Traditional Financial Planning Misconceptions

Traditional Financial Planning Misconceptions

What if everything you had always been told about retirement planning, investing and mortgages were not true, when would you want to know it? I suspect you d say- RIGHT NOW!

Let s start with a little true or false test of your preconceived notions of these subjects. Answer the following true or false :

  • A large down payment will save you money over time on your mortgage. (T or F)
  • A 15 year mortgage will save you more money than a 30 year mortgage. (T or F)
  • Taxes will be saved by making contributions to a retirement plan. (T or F)
  • Making extra principal payments to a mortgage will save you money. (T or F)
  • Your IRA, pension benefits and 401k withdrawals will be taxable at retirement at a lower tax rate. (T or F)
  • The interest rate is the main factor in determining the correct mortgage. (T or F)
  • You are more secure having your home paid off than if financed at 100%. (T or F)

If you answered true to any or all of these questions, congratulations, you have been officially indoctrinated into the common misconceptions of traditional financial planning!

I highly suspect that after we review everything here you will have an EPIPHANY : A sudden manifestation of comprehension or perception of reality by means of a sudden intuitive realization.

Yes, what I am about to present you is a paradigm shift in thinking. In other words, once you see what I will show you, the light bulb in your head will come on with a tremendous brilliance.

Different isn t always better- but better is always different!

But before I begin, I must go over some ground rules with you. You must:

  1. Be open minded
  2. Stop justifying why you can t do something
  3. Think out of the box
  4. Know that you can t start over, but you can start right now!
Well, let s begin. We all know that there are 4 phases of retirement planning. They are:
  1. Investment
  2. Growth
  3. Retirement or income
  4. Conveyance or transfer

Let s look at the typical qualified retirement plans such as IRA & 401k and their tax consequences.

Investment tax favored Growth tax favored Retirement - TAXED Conveyance or transfer - TAXED

As you can see, qualified plans do 2 things that are significantly negative to you:

  • Defer the tax
  • Defer the tax CALCULATION!
They do NOT save taxes! You re simply going to pay more later on and at potentially higher rates!

Let me now ask you, what do you think taxes will be like in the future? I expect that you responded HIGHER.

This is a commonly shared opinion. Just read what was written by Karen Damato in the Wall Street Journal, The expectation that income tax rates will be lower in the future [even at lower levels of income, which will happen for most in retirement] is in real peril. As problems with the cash flow from Social Security mount in the coming years, it is likely that the 'gap' in income vs. outflow from the employment tax will be fixed by (1) lower Social Security benefits; (2) higher taxation of those benefits; (3) higher taxes on those future workers; AND (4) higher tax rates on federal income taxes. Painful prospects...

If so, I pose an analogy: wouldn't it be wiser for a farmer to pay taxes on the seed money so as to have tax-free harvest money? Certainly it would, especially if the taxation of the harvest is expected to be at a higher rate in the future. So how do we do that?

How about a Non-Qualified personal plan:

Investment after tax Growth tax favored Retirement tax favored Conveyance or transfer tax favored

Interesting, this looks like a ROTH IRA, doesn't it? Yes it does. And yes, a ROTH IRA does have its advantages and does make sense. But it also has its drawbacks and restrictions.

So, a Non-Qualified personal savings plan like a ROTH IRA does make sense, even with its restrictions. So how do we get the advantages of tax-deductibility of a traditional qualified plan without the restrictions of a ROTH?

Before I answer that question, let s look at the 401k/IRA story we've been indoctrinated with and how it works.

Let's say you make deposits of $4,000 x 30 years = $120,000 in total deposits. At 34% marginal tax bracket you save $1,360 a year x 30 years= you saved $40,800 in taxes, right?

But here is the rest of the story :

Let's say you were a great investor and that $4,000 per year grew @ 10% for the 30 years. That means you would have approx $723,774 of accumulated value. Let s say you took 10% withdrawals to live off of. That means about $72,000 per year. At 34% marginal tax bracket, you pay over $20,000 in taxes to realize a net income of approximately $52,000. OUCH! Deferred taxes simply COMPOUND!

