Permission to Spend in Retirement with Tom Wall

Minimal limitations on how much you can fund. You know, for that mass affluent investor. You know, that is one of the best kept secrets in personal finance right now. And it's really a way to minimize taxation over time, more so than getting better returns or something like that.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host Chris Larsen. If you haven't yet, get a copy of our book for free at our website nextlevelincome.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's episode we have Tom Wall. Thomas spent the entirety of his 20 year career positioning whole life insurance and competing against the alternatives starting in college as an award winning advisor with Northwestern Mutual before moving his practice to Massmutual. He subsequently grew his career in prominent home office roles in sales and marketing leadership. In those roles he developed into a renowned storyteller and product expert at perennial company conferences and firm meetings nationwide. Tom's PhD in is in retirement income planning with original research on whole life as a fixed income alternative under the advisement of industry thought leaders Wade Pfau, Michael Fink and Steven Parrish. I've read a lot of their stuff. It's phenomenal. These are the leaders in the industry. Tom's focus on academic integrity and decades of sales experience combined to make him a uniquely credible and inspirational voice in the life insurance space. He now coaches and consults with financial advisors, hosts the Whole Life Mastermind study group and has published his first book that we're talking about today titled Permission to spend maximize your retirement with the best kept secret in personal finance that we're going to talk about and share some secrets of Tom's in today's episode. Tom lives in the greater Boston area with his two sons, kind of like us, ages 12 and 9 as an avid golfer and traveler. Tom, welcome to the show.

Thanks for having me, Chris. Good to be here.

Yeah, no, I'm excited to have you. Excited for you to share your new book with the audience. And look, you know, when we first talked I, you know, I kind of selfishly I'm a bit of a nerd when it comes to finance and fixed income and insurance and you know, we're going to get into a little bit of that but we're really going to talk about, you know, what, you know, what your methodology means for, you know, for the everyday investor for those people that are, you know, working towards financial independence and retirement. But before we do that, I'd love for you to share a little bit more about, you know, your background, how you got to this point up to writing your book.

Yeah, I'd love to do that. Thanks. Thanks again. Yeah, well, I've been about 20 years in the career, so I joined the financial services industry 20 years ago selling life insurance for college, you know, for a big company called Northwestern Mutual, which probably. And then. And then subsequently spent about four years as a financial advisor, getting all the other investment licenses and all that kind of stuff. This happened to be in near my hometown, which was by MassMutuals General, a home office. Only a matter of time before a friend of mine, you know, sucked me into a good offer at that company. And then I spent a very nice, you know, 14, 15 career in your career after that stint as a financial advisor, as basically a product expert for the company, and then toward the end, ran the marketing department, you know, the folks actually making the brochures and the illustrations and some of that technical stuff, working with the actuaries and all along the way was achieving multiple designations and master's degrees and actually culminated in my PhD in retirement income planning just a couple years ago. So what got me here was years ago, I kind of got a little bit sick of home office life and sitting on ZOOM meetings all day and being in meetings I didn't need to be in and really didn't have ownership over and really wanted to go back out to the field to share what I've learned, what I've studied, and really what I've seen from behind the scenes and help. Help advisors, you know, help individuals understand what I. I think is kept secret in personal finance.

Yeah, no, I love it. And you have like, you have like 15, 16 letters behind your name, Tom.

It's.

It's awesome. And, you know, the thing is, a lot of people, you know, is these saying, like, hey, if you can't do, you teach, right? And the thing is, you've done it. You've. You've done it at all levels. You've done it working with the individual investors. You've done it being the product specialist, which is. Which is why we had the. Had you on the show here. So I'd like to start. I think, you know, a lot of listeners of the show are accustomed to, you know, our approach to insurance and kind of how we blended into specifically life insurance and how we blended into our investment strategy. But, you know, life insurance has Has a bit of a stigma to it. And people say, oh, life insurance, that's, you know, that's not necessary, that's expensive. Can you walk the audience through kind of what happened between the beginning of the 19th century or the 20th century and the end of the 20th century and why there was such a shift in, you know, how Americans really looked at life insurance?

