I know. It even showed up in my local paper. “Ed Hinerman Says Whole Life Insurance Without Gagging”! Well, the reflex is still there but I have been fighting it while I investigate whether there is a place in my universe for dividend paying whole life insurance that funds “infinite banking”. Is there another over 50 life insurance buyers to use their product?
As colleagues I’ve know for years call to see what the heck I’m thinking I’ve been telling them this. I’m in a situation that I believe is probably the new norm for a lot of people in their 50’s and 60’s. We owe too much and we saved too little. And we listened to our Edward Jones (submit your own here) representative tell us that “stock market and mutual fund investing is cyclical. It’s looked bad before and it always comes back and surges ahead.” We’ve got IRA’s and 401k’s that have been sucking wind for the last 5 years and there is no sign or faint glimmer of hope that this is a cyclical thing. What our financial advisers refuse to come to grips with and talk about is that the good old days, the cyclical dip and rebound days are gone.
The stock exchange is no longer about us and our US companies. It is a political barometer of a global economy. Someone is Greece passes gas and the DOW drops 500 points. Our Congress figures out a way to go further in debt and the DOW gains 400 points. We tick off an oil producing country and it’s like one of those trap doors you see in a cartoon. The DOW is there and then it isn’t. Every time my IRA gets back to the highest its’ ever been, it tanks and begins the slow crawl back up and while my Edward Jones guy is quick to point out that my IRA is up for the year because I’m in Mutual funds, he doesn’t talk about that fact that up this year is actually down from last year. He also doesn’t talk about the fact that my IRA has been to that highest point 10 times in the last 5 years and hasn’t gained a dime.
All of this led me to a quest of sorts. I figure I’m not alone in this boat that is half full of water. It’s not sinking, but it’s hard as the dickens to get going in the direction I want.
Now I’m going to just hang it out there and say it. For people in their 20’s through early 40’s getting out of debt and starting their own bank through whole life insurance is a no brainer. I am going to respectfully step away from just one little piece of Dave Ramsey advice at this point. He says get out of debt and I am 100% with him there. Debt is the black plague of our country. Dave says once you are out of debt, invest in mutual funds. I disagree respectfully because I do have a lot of respect for Dave and all that he has done for people. I now believe that people should quit investing in the stock market and mutual funds and start investing in themselves through interest and dividend paying whole life insurance.
But young people, while I think they should look at becoming their own banker, are not the group that needs the help the most. It’s me and all of us in this boat that we’ve helped build. I’m 58. I love my job and God willing and with God’s blessings I will get to continue it for a long time. I really don’t care if I retire. Why would I quit doing what I love?
To that end I have been studying how to take my situation of having a crappy IRA and too much debt and in 20 years (no quick stuff here), be out of debt and have enough put away for my wife and I to live on. My first assessment of that goal was that it was achievable but it was going to hurt like crazy.
I’ll see if I can wrap this up quickly otherwise it will be a 2000 word bore. I have about $60k in extraneous debt. High interest credit cards, second mortgage, etc. I have a $100k IRA that isn’t going to get any bigger. My plan would be to cash out that IRA and go ahead and take the IRA penalty and tax hit. That would leave me with about $60k which I would use to pay off the above debt. Paying off that debt frees up $2400 a month in my current budget, most of which is interest.
I would turn around and put that $2400 a month into a dividend paying whole life policy that is funded for cash growth rather than insurance. Yes, I would keep it from being a modified endowment contract (MEC) which would defeat my whole plan because as long as it doesn’t MEC, the cash value is tax free. Within 5 years I would have enough cash value to pay off our best income producing rental property. I would borrow that money from myself and pay myself back over the next 7 years (pay back the policy loan). All of this is still within my current budget because I have a mortgage on the rental.
When that is paid back the policy will have accumulated enough cash value to pay off my primary residence by taking a partial surrender of the policy, not a loan. At the end of the 20th year, my age 78, I have at least $500k of tax free money that we can add to our rental income to live from.
Bottom line. I go from too far in debt to out of debt with money to live on and I do it within the budget that I am currently spending. Best of all I get rid of that IRA that ticks me off every time I look at it. I should add that the company I used for this has paid dividends every year for the last 105 years and in the last 20 years has paid dividends between 6% and 8% every year. When I ran the illustration I ran the dividend rate at 3%. It doesn’t work as well, but it still works with the dividend rate run all the way to 0%. This is for people my age that have been doing it wrong for a long time. I think it’s very possible that being your own banker is something that still works after puberty.