurks around the corner. First off, outside of the upcoming election, we are exceeding the 7 years historical average of market downturn/recessions. More importantly, this is one of the only times in history that the market has surged to its highest point (brought on by an overly-successful stimulus) with middle-class income levels at historic lows. Unfortunately, with the contrary logic that the stimulus has shown over the last 8 years, these facts are being written off as a pessimistic and shrugged off. For example, how many times did the market surge in 2009 and 2010 on rumors that the Federal Reserve was going to open the printing presses for another round of quantitative easing? Any other time in US history news of buying our way out of a recession would have sent panic throughout Wall Street, putting the market in a deep red. Our rules are set in opposition, something that we will have to contend with moving forward.

The question is, how hard will the market get hit? A better question, how long will it take for the market to rebound? When the market fell in September of 2008, the Dow Jones had just broken 14,000. It took 6 years to get back to that point. After the market recovered, and all the retirees exited the workforce in 2014, a mass hiring of college graduates (60% of the entire labor force!) replaced the seasoned workforce, driving middle-class salaries down to new lows. If history repeats, what do you think will happen to your projected retirement date? Will you be able to contribute more to your retirement or less than what you have been contributing? The good news is you can lock in your gains at one of the highest points, thanks to the artificial growth of the stimulus! Moving forward, instead of absorbing risk within securities, you can redirect your strategy to mirror index earnings like the S & P 500 or the Dow Jones, while protecting 100% of both principle and earnings. There are dozens of different indexes available to choose from, with some designed to capitalize during market downturns. In fact, if properly structured, some of these indexing strategies can be positioned to create non-taxable income sanctioned by the IRS (rules and procedures must comply with the IRS guidelines).

What do you think your portfolio would look like if you were able to bypass all the volatility from the 2008 recession, and capture all the upside? Some of these strategies, if implemented prior to the recession, would have allowed your portfolio to double in just a few years. I'd be willing to bet you'd be in a much better spot today if you had put this change into effect back then! I believe this opportunity is going to present itself again, starting in just a few months. It's simple math. If you lock your gains in at the highest point, while removing all downside market exposure, you'll likely position yourself for an early retirement. Otherwise, you risk waiting on the market (assuming it rebounds in a reasonable time) and delaying your retirement for several more years. It's not only the volatility that sets you back it’s also the detour. Truth be told, this opportunity may not present itself for many more decades. It's a statistical marvel that we happen to be approaching the same stage that was set in 2008, only now we have the right financial tools to benefit.

Making the right change can give you the cushion you need in moving forward. If the market takes a downturn and salary levels continue to drop, limiting expendable income, you can contribute less without disrupting your financial timeline. Using this plan with the right process is the key to success. These types of strategies are designed to protect your interests over several years, assuming the right process is in place. The ultimate goal is to move forward and free from funding disruptions. Without the risk of taking a step backward, forward momentum takes over, protecting your timeline from the unforeseen.

Once a decision is made for change, the right process has to be put into place. Making the change to mirror index returns and capitalize on long-term growth rarely works as a long-term strategy if the right process is absent. Life often happens unpredictably and without the right process to navigate you through critical financial events of your life, the odds can be stacked against you. Critical financial events can be as simple as retiring, purchasing a new home, or preparing for a loved one's college education. They can also be unpredictable, such as the death of a spouse, a serious illness, or a career change. Failing to have a process to properly guide you through these events can be as detrimental as exposing yourself to volatility. Once again, the opportunity to make a positive change exists today. However, if this change is not accompanied by a refined process, you may be spinning your wheels. This is why it's important to work with a professional who can implement the right process for your situation. If one thing remains certain in our future, it's unpredictability. It's how we approach this change that will determine how our financial future unfolds.

Whether or not, it’s Clinton vs. Trump or Sanders vs. Cruz (or any other combination), it is no secret that change is amongst us. I can't recall any time in the past where the extreme viewpoints of each party have surfaced from frustration and distrust towards our leaders. As we get closer to the election, the tension brought on by the anxiety of change is likely to weigh the market down. How bad it gets crushed remains to be seen. We are truly at a time of the unknown and how we move forward will determine how our financial future/legacy shapes itself. With the market being at an all-time high within a struggling economy, this may be the best opportunity within our lifetime to make the necessary changes with the right process.  

Redefining Income Planning

It seems much longer than 8 years ago when income riders within Fixed Indexed Annuities (FIAs) provided guarantees never offered.  Historical income value roll up rates that were as high as 8% are now being outperformed by uncapped strategies.  To me, its amazing to see how the evolution of income planning has redefined itself, especially in under a decade.  Today, more financial professionals are redirecting retirement funds into FIAs that provide increasing income streams, as well as uncapped strategies, for life.   Depending on when you plan to retire will determine which increasing income strategy may be best equipped to meet your needs.  This is why it is important to work with a professional who specialization lies within income planning solutions.

The days of FIA annual point to point strategies that can only provide a return of 3.0% are well behind us, and good riddance.  Through many of today's specialized indexed strategies, policy owners within a FIA can now participate in 90% + of the market upside (within a predetermined indexed strategy) with absolutely zero downside.  This means that you can never lose your principle or earned interest moving forward, regardless of how the market performs.  As this past recession has shown, principle protection in down markets is key to making your retirement a reality.  These recent uncapped strategies are causing more financial professionals to redirect client funds into guarantees absent in a turbulent market.  Depending on what your individual circumstances (retirement time-line) are will depend on which strategy may best suit your needs.

Income payouts within FIAs can illustrate much higher than ever before.  Income Account Values (non cash values) used to determine income payouts can participate up to 250% of a selected index return while in deferral.   Additionally, annual income payouts can increase by up to 150% of the same selected index.  For example, one particular FIA that has a 6% annual return (of a selected index) would result in an income payout increase of 9%, never to decrease!   Furthermore, each year the selected index increases in value the income will continue to increase by 150% respectively. Within a couple of these strategies I have seen income payouts potentially double within a 15 year period, while continuing to increase for life!  These are income payouts that have never been seen before, specifically designed to protect retirees from absent pensions and a bankrupted social security system.

So how did this evolution happen?  Simple.  Over the last several years analysts have learned to maximize the upside potential within specified indexes, while protecting the profitability of the issuing company.   Because of the extreme market fluctuations we have seen since 2008 (the most volatility since the Great Depression) statisticians and actuaries have been able to capitalize on market profit points, passing on the gains to the policy owner.

Where the evolution of income planning ends up remains to be seen.   I can tell you from personal experience that today's potential income payouts and uncapped strategies were never contemplated 8 years ago.  FIAs today are replacing fears of inflation and market downturns with comfort and predictability.  Now, finally, retirement can be planned with a higher quality of life than ever before!