Safe, Low Risk Retirement Savings Plans for Individuals & Small Businesses

Safe, Low Risk Retirement Savings Plans for Individuals & Small Businesses

Safe Plans for Individuals & Small Businesses. When working with our retirement money, we need to keep it safe while making sure it gives us the potential growth we need for the future. Tax advantaged plans wherein the principal is guaranteed against loss including fixed indexed universal life insurance and fixed annuities accomplish that goal.

Fixed Indexed Universal Life

Fixed universal life, according to current tax law, is designed to fund your retirement savings tax deferred and tax-free. The life insurance death benefit is secondary, and is intended to pay your family if you die prematurely. It can be funded by a lump-sum or periodic premiums that stop at any age such as age 65. The rate of return is about 7.4% tax-free which is equivalent to a 10% return on a taxable investment. It is best used as a long-term retirement savings tool and not for short-term financial goals. Request an illustration to see how this would work for you.
We design to fund the retirement portion more than the cost of insurance. So, the majority of your funds goes into your personal account, and keeps the cost of insurance low to maximize your account value within IRS guidelines to grow tax-deferred. When you retire distributions are taken out tax-free, unlike IRA’s and 401-k’s wherein distributions are taxable and must be taken starting at 70-1/2.
The growth can be indexed to the S&P500 or other indices such that when the market goes up so does your account value. When the market is down, your account value stays level and growth resumes from the last index value. So in some periods, your account will get zero credit when the market declines, but not lose money as if you had it in stocks or mutual funds-think about the Tech Wreck in 2000 and the market performance since then. Your account value is guaranteed by the insurance company to never go down, so you can never lose money. And, if you die prematurely, your heirs get the death benefit or the account value whichever is greater. Try getting that guarantee from your stock broker or financial advisor.
What makes it different from other traditional products is the way the interest earnings on the account value can be determined. With an FIUL product, you can direct the account value into a fixed account, an indexed account, or a combination of the two. In the fixed account, the account value will receive a fixed rate of interest declared by the insurance company. In the indexed account, the rate of interest is determined by the performance of the S&P 500® Index, subject to a maximum cap of 15%. The attractive feature of the indexed account is the potential to earn higher rates of return based on the index’s performance while being guaranteed that the earnings will never be less than 0%. This product does not participate in any stock, bond, or equity investments.
For example, a 40 year old man in good health can put in what he would into an IRA or 401-k, usually about $500 per month. At age 67 he could potentially have an account value of $515,000 from which he could take out $76,000 tax-free per year for life. And, he would have an immediate death benefit of $192,000 which would grow to $707,000 at age 67.
Avoid Variable Universal Life. It is based on a separate investment account which includes stocks, bonds, and mutual funds. We recommend against this type of retirement investment plan because your money is at risk. Ask yourself: ‘How much can you lose?” The honest answer is “all of it.”
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Fixed Annuities

An annuity provides payments at specified intervals, usually following retirement. It is designed to be a long-term retirement tool and not to be used to meet short-term financial goals. Annuities can be funded with pre-tax money or transferred from your IRA or 401-k plans. According to current tax law, you can build a portfolio of annuities starting at any age and keep rolling them over and growing tax-deferred until you instruct the provider to start distributions. There are essentially two types: Fixed and Deferred.
A Fixed Deferred Annuity is a safe SAVINGS program that has minimum interest crediting guarantees and uses either a fixed interest rate or an indexed feature that allows you to share in a percentage of the upside growth potential of the S&P 500 Index, or other indices, when it goes up and no loss of account value principal if the market goes down.
Since your money is never invested in the stock market there is no risk of loss of principal; your money is never exposed to that risk and is always kept safe.
Deferred means income does not begin immediately. Unlike a bank account or a CD, you pay no current income tax on interest earned. Taxes are deferred until you withdraw your earnings. So interest accumulates and compounds with income taxes deferred.
An Immediate Annuity is an ideal means to take retirement income for specific periods up to your lifetime or continuing for a surviving spouse. According to current tax law, earnings inside the account accrue tax-free and are only due on the earnings included in the payments to you.
Avoid Variable Annuities. They are based on a separate investment account which includes stocks, bonds, and mutual funds. We recommend against this type of retirement investment plan because your money is at risk. Ask yourself: ‘How much can you lose?” The honest answer is “all of it.”
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Life Settlements

Tired of stock market risk of loss and paltry gains?
Life Settlements is a low-risk alternative retirement investment now available to individuals that banks and investment houses like Berkshire Hathaway have participated in for decades that has traditionally paid double digits returns. Not correlated to the stock market, bonds, oil prices, interest rates, etc. and yet has the LOW-RISK and PERFORMANCE characteristics that you want.
A life settlement involves the purchase of an existing life insurance policy that is no longer wanted, needed or affordable to keep by the insured person. Life settlements enable the insured person to sell the policy and receive fair market value by accessing the secondary market for life insurance. Previously if a senior wanted to exit a policy, their options were to let it lapse or cancel it for a small cash surrender value.
We buy and bundle portfolios of 4 or more policies with life expectancies of 2-7 years of which many investors buy-in on a pro-rata share of the face value. Depending on your investment amount, that will typically be about 2-5% of the face value. When the insured passes away, the investors are paid their pro-rata share of the face value. Investors can see the health profile and life expectancy of candidate policies. By selection of several policies, some insureds will pass away before or after their projected life expectancy and the average annual return is typically 10% or more compounded for the life expectancy of the insureds and paid upon their death.
The minimum investment is $25,000.
The foregoing is for information purposes only and is not intended as and does not constitute an offer to sell or solicitation of an offer to buy any security. Contact us to see if you are a qualified investor and if this alternative investment is suitable for you.
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Small Business Retirement-The Executive Bonus Plan