This means that your entire $40,800 in taxes saved over a 30 year period would most likely be paid back to the IRS in less than 3 years of retirement! What a deal, right? For WHO? You got it, the IRS! In matter of fact, in a typical 20 year retirement you will most likely pay back between 10 and 20 times what you saved in deferral! That s why when you put the 2 words the IRS together you get THEIRS ! That s right, they are, for all intent and purpose, your Silent Partner waiting in the wings for you in a BIG way! And they will decide what share is THEIRS in the future. That's why I believe IRA really stands for Internal Revenue Account! And as Douglas Andrew says in his best selling book Missed Fortune, That's why I refer to qualified plans as the savings bond the government has developed for itself.

Please note: These examples are illustrated in approximations when it comes to tax liabilities. Yet, the overall context is correct. There should be no doubt that if the tax structure remains the same as it is currently, the overall hypothesis is fairly accurate. However, an assertion can be made with the information we have today, that tax rates could be much higher in future years. Just remember how you answered when asked where you thought tax rates would be in the future.

Now, ask yourself again, if there was another way to save for retirement without including the IRS in the plan at any and every point, when would be a good time to know about it? If I could show you a way to generate a retirement income that was truly tax-free- NOT only on the gains you make over the years BUT also on the income you take in retirement AND that money you receive would not impact your Social Security (what little that may be) or Medicare benefits under the current laws, WOULD you be interested in knowing about it? OK, let me show you how...

How about a Home Equity Personal Retirement Plan (HEPRP):

Investment tax favored Growth tax favored Retirement tax favored Conveyance or transfer tax favored

This looks very interesting, but you have never heard of it, right? So, how does it work?

Before I show you, I must first ask you- how much would you invest in the following account:

  • The investor determines the amount and length of time for monthly contributions.
  • The investor can pay more but never less than the minimum contribution.
  • If the investor tries to pay less, he may end up loosing all of the accumulated contributions.
  • All that money contributed is not safe from principal loss.
  • Each contribution results in even less safety.
  • The money is not liquid in case of emergency.
  • The money is earning a 0% rate of return!
  • The investor s income tax liability goes up with each new contribution.
  • When this investment plan is fully funded, there is no income paid out.

That sounds like a great investment, right? NOT for me! But I bet you have one just like it and didn't even know it.

Welcome to your amortized home mortgage loan investment! Surprised?

Now, let me ask you this- What is your annual rate of return on the EQUITY you ve built in your home? Is it 6%, 8%, 10%? How about 0%! That is right ZERO!

So, wouldn t you say that a $100,000 liquid side fund would potentially be much better than $100,000 in equity in a home? Still not convinced? Let me show you...

FACT: The KEY is controlling your equity. Large equity in your home can be a HUGE disadvantage for many reasons. Here are a couple:

By having cash available for emergencies and investment opportunities, most homeowners are better off than if their equity is tied up in their residence. Large, idle equity, also called having all your eggs in one basket, can be risky if the homeowner suddenly needs cash. While employed and in excellent health borrowing on a home is easy. But most people, especially retirees, unrepentantly need cash when they are sick, unemployed or have insufficient income. Obtaining a home loan, under these circumstances can be either impossible or very expensive.

-From a news article in the Chicago Tribune

Let's go back and review the true or false questions I previously asked.

  • A large down payment will save you money over time on your mortgage. FALSE!
  • A 15 year mortgage will save you more money than a 30 year mortgage. FALSE!
  • Taxes will be saved by making contributions to a retirement plan. FALSE!
  • Making extra principal payments will save you money. FALSE!
  • Your IRA, pension and 401k benefits will be taxable at retirement at a lower tax rate. FALSE!
  • The interest rate is the main factor in determining the correct mortgage. FALSE!
  • You are more secure having your home paid off than if financed at 100%. FALSE!

If we have not yet squelched some of the misconceptions of traditional financial planning, including retirement and mortgage planning, let s look at how we will go about doing it with educated financial planning.

We first need to compare traditional planning vs. new EDUCATED planning.

Traditional financial planning concentrates on examining lifestyle wealth (i.e. today s needs and wants) combined with accumulated wealth (i.e. tomorrow s needs and wants) in attempts to improve your rate of return and increasing your current savings rate. In traditional planning a traditional advisor (i.e. stockbroker, financial planner, etc.) would look at what you have invested and where it is invested and typically say, I can do better for you. But at who's risk? YOURS, of course! He or she would simply realign your current investment portfolios, use computer generated asset allocation models (with pretty pie charts and graphs) and in most cases, suggest putting more money into your current savings plan. That normally means restricting your current lifestyle so that you have enough later on. Does this sound familiar? They typically only concentrate on what you have currently, reposition it (while generating fees and commissions) and say, You need to save MORE so send me MORE to invest! Once again, at YOUR risk. How appealing is restricting your current lifestyle so that you have enough later in life?

