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How Whole Life’s Growth Helps Retirement (Before and During)

This is Hutch with And today we’re going to talk about how whole life’s growth helps you both before and during retirement. So let’s use the almighty pie chart to represent your, a holistic allocation, let’s call it. And most people, regardless of what their asset of choice is, have a certain amount of stable or risk off assets.

And that would be in things like cash and bonds. And that is to really offset the fluctuations of whatever your risk-based capital is, whether it’s invested in the stock market or your business or real estate or whatever that is. And most people use cash for the risk off assets, because it’s something they understand.

It’s something they can point to and they can count. And it’s really only because they don’t fully understand how whole life works. The cost of that is what you’re seeing here on this chart. So if black represents a hundred thousand dollars in a cash account over time, what you can see is at the end of 18 years, you barely have.

A hundred and you don’t even have $120,000. And that’s assuming that you can get 1% net of tax each and every year. Now, conversely, the blue line represents the same hundred thousand dollars. Let’s just say you already had a well-funded and seasoned whole life policy. We often recommend putting a lifetime’s worth of premiums and say five to seven years.

And if you had that a hundred thousand dollars in there, this is only showing a 4% growth rate and you can see that after 18 years, you double your money. Now your actual performance will vary, obviously with prevailing interest rates and how that affects whole life dividends. However, what we’re finding even in this environment is that once a contract is funded, 4% is extremely conservative.

We’re often seeing growth rates sometimes in the five, even scraping the 6% in today’s low-interest rate. And. But not to get too attached to details. What I want you to take away from this is that the cash, the cost for that safety, by putting it in cash and let banks reap all those profits is you essentially have a dead asset on your balance.

When, if you understood the contractual safety, the steady growth and the liquidity aspects inherent in a whole life policy, that’s structured to be your own bank. Well, you could receive all the same benefits you want. That you’re getting in your bank account, plus a decent growth rate, which in turn produces even more assets.

Hopefully, you realize it doesn’t have to be an either-or conversation. You don’t have to sacrifice growth in order to get that safety, that stability and the liquidity that you require for your other asset building. So you do keep it to buffer against risk. So let’s go ahead and simulate that with the stock market, just so you know, How this chart is made is whatever I put in this column represents the blue line and whatever I put in this column represents the black line.

So what we’re going to do here, I have a handy computer where we can simulate market history. I’m going to plug in the S and P 500. We’re going to show, um, Uh, a period the last 18 years that most of us remember bookended by some pretty good years. So if I dropped us in, you can see the first year, uh, 1999 was a great year to be in stocks, uh, followed by three very, very bad years, which has only happened a couple times, three sequential bad years, uh, since the great depression then of course followed by.

Rebound and some good times, and then 2008 occurs, and then it’s been a pretty good run all in all ever since. So if we just overlap these two on the graph again, the whole life proxy with the blue line, the 4% growth has not changed. Versus now the black line showing the stock market. And what you could see is that first year you were pretty happy to be in the stock market instead of making a paltry 4%, you made close to 20, but then after that, uh, the stocks started tumbling off a cliff and.

They rebounded, of course. And then again, and they’d come back up, but just by getting steady compounding in the whole life, notice you’re in a pretty good position. Even just isolating these last 18 years. And if you use the banking strategy and you know that you can contract. Borrow against your policy at any time, for any reason, and still keep your place in line.

Still keep your full asset base compounding in the policy. Some of the best deals are had here, right? Whether that’s real estate, whether that’s the stock market, whether that’s buying businesses or acquiring inventory or buying equipment, whatever that. Is, you can do that Boeing against this safe asset, whole life.

You can withdraw if you want to, but you lose your place in line on this curve, which we don’t want to do. And even though you can’t time, the dead bottom, you know, whether you got in here or here after you saw some stabilization here or here. Are you believe this is the best deals for investing in real estate or your business?

And obviously the stock market too, even though I have the artistic prowess of a third-grader, I think this is a pretty clear picture of how whole life can help you before retirement. Let’s talk about how it helps during return. So to better understand how whole life can uniquely help you in retirement and actually compliment a retirement portfolio.

We’re going to look at this chart, put out by a mutual fund company, and it is attempting to describe the dangers of excessive withdrawal rates on a portfolio. If you’ve ever heard of the 4% rule, that’s what this chart is attempting to prove this dark blue line you see here. Uh, that’s heading off to the races during the recent events.

