91: Five Myths Your Financial Advisor Believes

091 Five Myths Your Financial Advisor Believes

[00:00:00] Hello, everyone. I'm John Montoya, and I'm John Perrings. We're authorized Infinite Banking Practitioners and hosts of the Strategic Whole Life Podcast.

John Montoya: Episode 91, Myths Your Financial Advisor Believes. Hello everyone. Welcome to the Strategic Whole Life Podcast, formerly the Fifth Edition. We're happy to have you here today. We're going to be talking about five different myths that your financial advisor believes. So, John, we're going to talk about maximizing the lobster trap, also known as 401k IRA deductions today.

Life insurance is only for the death benefit. Those commissions on those life insurance policies are absolutely ridiculous. According to your typical financial advisor 4 percent withdrawals are the golden rule. And the last one that we'll hit on is the 60 40 stock bond allocation as the way to go.

So John, let's get this started.

John Perrings: Let's talk about this [00:01:00] 401k business here. I think this is a pretty common one where where most people are taught to maximize their contributions to some type of qualified plan, like a 401k or an IRA, so that they get the tax deductions. And this is a Nefarious fallacy because you are not getting a tax deduction when you contribute money to a qualified plan.

You're getting a tax deferral, and that's a very important distinction to understand, especially today in today's Really historically very low tax environment. You're deferring taxes today only so that you can pay them tomorrow. And if I ask anybody what their opinion is on whether they think taxes will go up or down or stay the same in the future, by the time they get to retirement, I haven't had [00:02:00] anyone tell me they think they'll go down or stay the same.

It's super important to under, understand that piece of it.

John Montoya: Yeah. And the question I would ask is who benefits from all this money going into qualified plans? Wall Street. And the government, right? Because that is a guaranteed revenue stream for both and nothing really against the Wall Street advisors in that regard, because I do believe that you need to have a portion of your assets that can outpace inflation.

But you have to look at the whole picture and you have to ask yourself who benefits and who benefits the most here? And the reason why, we call it a lobster trap is because they bait you in with this carrot of a quote unquote deduction, which, you correctly call a, a tax deferral, even a tax postponement, that's what it is.

And you're. foregoing paying the tax [00:03:00] today so that you can delay it for when you eventually are living off that asset. And I think one of the bigger mistakes people can make is that you're not really thinking about what that's going to net you, come retirement time. And the fact that you're having to lock up your money when you could divert at least a portion of that money where it's accessible to you for anything that you want to do, no permission required and that's the beauty of our whole life policies that we love so much is that it's, it frees up your money and it frees up your time and it frees up your time to do what you want to do, So that you can redirect the money that's going out of your banking system back into your own family banking system.

You can't do that with a 401k. That lobster trap is set up so that once you put that money in, It's going to be there essentially until you, start withdrawing it. [00:04:00] Or if you withdraw too early, you're going to pay the, not only taxes, but the penalties on it. So you got to be very careful about maximizing that those lobster traps and think about how can I better situate myself and my family so that I can build wealth and do so with more autonomy.

And that's what our whole life policies allow you to do. So that's my piece on that.

John Perrings: Yeah. And if you look at what we're doing with Infinite Banking, it's really about creating more control and more liquidity so that we can take advantage of changes that are coming down the road, whether they're good or bad uh, rather than react to them. And when you lock away your money and these 401ks, I've got a little bit of a different opinion on putting money somewhere where it beats inflation, because in my opinion, yes, we're told that money, that growth assets will beat [00:05:00] inflation. But does it beat inflation if you lose money? You know what I mean? So even the idea of beating inflation with market based investments where you lose all control of your capital.

I just, I don't know. It's a tough pill to swallow for me. Cause if you look at like the control and risk spectrum, 401ks are completely maxed out on risk and completely minimized on control and use. And it's a pretty tough financial product in my opinion. And, going back to the tax thing, we're sold on this idea that you're, that it's a good tax move.

Again, do you think taxes are going to go up or down by the time you get, get to, take money out of there? And then the other thing is the only thing you're really saving is the money in whatever tax bracket you fall in. And What I find is a lot of people don't realize that tax brackets are "last dollar," meaning if you make [00:06:00] up to the first threshold, you only pay the tax on that threshold.

And then when you get into the next threshold, you start paying the higher tax. So if you go a dollar over into the higher tax bracket and your accountant. Saves you a dollar and brings you into the lower tax bracket. You only save the tax percent on that 1 that brought you back into the lower tax bracket.

