The Retirement Accelerator By Money Insights With Rod Zabriskie

Welcome to the Next Level Income show where it's our goal to take your income, investments and your life to the next level. I'm your host, Chris Larsen. You can get a free copy of our book@nextlevelincome.com book. If you want to learn about a great alternative to traditional retirement plans, you're not going to want to miss this episode with Rod Zabriskie of Money Insights. On today's show, Rod Zabriskie from Money Insights joins us to talk about the retirement accelerator. If you've checked out our banking page, you've seen our investment optimizer and how it can supercharge your investment strategy. The retirement accelerator is a strategy that only used to be available to the ultra wealthy. However, now high income earners can use this strategy as a great alternative to traditional retirement plans that allows them to both participate in the upside of the market while eliminating your downside risk. Ultimately, it can allow you to provide predictable tax free income. Rod, welcome back to the show.

Hey, thanks so much, Chris.

Yeah, I'm excited today to talk about the retirement accelerator. We've been talking here for the past year about some of the different opportunities with the investment optimizer that we've used to help a ton of different investors optimize their investments. So I'll hand it over to you to let you introduce the concept of the retirement accelerator.

Yeah, thanks so much. It has been great. As far as the investment optimizer goes, that's to be a concept that resonates really well with people. I mean, alternative investors. Right. Just making the flow better. And with this one retirement accelerator, what's interesting is we're still using life insurance, but we're doing it in a very different way and for a different purpose. So the idea here is even for active investors who want to be involved in real estate businesses or notes or those kinds of things, they also like to have, I don't know, call it diversification, like to have some things happen that's more in the background, a little more passive for them, but knowing that they're using the same kinds of principles of leverage, of velocity. And so that's what the retirement accelerator offers is, is the ability to do that. And I was just kind of compared it to a traditional retirement account. Even though it's different. It's not a 401k, it's not an IRA, but it has a lot of similar character. At least the mindset that we approach with it is very similar. So let's just kind of walk through a few different things. So Like I just mentioned, great alternative for the traditional retirement plan. A lot of people are not liking the way that the traditional retirement plans go. You kind of get married with the government, so to speak, and have to play by their rules. And so what this does is again, the mindset similar in the way that we approach it, but we're not tied down by a lot of the same kinds of things. So it's a way to maximize retirement income using the fewest dollars possible. The whole concept of leverage I mentioned, we believe it's the most effective way to create tax free income. And obviously we'll spend the bulk of our time focusing on that. We've hit on leverage already. And it also can be really good for groups. So in other words, if you're part of an organization, maybe a partner in a firm, whatever that may be, where you own your own business and you have employees, you have executives that you want to incentivize or have kind of creative ways to create some ways to compensate them, then this can be a really good, really a great way to do that inside of a business or a group partnership. Okay. Okay. So first thing we want to do is just focus on leverage. And you know this, I'm sure you know that your listeners do, but I just want to hit on it real quickly because we're used to using leverage inside of investing or even in, you know, buying our own home or our cars or, or businesses. And the concept is simple, right? If I have 100, $100,000 I want to invest in piece of property. Well, there are properties out there. I could just go and buy the property with 100,000, right? Turn it into rental, create some cash flow and I'm happy, right? However, I can also take the same hundred thousand and by going through a traditional lender, leverage that so that I can buy four properties, take the same hundred thousand instead of creating a single stream of income. Now I've created this case, four streams of income. And that's the beauty of leverage, right? So the income, I mean, even take it into the appreciation on the properties, the depreciation that I can capture in my investing, all of those different pieces are based off of the case. $400,000. Even though of my money I only put the 100,000 in. And so this is a similar thing. And I get it, like probably thinking, okay, I get leverage, Rod, but retirement income, using leverage for retirement income. And again, we'll dive in and help you see kind of how that works, because I get it, it's probably pretty.

New for people yeah. And what I like about working with you, Rod, is that you understand the basic concepts. Right. And what I. I try to tell people when it comes to life insurance, if you think about it more like real estate and some of the concepts that we've talked about, payments that are standard or flat for a period of time, equity buildup, leverage, these are things that people normally don't associate with insurance. But these are core concepts to what we're talking about today.