However, educated financial planning first looks at the transferred wealth, i.e. wealth you re unnecessarily or unknowingly giving away with the attempts to include it back to accumulated wealth. This, in most instances, is done without impacting your current lifestyle negatively. Actually, it could improve current conditions significantly. This means that an educated advisor would not first look at what you have accumulated and try and improve it with traditional investing vehicles. He (or she) would first look at how you could recapture transferred wealth and then implement a plan that would incorporate innovative, yet secure ways for you to attain your financial goals in a taxadvantaged way. This educated advisor would never first say, I can make you a couple of extra percent in return. An educated advisor knows that it is not as important to make more money in percentage returns (at your risk) as it is taking into consideration the end results on a net taxable basis. What I mean here is- It is not how much you make BUT how much you get to keep!

So, what is this transferred wealth I speak of? It is wealth you are unknowingly or unnecessarily giving away in taxes, non-preferred debt service interest, etc. Are we on the same page?

Let's look at how we can improve your lifestyle wealth and accumulated wealth by recapturing some of that lost transferred wealth using educated financial planning.

In doing so, we first have to acknowledge that not all debt is bad or non-preferred debt. There is such a thing as good or preferred debt and I ll show by looking at the concept of opportunity cost vs. employment cost .

Opportunity cost is the actual cost of not investing idle funds, correct? If you had $2 to earn a return with and you spent $1, you have in essence cost yourself the opportunity to make money on that $1 spent- plus all the interest or growth of that $1. So, would you say that idle money sitting in home equity has an opportunity cost? You did spend it without receiving a return, correct?

Employment cost is the actual cost of leveraging or using those idle funds. This means the actual cost of using idle equity money. You simply can t pull money out of equity out of a house without a cost, can you? Yes, you could sell the house,but let s assume you want to keep it.

The real trick is to utilize TAX DEDUCTABLE employment cost, right? I would call this preferred debt interest. That is opposed to non-preferred debt interest like credit card interest.Ideally, let s say that your employment cost (call it a mortgage) of using the money is measured using simple interest while your previously idle (opportunity) funds (or funds you ve accessed via employment) actually grow on a compounding interest basis. This would mean that your employment cost remain stable over time as your opportunity funds would grow in a compounding way. This means that even if your employment cost had the same or higher interest rate as the money you ve now employed; you ll still end ahead. Do you see why? It is called compounding . If you don t believe me, ask Albert Einstein:

Einstein actually called compound interest the 8th Wonder of the World and here's why. Let's say you invested $10,000 today and you earned 10% per year- compounded. In 5 years= $16,105 In 10 years = $25,937 In 20 years = $67,275 In 30 years = $174,494

That is over 17 times the amount originally invested! Amazing, isn't it. It just keeps building and building.

Let's look at this example. Let s say you have borrowed $100,000 that is costing you simple interest of 10% a year and you also have a $100,000 side fund compounding at 10%. The first year it cost you $10,000 and you made $10,000. No good so far, right? But year 2, it still costs you $10,000 but now you ve made $11,000 ($110,000 x 10%). In year 3, it still costs you $10,000 but now you ve earned $12,100 ($121,000 x 10%). Do you see the math? Even after 3 years you re now $2,100 ahead in that year. The spread only widens over time with the magic of compounding. See how easy that is?

Now let me show you why it is never a good idea to use the traditional ways of buying a house. And with that you'll clearly see the differences between simple interest vs. compound interest.

Let's say that instead of putting $10,000 in a home as a down payment we put it in a side fund and bought a house with no money down for $250,000 on a traditional amortized fixed rate 30 year loan @ 5.75%.

At the end of 5 years, you would have built $17,748 in equity in the house. But you would also have a side fund worth $21,156. That s a total combined worth of $38,904. If you had put that $10,000 into the home instead of a side fund, you re equity would only been approx $29,000 or almost $10,000 LESS than employing a side fund. Having the money in a side fund is also liquid cash to use as desired! Having that extra $10,000 in the house well, it is an extra $10,000 in the house- doing nothing.

