Anyone who retires wants everything to go according to their plan, particularly with their finances, so that they can enjoy each day without headaches. One useful concept that can help with this stage in life is the Money Insights Retirement Accelerator. Returning with Chris Larsen to discuss this topic is Rod Zabriskie, explaining how this idea that used to be reserved for the ultra-wealthy can now be taken advantage of by high-income earners as an excellent alternative to traditional retirement. He presents the many benefits it can offer, from tax-free growth to creditor protection. Rod also delves into the risks that the retirement accelerator may present, explaining how to get around with high-interest rates and poor market performance.

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The Retirement Accelerator By Money Insights With Rod Zabriskie

If you want to learn about a great alternative to traditional retirement plans, you’re not going to want to miss this episode with Rod Zabriskie of Money Insights. In this episode, Rod Zabriskie from Money Insights joins us to talk about the retirement accelerator. If you’ve checked out our Banking page, you’ve seen our Investment Optimizer and how it can supercharge your investment strategy. The retirement accelerator is a strategy that’s only used to be available to the ultra-wealthy. However, now high-income earners can use this strategy as a great alternative to traditional retirement plans that allows them to both participate in the upside of the market while eliminating your downside risk. Ultimately, it can allow you to provide predictable, tax-free income.

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Rod, welcome back to the show.

Thank you so much, Chris.

I’m excited to talk about the retirement accelerator. We’ve been talking here about some of the different opportunities with the Investment Optimizer that we’ve used to help a ton of different investors optimize their investments. I’ll hand it over to you to let you introduce the concept of the retirement accelerator.

It has been great. As far as the Investment Optimizer goes, that’s a concept that resonates well with alternative investors and making the flow better. What’s interesting with the retirement accelerator is we’re still using life insurance, but we’re doing it in a different way and for a purpose. The idea here is, even for active investors who want to be involved in real estate or notes, they also like to have diversification to have some things happen that’s more in the background and a little more passive for them, but knowing that they’re using the same principles of leverage and velocity. What the retirement accelerator offers is the ability to do that. Even though it’s different, it’s not a 401(k) or an IRA, but it has a lot of similar characteristics. At least, the mindset that we approach with it is very similar.

Let’s walk through a few different things. As I mentioned, it’s a great alternative to the traditional retirement plan. A lot of people are not liking the way that the traditional retirement plans go. You get married to the government, so to speak. You have to play by their rules. Again, the mindset is similar in the way that we approach it, but we’re not tied down by a lot of the same kinds of things. It’s a way to maximize the retirement income using the fewest dollars possible. It’s the whole concept of leverage I mentioned. We believe it’s the most effective way to create tax-free income. We’ll spend the bulk of our time focusing on that. We’ve hit on leverage already. It also can be good for groups. In other words, if you’re part of an organization, maybe a partner in a firm, you own your own business and you have employees and executives that you want to incentivize or have creative ways to create some ways to compensate them, then this can be a great way to do that inside of a business or group partnership.

The first thing we want to do is focus on leverage. You know this. I’m sure that your readers do but I want to hit on it quickly. We’re used to using leverage inside of investing or even buying our own homes, cars, or businesses. The concept is simple. If I have $100,000, I want to invest in a piece of property. There are properties out there. I could go and buy the property with $100,000, turn it into a rental, create some cashflow and I’m happy. However, I can also take the same $100,000 and by going through a traditional lender, leverage that so that I can buy four properties and take the same $100,000 instead of creating a single stream of income. In this case, I’ve created four streams of income.

That’s the beauty of leverage. You even take it into the appreciation of the properties and the depreciation that I can capture in my investing. All of those different pieces are based off of $400,000, even though I only put $100,000 in of my money. This is a similar thing. I get it. You’re probably thinking, “I get leverage, Rod, but retirement income? Using leverage for retirement income?” Again, we’ll dive in and help you see how that works. It’s probably pretty new for people.

