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As a proponent of Prosperity Economics, I am always questioning traditional financial thinking. I also spend a lot of time reading about the economy, financial management, new philosophies, the latest products, etc. I was particularly impressed with a book I read on life insurance – Live Your Life Insurance by Kim D. H. Butler – that illustrates ways that life insurance can benefit the policyowner while he or she is still alive. In fact, the death benefit is only one of a life insurance policy’s many uses.

I was so impressed with this life insurance “user’s manual” that I wrote the foreword to the book. I am including it here so that you can get a sample of the kind of information the author shares with readers. It is a gem. Want to read the book now? Visit Amazon.com to order a hard copy or digital version now. This minimal investment is well worth the knowledge you’ll gain!

Live Your Life Insurance by Kim D. H. Butler

Foreword by Randal Whittle

Foreword:

Never before have I seen a succinct, yet definitive “user’s manual” for the layman explaining not only how life insurance works, but how the first beneficiary of any policy should be the owner himself—without having to die first.

The typical financial planner views life insurance as a kind of necessary evil—a cost that they wish you wouldn’t have to incur, but that they grudgingly admit you probably “need”.  I too once fell victim to that myopic thinking.  The media follows along with this very same groupthink, spearheaded by talking heads and self-proclaimed financial gurus, all supported by advertisers with a great deal to gain by perpetuating the same myth.

The popularly accepted “wisdom” is almost never challenged, nor questioned.  To do so would be tantamount to heresy, with a response of “Well, everyone knows…” some supposed “fact.”

But consider this:  Is it possible that what you know may not be as valuable as what you don’t know?

The thoughtful person cannot help but ask the question:  If the conventional popular financial planning practices work so well, then why are so few of those that have followed their precepts able to call themselves financially prosperous?

Put another way:  If what you believed to be true, turned out not to be true…when would you want to know?

The question “Why would anyone own whole life insurance?” assumes a tone of negativity, and belies the fact that it is undeniably the oldest, and therefore proven, financial instrument available in the toolbox.  It has always worked, through recessions and depressions and stock market crashes, wars and upheaval.  There hasn’t been a single documented case in which it failed to work, or ever did anything to damage or cause loss to the owner.  In good times it remains competitive, carries tremendous tax-free growth benefits, and ready access to safe cash to take advantage of investment opportunities.  It helps encourage thrift and prudence, while simultaneously facilitating prosperity.

In our practice, we have identified more than a dozen different uses for life insurance, of which the death benefit is merely one.  Life insurance guarantees that what you want to happen, will happen, no matter what happens.  This is true throughout life, and not just at death.  No other financial product has as long a history, a better track record of success, nor the incredible flexibility to accomplish so many different tasks simultaneously.  And rate of return?  It’s a lot higher than you have been led to believe by the conventional wisdom.  If more people truly understood the full effect of trying to “roll their own” investments while paying for term coverage—the high fees they pay, the taxes paid, and the market risks they take—they would undoubtedly choose a Whole Life policy.  Those outside investments would have to consistently return 9 to 12 percent or higher—without ever having a “down” year—just to accomplish what a traditional Whole Life contract does by default.  Even greater results have been obtained by accessing the capital available in the contract and deploying that money to even greater use (just ask Walt Disney!).

This succinct book will resonate with the honest truth-seeker—The person who feels that nagging question, and has the integrity to be willing to re-examine long-held popular beliefs, and go where the evidence takes them, rather than follow blindly the misguided popular opinion.  After all, if “everyone else” is right, then why is it that they are all broke?  If the conventional wisdom is correct, then why isn’t that conventional wisdom working?

Truly, life insurance is for the living, not just the departed.  So few people understand the depth of that statement.  What is really meant here is the chief beneficiary is the insured himself (or herself) while he is alive!  In this work, Kim shows you both why and how that is true.  All of us are forever indebted to her for her labor of love in helping people to better understand this invaluable tool to facilitate and enhance their personal and familial prosperity.