Well, gosh, if you go back to, you go back 100 years ago, there was only one kind of life insurance and that was permanent life insurance. It was, it was whole life where you pay in a significant premium and it will pay out, you know, when you die, not if you die. It was meant to last year life, it was really only the last. I'm not exactly sure when it was invented, to tell you the truth, but it was really the last, you know, probably four or five decades where term insurance actually became a thing. Yeah, term insurance is basically renting your insurance. It's, you know, if you get paid out if you die, not when you die, if you die during this 20 year period, for instance, you know, we'll pay your family. And because it's highly unlikely that's going to happen, it will, it'll cost you a little bit of money. So the idea is, the idea has been traditionally or not traditionally, but most recently, you know, buy term and invest the difference. You know, cover your liabilities with it with life insurance for, for those early income earning years or even on the, the high end side for estate planning cases, still buy the lowest cost coverage you can to leave a legacy and invest the difference elsewhere. Because the market has done so well. I mean the market, we've, we've, the last several decades have been the best period in time for the market ever. For a lot of reasons, for a lot of innovation reasons and financial instrument innovation too. Leverage has never been easier than today. Options trading strategies have never been easier than today. So all that, all that other has kind of moved a lot of the markets. Or just buy term, buy, buy that, that safe stuff or buy that by that coverage and then invest elsewhere. That's, I think in my opinion from what I've seen is that it's a little bit shortsighted. You know, there are a lot of companies out there that have products I would never touch with a 10 foot pole. But there's a handful or two of companies out there that are offering products that I think are really misrepresented and underappreciated because of some of those bad apples there and because of some of the misinformation online. Which is really why, which is really why I was motivated to write this book and talk about some of these strategies. Because I've seen them, you know, they change the lives of people and their finances and really give them, you know, the comfort that they need and also actually get better risk adjusted returns in the process in some cases too, when you, when you really dial it in. That's where a lot of my research came from.

Yeah, yeah, I can't wait to dive into that. And it's, it's interesting, you know, if you look into how the rich, how the wealthy invest and handle their finances and how, I'll say the poor. I'm just talking about, you know, people that are living paycheck to paycheck, that are going to rely on Social Security, that don't, you know, necessarily have, you know, the financial means to fully support themselves in retirement. You know, there's, there's a huge gap. And then even with 401ks and you know, as pensions have gone away, it's really interesting because 100 plus years ago, people used life insurance as their, as their savings plan, as their plan for retirement. And you know, we've talked about the analogy of, you know, permanent or traditional whole life insurance as having equity, kind of like owning your home, whereas term is like, as you, you know, said, you know, it's like renting. So yeah, walk us through, you know, as you mentioned, some of the, you know, strategies, some of the things that you've incorporated in this book.

Yeah. There's two big themes. I'll start with the first theme. The first theme is, and I think this is the biggest misconception with planning, it's really got me hooked on this whole concept early in my career is when you get to retirement, regardless of how much you're able to save, you will be afraid to spend. And it's, this whole discussion is around, you know, we're going to save our money, we're going to save up our million or two or three, whatever your number is. What, doesn't matter what that number is, you'll get there and you'll sit there, 65 or whatever day that is and say, I did it, here's my millions. Now how much can I spend? And any advisor is going to look at you and say, I have no idea. You know, we don't know live too long. We don't know if you're going to require expensive medical care. We don't know if the next great depression happens two years down the road. We don't know Hyper coming. The only answer to that, if you have just a big bucket of investment assets that are sloshing up and down, is to basically under enjoy your retirement early on, basically live below your means the way you did for the last four decades and hope things work out and then give yourself a pay raise at advanced ages when you're, you may not even be healthy enough to take advantage of that. And that's just inefficient, terrible planning. So I, I got done this whole puzzle that you know, advisors are trying to solve, which is how do we push that consumption to the early part of retirement when people are the happiest, healthiest, most willing to travel, they're capable of playing golf and have the golf membership, all that stuff. Yeah. How do we push that consumption to the earlier? Every study ever done has shown that retirees, especially the mass affluent ones that do have seven figure net worths, spend less and less even on an inflation adjusted basis. Every goes by interesting. And that's what that's really where that makes sense. Yeah, exactly. So that's the whole, that's the whole strategy, you know, behind the book is It's Retirement Planning 101 is the book. But it finishes with if you can guarantee those things that you're going to care about the most, those things that are going to hold you back, if you can guarantee a legacy with a permanent death benefit that pays out no matter what, if you can give yourself access to someone else's money to pay for long term care, for instance, you know, which can be hundreds of thousands dollars in retirement. And if you can give yourself a pool of liquidity, that's not your investment account, which means you can tap into. So if, if your investment account goes down, you're not being forced to sell low, you can do those things if you can have that asset in your portfolio. You know, your spending rates with the same level of, of certainty can be, you know, 25 to 50% higher. Meaning 100,000 turns into 125 or 150 with the same level of certainty simply because you have those things taken care of. Yeah, that's. So that's first and foremost I think the philosophy.