What I like about working with you, Rod, is that you understand the basic concepts. I try to tell it to people when it comes to life insurance. They think about it more like real estate and some of the concepts that we’ve talked about. Payments that are standard or flat for a period of time, equity buildup and leverage. These are things that people normally don’t associate with insurance, but these are core concepts of what we’re talking about now.

It’s a matter of understanding both sides, the importance, and the critical things that we can do with the leverage we otherwise do. In this case, you are applying it in an area where people are probably less familiar inside of the insurance world. What we’re doing is we’re taking this wheelbarrow. It represents my money. This is the money I’m setting aside into my retirement account with the idea of creating some future income. In addition to that, we’re going to back up the truck of cash and add that to my wheelbarrow. Again, that’s the bank. I get a lot more money going into that retirement account than I would if it was just my cash. I think we’ve hit that.

Let’s move over to the actual vehicle. In this case, what we’re using is max overfunded indexed universal life. People may recall in the Investment Optimizer strategy, we’re using max overfunded whole life. There are some differences that are subtle. A lot of the characteristics are the same in terms of what we’re trying to capture. First of all, let’s talk about the biggest difference and that is the growth inside of this account is based off of the market index. It could be the S&P 500. That’s probably the most common. It’s not that we’re putting our money into the S&P. We’re not investing in that index, but we are using that as the measuring stick to determine how much interest we’re going to earn each year inside of our account.

I’m sure we’re going to circle back on that here.

The reason why that is important is because it allows me to use the market as that cap for growth, but I don’t have to participate in the losses. It creates what we call a cap and a floor. In most cases, the floor is zero. Meaning, in a year where that market index loses value, I don’t participate in those losses and because of that, I don’t capture all of the gains, either. I’m going to capture up to a cap. Depending on this index we might be talking about, the S&P 500 cap is around 9%, 9.5%. Depending on the company and the product, there are other indices that have a cap that’s higher than that. That’s the whole idea. We’re able to take advantage of what’s happening inside of the market when it’s up, but we don’t have to participate in those losses.

If you’ve participated in the stock market before and you’ve experienced some significant losses, I look at the market now and think back to 1999, 2006, 2007, and I look at where we are now. I know investors who said, “I don’t participate in the stock market because I’m scared of losing money.” Pay attention if you’re thinking the same thing.

It’s not that we’re fundamentally against the market, but even for people who maybe do invest in the market, they want something like this. It gives us an opportunity for the gains. On average, we might capture maybe 70% to 80% of the upside and we get a reset. We have clients who were on their policy and were bummed. They were like, “I’m not earning any interest now.” The timing wasn’t great for them, but they’ve got to reset. Now, it’s coming up here, they start with that floor and that low point. Regardless, even though the market is volatile, we know that. We don’t know what’s going to happen in the next month, let alone, the next ten years but the growth inside of the account is tax-free.

As with the other situation with the Investment Optimizer, all that we’re putting into this is after-tax. From that point forward, everything that we experienced, the income that we’re going to take and this future benefit that pays out, all of that comes out income tax-free. Our whole goal with this is to maximize growth. Some people may be sitting out there thinking that, “This whole idea of using life insurance and why?” These are the reasons why as far as the protection and then the tax-free growth. Again, when we get into this and show how it interacts with that leverage, we’ll clarify it a little further. Whenever we set up any of these policies, we are going to minimize the costs on it and maximize the growth component of it because that’s ultimately what we’re after. In other words, we’re not picking it because it’s life insurance. Even though that’s great, it’s going to provide an amount of insurance you don’t have to pay for any other way, which is nice but again, we’re picking it because of these other benefits that we get by using it.

That’s a fundamental difference between looking at how you structure these policies. A lot of agents typically do the opposite. They look at the benefit. The cost is essentially maximized for the insurance, and then the investment component or the utilization comes afterwards. I love how you and Money Insights take almost a reverse approach to it, which is more investor-friendly.