Yeah, exactly. And so really, it's just a matter of understanding both sides. Right. The. The importance and just the critical things that we can do with leverage we couldn't otherwise do. But in this case. Yeah, applying it in an area where people are probably less familiar inside of the insurance world. And so in this case, what we're doing is we're taking. This wheelbarrow represents my money, so this is the money I'm setting aside into my retirement account and with the idea of creating some sort of future income. Right. But in addition to that, we're going to back up the truck now. We're talking cash and add that to my wheelbarrow. And so again, I mean, that's the bank. Right. So I get a lot more money going into that retirement account than I would if it was just my cash. Okay. All right, so I think we've hit that pretty solid. And so let's move over to the actual vehicle. And. And in this case, what we're using is max overfunded indexed universal life. So people may recall in the investment optimizer strategy, we're using max over funded whole life. And there are some differences that are subtle. A lot of the characteristics are the same in terms of what we're trying to capture. But let's talk about, first of all, maybe the biggest difference and that is that the growth inside of this account is based off of a market index. Could be the s and P500. That's probably the most common. And it's not that we're putting our money into the S and P. We're not actually investing in that index, but we are using that as the measuring stick to determine how much interest we're going to earn each year inside of our account.

That's interesting. I'm sure we're going to circle back on that here.

Yeah. And the reason why that is important is because it allows me to kind of use the market as that cap for growth, but I don't have to participate in the losses. Right, that's the. Yeah. And so it creates what we call a cap And a floor. The floor in Most cases is 0. Meaning in a year where the, where that market index loses value, I don't participate in those losses. And then because of that I don't capture all of the gains either. I'm going to capture up to a cap. Right. And so depending on the specific index we might be talking about at this moment in time, The S&P 500 cap is around 9, 9 and a half percent depending on the company and the product. There are other indices that have a cap that's higher than that, but that's the whole idea that we're able to take advantage of what's happening inside of the market when it's up, but we don't have to participate in those losses.

Yeah. So if you've participated in the stock market before, if you've experienced some significant losses, I look at today's market and I think back to 1999, I think about 2006, 2007. And I look at where we are today and I know investors. I was just talking to one yesterday and they said I don't participate in the stock market because I'm scared of losing money. So pay attention if you're thinking the same thing.

Yeah. And I would say it's not that we're fundamentally against the market, but even for people who maybe do invest in the market, they want something like this gives us opportunity for the gains and on average we might capture maybe 70 to 80% of the upside, but we don't have to participate in the downside and we get a reset. Right. So I have clients who last March that on their policy and they were kind of bummed. They're like, well, I'm not earning any interest right now. Timing just wasn't great for them. But they got a reset. And so for this year, between last March and now, what's coming up here, they started at that floor and that low point. And so regardless, even though market is volatile, we know that and we don't know what's going to happen in the next month, let alone the next 10 years. But it just a different way, some kind of peace of mind as it relates to not having to participate in those losses.

Yeah, terrific.

All the growth inside of the account is tax free.

One of my favorites.

Yeah. As with the other situation with the investment optimizer, all of the putting into this is after tax and then from that point forward, everything that we experience, the income that we're going to take, this future benefit that pays out, all of that comes out income tax free. Our whole goal with this is to maximize growth. So some people may be sitting out there thinking, man, this whole idea of using life insurance. And you know why? Well, these are the reasons why as far as the protection and then kind of that tax free growth. And then again when we get into this and show how it interacts with that leverage, we kind of clarified a little further. But our commitment is whenever we set up any of these policies, we are going to minimize the costs on it and maximize the growth component of it. Because that's ultimately what we're after. Right. In other words, we're not picking it because it's life insurance. Right. Even though that's great. Right. It's going actually provide an amount of insurance you don't have to pay for any other way, which is nice. But again, we're picking it because of these other benefits that we get by using it.

That's fantastic. And I think that's a fundamental difference between looking at how you structure these policies. I say a lot of agents typically do it the opposite. They look at the benefit, the cost is essentially maximized for the insurance and then the investment component or the utilization comes afterwards. So I love how you and Money Insights take a, almost a reverse approach to it, which is more investor friendly.