I love that I've been writing quotes down here like as you've been talking. You're like a quote, a quote machine. So it's, you know, one of the things that you probably saw me nodding up and not my head up and down. You know, one of the things that I found, Tom, is as we, as my wife and I, we hit this point where, you know, we had, you know, the ability were not to work anymore. There was this, you know, this sense of like, well, wait a minute. My, my identity is all wrapped around myself as a professional. I was in, you know, the medical device space for a lot of years as well. And, you know, as you. If you do something as, you know, for, for two decades, you know, people like, hey, what do you do, Tom? And you tell them, you're like, this is what I do. It's your identity. You're a provider for your family. You derive a lot of that. You're relevant. You know, you help people out. You're relevant. It's. It's a good feeling. And it's, it was really hard. The biggest piece for me, it wasn't the financial piece, it was the mental piece and that ego piece of, of removing my identity or changing my identity, if you will. And I've seen this with my, like, my stepfather. You know, he gets towards retirement and he's my. Unfortunately, my mother passed away. But, you know, he has, you know, this, this pot of money, but he's, he's operating just like he did before. You know, he's. He doesn't want to spend it. He doesn't want to spend it. So what, what he's doing is he just continues to accumulate this money instead of going out and enjoying it. I read. I don't know if you read the book Die With Zero or have you seen that book by chance? Yeah, you know, look, our kids are about the same age and it really hit me and I was like, wait a minute, like, it's okay to enjoy money. Ramit Sethi also does a great job saying, like, hey, find some guiltless ways or give yourself permission, like you say, to spend that money and enjoy it along the way instead of. I love that word under enjoying, you know, different, different parts of your life. So what, what's your advice for people as they get towards retirement, like from a mental perspective to really kind of change that shift in focus? What's the first, what's the first step to do that?

Well, I think you gotta identify what you want. So for some people, they're, you know, they're hell bent on making sure that the next generation is better off than they were.

You know, they.

What I have found in my career of, of. Of financial advice is most parents actually don't care about that. You know, they. They want to. They want to leave a little something to the next generation. But, but, you know, they're on, I did it myself. They're Going to do it themselves too is, is the more common mentality. But regardless, we all have, whether we have goals to leave a legacy, we certainly have obligations to leave a legacy to our spouses and then maybe some other loved ones that are relying on us as well. So I think getting clear on what you want to make sure gets left behind. I call it children, church and charity. You know, what do you want to make sure gets left behind in your name for either, for just obligations or higher purposes. The second one is to make sure that you're not exposed to large, you know, potential expenses. And generally that's going to be health care. So health insurance is health insurance, but that doesn't cover long term non acute medical care. I mean that can, that can. I think the largest claim out there right now is $1 million from someone in retirement, you know, being requiring a long term care claim. So if you're, if you're worth eight figures, maybe that's not a huge concern of yours. If you're, if you're worth low seven figures, that can absolutely change your retirement and wipe you out. Yeah, so that's, that's an important consider as well. So I call it the L's, you know, the legacy Long term care and liquidity. Do you have a bucket of money? And this is the other part of why I think this product fits so well. Do a bucket of money that's not correlated to the market at all isn't subject to the same risk and taxation that your other assets are. So that in high tax environments or high risk environment, you have some other strategic bucket to pull from so that you can leave your investment strategy alone versus selling low, being emotional, which is always portfolios. It's not markets, it's the emotions that come from the, that volatility. So that's the other piece that this does really well.