There’s some creditor protection associated with the account. What I mean by that is, the money that you have inside of this account, for a few different reasons, is protected from lawsuits and lenders. Usually, at this point, we put a disclaimer in there and then say, “Depending on what state you live in.” With this one, because we’re building it inside of a trust, because that trust is situs in Nevada, everybody gets this protection. Whatever we’re building in this place is not touchable by lawsuits or any of that thing.

A lot of investors are high-net-worth or high-income. They’re doctors. They face a lot of other risks when it comes to their profession and creditors. It’s the same thing with real estate investors that are out there. The further along you get in your investment career, the more important that creditor protection does become.

You work hard to isolate those different things. I’m sure you use LLCs in your investments that are important, yet we still drive cars and have kids who drive cars. There are things out there where we can be vulnerable. Again, that’s why we use the LLCs and things. This becomes another piece where it can create that protection. The last there is the death benefit. We talked about it. It’s not our primary focus, yet we believe that life insurance is an important piece of an overall financial picture and strategy. The nice thing is that it covers that death benefit that you don’t have to pay for either way.

Next, let’s look at an example. I think we’ve built this up a little bit, talked through a few different side components, but let’s now hit it head-on. In this example, what I’m going to show is a 44-year-old female who’s getting involved in this and gets a preferred rating as it relates to the insurance policy. For investor contributions, she’s looking at $50,000 at year-end for five years. This program that we’re plugging into that I’m showing here as an example, it’s a set program. It’s a pooled strategy. In other words, we’re putting a bunch of people on the starting line at the same time so we can get better rates on the loan. In this example, you’ll notice for the first five years, she’s putting her contributions in, but then beginning sixth, she’s done. Like you said, it’s a set schedule. We know exactly what it is going in. No more, no less. This is an example of $50,000 a year.

We’re also putting that bank financing in place. In the first five years, it becomes a shared contribution. In addition to what this individual is putting in, we’re getting this loan from the bank to add to that. The individual is no longer putting money in. One hundred percent of the money going in is coming through this bank financing. I’m going to throw this out there. If you’re doing the math and you’re saying, “Rod, that’s five years, $86,000 and then $84,000.” There are some costs built into that $50,000 for the first five years that are covered up by the end of the five years. After that, that number is a little bit lower from year 6 to 10, but 100% of that is coming through bank financing. At the end of the ten years, it’s fully funded. No more additional money is going to go in. About $900,000 total has gone in. Of that, 72% of it is financed.

Is it like a loan for this real estate here?

Yeah, exactly. Those circumstances may vary a little bit off of that percentage, but it’s almost always somewhere between 70% and 75% that we can get financed of the total. What happens is the money goes in. At the end of the ten years, it’s completely done. We allow that to bake for five years and continue to let those market drivers push that value higher. At year fifteen, we’re going to pay off the bank loan. We’ll get into a little more detail on the specifics of that but basically, from this insurance policy we’ve built up, we’re going to use it from there to pay off the bank loan.

From that point forward, now we have access and can use the funds. For those fifteen years, while we had the bank loan out, it’s behind the locked door, so to speak. Once we pay off that loan at any time after that, we can start taking income. In this example, we’re going to say, “If she waited until age 65 to start taking that income, then we would be projecting $86,000 a year of tax-free income.” We’re going to age 90 so we can quantify it a little bit. Know that if she lives beyond that, then the income would continue for as long as she lives.

This is a lot like the old-defined contribution plans or defined benefit plans that we used to see. People, especially when you come up to new generations like the Millennials, they’re not used to pensions anymore. They don’t even know what they were. When I started my career, we had pensions with two of the companies that I worked with.

Again, it’s different. From a mindset approach, it’s like you’re creating your own pension, but with a lot more flexibility and access. After that fifteen years, you get to make your own decisions as far as that goes. I think it is a good parallel. From her out-of-pocket, $250,000 went in. Assuming she lives up to age 90, about $2.2 million of tax-free income coming back out. It’s powerful. Adding that leverage makes all the difference in what we’re doing. We still cover the loan and pay it off, but because we were able to have that dump truck full of cash, in addition to our wheelbarrow, we were able to do a lot more with it than we could have done without it.