Yep, yep, that's right. There's some creditor protection associated with the account. And what I mean by that is the money that you have inside of this account for a few different reasons is protected from lawsuits from lenders, et cetera. And usually at this point we kind of put a disclaimer in there and say depending on what state you live in and those kinds of things. Well, with this one, because we're building it inside of a trust and because that trust is Citus in Nevada, everybody gets this protection. Right. That's awesome. Whatever we're building in this place is not touchable by lawsuits or any of that kind of thing.

Yeah. And as a lot of investors, they're high net worth, they're high income, they're doctors, they face a lot of other risks. Risks when it comes to their profession and creditors. Same thing with real estate investors that are out there. So I think the further along you get in your investment career, the more important that creditor protection really does become.

Yeah. And you work hard to isolate those different things. Right. I'm sure you use LLCs in your investments and those kinds of things. And that's important. And yet. Right. We still drive cars, we still have kids that drive cars, whatever. Right. Just there are things out there that where we can, can be vulnerable. And so again that's why we use the LLCs and things. And so this becomes another piece where it can be create that protection. And then the last, there just again, the death benefit, we talked about it, it's not our primary focus and yet we believe that life insurance is an important piece of an overall financial picture and strategy. And so the nice thing is it covers that death benefit, that you don't have to pay for it either way. Okay, so next let's look at an example. Okay, so I think we've kind of built this up a little bit, talked through a few different kind of side components, but let's now hit it head on. So in this example, what I'm going to show is a 44 year old female who's getting involved. This gets a preferred rating as it relates to the insurance policy. And on the left hand side there you can see for investor contributions, she's looking at $50,000 a year in for five years. Okay. And then this program that we're plugging into, that I'm showing here as the example, it's kind of a set program, it's a pooled strategy. In other words, we're putting a bunch of people on the starting line at the same time so we can get better rates on the, on the loan and all those kinds of things. And so in this, in this example you'll notice for the first five years she's putting her contributions in, but then beginning six, she's done. So it's like you said, it's a set schedule. We know exactly what it is going in and no more, no less. And so in this example of $50,000 a year. And then on the right hand side you can see we're putting that bank financing in place in the first five years. It becomes a share distribution. And so in addition to what this individual is putting in, we're getting this loan from the bank to add to that. And then beginning in years, the individual's no longer putting money in. Now 100% of the money going in is coming through this bank financing. And I'm just going to throw this out there. If you're doing the math and you're saying, Rod, five years, 86,000 and then 84. There are some costs I mentioned to trust earlier, there are some costs built into that 50,000 for the first five years that are covered by the end of the five years. And so anyway, after that number is a little bit lower from year six to 10, but 100% of that is Coming through the bank financing.

Terrific.

Okay, so at the end of the 10 years, it's fully funded, no more additional money is going to go in. And so about 900 total has gone in. Of that, 72% of it is financed.

A lot like a loan.

Yeah. And individual. Yeah, exactly. As far as ratio and an industry, circumstances may vary a little bit off of that percentage, but it's almost always somewhere between 70 and 75% that we can get financed the total. And so what happens is the money goes in at the end of the 10 years, it's completely done. We just allow that to bake for five years. Right. Continue to let those market drivers push that value higher. And then at year 15, we going to pay off the bank loan and we'll get into a little more detail on the specifics of that. But basically we just use from what this insurance policy that we've built up, we're going to use from there to pay off the bank loan. And then from that point forward, now we have access and can use the funds for those 15 years while we had the bank loan out. It's kind of behind a locked door, so to speak. Right. But then once we pay off that loan at any time after that, we can start taking income. In this example, we're going to say, hey, if she waited till age 65 to start taking that income, then we would be projecting $86,000 a year of tax free income and we put going to age 90 just so we can quantify it a little bit.

Sure.

Just know that if she, if she lives beyond that, then the income would continue for as long as she lives.

Okay. Yeah. So this is a lot like the old defined contribution plans or defined benefit plans that we used to see. And you know, people, you know, especially when you come up in new generations like millennials, they're not used to pensions anymore. They don't even know what they were. When I started my career, we actually had pensions with two of the companies that I worked with.

Nice.

Yeah.

Yeah, well, and so it's, it's, again, it's different and yet from a kind of a mindset and approach, it's kind of like you're creating your own pension.

Yeah, right.