Yeah.

So if you get, you know, the, the see the, the long term care and the liquidity piece answered, I think those are the, those are the key questions I'd be asking for someone right before retirement or even right after retirement. Do you have those covered? Because that's going to allow you to spend down your assets, maybe be more aggressive in retirement with your, with your investments because you have that certainty. Yeah, annuity annuities or assets, turning it into a pension. I mean the annuitization rates right now are up an incredible versus what they've been in just recent history. So even that's a great opportunity. But you can't do any of those things if you haven't really solved for those, those big what ifs.

Yes, I love that. You know, it's, it's important to, to get clear with your partner, get clear with your family. As you mentioned, the. Ls your legacy, your long term care, how you're going to pay for it, your liquidity. And then you know, what you're going to leave to your children, your children, church, your charity, those sorts of things. And we've done that with, with our attorney and we've even done videos and things for our, for our children. But you know, going back, you, you mentioned this and this is really key and I think if you look at, you know, you look at endowments, you look at family offices, you look at the way, you know, you know, higher level wealth planners, you know, work with investors. It's, it's the same reason I got into multifamily real estate. It's the Sharpe ratio. It's like as you mentioned tomorrow, how do you improve your risk adjusted returns? And the reason that the average investor underperforms the market is what you mentioned, behavioral finance. Right. It's that they, they sell low instead of, you know, or they, they feel like they're forced to sell and do that. So instead of, you know, having your traditional 60, 40 stock and bond portfolio and that's it, you know, when you come into retirement, you know, you mentioned this product, you know, what do you add to that typical portfolio to structure it to have those better risk adjusted returns? Yeah.

Well, what's really interesting is if you look over the last four decades, this has been the biggest bull market in bonds I've ever seen. And it's the biggest bull market in bonds we mathematically ever will see again. And I don't say that because it's my opinion. It's because mathematically we simply cannot enjoy those turns again unless we see interest rates climb to where they were in the late 70s into the early 80s. And there's a lot of pain in that process as rates go up. Yeah.

So let's, if you don't mind, just, just to underscore this for the audience, as, as bond rates go down, the value of the bond goes up. So what you're referring to is we've seen a bull rate in our bull market in bonds because bond prices have increased over time as rates have come down because they're inversely correlated. Is that right?

Exactly right. Yeah. I recall in 2011 I was actually in a, what they call a wholesaler role, which is, you know, basically financial pharmaceutical rep, essentially giving a talk to 150 people in a crowd. And as of I think 2011, the bond market had actually beaten the stock market for the prior 30 years because rates had just fallen every year essentially for over 30 years, which created huge returns. I mean bond billionaires, bond kings were born during this time. They were particularly smart. They were just deploying capital in the best environment possible. So anyway, all that's to say is when you think about it, doesn't change the fact that we need safe stuff in our portfolio. It can't just be all equities because of that, because there's risk inherent going forward with bonds. So what does that safe stuff look the reason? I've just serendipitously focused on whole life insurance and spent the most of my career positioning it and competing against its alternatives in my former role to this point where I realized, wow, this is a pretty good deal when you think about how these general investment accounts work. So a big mutual life insurance carrier, they're going to guarantee you that if you million dollar policy, your cash value will also be a million dollars by age 100. So you know they're going to guarantee you some rate of return on your money that your cash value will rise.

So again, and I, I apologize for interrupting you, but I want to, I think these are some fundamentals that I want to make sure the audience understands. So historically an insurance company wants to match the returns of their portfolio to your insurance policy so that the amount of your insurance is equal to the cash value when you hit 100. Today's show is sponsored by Money Insights and their investment optimizer strategy. In my book, I share how I use the same strategy starting over a decade ago to invest my money in two places at one time. This strategy has been used by the wealthiest for generations for estate planning, minimizing taxes, preserving wealth and increasing stability for their investments. Now you can do the same thing. In addition, you can build a plan to build an emergency fund, pay for college, fund a business plan for retirement, and ultimately optimize your total financial picture. To find out more information, check us out at the banking link@nextlevelincome.com.

