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(Presentations in this blog were created using the InsMark Illustration System and Wealthy and Wise ®.)

Robert and Ann Baxter are both age 60.  They plan to retire at age 70, and their retirement cash flow goal is $150,000 after tax -- indexed at 3.00%.

Below is a snapshot of their current net worth:

Net Worth

Robert and Ann Baxter

Click here for comments on Yield, Sequence of Returns, and Monte Carlo Simulations.

Key Question #1
Can the Baxters meet their retirement cash flow goals while maintaining a comfortable level of net worth?

Strategy 1

Status Quo - Keep the IRA

Image 1

As you can see in the Cash Flow graph above, by keeping the IRA, their liquid assets are sufficient to provide withdrawals to meet the required after tax cash flow in all years illustrated (these numbers are illustrated in detail in the full report available below).

The graph below shows the remaining Net Worth after accounting for the necessary cash flow.

Strategy 1

Status Quo - Keep the IRA

Image 2

Good results – retirement cash flow needs are met with an increasing net worth.

Key Question #2
Will a Roth conversion improve their net worth and wealth to heirs?
In order to minimize the income tax consequences, the conversion of the IRA is scheduled to take place annually over 10 years.  The income tax on the conversion is withdrawn from assets.

Below are the results:

Strategy 1: Status Quo - Keep the IRA

vs.

Strategy 2: Convert the IRA to a Roth IRA

Image 3

Strategy 2 adds almost $2 million in additional long-range net worth while also meeting cash flow needs.

There is also a corresponding increase in wealth to heirs:

Strategy 1: Status Quo - Keep the IRA

vs.

Strategy 2: Convert the IRA to a Roth IRA

Image 4

Key Question #3
Will a Roth conversion coupled with cash value life insurance improve their net worth and wealth to heirs even more?

For the life insurance, I used $937,490 of indexed universal life (“IUL”) max-funded with $70,000 of annual premiums for 10 years (increasing death benefit for 10 years; level thereafter). Participating policy loans of $81,360 begin in year 11.

The results are impressive with IUL added to the mix:

Strategy 1: Status Quo - Keep the IRA

vs.

Strategy 2: Convert the IRA to a Roth IRA

vs.

Strategy 3: Convert the IRA to a Roth IRA and Add IUL

Image 5

The IUL is just as efficient as the Roth:
$1,915,723 – increase in long-range net worth due to the Roth.
$1,893,233 – increase in long-range net worth due to the IUL.

Click here to see the Illustration of Values for the IUL from the InsMark Illustration System.

As you can see below, Wealth to Heirs is also improved significantly with IUL added to Strategy 3.

Strategy 1: Status Quo - Keep the IRA

vs.

Strategy 2: Convert the IRA to a Roth IRA

vs.

Strategy 3: Convert the IRA to a Roth IRA and Add IUL

Image 6

Click here to see all the reports from this Wealthy and Wise® analysis.

The Wealthy and Wise evaluation in this Blog contains 72 pages.  This is a large number to review; however, the first five pages provide you with the Summary Comparisons, and the balance of the reports detail all aspects of each of the three scenarios.  With Wealthy and Wise, I recommend you have all applicable reports for a given case with you when visiting with a client or client’s attorney or CPA.  Wealthy and Wise backs up every number shown, and you never know which report you’ll need to answer the inevitable questions that typically occur several times in an interview such as: “Where did this number come from?” or “How were the numbers on this page calculated?” or “Can I see the details of this graphic?”

Many Wealthy and Wise users select a few key illustrations for the main report and put the balance in an Appendix.  More elaborate report organization can be accomplished (e.g., Table of Contents, Section pages, etc.) through use of this prompt available at the bottom right of the Main Workbook Window.

Conclusion

The power of this comparison is caused by the Roth IRA and IUL combination coupled with zero additional out-of-pocket cost for the Baxters (since the income tax cost of the Roth conversion and the premiums for the IUL are funded by asset reallocation).  This approach will typically produce a “Wow” from your prospective clients.

Note: All the IRA assets were converted over the first 10 years to the Roth, and none of the Roth Assets were needed for cash flow.  The immense impact on heirs of an intact Roth inheritance will be emphasized in Part 2 of this Blog due later in January.

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

If you obtain the digital workbook for Blog #150, Click here for a guide to its content.

Licensing InsMark Systems

To license any of the InsMark software products, visit our Product Center online or contact Julie Nayeri at Julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or (925) 543-0513.

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Testimonials

“If you don’t get the client to distinguish cash flow from net worth, you won t make the case sale.  In my experience, Wealthy and Wise is the only system that recognizes this important estate planning component.”
Stephen Rothschild, CLU, ChFC, CRC, RFC, International Forum Member, Saint Louis, MO

“InsMark has created without question the best suite of software for our industry that has ever existed.  I personally have been using their software for almost 30 years, and it changed my career.  This unique and user friendly software will add many thousands to your income for as long as you’re in business.  InsMark makes me look good, and it will you as well.”
Simon Singer, CFP®, CAP®, RFC®, Past President International Forum, InsMark Platinum Power Producer®, Encino, CA

“InsMark helps us help our clients understand their money and their choices.  I always learn something new that changes what we do and how we can do it more efficiently.  That translates to a better bottom line for us and for our clients.  It’s making more money for everyone -- just by pushing InsMark buttons on the computer.”
Kay Corbin, CLU, ChFC, InsMark Platinum Power Producer®, Phoenix, AZ

“Major cases we are developing have all moved along successfully because of the sublime simplicity and communication capability of Wealthy and Wise.  I guarantee that the proper use of this tool will dramatically raise the professional and personal self-image of any associate who dares to take the time to understand it . . .”
Phillip Barnhill, CLU, InsMark Gold Power Producer®, Minneapolis, MN

 

Important Note #1:  The hypothetical life insurance illustration associated with this Blog assumes the nonguaranteed values shown continue in all years.  This is not likely, and actual results may be more or less favorable.  Actual illustrations are not valid unless accompanied by a basic illustration from the issuing life insurance company.

Important Note #2:  Many of you are rightly concerned about the potential tax bomb in life insurance that can accidentally be triggered by a careless policyowner.  Click here to read Blog #51: Avoiding the Tax Bomb in Life Insurance.

Important Note #3:  The information in this Blog is for educational purposes only.  In all cases, the approval of a client’s legal and tax advisers must be secured regarding the implementation or modification of any planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.

“InsMark” and “Wealthy and Wise” are registered trademarks of InsMark, Inc.