Let's look at why traditional mortgages don t work in another way. Let s say you didn t even have the $10,000 down payment. Let s say you got a 5 year ARM 4.38%- interest only on the $250,000. The payment difference would be about $496 per month less than in a traditional 30 year amortized fixed loan. Let s say you took that $496 and put it away earning you nothing (in the mattress). That would be $5,952 saved (in the mattress) per year or $29,760 after 5 years in cash.

Under the 30 year fixed example you had $17,748 in equity after 5 years but now you have $29,760 in cash (in the mattress) instead- AND that cash earned 0% (ZERO) interest in the mattress! You re still over $12,000 ahead with NO earned interest and NO tax considerations taken for the interest deductions on your 1040 form.

So, is building equity in your house EVER better than cash (in the mattress) you can easily access?

I know, this sounds insane. Everyone always told you to pay off that mortgage as fast as you can and be worry free in your golden years of retirement. So, why doesn t it seem to work as believed? Why was everyone so wrong? Good question! It is because typical amortized loans are front-loaded with interest and you re not even fully taking advantage of that fact with traditional home buying methodologies.

Let me ask you this- if paying off your home in the fastest way possible is best, why are you going about it in the slowest ways known? And if it is not best to pay it off at all, haven t I shown you the fastest way to do it if you really wanted to anyway?

What if we took as much of the equity we could out of the house and put it in a side fund that earns compounded interest and pay the employment cost (a mortgage payment) in simple interest? How much better off would you be in 5, 10 or 30 years? Do you not see from the numbers in the examples above that you could actually pay off your mortgage in as little as ? the time of traditional methods with the equity actually separated from the house?

What if we could create a side fund to put your excess equity in? However, we also put in the additional savings from the payment difference of a traditional fixed amortized loan and an interest only type loan as in the examples above (the $496 difference in payments). How much difference do you think you would have after 5, 15 or 30 years? Would it cost you any more than what you re paying today? AND what if we can do this to not only grow tax-free but also produce a tax-free access to those funds for any need or other endeavor you wish at any time you wish, especially retirement income? Did I mention TAX-FREE?

First, our side fund must retain:

  • Liquidity
  • Safety
  • A rate of return
  • And tax advantaged or tax-free status

Now that we understand what we are striving for in our side fund , let s look at this concept of tax-deductible preferred debt , as it a key ingredient in our plan.

We all know that good old Uncle Sam has pretty much stripped from us the ability to deduct interest expenses in all areas except home mortgage interest. As such, it is the only real tax gift left for us to take advantage of.

So let's look at the after-tax cost of a simple interest mortgage. Let's say you have a mortgage of $100,000 and a 9.5% interest rate (I know that is high- but just bear with the numbers for simplicity purposes). That would cost you $9,500 per year, right? Let's say you are in the 33% marginal tax bracket. That cost would really be about $6,365 or actually 6.3% after the $3,135 deductions, right?

Now let's look at how, even with earning less compounded interest from a side fund, we can still come out ahead with the money in a side fund instead of in the house.

Let s say you borrowed out $100,000 in equity from the house and put it in a side fund. The bank lends you the money @ 9.5%, so you re paying $9,500 in interest annually. But then you do write off $3,135 in interest on your taxes, so you re real cost is only $6,365 per year (6.3%).

Now we put that money to work ($100,000) and we earn only 8% or $8,000. I know it is less than you were paying on a gross basis. But oh, look, after taxes, you're still ahead by $1,635 in the side fund what a surprise, isn t it? And we haven t even begun to compound yet.

But here's the real kicker. Remember, you re only paying simple interest on the loan. It never goes up! You re always going to have an annual net cost of approx $6,300, whereas, the side fund is actually compounding every single year. So, after 15 years, you ve paid approx $94,500 in net interest, your side fund would be worth approximately $220,000! That means you would have an additional $125,500 in your pocket after deducting all the interest expense you would have paid over that time ($220,000 - $94,500). That means that if you had taken out a 15 year loan of $100,000, you d have an additional $25,500 ($125,500 after net interest expense minus $100,000 loan) you wouldn t have with a traditional 15 year amortized loan, right? But in reality, you do still have a real cash side fund of $220,000, don't you? If you already had mortgage interest anyway, that mortgage cost would have been there anyway. You may have not paid as much interest in an amortized loan- but the interest cost you all the same. But you also would have had a much smaller tax deduction over the years with an amortized loan too!