It's not, you're not saving that percentage on everything that you earned. So it's, it even the tax savings that you supposedly get for that year is not what it's not all it's cracked up to be.

John Montoya: Yeah the, where I'm coming from as far as having assets that can outpace inflation, it's because we live in a world where our monetary system by design constantly debases the value of our currency, our political currency it's fiat. So just by design. We are getting poorer every [00:07:00] single year.

And so that disincentivize savers, and it pushes people further and further out on the risk spectrum to the point where people these days they really conflate savings they, they conflate investing with savings. And they're two different things. Savings are supposed to be non risk, whereas investment, you are taking a risk.

Come back to a whole life policy. This is a guaranteed. Contract, it's a transfer of risk from you to the life insurance company. Now that by itself is a really amazing thing. But the insurance companies and the IRS they're all in agreement that they don't want every single dollar of what you save going into a life insurance contract.

And they put rules in place to make sure that there are some restrictions there. It's not like you can go out and just get as many life insurance policies as you possibly can.[00:08:00] We talk about human life value on the show, and based on your income and assets, your overall net worth, there is a maximum amount of death benefit you can have on your life.

There's a maximum amount of premium that you can have on your life. So there, there are restrictions there and, the point of having money in different places is that you take advantage of different characteristics and the strengths of where you're parking wealth. But. You have to realize that the foundation of the system that we live in, and this is for the whole world it's based off theft and the dilution of money.

And so you have to be very careful when you save and, don't conflate investing with saving. You have to have a separation between those two categories. And once you realize that. You realize you have to have a portion of [00:09:00] savings, right? That is not at risk. You have ultimate control over, it is liquid.

You take the additional intangible benefits of these whole life policies, becoming your own banker. And what we touched on in the last episode you have an incredible asset class, so just to come back to this first myth, be careful about maxima, maximizing that lobster trap.

Because you've got an incredible asset class with whole life policies that separates you from that mindset of, investing in savings. No, it's not. I'll just stop you right there. It's not, you need to have a non risk asset as part of what you're doing. And take a look at all the non risk assets, the assets that you can choose from.

And you're gonna, you're gonna come away. Knowing that this asset class, whole life insurance policies, is a superior asset class. And [00:10:00] I'll add one more thing. What do corporations and banks buy billions of dollars worth of every single year? Life insurance policies, cash value, life insurance policies on key executives, on, key person, higher level management.

Why do they do that? There's a ton of reasons, but the biggest takeaway is that. If these major corporations and big banks are doing this, there's a reason.

John Perrings: And I think this segues nicely into the next one, because something that's not understood is that you don't have to choose between investing or buying a life insurance policy. Life insurance, whole life insurance is sometimes called the "AND asset." Because you can buy life insurance and use the cash value to invest.

So life insurance just becomes [00:11:00] the place where cash goes first to then be further deployed into your investing activities. And so number two on our list here is life insurance is purchased for death benefit only. And so when it. Advisors, typical advisors look at it this way. They only look at the price of the premium of whole life insurance, which of course is like 10 times higher than what a analogous term insurance policy would be.

And so they say it's expensive, but what they're not realizing is that this is another asset, not a liability, the reality is like 1 percent or less of term insurance policies actually pay out. And that doesn't mean that they go bad. It just means people a lot of times age out of them.

And so very few term policies are ever paid out much, a much higher percentage of whole life insurance is paid out because it's an asset that builds equity. You could call it just like your house does. Instead of the [00:12:00] home value, it's the death benefit, and that equity in the death benefit is the cash value, the net present value of that future death benefit.

That what that means is we can introduce leverage, safe leverage into our financial life where we put money in. A life insurance policy, and then we're able to then leverage that cash, the equity in that policy to go out and invest. Now I don't know that I would say that I would go and then invest in a 401k or IRA with that money.

But, that would be a little too high risk in my opinion, but the fact that we're getting leverage allows us to safely invest in lower risk investments and still get the same or better returns.

John Montoya: Yeah. And I, I think the approach with the average advisor. Is that, they want to sell you on term because that's really, to be frank as knowledgeable as they are when it comes to life insurance. Now, there, there may be a few out there that have [00:13:00] done their homework on permanent life insurance and actually could tell you the difference between universal and whole life, but I can tell you from my experience, and I've got a lot of friends who are financial planners they, they really don't know the difference. And not only that, when it comes to life insurance, they typically tend to refer it out to someone their firm recommends. Like an in house recommendation. So they're very limited in their knowledge about life insurance.