But again with a lot more flexibility, a lot more access, you know, after that 15 years. And so you, you kind of get to, to make your own decisions as far as that goes. But, but yeah, I think it is a good, good kind of parallel. And so $250,000 went in from her out of pocket. And again, assuming she lives to age 90, about $2.2 million of tax free income coming back out. And so just pretty powerful. Just adding that leverage makes all the difference in what we're doing. And again, we still cover the loan waste, we still pay it off, et cetera, et cetera. But because we were able to have more, have that dump full of cash in addition to our wheelbarrow, we just were able to do a lot more with it than we could have done without it.

I think the big thing to look at here as well is the predictability. So when you look at somebody that's investing through a 401k or through another qualified plan that's out there that they may be familiar with, they're saying, I could probably just do this myself. The difference is, and we talk about this in the real estate side, whenever you look at the return, you always have to look at the risk on the other side.

Yeah, no, it's a great point. And timing of the risk as well. Right. If we had a crystal ball, you would know exactly what to expect. But someone who retired in 2007 had a rude awakening, right?

Absolutely. Yeah. I wrote a whole blog about that, you know, sequence of returns and it can be a massive impact, over 50% on the returns and the ability of your ability to maintain your lifestyle in retirement. So the certainty that you get with this, I think is what's so impressive.

Yep, exactly. Okay, so having said all of that, we want to just be straight and upfront with the idea that it doesn't come without risk. Right. And so let's talk about. There are two primary risks associated with this and you can probably guess what they are. But the first one is high interest rates. Right. If I'm saying, hey, we're going to take this loan and we're going to carry that for 15 years before we pay it off, then obviously the interest rates matter. And using floating rates. Right. Which right now are amazing and probably will continue that way for at least a few years, but we don't know. Right. And so, so that is absolutely a possibility. And then the second thing is poor market performance. Obviously, if we're kind of aligning ourselves with the market though, we have those protections. Right. A few pieces in place that, that kind of help us out still. If, if the market were, were to go through a time period, and when I'm talking about poor, I'm not talking about a year or even a few years like we had in the dot com bus, but like the Great Depression, right. Five out of six years, nine out of 12 years where the market was flat or down, we want to make sure we understand how that impacts what we're doing here. And so to begin with, if we take the first one and we say, well let's build a stress test for this with historically speaking, the worst high interest rate environment in the modern era. And so we go back to the 1980s and so where we were originally projecting $86,000 a year of income in that example for that 44 year old, when we stress tested against that high interest rates. In other words, if we had taken this out, started the strategy the late 70s, just before this run up of interest rates, then the projected income would change to $69,000 a year. Okay, so that's the first one, second one for poor market performance going back to the Great Depression, like I said. And so in this case, if we had done this 1929, just the crash, play it up through the point where start to take the income and in this case we end up about 56,000 a year of income. And that's pretty consistent if you look at our starting point as far as the projection goes, we end up at about 80% of that for the high interest rates of the 80s and about 60ish percent of that for the Great Depression. Here I'll say this, the stress testing is a lot of what went into the specific design of the policy itself. And in terms of how much leverage we're getting versus how much we're putting out of pocket ratio is kind of like reverse engineered off of scenarios like this. Because of course we don't want the to fail. Right. And because we don't know what's coming. But it's also important to understand what the implications are if something like this happened. These kinds of extreme economic conditions.

Yeah. And that's what's cool about the strategy. This is an ability to participate in the upside of the market, decrease your risk in the downside of the market. But because you're naturally tied to the market performance, you're going to have positives and negatives associated with that. I think we can talk a little bit about how this is different, who this is for compared to the investment optimizer approach that we've discussed in the past and why there are these two options that are out there.

