Financial Freedom Boot Camp Finds Ideal Savings Tool in Unexpected Asset
By Gary Kauffman
Five years ago, Danny Lowry, owner of Bennett Distribution in Augusta, decided to reinvest the money in his 401(k). But he discovered that he couldn’t get to that money while he was still working.
“The lack of access infuriated me,” he said.
So Lowry took his money into his own hands, becoming a virtual bank for himself through a little-known financial strategy – a life insurance policy.
“Traditionally, a life insurance policy is not a great place to park your money,” Justin Craft of Nowlin & Associates in Birmingham, Ala., told about 30 business leaders in Augusta on Aug. 5. “But when it is structured properly, it is not taxable and maximizes your cash assets.”
Craft and Scott Chapman of Sandersville, Ga., presented the case for a new way of thinking about money for the future at a four-hour-long Financial Freedom Boot Camp held at the Snelling Center.
Craft quoted former U.S. Comptroller General David Walker’s prediction that the Federal tax rate could double by 2030.
“That will be because of a four-letter word,” Craft said. “Math.”
Today, 89 cents of every tax dollar collected is spent on four programs – Medicare, Medicaid, Social Security and interest on the $19.3 trillion national debt. In four years, that will increase to 92 cents of every dollar. Even simple math indicates the government will need more money to keep up with those costs, and increasing taxes seems to be the only way to do that.
“The government’s decisions affect our daily lives and daily decisions,” Chapman said. “What we’re doing here will not only help our lives but help each future generation.”
Craft added, “If things are changing, then to protect our families we have to change our ways of thinking.”
In saving money, Craft said there are three types of places people can “park” their money – places that are taxed today, those that are taxed tomorrow and those that are tax free.
Examples of places that can be taxed today are traditional savings accounts, money market accounts and CDs. Those that can be taxed tomorrow are qualified plans or deferred accounts, business equity, real estate and annuities. The tax free areas are Roth IRAs and cash value life insurance.
“And under the mattress, but that’s not a good idea,” Craft quipped.
The ideal savings tool, according to Craft and Chapman, would have a competitive rate of return, would be guaranteed, have the cash easily available, be tax free, be creditor proof and have ever-compounding interest.
The No. 1 spot where people are parking their savings these days is in retirement plans, with taxes deferred until later. The biggest drawback to this, Craft said, is that the money is inaccessible for the majority of a person’s life, only becoming available penalty-free at age 59-1/2 and only for 11 years. Plus when it is withdrawn it is taxed at the rate that is in place then.
“And we don’t know what tax bracket it will be in in the future,” Craft said.
The retirement plans, then, meet only two of the ideal savings tool categories – competitive rate of return and creditor proof.
Mutual funds and bonds, likewise, only meet two – competitive rate of return and easily accessible. Savings accounts – the second largest place people put their money – meets only the guaranteed and easily accessible categories, and real estate, which some people use as a savings strategy, meets only the competitive rate of return category.
A properly structured life insurance plan, however, meets all six criteria of an ideal savings plan. Craft cautioned, though, that the key is “properly structured” and advised seeking the aid of a Certified Infinite Banking Specialist to make sure it is structured properly.
A key indicator that properly structured life insurance policies are sound financial investments is that the largest owners of such policies in the United States are banks, which use them as a steady vehicle for safe, tax-free cash.
“The same thing the banks are doing is what we’re talking about doing on a personal level,” Craft said.
The life insurance, then, becomes a personal “bank.” The key is the ability to borrow against the cash value in the same way a person would borrow from a financial institution. But instead of paying back a bank, the money is paid back to the life insurance policy.
Meanwhile, since the money is a loan against the policy, not withdrawing money from the policy (the money in the policy in essence becomes the collateral), the money paid into the policy remains and continues to draw compounding interest.
“It transfers the control of your cash flow to your family instead of to the bank,” Craft said.
This is known as the family banking system, or Infinite Banking. Chapman said it creates freedom by allowing the family to have choices about how they use their money, rather than banks or the government.
Switching to this system solved the frustration Danny Lowry felt about not being able to access the money in his retirement account.
“I take the same approach (to savings) but now I have access to my money,” Lowry said. “I become the investment. I no longer go to the banks. I finance loans myself with my bank. I’m the bank so I actually get the interest.”
The Infinite Banking system has worked so well that Lowry wants to add it to his business.
“I’m looking at doing this with my company,” he said. “If you’re buying equipment, you might as well buy it from yourself as buy it from the bank.”