Randal Whittle, MBA
Clarity Wealth Solutions
www.ClarityWealthSolutions.com
626-914-1637
877-914-1637

I love this article by Roccy DeFrancesco, “Does Trading in an SUV for a Gas-Efficient Car Make Economic Sense?” in which he debunks the popular myth that trading in a gas guzzler for a more gas-efficient car offers cost savings. It doesn’t, and he does the math to prove it.

As a prosperity economics advisor, not only do I like the mathematical calculations and assumptions he makes, but I love that he is so willing to go against the grain. As he points out, it is our job as advisors to look out for our clients and their best interests, not the rest of the world. It is our job to question ideas, products, services and financial myths to get to the heart of what’s most important to people like you – protecting their long-term financial future in ways that make sense.

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An article on Forbes by Halah Touryalai cites that financial advisors and accountants have one of 10 jobs associated with high depression rates. Referring to a report from Health.com, financial advisors and accountants are excessively stressed because of the responsibility inherent in planning for someone’s financial future. This work is particularly stressful, the report says, because advisors and accountants have no control over the stock market, seeing their clients lose money makes them feel guilty.

While this theory makes sense, I couldn’t disagree more. First, I love what I do, but I have also never lost a client’s money and have never had a reason to feel guilty over the work I’ve done for them.

So if your advisor is one of those depressed, stressed out types, contact me instead. I’m happy and eager to help. Come see me, ask your questions and refer me to your friends. I have every reason to feel optimistic about the way I do business. Worrying is for the other guys!

In March, Forbes published an article titled “Avoid the Risks of an Overweight Retirement Plan” in which the author Jim Blankenship explains that retirement plans like 401(k)s and Roth IRAs are likely to be impacted by future changes in legislation. Briefly, the author explains that, in our current economy, Congress is looking for money almost everywhere, so it is reasonable to expect that retirement plans could be impacted. For example, new legislation could require additional taxation of retirement plan assets at distribution, accelerate the minimum distribution timeline to tax these assets sooner, or even nationalize retirement plans.

To me, this scenario presents two very scary things:

(1) Possible nationalization of retirement plans. In other words, the government could seize everything and absorb those assets into Social Security. Argentina and other countries have actually experienced this! It isn’t pretty.

(2) Excess taxes could come back as they did in the late 1980s. Savers will be penalized EXTRA for having too much money set aside and wanting to withdraw it to spend.

And that goes without saying that the government also retains the power to control and change our taxation structure at any time…potentially having a HUGE impact on existing retirement plans.

So what can you do? I recommend that you sit down with your advisor to look at all of your assets. Consider potential risks as well as possible growth, or losses, in those accounts and further diversify your assets if changes need to be made. Because the risks involved are so great, you might even get a second opinion from another advisor. Some may charge a fee for this service, but others – like me – offer this on a complimentary basis. Questions? Comments? Contact me. I’m happy to help.

The Debt Ceiling battle/debate is little more than a game of political football. The talk of Credit Default is baloney—hitting the debt ceiling is analogous to maxing out our credit card and raising the ceiling is analogous to getting an increase in our credit limit. But Credit Default only happens if we can’t pay our bills—and there’s no significant danger of that right now. There is plenty of revenue coming in to pay U.S. Treasury Bondholders their debt payments. We can and will do so. There is no—I repeat, NO—risk of Credit Default by not raising the debt ceiling. It’s a false argument designed as a political scare tactic by the likes of Timothy Geithner and company.

Do you know why? Because the U.S. government collects about $2.5 Trillion in revenues annually, but spends about $3.5 Trillion and our debt payments are about $500 Billion. And the only way they can keep spending that kind of money is to keep borrowing, or raising the debt limit, so politically, those that have a stake in continued spending (including just about *everyone* on both sides of the aisle, kept in check by the so-called “Tea Party” new congress(wo)men & senators) want that ceiling raised so they don’t have to make drastically-needed cuts. Raising taxes won’t solve the problem, because the problem is that every time taxes are raised, additional spending has continued to fill the gap.