Looking at it in a different way, if you had a conventional 30 year loan for $100,000, you would have been able to pay it off in less than 15 years by using a side fund instead of an amortizing loan!

And we didn t even incorporate any additions (such as the $496 in payment differentials between amortized and interest only loan payments) into the side fund pot like we had mentioned doing previously. AND, most importantly, you had $220,000 in cash to use in any way you wanted!

Wouldn't that be a great place to be- any which way you spin it? Having cash to do what ever you wanted or needed to instead of in equity that is earning ZERO!

Once again, you could pay off your house earlier, if you wanted. But do you still think the old ways of thinking such as:

  • Making a big down payment
  • Getting a fixed-rate conventional mortgage
  • Starting a bi-weekly mortgage program
  • Sending extra money as often as possible

Still hold true? Let's look at the NEW rules of money. In his book The Truth About Money (1997 Book of the Year), Ric Edelman says, Here are 5 great reasons to carry a big, long mortgage and never pay it off.

  1. Mortgages don t lower home values. Your home will grow in value (or not) whether or not you have a mortgage.
  2. Your mortgage is the cheapest money you ll ever buy. Most people need to borrow money over their lifetime, so why pay 18% to credit card companies, when you can borrow at 8% or less?
  3. Your mortgage is the best way to lower taxes. Interest you pay on personal loans, auto loans and credit cards is NOT deductible, but for most of us, mortgage interest is tax-deductible, making it the cheapest money you ll ever borrow even cheaper.
  4. Get the cash out of the house, WHILE YOU STILL CAN! If you suffer a job loss, medical crisis, or other financial crisis, you may find yourself unable to obtain a home loan. Lenders don t make loans to people in financial crisis. That is why you should get a big mortgage NOW before you need it while you still can.
  5. Your mortgage becomes even cheaper over time. Your income will likely rise over time, which means that today s mortgage becomes easier to pay later.

In other words, as Ric Edelman says in his other New York Times Best-Selling book The New Rules Of Money , You should get a big 30-year mortgage and never pay it off. Now that you know that the rules have changed you should look to: -Choose the best mortgage, not necessarily the one with the lowest rate. -Stay away from bi-weekly mortgage plans. - Never send extra money to your mortgage company. -And finally, paying off your mortgage is worse than putting money in your mattress. (At least you can get to the money in your mattress in emergencies).

Your new goal should be to make the SMALLEST payment possible with the BIGGEST tax break possible. That means NEVER paying off your mortgage!

Now, let s cover how to do this with the EQUITY MAXIMIZATION concept. First, the advantages include:

  1. Eliminate high-interest, non-deductible debt.
  2. Start an emergency fund.
  3. Higher tax deduction.
  4. Safety.
  5. Liquidity.
  6. Greater property portability.
  7. Qualify for College grants (if needed).
  8. Supplemental retirement income.
  9. Possible outside investment opportunities.

Let's concentrate on supplemental retirement income and use the Equity Maximization concept as your Home Equity Personal Retirement Plan (HEPRP).

We already reviewed why qualified plans such as 401k and IRAs are not the most tax-advantaged ways to save for retirement. But a for quick refresher, let s say you put away $6,000 over 30 years. That means you put in $180,000. At 33% tax bracket, you saved about $2,000 in taxes per year or $60,000 over that 30 year period. So, in essence, you put out $4,000 of your money per year and Uncle Sam kicked in $2,000 for you. Let s say that you were very good (or fortunate) and earned 10% on that money every year over that 30 year span. You d have a nice nest egg of about $1,085,661. Feels good so far, right? But now it is time to start retirement and you don t want to pull out principal, so you take about 10% out or $100,000 a year gross income. But Uncle Sam (your Silent Partner) wants his cut back of 25% or $25,000 of it. So, now you have only $75,000 to live on. That s not too good, especially when you consider that in 20 years of retirement, you could end up paying Uncle Sam over $650,000 in taxes while you only saved $60,000 going in over 30 years! I told you old Uncle Sam was a smart one, didn't I'