Yep, correct. That's how they price it and that's essentially how it works is event. Essentially you start out with a million dollars of risk to the company if you buy a million dollar policy. But over time as you make your contributions, you essentially replace that risk with your own wealth. So by the time you know, age 100 happens, there is no insurance essentially, which is a good thing.

Sometimes they write you and a lot of companies, they'll write you a check if you hit 100, 120, right. Like they'll write you a check for that amount.

I don't see that anymore. But historically that, that was called an endowment contract. That actually was how it used to work in the day. I don't think anyone does it anymore, but it can. Yeah, they're out there, but so, so what, what's interesting though is that's only a piece of it. So those, these big mutual life insurance carriers and I focus on mutual mutual means that they're owned by their policy owner, or maybe not owned by is the right word, but they're, they operate for the benefit of their policy owners. There are no shareholders, you know, getting quarterly dividends when they take in dollars, I mean millions of dollars per year. What they're doing is they're investing it in their general investment account in reserve for that death claim that they do expect to pay. Because it is a contract, they will pay this 30, 40, 50 years down the road. And they are essentially reserving those dollars for that ultimate claim. And they're investing it conservatively. That general investment is essentially a big old income fund. It's largely long term corporate bonds. There are some Treasuries in there, but there's mortgage, there's mortgage loans, there's, there's real estate. But the bigger ones actually have wholly owned subsidiaries where it's almost like they own, well, it is like they own, they own a company and that company, just like if you own an Apple stock and Apple pays you according for being a shareholder, they are the primary shareholders of these corporations and they get a quarterly dividend for being their shareholder. So all that combines to kick off interest, you know, just like an income fund, just like a retirement income fund or mutual fund would do. The difference though, and this is the key. Through the life insurance they've guaranteed that your cash value must go up every single year. The only question is how fast. And that question is how much extra interest are they going to credit on top of the, with the minimum floor that they, based on that portfolio. So on typical investor would have that income fund, enjoy that income, but watch the mark to market value of that fund up and down and fluctuate year to year. The life insurance contract insulates the policy owner from any of that fluctuation. And they, all they do is get always positive crediting and maybe a little bit lower than projected, maybe a little bit higher, but it's always positive. Which means there's no volatility so for those of you, for those of your listeners who are more and understand that the sharp ratio, I'm simplifying here, but it's essentially, you know, return over risk. It's a function of those two. If you can reduce the risk down almost nothing and it's always positive, your ratio just got a heck of a lot better. And this is what they're paying the million dollar salaries on Wall street to figure out all those quants. How do we for the level of risk get a better return? You're not going to get that with whole life. They're investing in the same stuff you could buy on your own. Or how do we for the level of return minimize the risk? And that's actually what you think in a mature whole life policy once you get past those early years of the high costs.

Yeah. Again, you, you really pointed out some things that I think are really important to understand if you're listening today. So first off, you know, this is something that the SEC doesn't like. People that are in my position to say that, you know, working with, you know, private equity investments that are out there. But you said it, insurance companies guarantee your rate of return. So you may have like what, what are we seeing in terms of guaranteed annual rates today, Tom, from our larger insurers?

Well, it's hard, it's hard to put a rate on it because there's, there's mortality surge that come out of it. So year to year your policy will generally grow at different rate. If you want to get real technical though, the way the actuaries price it is essentially actuarial school in 30 seconds is if I know that I need to collect enough money for this person every single year to grow it to a million dollars by age 100 in my previous example. And I can assume that I'm going to get 2 to 4% on that money.

Yep.

Then it's just financial calculation. How much do I need to collect every year to then invest it at 2, 2 to 4% to grow it to a million. And the actuarial really comes in is then we price in all the expenses and mortality and assumptions and all that stuff.

Yeah.

Basically it, that's how they do it. So they'll, they'll make a guarantee as low as 2% now, which sounds bad, but you know, you're getting companies that are crediting, you know, 5 and 6%.