What Is It?
Tax law provides for business owners to establish a retirement plan that can be funded by tax-deductible business income, grow tax-deferred, and be withdrawn for a lifetime tax-free retirement income stream.
According to current tax law, Section 162 of the Internal Revenue Code is the section that states that an employer may deduct certain expenses-including salary and other compensation-that are ordinary and necessary business expenses. It is in reference to this Code section that certain nonqualified plans, known as Executive Bonus Plans, are referred to as Section 162 Plans. In its simplest form, an Executive Bonus Plan is one in which the business pays the premiums on a permanent life insurance policy on the owners.
The owners may choose to offer the plan to key employees in addition to themselves. The Executive Bonus Plan is a better means to fund the retirement benefit of key employees than other non-qualified retirement vehicles due to the tax deductibility of the employer’s contribution.
The employer’s premium payments are currently taxable to the executive, but the owners can deduct the payments from the business income and pay the premiums for other participants, also deductible as business expenses.
Universal life insurance is generally preferred for use in Executive Bonus Plans for retirement savings, particularly Fixed Indexed Universal Life because:
  • Cash value grows tax-deferred and the retirement income stream is tax-free
  • Premiums are flexible and can be adjusted depending on business cash flow
  • It is an inexpensive means to provide a life insurance benefit to key employees
  • Cash value is accessible for other purposes such as college funds or emergencies
  • It can be set up to be free of estate taxes
  • It is portable because the executive is the owner of the policy with all rights thereto

How Is It Done?

Installation of a section 162 plan is quite simple assuming that the plan covers only one or two stock holders or top management executives. There should be a corporate resolution by the company’s board of directors adopted in writing before the agreement with the employee is signed. The resolution should specify the corporate objectives to be met and the general terms of the Section 162 plan.
A separate contract with the employee should state that the corporation is making a special benefit available to the employee in return for his or her past and continued services and will provide that benefit as a bonus over and above all other compensation. The agreement should retain for the employer the right to terminate the plan at any time and for any reason. The agreement should also list the amount of the death benefit, the type of policy to be purchased, and the terms upon which the employee will cease to be eligible for the benefit.
The Executive Bonus Plan may also be used to provide the owners and key employees other forms of permanent or term life insurance in the same manner.
Reasons why a Section 162 Plan is a favored executive perquisite include (1):
  1. The plan provides valuable life insurance for key employees at little or no out-of-pocket cost. This results in less of an after-tax outlay for personal financial security.
  2. The corporation has a great deal of freedom with respect to (a) who will be covered, (b) the amount of insurance offered to each selected individual, and (b) the terms and conditions of eligibility.
  3. The terms of a Section 162 plan are completely confidential. No one other than covered employees need to be informed neither about the plan nor does any covered employee need to be given information concerning the terms of benefits provided to other plan participants.
  4. It is the authors’ opinion that if the Section 162 plan covers only one or two employees who are shareholder or senior management employees, there should be no Department of Labor requirements for the employer to meet. Even if a number of common law employees are covered and the plan is considered an employee welfare benefit plan under ERISA (Employee Retirement Income Security Act) and the employer has stated an intention to create a plan, requirements are minimal.
  5. A Section 162 plan can be terminated by an employer at any time for any reason without justification to the IRS or Department of Labor. No penalty is attached to a plan termination as is the case when a qualified plan is terminated.
  6. Almost no employee benefit plan is as easy or as inexpensive as a Section 162 plan to implement and maintain. The authors suggest that in the agreement with the employer the employee request in writing (as a convenience) that the employer pay the bonus directly to the insurance company.
  7. Section 162 plans are appreciated because they provide real benefits for employees, who know the benefits, cannot be forfeited. For example, the employer corporation cannot take all or any part of what the employee owns away or even place policy values at risk of corporate financial problems, nor can the employer corporation’s creditors reach the policy or its cash values because the employee (or a third party on the employee’s behalf) owns the policy from inception and holds all rights to policy cash values and death proceeds.
  8. Another factor that increases the employer appreciation of covered employees is the portability of the Policy. The life insurance policy and all its benefits remain the employee’s sole property. Termination of employment has no adverse impact on any of these values.
  9. Present or future management can decide to discontinue premium payments but the employee will not lose anything he or she presently has if the business is sold or there is a corporate takeover.
  10. Premium payments under a Section 162 plan will “self-complete” if the selected employee becomes sick or suffers an accident. If the covered employee is permanently and totally disabled, all premium payments will be taken over by the insurer and the policy’s death benefits and cash values continue to grow as before.
  11. Because the employee is the sole owner of the life insurance contract, its cash values (which accumulate income tax free) can be turned into supplemental retirement income at the employee’s choice or be used for a child’s college education or a variety of other cash needs.

(1)Tools & Techniques of Life Insurance Planning, 4th Edition
The National Underwriter Company
Author: Stephan R. Leimberg, Robert J. Doyle, Jr.
ISBN: 9780872189331
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