The big thing to look at here as well is the predictability. When you look at somebody who’s investing through a 401(k) or through another qualified plan that’s out there that they may be familiar with, they’re saying, “I could probably do this myself.” The difference is, and we talk about this on the real estate side, whenever you look at the return, you always have to look at the risk on the other side.

It’s the timing of the risk as well. If we had a crystal ball, you would know exactly what to expect. Someone who retired in 2007 had a rude awakening.

I wrote a whole blog about that in a sequence of returns. It can be a massive impact of over 50% on the returns and your ability to maintain your lifestyle in retirement. The certainty that you get with this is what’s so impressive.

Having said all of that, we want to be straight and upfront with the idea that it doesn’t come without risk. There are two primary risks associated with this. You can probably guess what they are but the first one is high-interest rates. If I’m saying, “We’re going to take this loan. We’re going to carry that for fifteen years before we pay it off,” then the interest rates matter. They’re using floating rates, which right now are amazing and probably will continue that way for at least a few years but we don’t know. That is a possibility. The second thing is poor market performance. If we’re aligning ourselves with the market, we have those protections, a few pieces in place that help us out.

When I’m talking about poor, I’m not talking about a year or even a few years like we had in the dot-com bust, 5 out of 6 years, 9 out of 12 years, where the market was flat or down. We want to make sure we understand how that impacts what we’re doing here. To begin with, if we take the first one and say, “Let’s build a stress test for this.” Historically speaking, the worst high-interest rate environment, we go back to the 1980s. We were originally projecting $86,000 a year of income in that example for that 44-year-old when we stress-tested against that high-interest rates. In other words, if we had taken this out and started this strategy in the late ’70s before this run-up of interest rates, then the projected income would change to $69,000 a year. That’s the first one.

The second one for poor market performance going back to the Great Depression like I said. In this case, if we had done this in 1929 before the crash, we play it up through the point where it starts to take the income. In this case, we end up with about $56,000 a year of income. That’s pretty consistent. If you look at our starting point, as far as the projection goes, we end up at about 80% of that for the high-interest rates in the ’80s, and about 60% of that for the Great Depression. The stress testing is a lot of what went into the specific design of the policy itself and in terms of how much leverage we’re getting versus how much we’re putting out of pocket. The ratio is reverse-engineered off of scenarios like these because we don’t want to fail and don’t know what’s coming, but it’s also important to understand what the implications are if something like this happened to the ends of extreme economic conditions.

His path started while in college when he was introduced to the books Rich Dad, Poor Dad and Cashflow Quadrant, by Robert Kiyosaki, as well as material from other outside-the-box thinkers. This opened his eyes to the broad possibilities of placing your destiny in your own hands, particularly by being open minded to alternative concepts and ideas and not expecting mainstream ways to lead to excellence.

Through his work with Money Insights, he has the privilege every day of connecting with like-minded clients who are looking for a better way to build and protect wealth. Rod and the Money Insights team place significant emphasis around educating clients on the strategies and the philosophy behind them. Understanding the benefits is critical; understanding the inner workings that make the strategies so powerful is just as important.

Rod earned his undergraduate degree in Marketing Communications from Brigham Young University. After working for a few years in the corporate world, he completed an MBA at the University of Utah.

Rod loves spending time with his wife Jodi and their 7 children, especially enjoying outdoor activities and playing games. In his free time, he enjoys sports, music and painting.

Since 2009, he has worked in financial services, joining forces with Christian in 2010. During that time, Rod has become an expert in the field of advanced planning strategies utilizing life insurance and annuities. He now works on a daily basis with high income earners on both the personal and business sides to accelerate their wealth building, optimize their investing, and discover innovative ways to move from high income to high net worth!

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Tagged: passive income, stock market, traditional retirement, interest rates, downside protection, credit protection, Group 2