Yeah.

And, and, and, and they'll credit that as a gross rate and then outcome, mortality and expense.

Yeah.

And it comes out at a different rate year to year early on in the contract. That's usually where it's all front loaded. That's where all the actuaries and, and legal teams and underwriters that all that stuff gets paid for up front. But in a mature whole life policy, which I would rec. Which I would define as 10 to 12 years. Ish. Yeah, most of the way. And all you're really paying for is, is the death benefit risk. Yeah. So, you know, so they could pay a 6% dividend and you might get 5 1/2% of that.

Yeah. So, you know, what you're saying again to underscore Tom, is, you know, typically what you see is your, your whole life insurance policy, it accumulates cash value. So every year that cash value goes up and there's usually a minimum that the insurance company will say, you know, I think mine is 4%, but it's several years old, so it might be like 3 or 4%. And then there's a dividend with a mutual company, which is basically the excess earnings. Is that right, that the insurance company earns, that goes back to the policyholders, that could be five, five and a half, 6%. And then you pay the, you know, there's some, there's that mortality risk payment. And the reason is, if you think about it, you know, like the, the larger insurance companies, they've been around for over 100 years. They've been around before the Great Depression, they've been around before the irs. It's all just math. So if you think about it, if, if you have a set number of policyholders and you know, the law of large numbers, that a certain number of people are going to die during a period of time, you can plan around that and you just plan your inflows and your outflows and you have to generate a profit every year to make sure you're solvent. And if you're generating a profit, but those profits go to the shareholders, the policyholders. I'm sorry, instead the policyholders. Instead of the shareholders, then you benefit as a policyholder. Right?

Yeah, exactly.

Yeah, exactly.

Right.

Yeah. So, you know, a lot of listeners have heard it's, you know, okay, that all makes sense. But whole life insurance is expensive?

Well, yeah. I mean, expense is only an issue in the absence of value. I mean, it's a, it tends to have the highest whole life insurance, has the highest premium of permanent life insurance in the entire industry, period. What's really funny is after some legislative changes that happened a couple of years, they call it section 7702, the insurance the entire industry was required to redesign their products based on new lower guaranteed rates is actually lobbied for by the insurance companies to say hey Congress, we're guaranteeing policies legally we're required to guarantee them at 4%.

Right.

Because that came out in the 80s and we're only investing at two and a half at the old, at the ultimate low. And that was what corporate bonds paying that.

Yeah.

So they actually got Congress allow them to guarantee as low as 2% and price reprice the products.

Yeah.

What happened there? And this is why I say it's one of the best kept secrets, what happened in that process is there's something called pay test or a MEC test, which is basically the most money that the IRS will let you pay into a life insurance contract before it loses its taxes, which we haven't talked about yet, as we should probably wrap up with the tax advantages.

Yeah.

So there's a, there's a maximum premium you can pay in for a given death benefit at a given age. And what happened was when we went from 4% to as low as 2%, in many cases the amount of money you were allowed to pay in to get those tax advantages as much as doubled.

Yeah.

And there's no, and there's no limitations on how much someone can pay in. Generally speaking, as long as you can qualify for the life insurance, as long as you're wealthy enough to or have a high enough income to qualify for the death benefit, your premiums can be six figure premiums. You know, I routinely see clients that are paying six or seven figure premiums into this kind of thing and they don't see it as paying a premium. They see it as making a contribution to something that one way or another will deliver value to their family. Because that's really what it all comes down to at the end of the day. You know, unless you go broke for some reason and cash the whole thing out there is the inevitable gain of the death benefit that that will pass your family and that death benefit passes totally income tax free. So you could have multiplied your money by five to ten times over the course of your life or based on what you paid in and the IRS doesn't get a penny of it. And that's the big piece I think a lot of people miss is they fight over the fours and fives percent that we talked about or, and I can do better in other investments and blah, blah, blah. Fine. But the risklessness and the taxlessness of it really with, with no limitations, not or minimal limitations on how much you can Fund, you know, for that mass affluent investor. You know, that is one of the best kept secrets in personal finance right now. And it's really a way to minimize taxation over time, more so than getting better returns or something like that. That's really the biggest piece.

