Tax-Free Retirement

What if you could change your money from “forever” taxed to “never” taxed?

With ballooning annual deficits, unfunded liabilities, and entitlement programs, our country is probably headed toward stifling taxes in the future. Do you have a plan to deal with the possibility of tax increases that will be needed to pay for these programs?

Most individuals are focused during their working years on funding tax-deferred savings plans like IRAs and 401(k)s and fail to adequately prepare for the possibility that future taxes will rise. Generally, planners and advisors advocate that money should be placed in tax-deferred vehicles such as IRAs and 401(k)s now, during the working years, because they assume you will live on less in retirement. While this may be the case for the highest income earners, many will find that due to inflation in energy costs, healthcare premiums, and taxes, they may actually need more income during retirement to maintain their standard of living.

In addition, most Americans will rely to some degree upon Social Security to supplement their standard of living during retirement. If a retiree’s other income sources are taxable, then the portion of Social Security income that is taxable could rise to as high as 80%.

As part of your income strategy, we suggest that if you have the opportunity, you should make part of your income tax free. In other words, if part of your income in retirement comes from tax-free sources and never has to appear on your tax return, you will actually reduce your taxes on the rest of your income, including Social Security. Of course, the challenge is to find a financial vehicle that will allow you to accomplish this without sacrificing other important goals; we have discovered an innovative approach that combines a number of the following powerful features:

  • Principal protection
  • Market-linked growth
  • Tax-free accumulation
  • Tax-free access for major expenditures
  • Tax-free access for long term care
  • Tax-free access for retirement income
  • Tax-free cash to your family or business partners

Click HERE to find out more about Tax-Free Retirement!

How Can I Receive Income Tax-Free?


Do you need extra cash to supplement your retirement income? How about to help pay for college expenses? Wouldn’t it be nice if these extra income sources were available to you on a tax-free basis? Life insurance, in addition to traditional coverage, offers a means to do this by allowing you to deposit significant amounts of money in addition to the minimum required premium to pay for the life insurance.

Imagine your premium being invested into 2 different accounts. The first is a small account, where the actual cost of the insurance goes to pay the premium. Once the money is deposited into this account, it is spent by the company to pay the actual cost of the insurance. The rest of the money goes into a type of “holding tank”. This holding tank is then invested into the life insurance carrier’s portfolio. By merging your money with millions of dollars from thousands of other investors, the insurance companies are able to achieve better, safer gains than any individual could achieve. In return, the carrier gives the consumer a piece of that interest, which is then credited back to the owners account as a growth in the cash value of the account.

There are two main ways that the policy holder can take money out of their account. They can make a withdrawal from the cash value at any time, which is subject to ordinary income taxes. However, most insurance policies offer the ability to take a loan from the policy because, according to the IRS, loans are not taxed and so these loans from the policy come out tax-free so long as all the funds are not withdrawn from the policy. The death benefit acts as a sort of collateral until the loan is repaid and, in case the loan is never repaid, the difference is simply subtracted from the death benefit and the difference goes to your beneficiaries tax-free!


The Value of Trust

It’s likely that you visited this site because you trust my opinion and know that I work with my clients’ best interests in mind.

There really isn’t a value that anyone can put on trust – it’s simply priceless. My wish is that this website is proving to be a powerful resource for you as you make very difficult and important decisions for your retirement and your life. I look forward to the opportunity to develop a strong working relationship with you and encourage you to continue through this course for a strong foundational knowledge, regardless of the direction you choose.


The Value of Trust

It’s likely that you visited this site because you trust my opinion and know that I work with my clients’ best interests in mind.

There really isn’t a value that anyone can put on trust – it’s simply priceless. My wish is that this website is proving to be a powerful resource for you as you make very difficult and important decisions for your retirement and your life. I look forward to the opportunity to develop a strong working relationship with you and encourage you to continue through this course for a strong foundational knowledge, regardless of the direction you choose.


Concerned CoupleSurrender Charges Explained

Annuities have surrender charge periods generally lasting from 3 years to 16 years depending on the one you choose.