Yeah, perfect. Again, because we don't know what the future holds and because it would be silly to even try to predict or pretend like we could, you know, throw some numbers at it. We've done this, this back test. And then secondly we focus on what we call the spread. So the big difference is how much am I earning versus how much I'm accruing alone. And because we don't know what the future holds, shifts in either one of those or both of them could impact things. As long as we know we're going in with a realistic and really what I feel like is a conservative projection in terms of that spread, then we're in shape. Okay. All right, so let's talk about really the power, the engine behind what's making this happen. And that's what we talked about right now, it's the leverage. So first let's talk about the leverage. Yeah, exactly. The dump truck, the loan through the bank. So I just mentioned the spread. It's how much I earned versus how much I'm accruing on the loan. Because we're not making any payments toward this loan. It's going to be a lump sum payment in year 15. And so we need to make sure that we understand how it works and use reasonable or conservative projections. When we get to this point where we're going to pay off the. The loan, the bank loan earlier, we do it from the policy, but we do it in a unique way from the policy. We actually are going to use a policy loan, in other words, a loan from the insurance company against this policy, this cash value we've built up. And we're going to use that to go off and go pay off the bank. So we started leverage. We wanted it. We want to continue using the leverage. We want to continue to have it working for us. And so we're going to use just basically shift that. Now it's no longer the bank. Now it's inside the insurance company, kind of tied to that policy and allows us to continue rolling forward. But let's talk about the real impact of that. Okay, so I want to talk about three values inside the policy. And specifically with this previous example we looked at, I pulled the numbers from year 15 immediately after we paid off the bank loan using a policy loan. Right. So we still have this leverage working for us. Our total cash value at that point in time is about 1.36 million. Okay. Our loan balance is 860,000. Right. And so therefore our net cash value is right around 500,000.

Okay, that makes sense.

So, yes, we draw again the parallel back to real estate. I have a piece of property that's worth 1.3 million, but I have a loan outstanding of 860,000. So my net equity is 500,000. Okay, so let's just Use a hypothetical. Let's just say the next year I get a 10% interest credit towards my policy. Okay, well, which number is calculated off of. I kind of get. Hint. Yes. So 10% off the 1.36 million. Right. And so in that case, earn. We get accredited to our account $136,000. Well, we still have the loan. Right. We're accruing interest on that. And so at 5% on the 8,800 60,000, then I get $43,000 of interest tacked on. So what's my net gain in that year is about 93,000. Well, if I go and say, okay, well, my starting point for my net equity, my net cash value was 500,000. I grew 93,000 in that year. I grew my account by 18.6%. So in a year where the actual gain that I earned inside my policy was 10%, the real increase to me on my net equity was 18.6%. And I'm not here to say we're 10% each year, because we're not. And yet, just to really kind of put it out there, and how is this leveraged, know, working for me and making it so I can do more with that underlying value? And a principle we talk about a lot. Right. The value of investments is about a lot more than my net equity in that investment, Right?

Yep. Absolutely.

When you translate that, like in this case, the leverage allows me to turn a 10% gain into an 18.6% gain. Right. The tax part of it, the fact that when we start taking that income out, it's income tax free, et cetera. Right. So again, it fits into a lot of the same principles we talk about in the alternative investment space. And so my goal here is just to help people see how we translate those principles into the strategy itself. Absolutely.

And what I think is so funny is that we call things alternatives. Whereas life insurance has been around longer than the irs, real estate's been around as long as humanity, essentially. And yet here we are now in the days of the stock market, mutual funds, over the last 30, 40 years, and now we're calling strategies like this alternative. But what's amazing to me is that if you go back and you peel it away, we're talking about leverage, we're talking about creditor protection, we're talking about the ability to grow tax free and minimize your downside. And that's why I like this strategy and we're presenting it today because it involves all those core tenets that we'd like to talk about.

Yeah, absolutely. Now, in the end, the big question is what kind of a return would I have to get every year on every dollar of that $50,000 a year that went in over those years in order to create the kind of income that we showed that $86,000 a year and the future death benefit. And the answer is a tax equivalent of 15% year in and year out on every dollar in order to do that. And so I'm not here to say that's the, the greatest thing that I'm sure your listeners strive for and yet to think of something like this where it's something that we're setting aside, it's happening for me in the background, I don't have to actively making it happen. And so if I can do that and create a consistent 15% return, boy, I'd be happy with that.