Well, I think, yeah, you know, it's interesting. I've had this discussion with, you know, multiple individuals over the years and look, I'm, I'm a, I'm an unabashed, big believer in whole life insurance. And my family and I, we, we have, it's the cornerstone, let's say, of our, of our financial planning and the whole buy term invested difference. It breaks down when you say hey, when, when someone says hey, but I won't need insurance when I'm 60 or 70 or 80 years old. And it's like, well, if you won't need insurance, what about your children, your church charity, your legacy, as you mentioned, Tom, like all these things, it's like, well, what about that? What if you can have your cake and eat it too? And I think that's the cool thing if you understand how these policies work, these private contracts work, right. You understand that this cash value you build up, not only is it after tax, but it's tax free, it's private. Right. There's a lot of other benefits that come with that you. And I'd love you to actually kind of finish with the, you know, how you can kind of convert that. But what we do, and we have a lot of investors that do this, Tom, they take their cash value in in the form of policy loans or they actually use a line of credit and they're making that cash, they're using that cash to work for them at even higher rates of return, all the while having this insurance in place. So essentially the insurance is paying for itself through this structure. So it's, it's a, it's like having your cake and eating it too. Now, you know, you mentioned tax free. You also mentioned long term care insurance and you also mentioned annuities. So you know, let's say somebody, you know, does accumulate, you know, hundreds of thousands, millions of dollars in these policies. What are some ways that you can get that cash out tax free in your retirement years?

It's a great question. You mentioned long term care. I mean, I remember when I started in the business almost 20 or was 20 years ago. I mean you could get hundreds of thousands or even unlimited pools of money for, you know, a thousand or two bucks a year. It was practically free money. And now, you know, the long term Care space has gone the other direction where very few people are finding a lot of value in buying long term care insurance. So there's riders you can put in these contracts. Now please say while you're alive, you know, you have your cash value which you can always access, but maybe that's 200,000. Just keep using my million dollar example. Maybe that's 200,000 in. Your policy is worth a million. These riders allow you to tap into that million essentially pre spending your death benefit while you're alive. Yeah, so it's a way to use people's money, you know, to mitigate that risk. You know, maybe not quite as rich as it was before, but it's a way to just give you another access point. Yeah, but along the way, you know, one of the keys of this and why this is also the cornerstone of my planning is there's no limitations. You know, generally speaking, when you put money into a vehicle that is tax advantaged, where you're going to defer taxation or, or maybe even like in the case of a Roth ira, avoid taxation forever, there's some pretty strict limitations on how that money comes out, what it comes out for, how much you can contribute to it. So with life insurance, you, you can take it whenever you want, you know, through either via surrendering what you paid in. You know, the first tax advantage is FIFO accounting, first in, first out. So even if there is a gain, you can basically take back your cost basis or the sum of all premiums paid income tax free before you have recognize any gain. Typically speaking in a tax deferred product, you have to recognize gains first before you then get back your cost basis.

Oh, interesting. That's a good point.

I already mentioned one of the other tax advantages with this is the death benefit down the road. I mentioned tax deferral, which is a tax advantage. But the other, but the one that's totally unique to life insurance is the policy loan, which sounds bad. Everyone hears policy. Who wants to pay interest to borrow against their own money?

Yeah, why borrow? Yeah, that's what I hear. Like why pay to borrow your own money? That's, that's crazy.

Yeah, it sounds crazy, but here's how it works. So if you borrow against the whole life policy, you know what you're going to do is you're going to borrow at interest. And there's this whole crowd online that talks about how to do this and they kind of obscure how it works, but you actually are borrowing, you are paying the company interest on those dollars that you borrowed. That's why it's a tax free event in the eyes of the irs. And you're essentially using your whole life policy as collateral. You're borrowing into that policy. So as long as you don't borrow more than the cash value, things are fine. And you can do that on an unlimited basis. So if you've doubled your money in the policy, you can borrow against that policy the whole amount or almost the whole amount and not pay a dime of taxes. That's a huge tax advantage to get your money while alive and not pay taxes. Now the catch is you're paying interest that loan. But here's what's the cool part. Generally speaking, that loan that you're, that loan interest you're paying is based on something called the Moody Season corporate bond index, which is essentially the new rate that these insurance companies are investing their dollars at. Right now it's 5ish percent.