The surrender fees, which are imposed above the 10% penalty free amount annually, typically range from 5% to 20%.

The highest penalties are typically associated with annuities that offer a 10% bonus, which in effect may reduce your 20% penalty to 10%.

The surrender fees reduce over the years you own the annuity to zero allowing for 100% liquidity of your annuity after the surrender period expires.

Surrender periods are also waived upon the death of the annuitant allowing a spouse named as the primary beneficiary to take over the annuity without penalty and also allowing for ongoing withdrawals of any amount up to the full account balance without penalty.

Annuities are not 100% liquid during the surrender charge period. This allows the insurance company the confidence to invest your money for a longer term without the risk that you call them in the near term asking for a withdrawal above the 10% amount allowed without penalty. By investing longer this potentially allows for a higher yield to both the company and you. Annuities are not unlike Bank CD’s in that there is a penalty for early withdrawal except that annuities do typically allow 10% to be withdrawn annually.

Because annuities allow for tax deferral on the funds you have invested the IRS will impose a 10% penalty for funds withdrawn prior to reaching your 59-1/2 birthday. This is true of any tax deferred vehicle such as IRA’s 401k’s, 403b’s etc…

Is 10% enough liquidity annually? Using the example of $100,000 placed in an annuity offering a 10% penalty free withdrawal, which many do, you could take out $10,000 annually or the entire original balance in ten years.

Most people would find that spending their savings at the rate of 10% annually would deplete them of their savings well in advance of life expectancies.

Annuity surrender charges are not imposed upon you unless you take more than the penalty free amount. This means you control whether you will ever pay a penalty.

Surrender charges do not occur involuntarily like the markets volatility, which may impact, savings negatively such as has occurred twice from 2000 to 2009.

The purpose of money should dictate where you place it. Fixed Annuities are best suited for nest egg dollars that need to be kept safe and provide you an income for as long as you live.

Annuities have the unique ability to continue to pay you lifetime income even after the depletion of your principal. So even if you run out of money with an annuity you would not run out of income.

Annuities and Social Security are the only vehicles that offer lifetime incomes. The annuity gets its strength from the claims paying ability of the insurance company and Social Security from the Federal Governments collection and management of taxes.


Two Annuity Negatives

For years, if Americans wanted opportunity, they would put their savings in the stock market. If they wanted safety, they used bank CDs or government bonds. The problem was you could have money positioned for opportunity or safety, but not both on the same dollar at the same time. Today, billions of dollars annually are finding how to have safety and opportunity on the same dollar at the same time. The vehicle that has filled the gap between the stock market and banks is the Fixed Indexed Annuity.

This well-designed vehicle has many positives and two potential negatives. The first negative is that it doesn’t capture all the up of the market and the second is it isn’t 100% liquid.

When the market rises, the Fixed Indexed Annuity (FIA) delivers interest. When the market declines, instead of losing money, the FIA just delivers 0% interest. Since owners of FIAs would have suffered a loss if they had been in the market in mutual funds or stocks, they call zero their hero!

Depending on an FIA’s design and current interest rates, as well as market volatility, the FIA may credit from only a small percentage of the up, to in some cases, all of the up. According to a study by the Wharton Financial Institutions Center, many FIAs have credited an average of 8% since their inception over 14 years ago. Because not all FIAs credit as much of the up as others, it is important to talk to a well-qualified individual who thoroughly understands FIAs.

Although FIAs typically do not allow for 100% of the up, often the average investor didn’t get all the up either. According to Dalbar, a respected Wall Street research firm, an average equity fund investment from 1990-2009 earned 3.17%, or a little over 1/3 of the available 8.2%, as the S&P 500 averaged over the same period. From 1995 to present, many FIAs credited higher interest.

The second concern some may have about FIAs is that the FIA is not 100% liquid until the liquidity charge period has elapsed, ranging from 5 years to 16 years. While an FIA is not an appropriate place to park emergency funds or monies needed for short-term liquidity, FIAs are highly appropriate for nest egg dollars. These are the funds that you need to always be there no matter how long you live.