So, how can you get the same tax advantages of the 401k and IRA deductions without paying Uncle Sam on the back end too?Let's go back and examine taking equity from your home. Let s say you have a $200,000 home with a $100,000 loan and $100,000 equity. Let s say you took out $60,000 to keep the 80% loan-to-value to prevent extra PMI costs (I also want to keep the numbers similar to your 30 year tax savings). So, for simplicity s sake, let s say it was a 10% interest only mortgage loan. Remember, we re going to call this our employment cost. Let s say your payment is $500 per month or $6,000 per year. Let s deduct our interest cost by the 33% tax benefit and viola we have a $2,000 tax savings or a net cost of $4,000. This looks just like what we were previously putting into our IRA or 401k, right? A $60,000 lump sum earning us that same 10% (like we were getting in our traditional retirement plan) over 30 years equals $1,046,964 gross. And if we pulled out that same 10% in retirement we d have a net income of about $10,000 per year.

But hey, so far there s no real difference, is there? In matter of fact, we actually have a little less in the pot- about $40,000 less after 30 years had we done it the traditional way and we re getting about the same $100,000 per year. That s no great deal, is it? No, you missed several points here. First, I said that using the Home Equity Personal Retirement Plan gave you a NET income of $100,000 per year, not GROSS income like the traditional 401k and IRA! Your IRA/401k income had taxes of $25,000 per year or NET income of $75,000! You would have to pull out approximately $125,000 per year from your 401k or IRA to get the same $100,000 we re getting from your Home Equity Personal Retirement Plan. How long will your IRA/401k last if you had to pull out more than you re earning? And secondly and equally as important, you only used $60,000 in equity- you re 401k/IRA gross contributions added up to $180,000 ($6,000 x 30 years). So, in this example, you produced similar total values as an end accumulation but significantly different results when we talked about your net income in retirement with 1/3 the money invested!

If you were to simply add what you saved in taxes every year on our mortgage ($2,000 per year) into your Home Equity Personal Retirement Plan every year, along with the initial equity of $60,000, so as to have invested a total $120,000 (or $60,000 less invested than in the 401k/IRA), you would end up with $1,408,851! Now you d be able to pull out approximately $140,000 net income per year in retirement without depleting the principal. That is almost 100% more NET income than the traditional 401k/IRA example- with $60,000 less in total contributions. AND guess what, that $120,000 of interest expense we paid was spent along the way anyway as our employment cost. You can subtract that back out of the examples at the end for sake of fairness and the numbers still dramatically favor or side fund scenario. I know there are those who would come back and ask, What about my mortgage costs every year for 30 years?

In reality, your nest egg would include that $120,000 in each example of your Home Equity Personal Retirement Plan. Go ahead and subtract the employment costs at the end. Regardless, your Home Equity Personal Retirement Plan beats your traditional 401k/IRA plan no matter how I work the numbers.

OK, so I kept saying you d receive a NET income per year in the Home Equity Personal Retirement Plan examples, while you were being taxed at 25% from your 401k/IRAs. I know you can follow the math on the tax situation of the 2 different ways to put away money for retirement but I have made no mention of how to get a NET income, free of taxes from the Home Equity Personal Retirement Plan. The next question must be how? How do you get tax-free growth and tax-free income from your Home Equity Personal Retirement Plan?

Well, first, as you may recall, we said our side fund must be:

  1. Liquid
  2. Safe
  3. Have a rate of return
  4. And have tax-advantages.

There is no way I could ever recommend that you take out your home equity and put it at risk. So, certain endeavors like Las Vegas casino gambling or an Afghanistan growth mutual fund investing would have to be crossed off the list immediately, no matter how compelling the rewards look to be. Also scratch than new Harley Davidson off the list. We re here to conserve that money- NOT consume it!

So let s consider the entire spectrum of reasonable investment possibilities including stocks (conservative ones), bonds (investment grade), mutual funds (conservative types), treasuries, real estate investment trusts, limited partnerships,investment grade insurance, CDs, money market funds, collectables, annuities, etc.

Then, by asking these 4 significant questions, i.e. are they liquid, safe, have a rate of return and have tax-advantages, we can funnel them down one by one until we match all 4 parameters. Some of these look enticing, some riskier, and a handful fit a couple of parameters but not others. But to cut down to the chase, without question, only one vehicle is unequivocally suitable in every single aspect and I bet that unless you were totally educated in every vehicle I mentioned or you re already familiar with the concepts, you d never guess which one. Drum roll, please...

