There's a famous quote from Benjamin Franklin that says: "Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes."
So as during my earlier years, I was educated that two things you can never avoid: die and pay tax. These are still true to me. However, there're better ways to do both. But we'll focus on the latter one here.
This short article will basically utilize a YouTube video produced by Matt Decker, who is a financial service reviewer for cash value life insurance (CVLI), to present an overview of the pros and cons of a number of financial investment strategies, trying to explicit the ways that are more financially favorable.
Commonly, there're four ways that one's money will be taxed: (1) free money -- gifts, inheritance, 401k match;
(2) tax free money -- municipal bonds, Roth IRA, CVLI;
(3) tax deferred money -- 401k, 403b, IRA, SEP, Simple, Annuity;
(4) taxable money -- stocks, MF, RE
His key point on the tax deferred strategies is that the money grows as the taxes increase in the meantime. People of the top income earners tend to move their money from the taxable strategies to the tax free ones.
In terms of the three tax free strategies, both municipal bonds and Roth IRA have their limitations, but the CVLI has no contribution cap and is not subject to market risk (because some products, such as the "living life by design" of National Life Group, offer zero lock down).
In detail comparison, he also showed an example of how a 48-year-old person can benefit from three different financial planning strategies (IRA, Roth, and CVLI) during the rest of the life after this person put $36,000 per year into these accounts for a continuous 20 years.
A quick reflection is that this person can still withdraw $162,588 per year to enjoy the retirement life from CVLI till the age 100 and with over half million death benefit by that time. In contract, both IRA and Roth pools dry out at the age of 83, with nothing left for the rest years.
The above information is just for your reference, as strategies vary person by person, family by family. The aim is to present something that highlight the financial planning option of CVLI that most people will overlook and misunderstand.
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