A few months ago the so-called Ryan/Republican plan to cut the budget received *a lot* of flack—they were absolutely vilified. In reality, the amount they proposed to cut wasn’t even remotely close to the amount that *needs* to be cut. It was only about 1%. The truth is that it is going to get *so* bad in the coming decade or two that we *must* make cuts now, or we’ll literally be forced into collective national bankruptcy in the future. You want drastic results for the economy? THAT will truly be economic Armageddon, certainly not the failure to raise the debt ceiling now, which merely perpetuates the problem without solving it.

With that said, the politicians *do* need to come to a resolution of some kind. The problem with markets is they see all this fighting going on and it makes them jittery—which means dumb things like stock market crashes & the like. But does it have to be by August 2? No, that date is purely arbitrary—set by Geithner after he had already set three previous arbitrary dates that came and went without incident. Stay tuned on this lively game of political football. It is likely to be more interesting than the NFL this year!

For more info., please visit these links. My favorite is the YouTube video:

Don’t fall for this phony debt ceiling deadline…  (YouTube)

Maxing Out the Credit Card is Not Default

The Debit Limit Mess

Stealing from the Future to Continue Borrowing

Retirement is a serious subject and one that has the power to keep us up at night, but it is a major life stage and one we have to consider. It doesn’t always have to be scary though; sometimes it can be fun to think about we might do when we give up the daily grind. Take a look at this video from Whose Line Is It Anyway? (Season 4, Episode 13) in which Ryan Stiles, Colin Mochrie and Wayne Brady poke fun at retirement (7:25).

In a July 21 blog post by Jeff Rose titled “Is Whole Life Insurance a Good Investment?,” Rose argues that whole life insurance is a bad investment. I disagree.  Here is my detailed response to his post:

“I have to echo what Ruben said on 7-21-11* (see below). Further, I think there’s a very important point to note: Oftentimes, even those in the financial business, or insurance agents themselves, do not know or understand the difference between Universal Life and Whole Life, often lumping the two together and calling both “Whole Life.” Nothing could be further from the truth, nor more unfair to traditional Participating Whole Life.

Your comment about seeing policies that “did not perform” as well as the illustrations suggested makes me wonder if you are confusing UL and WL, and if the illustrations & policies you looked at were in fact ULs. I could go off on a rant about all the damage Universal Life policies have done both to the buyers that owned them as well as the industry that spawned the product, but I’ll refrain here–suffice it to say, it lacks the guarantees that engender trust in a life insurance company, and that has made all the difference. It is not uncommon to see ULs collapse under their own weight, ceasing to exist, along with the expected cash values they were supposed to accumulate, by the insured’s age 70.

My experience with clients with *actual* Whole Life policies – and there have been many that thought they had WL, but in fact had UL’s instead – has been overwhelmingly positive. Earthshaking? No. But definitely positive and certainly respectable in their returns. In general, Whole Life has been treated like the red-headed stepchild of the financial world. Thankfully, there have been a handful of excellent articles that have treated it fairly and truthfully, particularly after the so-called “correction” of 2008 in the stock market.

In fact, when you account for the tax-free growth benefits of the cash values and the “not having to pay for the term insurance” aspect – granted, term often needs to be used in a supplementary fashion – the long-term net after-tax, after term-premiums result on the cash-value is equivalent to between 7 and 9% returns, and a fair bit more on the death benefit which, of course, on term insurance is equal to zero. I can show the details to you via webinar using calculators etc. if you wish. But what it comes down to is if you had, say, $12,000/yr to invest, and $2,000 went to term, then the remaining $10,000 invested would, after taxes and market fluctuations, have to achieve a 7 to 9% return to be equal to what the $12,000/yr into Whole Life premiums would produce in cash value naturally. How confident are you that you’ll get a consistent, non-volatile return in the market that is 7 to 9%? Before you jump in like Dave Ramsey and say “10-12% is the norm”, it isn’t–there is a difference between “average” and “actual” returns, but alas that is beyond the scope of my commentary here (for more details, please see a video I did on this, along with support documents, hosted at Screencast). In reality, actual market returns over the last 20 years – which includes the boom-boom 90s as well as the dismal 2000s – has been less than 4%, despite that the overall “average” return was over 10%.)