Here were showing only 4% withdraws coming from a million-dollar retirement portfolio. And these other colors are 5, 6, 7, 8% withdraws from the same portfolio. And what you can clearly see is if you take more than 4% in this scenario, uh, you run the risk of running out of money before running out of breath and the, uh, greater, the withdrawal amount you take, the more you’re playing chess.

With your life expectancy. So just to fully understand what is happening here, they’re taking a million-dollar portfolio and they’re, back-testing it, uh, age 65 in this case equals December of 17 or 1972. And, uh, they’re going to take it all the way to, um, December of 2002. And you can even see here, you know, because you’ve only taken 4% withdraws.

Big huge loss you took that we saw in the earlier slides of the tech bubble and in 2000 1, 9 11, uh you’re you’re doing okay. And it was really this early loss. That was the culprit here. There’s a couple of things happening to really accelerate this debacle. So if we just, if we look at the 5% withdrawal rate for a second for round numbers, 5% of a million dollars is $50,000.

So you take that the first year and there’s a market law. Well, the next year in order to take the same 50,000, you’re going to need to redeem more shares of stock because they’re down, you’re going to need to take out more shares of the same mutual fund. And they’re not going to have a chance to heal because you’re consuming them, but there’s something else happening.

There’s something called inflation. And again, for round numbers, if we just use a 4% inflation rate for that particular year, The next year, you not only need to take 50,000, but you now need to take $52,000 to have it feel like the same $50,000 you took out last year. So these early losses on a portfolio can really cripple it because you don’t have that money working for you anymore.

If you had the foresight to have a very well seasoned whole life policy, as we saw where you just had that steady growth rates going forward. One of the things you could theoretically do if there was an early loss or anytime there is one of these market losses is from your portfolio. That’s invested in all kinds of stocks, bonds, and mutual funds.

You could really just say, you know what, let’s just hit the brakes on that. I’m not going to take from my portfolio. And during these tumultuous years, you can say, I’m going to take from my pocket. I’m going to take from my whole life policy, all the income that I need to satisfy my lifestyle and you can withdraw it.

Some people think you have to borrow. It’s not exactly true, but there may be an advantage to borrowing because if you want to keep the golden goose healthy, to continue laying these golden eggs during all these tumultuous periods and really maximize your portfolio, you could take a bigger, withdraw the normal from your whole life policy.

And when. Your stock-based your market base assets, where to heal. You could go ahead and replenish your whole life policy from redeeming more shares of stock as they were on their way back up. So this is unique. Call it nonlinear way to think about retirement. And although you’ll have to test and measure this for yourself, potentially you can take a greater withdrawal rate than what the money managers are telling you.

You have to think for a second, that it’s a little self-serving since their compensation comes from keeping your money invested all the time. Of course, they would want to tell you that you could only take 4% are nowadays or even saying. You know, with low-interest rates, it’s not the 4% rule. It’s the 3% rule.

Uh, but really if you’re strategic about how, where, and when you take your distributions, perhaps you could take a higher distribution rate from your portfolio, uh, while still managing that risk by complimenting it with a well-seasoned whole life policy. And it’s a shame that the insurance and investment industries are constantly bashing each other, usually from a lack of understanding and that there aren’t more advisors who understand the validity of each and how both camps can compliment each other to produce a vastly better result for our clients.

I did want to note too, that the banking strategy is still in play in retirement. So some of my most successful clients are very entrepreneurial in nature and all these downturns really represent an opportunity to them. So even if they had enough money in their portfolio to do. Sit on a beach or play golf or do whatever it is they’re wired to look for and take advantage of opportunities.

And by having this steady growth rate of whole life allows them to, um, capitalize and pounce. Whenever these opportunities arise and really compound either their retirement income or the legacy that they’re building for their family. Uh, if you don’t fully understand this, then it’s a little counterintuitive.

Borrowing helped me. I strongly suggest that you take a look at Uh, it’s a six-minute video that explains how and why this concept works so well to build two assets at once and really double-dip on the amount of wealth you’re able to create.

John “Hutch” Hutchinson, ChFC®, CLU®, AEP®, EA
Founder of