Minding my own bee’s wax over the weekend at one of the local Starbucks, I noticed a group of 30-somethings talking about real estate investing. Turns out they’d recently started a small ‘invest for retirement’ group, and sometimes met there. I asked if I might join them to listen in, to which they graciously agreed.
Makin’ a long story short, some of the questions I asked raised more than one eyebrow. Go figure. 
Finally, one of them asked me just who I was and what I did? An hour or so later, they weren’t quite as sure about where north was on their investment maps. They were really mystified by what I told them about their 401′s and what they should be using instead. At first though, it was, um, rocky sledding.
Seems 401′s were a sore subject, no surprise there. But the good news was, they were eager to hear of a viable, more productive, and far less risky alternative. I told them about the EIUL — Equity Indexed Universal Life — an ‘investment grade’ insurance policy. They were on it like hungry grizzlies on fat jumpin’ salmon.
I’m also a longtime writer over at BloodhoundBlog, one of the best, and biggest real estate oriented blogs in the country. In late May 2007 I wrote a post explaining why I felt the EIUL was a much preferred strategy compared to 401′s. I was immediately challenged, which is fine, but many went on the attack. They came up with all sorts of half truths, innuendos, and flat out falsehoods to make their cases. I simply gave it a little time to cool down, and wrote another post on the subject.
The same folks showed up. I won’t bore you with the details, but suffice to say the ignorance was flowin’ aplenty. They didn’t understand, they in fact were so uninformed they didn’t know most of the questions, much less the answers. This presented a problem when trying to get them to turn down the volume. You’ve been there, right? Sometimes when you gore someone else’s ox, you don’t realize it turned out to carry the sacred gene.
Fast forward to today’s 401(k) reality.
Oops squared.
The differences are major between the two vehicles, none of which ultimately favor the use of a 401. Here’s a short list.
1. Income from an EIUL is tax free — period — for life. No debate. All income from your 401 is taxable.
2. Need to borrow money? Do it from a 401 and find out how expensive money can really be. They bend you over the bar every which way. EIUL? Here’s yer cash. Don’t wanna pay it back? Not a problem. It is your money after all, right? Duh
3. Nobody’s gonna force you to take more money out of an EIUL once ya start taking income from it. 401′s? Oh Mama. They’ll not only force you to take more out at times, the consequence is often the erosion of your principal. Can you say “Where’d my retirement income go?”
4. When you die with an EIUL in force, it’s not even considered part of your estate. Your 401? Naked as the day you were born, tax wise. Your kids might as well get ready to divide whatever’s left in two before figuring out what to do with ‘all that money’ Dad/Mom left ‘em. Tragic.
5. Once you’ve built it up, you can cash out of your EIUL without a penny of tax owed. Try that with your 401 and see what happens.
6. Oh, almost forgot one of the bestest parts. Those who’d opted for EIUL’s over 401′s from the start, have found themselves down about zip, nada, zilch since the huge downturn. Many have made 2% a year! Those who had 401′s however, have suffered what must be debilitating losses. Losing 40-50% of your hard earned retirement savings in a matter of just a couple years or so sickens most of us just thinkin’ about it. I feel horrible for folks in that situation.
Earlier this year I asked those who were so downright rude back in ’07 when I first pointed this information out, how their approach had been workin’ for ‘em lately. All I got back was crickets. This stuff is for real. Discover for yourself the ticking tax time bomb you’ve been creating for yourself via the 401(k).
BawldGuy Axiom: The 401(k) isn’t the American taxpayer’s answer to income in retirement — it’s Uncle Sam’s Plan to increase the government’s tax income from your hard earned savings. It’s workin’ like a charm too.
I tell all of our clients at Brown and Brown that EIUL’s at some point should be part of their overall Purposeful Plan. How is it implemented? That’s a whole ‘nother post. Suffice to say it gets done on purpose.
Many folks will have comments and/or questions. You can read this earlier post on the subject, written by guest author David Shafer, an EIUL expert, and the guy to whom I refer clients. And for the record, I don’t make penny number one on anything David does with my clients and EIUL’s — no exceptions.
You can find David Shafer over at his place. He’ll be happy to explain the finer points.
Let’s talk about your overall Plan for retirement. We can get some of those questions you may not know to ask, answered. Email me, or give me a buzz at 619 889-7100. Have a good one.
Related posts:
- Real Estate Investors: How EIUL’s May Fit Your Purposeful Plan For Retirement
- Purposeful Planning For Real Estate Investors Must Be Flexible ‘Cuz Life Happens
- Real Estate Investors Need A Purposeful Plan And One Sharp Dirt Lawyer
- Purposeful Planning, Real Estate Investing, And Analytical Objectivity
- What’s Your Big Picture? Purposeful Planning + Real Estate Investing = Masterpiece
About BawldGuy
Love your analogies…always have. Good s— man, Good s—.