Our philosophy at Statewide Retirement Planning Co. is to work with our clients through education and information. We feel strongly that this approach will enable our clients to make better and more informed decisions. With this in mind, we have decided to send out a regular newsletter filled with information regarding all aspects of retirement and the retirement planning process. We hope that you enjoy reading these newsletters and are able to use the information to make your retirement years more secure and enjoyable than it otherwise might be.

Please feel free to forward copies to your family and friends.

MY 401K WILL TAKE CARE OF MY RETIREMENT – DON’T BE SO SURE

How often have I heard this from a client? “My employer matches my contribution dollar for dollar and I contribute $500 per month extra that is not matched.” All the time.

Traditional 401k plans have high fees and all distributions are taxable at ordinary tax rates even to heirs if inherited

Assume a hypothetical client is a 45-year-old male. Using just the unmatched $6000/yr contribution for 20 years with a 5.0% interest return every year (not very practical since most plans are invested in Mutual Funds and historical returns say otherwise), his account should grow to about $208,000. A conservative fee of 2.5%/year over a 20 year period would shrink the account by approx $53,000. Leaving a net of about $155,000.

Once the contribution is in the 401K, any distribution would be a taxable event when the money is taken out to the receiver of the distribution. Remember, the IRS wants their money. All they did by giving you a tax break when you put the money into the 401k was to DELAY taking their tax until a later date when the amount is higher and the tax rate in all probability will be higher.

Taking the same $500 per month contribution and purchasing a special life insurance policy, designed for income, he would have the following benefits (None of these benefits are available from traditional 401k plans:

1. Pre Retirement Death Benefit Of $318,000

2. $152,000 Tax-Free Cash Value At Age 65 At 5.0%* Growth

3. $9,900/Yr Tax Free Income At Retirement Until Age 90

4. Access To The Tax Free Cash Value For An Emergency

5. There Is No Maximum On The Amount That You Can Contribute Into The Plan. (You do, however, have to stay within IRS guidelines for the relationship between the amount deposited and the amount of life insurance in order to maintain the tax-free status.)

6. There Are No Rules Forcing You Take Money Out Once You Reach Age 70 1/2 RMDs.

7. No Penalty For Taking Distribution If Younger Than Age 591/2

8. Avoids Probate

9. Protected From Creditors

10. Totally Protected By Legal Reserve Insurance Companies, State Guarantee Association, And Reinsurance Companies. (Similar to FDIC)

Using our example, if an after-tax income of $9900 per year were taken each year starting at age 65, this tax-free alternative would support that income until age 90 and the account would still have a residual balance of $19,600 and a death benefit of almost $47,000. The traditional 401K taxable alternative would run out of money after 12 years. (Age 77)

Calculation Details can be seen HERE

* If a taxable gain of 5% is achieved in a taxable stock market type account, a higher return will be achieved in a special Tax-Free insurance account designed for this purpose, because it does not suffer the negative returns in down years. Therefore, this presentation comparison is very conservative because this is not taken into account. In the long run, an indexed account with no downside risk will always out perform a typical market return because the market goes up and down and the indexed account with no downside risk only goes up. In this conservative analysis, we are assuming the same 5% return for both accounts.

 
Calculation Details can be seenHERE

Unfortunately, most people don’t know and are not being told the fees associated with 401k plans. (In this case causing a loss of $53,000). If the alternative of using a special life insurance solution is used for retirement planning, $247,500 in retirement income benefits plus a residual death benefit of $46,900 to his beneficiaries is achieved, a Total Benefit of $294,400 tax-free with contributions totaling $120,000. (From age 45 to 65).

OBVIOUSLY, THE TRADITIONAL 401K (OR IRA) IS NOT THE BEST WAY TO SAVE FOR RETIREMENT

Call Statewide Retirement Planning Co. at (954) 781-2220 or email us at: StatewideRetirementPlanning@gmail.com for details specific to your situation.

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