Further, the living uses of WL are usually overlooked – even by those who sell the stuff. The smart owners I’ve known have used their WL as “pools of capital” from which they launch greater investments in businesses and real estate – then produce streams of cash flow that they store tax-free back into their Whole Life again for the next project. Frankly, “real” investing involves these kinds of decisions for the use of capital, and there is no better – read, safer tax-efficient, liquid/available – place to park that capital to be poised and ready for such investment opportunities when they arise. Perhaps only once every several years, but you’d better be ready to seize those opportunities when they arise. The cash value component in Whole Life insurance is an ideal parking place for working capital in between those opportunities.

Throw in the tax-free nature of the cash value – by that, I mean it never even shows up in your tax return when you tap it – and consider the taxation on Social Security benefits and the likelihood of future (higher) tax rates in general (hello, your 401(k) getting taxed at 50% when you withdraw?), and you may begin to see the tremendous (albeit, unappreciated) position a good, solid Whole Life policy holds in the arena of financial products.

As for “how much” or the question of “it’s too expensive,” I’ve found that premiums funded somewhere in the range of 10% to 15% of annual gross income will almost always cover your full human life value (usually between 10 to20 times your income) in WL insurance, which is all you could ever get from any insurance company(ies) anyway. Is that “too” much to be saving? I’d argue that 15% of your gross income is the minimum amount you should strive to save, and that anything less puts you at significant risk of eating dog food in retirement. Too much? Only if you think it’s trapped there without you being able to gain access to it which is really truly of your 401k, but certainly not for life insurance.

But when you realize the flexible, accessible, safe, tax-efficient, and leveraged nature of a Whole Life policy, it starts to look a whole lot more attractive than financial press gives it credit for. You do have to look past the seemingly obvious to uncover the actual truth.

Final thought: I have owned WL for between 5 and 7 years (one smaller policy purchased farther back, supplemented with term, and later converted to a larger policy). I have found that once you get past those initial couple of years, especially if it is “over-funded” (more $ into the policy beyond the basic premium), my policies have performed admirably, regularly earning nearly 5% tax-free (after-tax equivalent of about 8%) in a world where most people cannot manage to get more than 0.5% from the bank. During that time, I’ve used the policies as working capital for a business investment, a real estate project, and working capital in my own business. My life insurance has been an indispensable financial tool for securing and building my wealth, and the same has been true for many of the clients I have worked with.

In golf, the club isn’t as important as knowing how to swing it. I guarantee Tiger Woods would beat you with a 30-year old set of half-bent clubs from a pawn shop. And although you may use different clubs throughout the game, there’s only one you will use on *every* hole. Whole Life insurance is like that putter. Other clubs might hit the ball farther, but you can always count on that putter to make that final shot count.

Randy Whittle
Clarity Wealth Solutions

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“Ruben: As an advisor that uses WL as part of my planning, it is important to say that not all WL policies are created equal and a handful of companies do it right. You cannot compare lower tier companies to higher tier companies and make a blanket statement saying that this product doesn’t work and doesn’t perform as illustrated.

Also, proper planning would be a blend of WL & Term with the majority of the DB being in an affordable term product as WL is more expensive and serves an additional purpose.”

As you have probably noticed, the world did not end on Saturday, May 21 as predicted by Harold Camping, the 89-year-old founder of Family Radio International in Oakland. The Rapture passed us by this time around, leaving Judgment Day for another time. Personally, I am not surprised, but media sources say that Camping was “flabbergasted” that the Rapture had not yet occurred. While many – including me – have poked fun at this unlikely prediction, it does get you thinking. If the world had ended on Saturday, would we have been ready? Let’s take that back a step:  if your world had ended this weekend, would you have been ready?