There are, however, a number of ways to access your money inside an FIA. First, these vehicles allow for 10% liquidity of the account balance (this includes all growth), or in some designs 10% of the original deposit (excluding growth) after 12 months.

Think of it this way. If you deposited $100,000 and then withdrew 10% – $10,000 – annually for the next ten years, you would have spent all your original investment in just ten years. Ask yourself, do you have a plan in place to spend your life savings over the next ten years? For most, this is far too fast to spend your nest egg, yet the FIA would allow for this without penalty. Keep in mind that Wall Street recommends we not spend more than 4% annually so as to not run out of money before we run out of life.

Another way to increase liquidity is that in some designs you receive a bonus that is fully credited to your account on day one. These bonuses may be as much as 10%. You can use the company’s bonus to offset the company’s liquidity fee to create, in some cases, as much as 50% liquidity of your principle on day one. Additionally, I know of an FIA that is 100% liquid with a return of your principal guaranteed at any time you request.

Perhaps one of the most powerful methods for taking funds from your FIA is to take income from the account. Unlike past designs, FIAs do not require you to lose ownership or control of your principal while taking income. Today’s income features have the potential to increase to fight inflation by linking your income to stock market increases or, in some cases, offer guaranteed increases of 3% annually to help offset inflation. The income will pay out for as long as you and your spouse live if you elect the spousal payout provision. The income will even continue to pay should you outlive the balance in your account. Only annuities can pay an increasing income on a decreasing asset.

One last thought: Today’s FIAs are a bargain. These newer designs of a well-established concept (fixed annuities were created in 1913) have no fees. You may, however, choose to add an optional guaranteed income rider that typically credits 6-8% annually for a fee range of 0% to 1%. 75 basis points is equal to 3/4 of 1%. On a $100,000 account you would pay $750 annually in exchange for the guarantee your income account will grow by 6-8% or $6,000 – $8,000. Not a bad exchange. Now you can insure a competitive rate of return in the event the market doesn’t perform by buying this guarantee.

For the right kind of money (typically nest egg dollars), despite the fact you won’t get all the up of the market and less than 100% liquidity, an FIA is hard to beat. The closest competitor, a diversified portfolio, also does not get all the up and also is not always fully liquid due to market losses that can take a decade or longer to recover from.

In an imperfect world, where most people get some of the up and some of the down, you might want to consider instead getting some of the up and none of the down.


Variable Annuities

In an variable annuity, In a variable annuity, you can choose to invest your purchase payments in a range of investment options (sub-accounts), which are typically mutual funds. The value of your account in a variable annuity will vary; depending on the performance of the investment options you have chosen. Variable annuities traditionally have annual fees ranging from 1-4% that are deducted from your account value, regardless of performance.


Your principal can be invested in the market and at risk for loss, though it is possible to achieve higher returns than other annuities when the market is up.

Pros of Variable Annuities

  • Typically higher opportunity for growth
  • Optional, guaranteed lifetime income
  • Tax-deferred growth
  • Full accumulation at death with optional rider
  • Probate avoidance

Cons of Variable Annuities

  • Money is at risk of loss due to being invested in the market
  • Typically has the highest fees of all annuities
  • Limited annual liquidity, typically 10%
  • Early withdrawal penalties
  • Depending on market volatility, principal and growth may not be available at term’s end in a lump sum withdrawal
  • Prospectus is typically 90-500+ pages (very complex)

Variable Annuities Are Best For:

  • Investors that want to continue to invest in the market, regardless of risk
  • People that have maxed out alternative tax-deferred opportunities
  • Those who are interested in passing on elevated death benefits to beneficiaries (depending on riders selected)
  • Those who are looking for diversification from owning just pure equities


Fixed Indexed Annuities

In an fixed indexed annuity, the insurance company credits you with a return that is based on changes in an index, such as the S&P 500 Composite Stock Price Index. Indexed annuity contracts also provide that the contract value will be no less than a specified minimum, regardless of index performance.


Your principal is linked to the market, which provides opportunity for higher returns, but protects your money from any market downside.