A properly structured permanent investment grade insurance contract built as a tax-free non-qualified supplemental retirement plan! What a mouth full! And I told you, you probably couldn't have guessed it. I know, I also cheated, I only mentioned it in the list above as investment grade insurance.

I know I know before you start in on me- nobody wants to buy more insurance! And yes, most people (and most professional advisors, for that matter) have no idea how to properly structure an investment grade insurance contract as a tax-free non-qualified retirement plan.

Everybody knows that insurance is not a good investment, right? WRONG! Once again, that is one of the misconceptions of traditional financial planning. We re talking about educated financial planning here! Once again, there is simply NO other investment vehicle that equates in liquidity, safety, rate of return and tax-free advantages as a properly structured permanent investment grade insurance contract constructed as a tax-free non -qualified supplemental retirement plan!

That s right, as Douglas Andrew states in his best selling book Missed Fortune , Properly structured life insurance contracts are the only investment vehicles that accumulate money tax free, allow access to the money tax free, and blossom tax free upon transfer to heirs. He continues, Modern cash-value life insurance can be designed to accumulate and store cash safely, provide tax-favored living benefits, and deliver tax-favored death benefits- all while safely maintaining liquidity and earning an attractive rate of return.

I offer a challenge to anybody to differ with these assessments. Any takers? OK, let s move on. First of all, you re not just buying more insurance for the sake of more insurance when these contracts are properly structured. The insurance aspect is secondary when constructed properly. Oh, yes, by the way, I know of no beneficiary that ever declined a bountiful income tax-free insurance benefit check. But clearly stated- we re NOT buying insurance to buy insurance here. It is simply the only vehicle that allows us to do what we want to do with it. And by the way, as a side note, the IRS is indirectly paying for the cost of insurance here. Without going into depth on how, you must agree that is certainly a fine turn of events, isn t it?

So, if I still stand unchallenged, let's move on to understand how and why.

There are several types of permanent insurance contracts available that could meet these requirements in one way or another to the desired degree. Without going into tremendous detail here again, I will state that only Whole Life and Universal Life policies fit the bill. Once again, without going into tremendous detail, I will state that, for various reasons, Equity Indexed Universal Life stands above all as the most well suited for the job.

On a historical basis, Equity Indexed UL has performed rather well. On the low side, we are talking about guarantees of approximately 2% minimum. On the high side, we are talking about returns in the 20% range. But on average, we re looking at approx 8%. So how does an 8% tax-free return sound to you? And did I mention, NO LOSS possible? That s right; you can never lose money because of poor market performance. That s because the way you are credited, you can gain from the growth linked to a published and tracked index, i.e. the S&P 500, the NASDAQ 100, etc. But because you are not directly invested in the market, you cannot lose from the down years either. Of course, because you are not directly invested and only linked, in most probability you will not perform in par with the S&P 500 in the up years. But you also compensate by not being drug down into negative performance by the down market years either. If anyone asked me if I would rather have 100% of the market gains as well as all of the losses or say, 50% to 85% of the market gains- BUT no losses, I would certainly say the latter! Wouldn t you?

You can also switch your money around in various crediting methods and even choose a fixed rate of return if desired and I can easily explain the crediting methods in detail personally. But I think you get the general gist. Secondly, and most importantly, I did say a properly structured permanent investment grade insurance contract constructed or built as a tax-free non-qualified supplemental retirement plan. This is the key! It must be properly constructed to meet the requirements as a supplemental retirement plan.

Without going into detail here, this is where most of the advisors (or insurance salespeople) will fail and thus you could end up with something that was not intended. So, my sincerest advise is- DON T go out and call your local insurance salesperson or advisor and say, Hey, buy me one of those Equity Indexed Universal Life policies and by the way, I have a bunch of money that I took out of my house to buy it with. I highly suspect that you will be very sorry you did that with someone who did not know how to build it for you. Why? Because there are several IRS regulations such as TEFRA (1982), DEFRA (1984) and TAMRA (1988) that you must adhere to. This is especially true if you are using home equity to fund such a policy. If you do happen to break any of those regulations, you ll lose a good bit of the tax-free benefits I have stated. You could end up with what is commonly known as a Modified Endowment Contract (or MEC). I know it sounds a bit ominous, but simply put, you lose many of the tax advantages we re striving to achieve. So now you re probably saying, Oh, this sounds complicated, complex and possibly even dangerous if I do it wrong! So, I might as well just keep doing what I am doing.