And to go back to the question I asked with the first myth, who benefits from recommending term? They certainly do. Because if you're paying, a very low premium for a term policy, that means there's more money that can be diverted to. Accumulating Assets on Wall Street.

So there's that to deal with and [00:14:00] you really have to be your own advocate in this regard. And do your own study, don't rely on people with designations and believe that they know everything just because they have a special designation behind their name. They don't. They,

John Perrings: trying to get me started on designations Montoya? Don't do it.

John Montoya: Maybe we'll have an episode specially for you so you can deliver the the rant there. But yeah, just be very careful because it's very easy to talk about term insurance and you hear the same thing over and over again. You're going to believe it. It's just the way the human psyche works.

And it's why I think it's one of the biggest obstacles that we have to overcome as life insurance advisors, agents is this preconceived knowledge that the general public has. And a lot of it comes from advisors who are telling [00:15:00] them to "buy term invest the difference," and it's as simple as that.

John Perrings: We talk about infinite banking and whole life insurance on this podcast. And one of the, another one of the big objections to it is they. They call Infinite Banking a sales system to sell whole life insurance with higher premiums and higher commissions.

Meanwhile, what they don't understand is the real history of selling life insurance for commissions actually comes from "Buy Term, Invest The Difference." That was the original sales system used by folks that sold assets under management. And then sold term insurance to justify getting more money into assets under management.

So some interesting history there. Let's also just go to Point Three and talk about life insurance commissions. Another great objection. I spend, a little bit of time on some of the real estate forums out there and man it's, it's crazy. A lot of people will post about the ridiculous life insurance commissions.

Meanwhile, [00:16:00] they're in the real estate world where they have brokers who are paid commissions and. By the way, they're paid commissions on the entire sale price, whereas life insurance agents are only paid commissions on the premium amount that goes in, not the whole pie. It's always an interesting thing to me when people bring up the commission aspect because it's really, everybody's paid based on the value that they bring, is it a commission?

Is it a salary? Is it a fee? Is it a bonus? Does it really matter if it's called a commission? So a couple things about Commissions, or I'll just start with one and then turn it over to John. The main thing to understand is that whole life insurance commissions when you look at the life insurance illustration or the ledger that shows you the numbers of, what's going to happen if you pay this amount of premium, all the different policy components, when you look at that ledger.

All those numbers are net of all fees, [00:17:00] costs, and commissions . I'm talking about whole life insurance. So meanwhile what people do is they compare that net number to the gross number that they think they're going to get. In their kind of more risk based assets, that is before taxes, before commissions, before fees, and then of course, before you even know what you're going to get from a rate of return perspective.

So this whole idea of bashing whole life insurance salespeople for their commission, it's Completely misunderstood, number one. And then number two the other thing that's not understood is the effect of the net versus gross that you typically would see in an assets under management scenario.

John Montoya: Yeah. And I think it's an easy target as well. But if a person were actually to step back and look at the comparison. Over one's lifetime for that commission that's earned on a policy versus the fees that are collected on assets under [00:18:00] management. Life insurance agents and advisors are actually way underpaid compared to what the an advisor will collect in fees.

On a client over their entire lifetime, but that's never looked at because it's easy to point and say look at that heaped commission that the advisor receives in year one, and no one ever points at the advisor and say, okay over the next 30, 40 plus years, you're going to make this amount, justify that.

John Perrings: Well, The other thing too is, that heaped amount is only the premium amount. It's not the entire value of the asset. So with an assets under management, yes, they're getting, If you compare the percentages of the first commission payment that you make, by the way, that's a one time commission.

And then there are residuals that ramp down, but it's all based on the premium that's paid, not the entire amount of assets under management. So it's a [00:19:00] completely incorrect comparison to say a life insurance agent is getting say a 55 percent commission and the asset center management guy is getting 1%.

The percentages are not based on the same type of number. One is based on an input and it's a one time commission. The other is for the life of your assets under management and it's based on the whole pie.

John Montoya: That's right. That's right. And one thing to distinguish too, for those unfamiliar with an IBC whole life policy we're talking about how we get paid on the, on the premium and that 55 percent is based off the base premium, the Paid Up Addition Rider. The premium that goes into that rider is literally a fraction.