Pros of Fixed Indexed Annuities

  • Higher growth opportunities than many safe-money investments
  • Fees range from 0% – 1.5%
  • Secure growth of up to 5.5% annually for as long as twenty years (as long as you take that growth as income)
  • Cannot lose principal or growth due to market volatility
  • Tax-deferred growth
  • Optional, guaranteed lifetime income
  • Principal and growth available at term’s end in a lump sum withdrawal
  • Full accumulation at death
  • Probate avoidance
  • Disclosure documents are typically 6 pages or fewer (less complication)

Cons of Fixed Indexed Annuities

  • May not always link to indices for full market growth
  • Limited annual liquidity, typically 10%
  • Early withdrawal penalties
  • Participation rates and caps are adjustable

Fixed Indexed Annuities Are Best For:

  • Investors fleeing the market
  • CD alternative
  • Wealth preservation/transfer
  • Pension alternative
  • 401(k) rollovers


Fixed Annuities

In an fixed annuity, the insurance company agrees to pay you no less than a specified rate of interest during the time that your account is growing. The insurance company also agrees that the periodic payments will be a specified percentage per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.


Similar to a CD in that there is a defined term and interest rate. However, the fixed annuity has historically paid higher rates than the CD.

Pros of Fixed Annuities

  • Nobody has ever lost their principal in a fixed annuity*
  • Historically higher interest rates than CDs
  • Tax-deferred growth
  • Optional, guaranteed lifetime income
  • Principal and growth available at term’s end
  • Full accumulation at death
  • Probate avoidance
  • No fees for this type of annuity

*In rare cases where insurance companies fail, new insurance companies that have taken over have fulfilled all original obligations for policyholders

Cons of Fixed Annuities

  • Limited annual liquidity, typically 10%
  • No market growth opportunity
  • Early withdrawal penalties
  • Limited opportunity for increase in income to fight inflation

Fixed Annuities Are Best For:

  • Wealth preservation/transfer
  • CD alternative
  • Conservative investors


Immediate Annuities

In an immediate annuity, the contract is purchased with a single lump-sum payment and in exchange, pays a guaranteed income that typically starts within 30 days.


You’re basically exchanging control of your money for a guaranteed stream of income.

Pros of Immediate Annuities

  • Guaranteed income
  • Simple concept
  • Pension alternative
  • Generally gives a higher payout than other annuities
  • No fees for this type of annuity

Cons of Immediate Annuities

  • Inflexible and irreversible
  • No growth opportunities
  • Typically no inflation protection

Immediate Annuities Are Best For:

  • Pension replacement/li>
  • Immediate income needs
  • Estate distribution – control how your money is given to your beneficiaries


1 Geoffrey VanderPal, D.B.A, CFP, CLU, CFS, RFC; Jack Marrion; and David F. Babbel, Ph.D.; “Real-World Index Annuity Returns”;; accessed 01/01/2013
*Equity Indexed Annuities (EIA, also known as Fixed Index Annuities – FIA) are tax deferred products; they are not tax free. When withdraws are made from an EIA – the portion of the withdrawal that is not principal will be taxed at applicable income tax rates. Premature distributions (before age 59 1/2) may be subject to an IRS penalty of 10%, in addition to applicable income taxes. If receiving a bonus with an EIA purchase, you may incur higher surrender charges and be subject to a longer surrender period. Tax-qualified assets (e.g. IRA or Roth IRA assets) in EIA’s may not be eligible for additional tax benefits. Investors should have adequate resources to cover liquidity needs. EIA’s are not: a deposit of any bank; FDIC insured; insured by any federal government agency; or guaranteed by any bank or savings association. Riders and guarantees may be available at additional cost and may not be available in all States. Guarantees are based on the claims paying ability of the issuing company.

**Variable life insurance is sold by prospectus. Please consider the investment objectives, risks, charges, expenses, and your need for death-benefit coverage carefully before investing. The prospectus, which contains this and other information about the variable life policy and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. The investment return and principal value of the variable life policy are not guaranteed. Variable life sub-accounts fluctuate with changes in market conditions. The principal may be worth more or less than the original amount invested when the policy is surrendered.