Well, on the surface, to the uninitiated, it might look that way. BUT I grant you, it is very simple, uncomplicated and entirely safe in every way- IF done properly! And if you keep doing what you are currently doing, Uncle Sam will thank you in your retirement!

"If you have always done it that way, it is probably wrong." - Charles Kettering, Inventor

I'll also throw in the well known description of insanity: Doing the same thing over and over again and expecting different results.

As such, not only will Uncle Sam thank you you get the picture.

So, don't discard this concept because it might seem different or unorthodox. Rules of life and money change. Believing what you ve heard to this point in life about retirement planning, mortgages and investing is like believing the world is still flat. I am certainly glad Columbus didn t take the status-quo on that one.

However, to pursue this new paradigm, it needs to be done with an advisor that knows how to properly structure permanent investment grade insurance contracts as a tax-free non-qualified supplemental retirement plan. And one also needs to have access to a mortgage expert that is familiar with the concept and how to best structure a mortgage to do so. You could search for such people and possibly find them on your own. Or, as you might tell from reading this, you have found him. Yes, I am trained and qualified to assist you in properly structuring not only an investment grade insurance contract for tax-free retirement income but also assisting you in:

- Eliminating high-interest, non deductible debt. - Starting an emergency fund. - Receiving a higher tax deduction. - Safety. - Liquidity. - Achieving greater property portability. - Qualifying for College grants (if needed). - And researching possible outside investments opportunities.

All of this can be accomplished via the Equity Maximization Plan.

By the way, as I stated, you do need a mortgage expert. I also work very closely with mortgage experts that are extremely well versed in this concept.

I realize that I have dumped a great deal of information on you. But I also realize that by doing so, I have also educated you in a way that most traditional advisors would never dream of.

I see it this way, as an analogy, if you had a choice of either having the nicest set of golf clubs money could buy or Tiger Woods ability; I highly suspect that you would choose Tiger Woods ability, right? Heck, he could beat most golfers using a Wal-Mart bought set of children s golf clubs! What I have hopefully done here is to give you some of the insight, secrets or ability to know which golf clubs (investment vehicles) are right for you. Most advisors sell investments (golf clubs). I concentrate on teaching with the expectation that by your gaining the ability, you ll also see that I also have the best golf clubs for sale too. Yes, I know I did not comprehensively cover all of the elements of the concepts described here. Particularly, I did not cover the methodologies involved in how go about taking tax-free retirement income from a properly structured life insurance contract. I also didn t go into all the other benefits you may well encounter or need, such as using this concept to fund your own personal infinite bank . I promise - all the other benefits involved are equally as exciting! But if I did include all the other benefits, what would we have to speak about when you call or met with me to discuss all of this? I don t mind being generous with the information but you must also realize that I do this as a business too. As you well might know by now, I am not a government sponsored educational program.

However, I believe you now have a much better idea of what NOT to do with your retirement planning. We simply need to discuss all the details that are essential to your personal situation so that we can map out your own Equity Maximization Plan and use it as a Home Equity Personal Retirement Plan.

By the way, before I forget, you can begin a properly structured permanent investment grade insurance contract constructed as a tax-free non-qualified supplemental retirement plan without having to use home equity. I simply find that so many people out there have a tremendous amount of dormant funds available in their homes and as such, I concentrate my efforts on assisting them to unchain themselves from the misconceptions of using these resources. So, in conclusion, you can go on doing what you have been doing (remember the definition of insanity) or you can choose to set a new direction for yourself. Once I personally understood these concepts, I truly had an EPIPHANY and discarded over 18 years of old misconceptions of the investment business to concentrate my efforts in this direction. Yes, I know that I cannot go back and start over- but I chose to start a new direction as soon as I learned all of this myself. As I suggested in the beginning, be open minded, stop justifying why you can t do something, think out of the box and know that you can start right now to learn to be a savvy and educated investor with a non-traditional investment prospective and discard the out-dated modes of traditional financial planning! Best wishes and good fortune to you!