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Ian was an early pioneer in the world of internet connectivity. He’s one of the many “silent heroes” who worked every day to build the foundation of our world wide web. The kind of innovator whose software you might use every day — without ever realizing he existed. Yet however much Ian lacked in fame and recognition, he surely made up in fortune…
After coming up under a major Fortune 500 tech company, he went into business for himself shortly after the 2000 tech bubble burst. He ran a small but lucrative team managing a few extremely profitable pieces of software that each required constant maintenance.
Ian was known among his employees and colleagues for being a great boss and a gifted leader. He always saw human resources, his team, as an investment and not an expense. So he offered generous compensation packages, complete with top-tier health insurance and retirement benefits — keeping incentives perfectly aligned in an otherwise hectic work environment.
Of course, Ian didn’t elect to use the generous company plan for his own retirement savings. Instead, he turned to what’s commonly called the “Rich Man’s Roth” … a well-structured whole life insurance policy.
A whole life insurance policy grows tax-deferred, just like a 401(k), which can accelerate compounding over time. But unlike traditional retirement accounts, the contribution limits are not capped by the Internal Revenue Service (IRS). That’s a critical advantage for high-income individuals and successful entrepreneurs like Ian.
Because where traditional 401(k), 403(b) and most 457 plans cap your annual contribution at a maximum of $23,000, you can make potentially unlimited contributions and paid-up additions to a whole life insurance policy (as long as the total collected premiums and cash value don’t exceed generous federal limits).
Another critical advantage of whole life insurance is that you don’t have to wait until you’re 59 ½ years old to access your hard-earned savings. You can take out a tax-free loan against the cash value of your account once it’s sufficiently paid up.
That means if a successful entrepreneur like Ian has a windfall year, he can make a much larger contribution to his whole life insurance policy. Then when the “lean years” inevitably come around, he can take out a loan against his cash value to either maintain operations or take advantage of deeply-discounted opportunities in his market.
Taking out a loan against your whole life insurance policy can often be a more cost-effective borrowing tool as well. Over time, Ian began using policy loans to fund equipment purchases, saving thousands each year on operating costs thanks to the lower overall interest rate. The difference may have only been a few percentage points, but those lower borrowing costs made his company more competitive, allowing him to outbid others on multi-year contracts.
He was even able to use the policy itself as collateral during several pivotal early business deals. All the while, his cash value was still steadily growing, with his flurry of early contributions and paid-up additions triggering faster growth than a typical whole life insurance policy or retirement account might see.
Whole life insurance also offered a key benefit Henry hadn’t expected he’d need. And that was peace of mind…
I know, it sounds cheesy. But think about it like this. Traditional retirement accounts like 401(k)s and Roth IRAs are essentially glorified stock accounts. You generally get to choose a risk profile, a basket of investments, or sometimes even the specific stocks … but you’re relying on the stock market to grow your wealth.
That makes perfect sense for most people. Higher return with a slightly higher risk. Except Ian already had most of his wealth tied up in owning a successful, cutting-edge tech company. So why would he want more tech-based investments?
The value of your whole life insurance policy is dictated by the policy contract itself, with scheduled dividends paid by life insurance companies, many of which have been in business for over a century. So regardless of whether the stock market soars or crashes, whether Ian continued making a fortune or woke up to find his industry obsolete, he always knew could count on his policy.
The “Rich Man’s Roth” is an ideal retirement strategy for successful entrepreneurs like Ian, just because it provides so many options and tax advantages, all with few limitations in return. But you don’t have to be the boss to unlimit your retirement…
Indeed, pretty much any high-income individual could benefit from supplementing their retirement savings with a whole life insurance policy.
The typical 401(k) match stops at 4-4.5% of your pre-tax income. But experts typically recommend that high earners save more than 15% of your income for retirement. And if you make more than $153,000 per year, then the IRS won’t even let you save that much in your 401(k), even without the employer match.
So in many cases, it’s best to take advantage of every benefit your employer offers including 401(k) match. Then, a portion of the remainder can be used to fund a whole life insurance policy in addition to other retirement savings. That way you can maintain some exposure to the higher return of those market-based investment vehicles, while also opening yourself up to a world of new options with whole life insurance.
And once again, there is no upside limit to your annual contributions (beyond internal guidelines like MEC testing). So this strategy can be especially useful for professional entertainers, a successful sales professionals, real estate brokers, or anyone else in a profession that tends toward “feast-or-famine” cycles of windfall income and quiet business … a whole life insurance policy can help you make the most of the best years, while giving you even more options during the leaner years.
Ready to see how this could apply to your wealth plan? Click the big yellow Clarity Call button and let’s map it out together.
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