In most cases, it's like a point to a point and a half. The advisors, the practitioners who educate, teach, and service these policies [00:20:00] for our IBC clients, we're making a fraction of what the general industry makes on a whole life policy.

John Perrings: So number four, we'll talk about what happens in retirement. When it comes time to start distributing from those assets under management to create a retirement income for you to live on most people are familiar with what's called the 4 percent rule or a Monte Carlo simulation where the 4 percent rule, if you're not familiar with it, it basically means you can safely withdraw 4 percent of the starting amount of what you have in your retirement account on the day you start your retirement. So for example, if you have a million dollars in your retirement account, you can withdraw $40,000 a year. And they call that a safe withdrawal rate.

And so This is another pretty pervasive myth where, you know, even the academics that talked about how the 4 percent rule was valid [00:21:00] during COVID, they actually reduced that to the 3 percent or even 2 percent rule. So that number actually changes. We don't know what number we'll end up getting on the day of our retirement.

But if you think about that. Think about how much money you make right now and think about how much inflation adjusted income you'll need to match that. And then just run a future value calculator on that and determine how much you're going to need in retirement as your starting amount.

I think you'll be surprised how much money you'll actually need in your retirement account. And that actually. Circles back to the tax discussion we were having earlier, because you either will have to live on as little as possible in order to keep, to stay in a low tax bracket in retirement, or if you, if everything worked out great and you ended up with a big retirement account, You'll now be subjected to required minimum distributions. And you're going to get bumped right into that highest tax bracket and [00:22:00] not save any money on taxes, even if the taxes stay the same.

So this, the 4 percent rule. It has a lot of problems and guess what, Whole Life Insurance can actually make that 4 percent rule act more like the 8 percent rule with more guarantees and more certainty.

John Montoya: Yeah, absolutely. And a colleague of mine wrote a terrific book called The Fifth Option that I highly recommend you check out because not only will it increase your level of knowledge about whole life, but he talks about the additional strategies, which we've touched on this podcast that will help create more retirement income for you because you have a whole life policy in addition to your other assets.

Including 401ks and IRAs and the whole life policies complement those other asset classes and products that are out there and, your typical advisor. Is none the wiser to this because their focus is [00:23:00] simply growing that nest egg, which, on the surface is a really good thing, but they're missing out on the other potential strategies that incorporate life insurance because of this heavy bias that it's expensive.

It's only for death benefit. And once you get to a certain age, you don't need it anymore. All of that is not true. And if their goal is truly. To, help you reach your retirement goals shouldn't part of that retirement goal and strategy to be to provide as much income? And as safely as possible?

I would think so. And if that's the case, then, they should probably be reading that book and studying whole life insurance so that they can better understand how to generate more income and safer using safer strategies than just that 4 percent rule.

John Perrings: One of the problems with the 4 percent rule is they. Everyone that uses it and everyone that [00:24:00] calculated the 4 percent rule, what they did is they just ran a bunch of simulations, thousands of thousands and thousands of simulations over different time periods. And they all arrived and they said, Hey, guess what?

4% We can all agree that 4 percent is the safe withdrawal rate. The problem with that though, is they're all working on the same historical data. They all have the same historical data to work with. So of course they arrived at a similar result. The problem is it'll probably say somewhere on your investment account or your 401k or your IRA that, past performance is not indicative of future results.

And another problem with that is people look at these 30 year timeframes and they'll take a rolling 30 year average, but that actually is not the correct way to do that statistically, because if you just peel one year off of a 30 year average, that actually doesn't change that average all that much.

 What should be done is you need to take 30, 30 year time periods to get a 30 year average. [00:25:00] For and for the purposes of evaluating what would be safe for a retirement account. And of course, we don't have that much time to analyze of the market. So it's all just, it's all just uh,

John Montoya: Theory.

John Perrings: and Theory.

Exactly. And so you need to have that certainty asset in your life, at least as part of what you're doing in your financial life, which leads us to myth number five, the 60 40 stock bond allocation is , always the way to go. Why don't you kick this one off, John?

John Montoya: Always is a dangerous word. I think anyone who was practicing the 60 40 or some ratio thereof got a real good wake up call in the past year or so because what happened with the bond market, we've had a 40 year bull market in the bond market, because rates have been falling for 40 years.

