What’s Possible For Many In 15 Short Years? Harnessing Real Synergy

by | BiggerPockets.com

Ever wondered if you could retire, nicely, 15 years from now? So much as been said and written about retirement and its planning in the last decade or two that gettin’ lost in the miasma of most of what passes for rational thought is easy. Possibly the first casualty of retirement planning has been reality. If I hear ‘risk free’ one more time someone will pay the price. 🙂

Let’s look at the general group maybe most interested in this subject.

The 35-55 year olds who make more than the median income. Say they gross $80-200,000 yearly. They live at or below their means. They believe strongly that regular savings (however you define it) is part of their cost of living. Either by way of current investment property equity(s) or accessible capital they have, give or take, $200,000.

Many of ’em have a few hundred grand in a 401k or one of its cousins. They haven’t learned the lesson taught so many back in 2008: If your retirement relies more than slightly on Wall Street? Good luck Chuck. They’re contributing five figures annually to their company plans. They’re enamored of their company’s matching contribution. For those who got massacred in 2008, how’d that match work out for ya?

There are specific strategies, that when combined, can and usually do create an immensely positive synergy. For example, those who’re adept at flipping real estate profitably can easily marry that ‘strategy’ to long term real estate investing for retirement, often with staggeringly impressive bottom line results. Then there are the strategies outside of real estate, the EIUL is my favorite. Equity Indexed Universal Life — basically an investment grade insurance policy. ‘Course, that definition doesn’t begin to do it justice.

Here’s what it offers — compare it to your company sponsored retirement plan.

  • All contributions are made with after tax money — no tax write-off.
  • Income is tax free — and in most cases for life.
  • The contract includes a ‘floor’ which limits the minimum yield in any year to no less than 0-2% depending on the carrier.
  • There’s also a ceiling, usually around 12-16%. Any yields above the contracted ceiling go to the insurance company.
  • When you die, your heirs get whatever value is inside the policy tax free. It’s not even part of your estate — by definition.
  • Whether for opportunity or emergency, you may borrow from the cash value at any time — no penalty. Pay it back, don’t pay it back. The only real penalty if you don’t pay it back, is that money is no longer working for ya.

Here’s another way to look at your 401k.

Even if your annual tax write-off (savings) were $5,000, and you contributed for 30 years, it doesn’t make sense. Why? Ponder this a minute. Let’s say the angels blessed you with 30 consecutive years without one losing year. (Yeah, right.) Let’s further assume you amassed $2 Million. Upon retirement you manage to generate a 7% yield for income — about $140,000 annually. After taxes, state/fed, you net about $105,000 or so, which might prove generous, but we’ll go with it. That means you paid about $35,000 in personal income taxes. Wait for it — here it comes.

You would find yourself paying more income taxes in your first 5 years of retirement than you saved in the 30 years it took ya to get there. So the question screams to be asked: Why would anyone do that to themselves on purpose?!

There’s more, but you get the picture. Those who listened and adhered to this school of thought in the years before the market crashed in 2008, made 2% instead of losing 40%. For them it was literally a game saver.

As mentioned here so often, we’re not on Planet Sophisticated any more. Investing in real estate for retirement is now back to Grandpa’s days in so many ways. Appreciation is, or at least should be, treated like a surprise dessert, not an entitlement. Ditto with net operating incomes. We’re back to creating our own retirement, a well conceived plan, doing things on purpose, and plain old hard work. File it under — The more things change, etc.

Next week I’m gonna lay out a relatively detailed scenario for those interested in retiring about 15 years from now, who also meet the prerequisite factors mentioned up top. It will not only show what they’d do with real estate, but include a detailed, but most importantly, a reliable EIUL scenario. The inner workings of the synergy will be clearly delineated.

The best part? You’ll quickly discern how realistic it is, and that it applies to you. See ya next week.

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. One of my college friends tried selling me a EIUL policy, but I don’t think it’s that good for a few reasons. If you compare a EIUL with a regular retirement account made up of S&P index funds, then of course, over the last three years a EIUL would have done better. If you compare the two over the last 100 years, you’ll find that a EIUL’s returns don’t remotely come close to a regular account’s. The reason is simple—”There’s also a ceiling, usually around 12-16%.” The cap kills your returns a lot more than a floor helps them. After all, the insurance company is making money with the policy, and they make a lot from it over the years. (My friend’s commission included an annuity plan that was pretty good for him, at the expense of the client’s returns, no doubt.)

