It’s possible to make double digit returns in a given year by investing in individual stocks or even mutual funds, and it’s also just as easy to lose money in the same investments. It’s easy to plug a 10% annual return into a compound interest calculator and manipulate yourself into believing that it’s simple to build an immense wealth on a predictable basis over long periods of time. This is, when back tested to the market for the last 20-40 years proven to be nothing more than a fantasy.
Pay taxes once! Traditionally, an earner pays income taxes on earnings immediately after they are earned, then if they invest this money in stocks they are liable to pay short or long term capital gains on those profits generated upon the sale of the securities. These capital gains taxes manifest each year on each stock’s profits if a sell order is made, and even after this investor has built their fortune, their fortunes are often subject to estate taxes immediately after death. There is a strategy that will allow an investor to earn tax deferred returns and pass their accumulated fortunes on to their family without the fortune being taxed!
It’s not only possible, but incredibly simple to capture gains within the S & P, Dow Jones or EuroStoxx index without ever losing principal, and to never owe taxes on funds after they are contributed. This strategy has a back tested annual return of 8.3%-8.5% when shown for the last 20 or 40 years. This strategy guarantees a ‘floor’ of 0% and a cap of roughly 13.5%. This means that if the chosen index you are invested in goes up 17%, your funds will be credited at 13.5%, and if the market plummets 20, 30 or even 40%, you will be guaranteed a 0% loss! This is an incredibly powerful concept as illustrated here.
Investor has $100,000 in an indexed fund. The market has a terrible year and drops 20%. This leaves the investor with $80,000. The market has to bounce back 25% in the next year to put the investor back to where they were two years prior. To reiterate, the market lost 20% and the investor must make 25% to get back to even! If this investor had their funds within an indexed investment that guaranteed a floor they would have lost 0%. Therefore they would be able to continue earning gains on their entire principal the year after the 20% downturn instead of merely waiting for a 25% return to become even again. When you truly take this mathematical reality into consideration you begin to understand a very fundamental concept to building long term wealth.
How do I Create a Tax-Free Retirement Income?
Using a unique product known as indexed universal life insurance is the way to accomplish the concept outlined above. The way in which I structure these policies provides a 13.5% cap on gains within the S&P 500 market while simultaneously limiting losses to 0%. If you’re relatively healthy and not yet near retirement, this concept could be the perfect way to safely supplement your retirement savings and ultimately produce a tax-free stream of income at retirement.