For example, let’s say a tragic accident occurred and you lost your spouse unexpectedly. Do you know where all of your financial records are? Do you have access to your life insurance policies and bank accounts? Do you know who would care for your children, or your parents, if you were no longer able to? I know these are grim thoughts, and ones that no one wants to face, but such tragedies occur every day. Just look at the tornadoes in Joplin, Missouri this weekend. At least 125 people have died as a result, hundreds have been injured, and countless others have lost their homes or businesses. How are those left behind coping? How would you handle it?

We don’t have to answer these questions right now, but I’d like you to think about what you need to do to prepare for the unexpected such as premature loss, the stock market tanking or inadequate retirement savings. Whether it is the Rapture or another event, your world will change dramatically at some point. Are you ready for it?

Some investment professionals today advise their clients to buy term insurance to cover their short-term life insurance needs. Based on their age, they can buy a higher face amount at a lower premium than they can with permanent, or whole life, insurance. From a cash flow standpoint, that might make sense, at least temporarily.

For long-term value, however, a term policy is waste of money. It is like renting a life insurance policy for 10 or 20 (or 30) years. Once that term is over, every penny you paid for the policy is gone—wasted. It has no value, and your death benefit expires with the policy.  No matter how affordable those premiums may have seemed at the time, they’re still gone, and when you figure in those 10 or 20 years of potential interest rate growth, that adds up to significant money lost!

On the other hand, a permanent life insurance policy lasts for your entire life, whether you are 25 or 75. The premiums are higher than for a term life insurance policy, but the benefits it provides to its owner are also higher.

I am a huge proponent that the owner of a life insurance policy – YOU – should be its first beneficiary—not the listed beneficiary on the form.  I even authored the foreword to a book on the subject, Live Your Life Insurance (digital download—also available on Amazon).  In that book, we argue that life insurance is for you, the living—not for you, the dead.  It is a marvelous multi-faceted tool that, in sum total, serves far more functions, and far more safely, than any other financial vehicle.

You already know, for example, that the insurance company is guaranteed to pay the face amount, or death benefit, of the policy to your beneficiary.  But did you know that those proceeds are paid to your beneficiary without income tax consequences to your estate or to the recipient?

Another little-known benefit of owning a permanent life policy is that you have complete access to your money, meaning you can withdraw some of the policy’s cash value to carry you through an emergency, or simply to take advantage of a new opportunity. This money is also protected from your creditors should you be hit with a lawsuit, and from probate court upon your death. (Oh wow, probate, another subject worthy of a posting of its very own! Suffice it to say, a huge portion of the estate will be lost to probate costs, not to mention the years it can drag out and be contested…)

You may know that you retain full control over your permanent life insurance policy—you own it—but did you know that, should you become disabled, your premiums can be paid for you and will continue to add to the cash value of your policy?  In contrast, would anyone continue to fund your 401(k) for you?  Of course not!  Yet here you have a solution that would continue to fund your retirement even if you become sick or injured—you could even draw from it during that period of time.  Some policies even offer an option allowing you to use it to pay for Long Term Care—and at an almost negligible cost compared to a standalone Long Term Care policy.

While you may not think you need a permanent policy, it can serve as a long-term financial guarantee to protect you and your loved ones long into the future. Want to learn more? Contact me today to find out how you might benefit from owning a permanent policy.

On May 12, Randy Whittle of Clarity Wealth Solutions will speak to faculty and staff of Claremont Graduate University on “Becoming Fiscally Fit.” This will be the first in a yearlong series of presentations that include financial topics such as basic principles of cash and credit management, options for a quality retirement, financial blunders to learn from, and tax and estate planning. The goal of the series is to provide tools to the CGU faculty and staff to become and stay fiscally fit for life.

Whittle is speaking at CGU on behalf of the Society of Financial Awareness (SOFA), a nonprofit organization that focuses on improving financial literacy through education and empowering consumers to take control of their finances.

“The economy is in such turmoil right now, and people don’t know what to do with their money,” Whittle explained. “In my training classes, I will share practical, easy-to-implement financial strategies and tools to help them regain control of their financial future.”

To learn more about financial literacy or to schedule Randy to speak to your organization, please call us at 877-914-1637.