    I understand that the EIUL is also an insurance policy, so if you died in the first year, your family would get $100,000 or whatever despite minimal contributions. That’s something that needs to be put in the equation, but I can bet you that a separate life insurance term policy plus your own retirement account would net you better returns than a EIUL.

    “The contract includes a ‘floor’ which limits the minimum yield in any year to no less than 0-2% depending on the carrier”—if one can’t tolerate down markets, then there’s a security to hedge that risk (put option?).

    It all comes down to putting together a portfolio that suits the needs of the particular individual and family, and the insurance companies are attempting to package the needs of people into these things called EIULs. Unfortunately, that service could be extremely costly for some in that people may accumulate a significantly smaller net worth in the long run. I’m not against EIULs, but the numbers need to be run. Plus, everyone’s situation is different so it could work for some. I’m interested in next week’s post.

  2. Mathew — you and I are so far apart on this one we can’t see each other. If you want readers to believe that 15-30 years of NO losing years gets beat by a ‘normal’ account, more power to ya. Ask those in 2008 if they preferred losing 40% of their 401’s or making 2% in their EIUL’s.

    Then there’s the fact that all the income is tax free, and that when the policy holder dies, there are no taxes, as in zip, zero, zilch, nada.

    I’ll let you go your way, and I’ll go mine. There’s room for both. Have a good one.

    • “Ask those in 2008 if they preferred losing 40% of their 401?s or making 2% in their EIUL’s.”
      If one’s time horizon is three years, then no, they shouldn’t solely invest in the stock market. I assumed we’re talking about 15-30 years, which would mean one specific two-year period is irrelevant.

      I would just like to see the numbers (and assumptions), because the numbers I’ve seen from one EIUL weren’t good. I have an open mind, though, so I’m looking forward to your next post.

  3. That’s completely reasonable. In fact, I’m gonna have my in-house EIUL expert write a post on my site this week. He’ll show the last 20 years of 401k performance over that period compared to EIUL. The slaughter is second only to the Christians vs lions.

    EIULs are roughly 30 years old. They’ve dominated those who chose the ‘normal’ market account, whether in or out of company sponsored retirement plans — which my guy will document via the most respected research firm on the subject on Wall Street.

    This is gonna be fun. Thanks Mathew, you’re one of my favorite commenters here.

    • Do you think the last 20 years is representative of the future? In my opinion, that period is still too-short and subject to anomalies. How about the last 120 years?

      Thanks Jeff. I appreciate your comment along with our discourse.

  4. I get your point — long term is best. 20-30 years though is a decent window. History shows us, at least relevant history — say, since the end of WWII, that about every 10 years there’s some version of 2008. Sometimes not so bad, sometimes pretty bad. (I don’t mean to imply pre-WWII market history isn’t relevant. I’m just taking roughly our relative lifetimes into context.)

    I’ll let David Shafer, my expert, speak exactly to your point in his post. I think you’ll find it illuminating. Mathew, I was in your camp almost a decade ago. I’ve spoken at length with three very experienced experts on the subject since then. Between actual empirical performance, and the after tax comparisons, I decided that in this fight, being a lion was the only choice. I’ve carefully examined the long term research. I’ve spoken to Wall Street pros who privately admitted the research was absolutely accurate.

    I’ll be giving readers a heads up on Facebook when David’s post is up. Hopefully it’ll be later this week. Thanks again.

  5. Sounds like you guys may need a hand with a few questions? I’ve fielded a few Q’s already from Bigger Pocket members and am happy to answer more if anyone would like. I’m and advisor in CA, written over a hundred of these and own two IULs myself. There is a right way and MANY wrong ways to structure these. When done correctly, the agent makes peanuts compared to managing a portfolio or selling you a mutual fund. Just because you buy an IUL doesn’t mean it’ll be a good vehicle to sock away money in. ~Grant

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