Yeah, yeah, I think it's 5, 5 and a half in our policies around there.

Yeah. So that said, I already started the conversation with, remember how these insurance companies invest? They invest in long term corporate bonds. So over time their dividend kind of tracks that same environment in the short term. You know, rates could spike tomorrow and your loan rate could go to 10 while the policy is still only crediting 5. But give it 5 to 10 years and that policy will to catch up as the insurance company averages in those higher and higher rates and vice versa. It's actually been a very positive environment for the last four years to be borrowing against these whole life taxes. Rates have been falling. But the whole point is you have a lot of flexibility if we're talking about a wealthier client or a business owner client. You know, I hate the terminology, frankly. The online crowd will call it infinite banking. I don't, there's nothing infinite about it. And it's not banking. This is, this is life insurance. You're not going to an FDIC insured bank. It's really why a lot of the big institutions hate that terminology and fight against it. But it is a source of capital that you can use for, you know, strategic opportunity like real estate or. Actually I've met a number of people who have borrowed against their life insurance policies in May of 2020 at the, at the, at the dip market to be opportunistic, knowing that the world would come back and they, and they bought some things at deep discounts and then repaid their policy back and it became their bank. I mean, I think I've had a dollar in a savings account for 16 years. Now, because why would I. I have a policy that's growing at five and a half percent, riskless and taxless, that I can, I can tap into whenever.

I want in private.

Yeah, the strategy. I jokingly say, like, people try to compare this to equities or real estate or other stuff they can do with their money, you know, opportunistically. And it's not. It's more so that we all need a boring sliver. Sliver of our portfolio. Something that's guaranteed to rise, not correlated to markets. We can be opportunistic with it. And whole life dividend participating whole life insurance issued by a handful of the biggest carriers out there is probably the best boring money can buy today for a portfolio, in my opinion.

I love it. And we could. We can continue this conversation for, for two, three times as long tomorrow. And I'd love to have you back on, but I couldn't agree more. When investors call and they're like, I'm really excited to, you know, learn about investment options and, you know, putting my money to work in these things, you know, what would you look at first? And I always tell them life insurance. And that surprises a lot of people. I just had this conversation just a couple of days ago with a young gentleman. I said, man, if I was your age. And I, because we started our policies when my wife was pregnant with their first son. As I was telling you before we hopped on, he's. He's 13 and a half now. And we're very thankful we did. We accessed the cash during COVID to have as a safety cushion, safety net. We use it for our investments. We do all these things. So if, if a listener wants to learn more about some of these strategies, Tom, if they want to get a copy of your book, which I'm, I'm excited. I actually bought a copy here while, while you were chatting in the first few minutes. What's the best way for a listener to learn more about you and your book?

Well, it's all on Amazon. Every single format you can have is on Amazon right now. So just permission to spend. You can also go to permission to spend.com. there's not a whole lot on the website as I speak right now, but we're building it out. So by the time this airs, I'm sure there'll be a lot more. And, you know, I'm@tomwalltalks.com if you kind of get a little bit about me and engage in other ways as well. I work a lot with financial professionals and those firms as well as a coach and and mentor in this space to help them more proficient with this product set and how to positively implement it with their clients. So if that happens to be you listening, then you can check me out there as well.

Awesome. We're going to have all of these links in the show notes, so if you're listening, you can look down here on YouTube. If you're listening on your favorite podcast platform, you can check it out. We'll have those links in there for you. Tom, this has been, this has been a lot of fun. Really enjoyable for me. Hopefully, if you're listening today, you've got a lot of value added as well. I encourage you to check out Tom's book. These are the same strategies that I've been using for longer than a decade. And this is the same thing that a lot of the wealthiest families in the country use today as well. Tom, thank you so much.

Thanks for having me, Chris.

Hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to gift you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.