Yeah. And that's the thing. I mean, I'll tell you what, if you said to me, hey Chris, you can get a 15% predictable return for the rest of your life, I would take that all day. And again, this is what I think is powerful about this, using the leverage, but the creditor protection, the tax free, when you add that up, and I think a lot of people don't realize when you're in a qualified plan, when you're a 401k. I'll never forget the day my accountant turned to me, Rod, and he said, you need to stop contributing to your 401. I said, what are you talking about? He goes, look at your assets, look at how much you're making. Do you realize that you're going to have to take these minimum required distributions and you're going to be paying tax on the other side because you're contributing to a 401k pre tax, which means it's growing tax free, but you're paying tax on the other side. So always remember the IRS is coming for you either on the front end or the back end. And you always have to take that into consideration.

Yeah. And the other thing I would say too is even on the front end of that, they're also going to tell you you can't access your 59 and a half. Right, right. And so whereas in this case, again, because we're not linked in with, with these retirement account rules, for example, this, this 44 year old, or you know, if we have younger people, 35, 30 year olds that get involved, you know, pay it off at when you're in your mid-40s, late-40s, and start taking the income whenever you want. So, okay, so let's just kind of recap a little bit. The key takeaways first one is that it's a great alternative to traditional retirement accounts. We told the reasons for that as it relates to traditional retirement accounts. It's probably most closely related to a Roth because of the whole idea that we're putting in after tax dollars, but then everything else coming back out is income tax free. Even though it's very different than a Roth in a lot of that's probably the closest equivalent in the traditional retirement world. The idea that it's tax free and on this from a few different angles, the idea that I have downside protection that I can take advantage of growth from the market, but I don't have to participate in the downside, the creditor protection. Again, we've hit on that a few times and that's one you can't really put a number on it, right. Hopefully none of us would ever have to worry about, you know, the implications of maybe having not had that credit or protection. But boy, if that ever happens or for those of us that do end up dealing with that be huge benefit. And then another piece that we talked about as much is it becomes or can become a huge piece in a person's estate planning. And this is ultimately where this whole concept came about, right? It's been around for a long, long time. It used to be that it was only available to the ult were wealthy and it became a huge piece of their estate planning. In other words, life insurance becomes one of the best assets to pass on number one, because of that whole income tax free piece of it. But number two, because it's, it's completely liquid. And so whether it lands inside of the estate and helps the kids pay off the estate tax or by other planning ends up landing outside of the estate and ends up paying, helping to pay those taxes or having liquidity for the real estate or the businesses or other things that pass on and need some liquidity with can just be a really important piece to that. And so in other words, I get to choose when I get to that point. And I'm saying, okay, I can start taking income off of it, but do I want to? Right? The answer might be well, of course, right? That was the whole plan. Let's do this. But if I don't like if really well with my other investing and streams of income and all the other principles that you talk about and I don't need this income, well, the good news is it's going to that leverage is working toward me to create a tax free death benefit that I can pass on. And so it can become a real critical piece in that estate planning. And so to me, just because of all of the different pieces that are involved here, it can be a really huge additional piece to all the cool things that your listeners are already doing. And again, just one of those pieces that's in the background, it's a little more passive. I don't have to make decisions every.

Year.

To buy, to sell, to refi, to all the different things that go into the really cool things. Those are fun decisions to make, we're making happen. But to be able to diversify and have something like this in the background is a great additional piece.

Yeah, absolutely. And that's what I love, is that if you're approaching retirement, whether you're 35 or 45 or 55 or 65, and you're thinking, I want some certainty as I approach this, I want some of the advantages that you've talked about today, the tax free growth, the tax free income, the downside protection, the creditor protection. And ultimately, if like I talk about my book, creating Generational wealth is important to you. This is something you should check out. So if you like what you hear today, if you want to learn more, you can check out the Retirement Accelerator as well as the Investment Optimizer on our website@nextlevelincome.com just check out the banking link there and you can get a ton of free resources, videos, training and white papers. And we got a free book coming out as well that you can see there too. Thank you so much, Rod for your time today. Excited to share this with our audience. Absolutely. And until next time, have a great time. Be well and be healthy. Hey Chris, here again. I hope you found this episode valuable. Now I have one more gift for you. If you haven't gotten my book Next Level Income yet and would like me to send it to you in the mail for free, then go to nextlevelincome.com and click on the Book tab. If you fill out the form in that page, I will send you a copy of my book and cover all the shipping costs as a thank you for being a podcast listener. Also, please like share and take 90 seconds to give us a rating on Apple Podcasts.