And then all of a sudden that wasn't the case anymore. And we had a year where [00:26:00] both stocks and bonds were negative. And the bond side of the portfolio is supposed to take some risk off the table. But it goes to show that bonds are actually pretty risky. And at the end of the day, what is a bond?

It's debt and those debts are only good as a ability to repay them. And there's untold trillions. I don't even want to guess at how many trillions of debt there are in the world. But there isn't enough cash to pay it all back. So just float that idea around in your mind. Bonds are not risk free, but here we have an asset class with cash value, life insurance, whole life, that again, it transfers the risk of performance from you.

To the life insurance company. And these life insurance companies are the best managers of risk in [00:27:00] the entire world, bar none, they've been doing it for over a hundred years. And for these mutual companies that we all work with, they have skin in the game. What is that skin in the game? There's a guaranteed death benefit, a guaranteed future value that needs to be paid out to beneficiaries.

So when you. Send in your premium, the life insurance companies are on the hook, so they can't go out and be take a lot of risk on that money. And so for the majority of these life insurance companies they're sitting on these essentially it's like a, I would say 60 to 80 percent bond portfolio that they just sit on until maturity.

Collect the interest, rinse and repeat. There's no buying and selling in and out, or if there is it's probably minute. But they just collect and turn it over, collect and turn it over. [00:28:00] And getting back to the 60 40 bond allocation, just the idea here is, all right, you want to outpace inflation.

Okay. There's a certain way to do that. But for the other side, the lower risk. Take a look at what your whole life policies provide and, you, you compare the average growth rate from a from a bond portfolio perspective to the cash value, the internal rate of return on a cash value of your whole life policy over your lifetime they're probably going to be very close.

But then you get all this additional economic value with your whole life policy. And you also have none of the risk that would otherwise hit you when, the bond market the bull market and the bond market suddenly reverses itself. You've transferred that risk away by owning whole life insurance.

John Perrings: Yeah. And the, with whole life insurance, an interesting thing is if you actually look at the numbers compared [00:29:00] to, similar risk profiles and bonds, whole life insurance, I think will outperform it typically. And what it allows you to do is there's no variation either. So whole life insurance.

As your safety asset actually gives you the permission, so to speak, to actually buy more stocks in your 60 40 split. So if you want more growth using whole life as your safety asset, you can actually buy more growth in the form of your stock portfolio. And I should mention Todd Langford, who was on The show on episode 82, if you look up truth concepts on YouTube, he's got a ton of stuff on this and some really good information to understand. The other thing is a lot of people have been buying bonds using bond ETFs. If you look at bond ETFs, that is a ticking time bomb, even worse than having to sell bonds in the bond market before they mature because these bond ETFs are [00:30:00] incredibly illiquid.

I'll post a link to this YouTube video that you should watch. Incredibly illiquid. And if there's a major change in the bond market, there's just not enough time to get out. It's not the same type of liquidity that you find in like a a stock ETF.

LINK: WILL A RECESSION WIPE OUT ETF LIQUIDITY?

So that's one thing. And then lastly again, Todd Langford talks about if we have a 60 40 portfolio, why do we have the 40, right? So what that actually tells us is. We don't actually have as much confidence in our stock performance that we say we do, right? Otherwise, why would we have this, as Todd calls it a boat anchor of this 40 percent of our money going into this, low rate of return type of asset compared to our stocks.

So we talk a lot about. Our confidence that the market will always go up in [00:31:00] actuality, what we really do with our money says otherwise. And so if we start. Maybe acknowledging that's true. Whole life insurance could start to make a lot more sense for a lot more people.

John Montoya: One hundred percent.

John Perrings: Awesome. Well, This is a good one. If you, and if you guys out there think can think of any other myths that you'd like us to bust on the show, let us know, just drop us an email at info@strategicwholelife.com. And if any of this is resonating with you and you'd like to understand how some of these principles could apply in your life specifically, head over to StrategicWholeLife.com. You can book a free 30 minute consultation with us right there. And of course, if you're the type of person like I was, that just wants to do all the research you can before talking to anyone, we have an online course just for you called IBC Mastery, and you can get a link to that right at the top of StrategicWholeLife.Com. All right, Montoya, good podcast as always.[00:32:00]

John Montoya: All right. Thanks, John. Thanks, everyone. Take care.