Be Your Own Bank? Sounds Fake but Okay. | Millennial Money Matters

Description

You’ve seen the TikToks: “Be your own bank,” they say — using life insurance to build wealth, borrow from yourself, and never deal with lenders again. Sounds like a cheat code, right? In this episode, we’re breaking down what that actually means. We’re diving into the concept of using whole life insurance as your own personal bank, where the hype comes from, who it actually works for, and why it flops for most people. Think of this as your no-BS guide to a trending strategy with a lot of fine print. We’ll cover the pros, the real-life roadblocks, and what you need to know before jumping on the "infinite banking" bandwagon.

Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

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Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly Turner.
Speaker #1
And Derek Mazzarella.
Speaker #0
Hey, Derek. It's been a while since we've recorded an episode.
Speaker #1
It has. Yeah, I missed you.
Speaker #0
Yeah. Well, it's Maycember, which if you're a parent, you know that May is worse than any other month of the year for us because it is the month where the weather finally gets nice, you are expected to take care of your house, your garden. your landscaping, your kid has 9,000 baseball and softball games and practices. They all get rained out and then rescheduled on other days. And you need to be at school for your children in the middle of the day 37 times.
Speaker #1
Oh, yeah, yeah. Just because we got to celebrate every little thing about them. Hey, you're moving up from grade one to grade two or you're, you know, whatever.
Speaker #0
It's field day. It's writer's workshop day. It's, I don't know, there's a jump team performance. I'm going to the Yardgoats tonight to watch my daughter jump rope on the field with the jump team. So it's a little... See, right now.
Speaker #1
I didn't realize a jump rope team was a thing.
Speaker #0
Oh, it is a thing. I didn't either until my kid was on it.
Speaker #1
I feel like I'm having withdrawals from not being able to do that as a kid.
Speaker #0
You know, listen, these kids, they live a different life than we lived. They do.
Speaker #1
They do. Can I tell you about my morning meltdown?
Speaker #0
I would love it. Will it make me feel better about my own children?
Speaker #1
Yeah. So for all the parents out here, you're probably going to be nodding your head. So my son, I'm like, what do you want for breakfast? He's like, oh. And he gets very aggro and very angry right away. so I was like alright buddy uh you already had a couple waffles this week let's not do waffles and he was like and i gave him 100 million other options i was like you know but if you can make it yourself go for it so he gets his little stool like moves over our cabinet there and tries to get you know usually puts peanut butter on it uh so he pulls one jar of peanut butter there's not enough peanut butter in that one it was three quarters full oh man he wants he wants another one that is not open yet and he's screaming at me that he wants that when he's throwing things he threw his little stool over he threw trail mix at me.
Speaker #0
So you're like, Hey, happy Friday morning.
Speaker #1
I'm like, how are you this angry this early on a Friday?
Speaker #0
So what was the result? Did he eat his peanut butter?
Speaker #1
Uh, yeah, eventually he calmed down and got his own peanut butter and globbed it on there himself. Uh, yeah, but he did, it was, it took like 20 minutes of screaming though.
Speaker #0
And you said, live your best life with your peanut butter, sir.
Speaker #1
I'm going to go over here.
Speaker #0
Yeah.
Speaker #1
Yeah. I need a minute. Uh, you go do your thing.
Speaker #0
So your next life is I have taught my seven-year-old how to make scrambled eggs himself and it has alleviated all of my my breakfast arguments because he wants to eat them and he wants to make them. So I'm like, bro, go make. And he puts his butter in his pan and scrambles his egg. And he is then happy to eat it. And I don't have to have the breakfast fight with him.
Speaker #1
No, no.
Speaker #0
My middle child did cry about breakfast this morning, too, though. So like you're never free from that.
Speaker #1
I'm always like, how are you this mad this early?
Speaker #0
This early. Yeah.
Speaker #1
It's like you just woke up and you're like, I hate this.
Speaker #0
I hate this so much. Yeah. Well, there's a lot of things we hate, Derek.
Speaker #1
Yeah. So we've got the most soundproof investment concept known to man. You want to talk about it today?
Speaker #0
I do. I'm here for this.
Speaker #1
All right. Let's hear the sales pitch. Imagine. I'm going to use my sales pitch voice.
Speaker #0
I love it. Do it.
Speaker #1
Imagine if you could take control of your financial future, never rely on a traditional bank or loan again, and have your money working for you uninterrupted every single day. That's the power of infinite banking.
Speaker #0
I can't even take that seriously. yeah Okay.
Speaker #1
So the question is, what is infant banking?
Speaker #0
So I have heard the term before on the tiki-takis.
Speaker #1
You may have heard be your own bank.
Speaker #0
Be your own bank on the tiki-takis. But I don't even know what it means. I don't know, is it like you just put your own money in the bank and you borrow it? What does that even mean?
Speaker #1
Well, you put money in this magical investment vehicle where it grows, and then you can take out as much as you want. You can borrow against it. You can... and blah, blah, blah. You can add, it adds interest when it's in there. So it's really just like this magical unicorn investment and I feel like everyone should be doing it.
Speaker #0
Okay. What, what's the catch? Okay. There's obviously a catch.
Speaker #1
Yeah. No, this is a little extreme, right? So I feel like it drives me nuts as a financial advisor to see this advice all the time. Especially when it comes to like the average income person. Like this is, to me, this is like a rich person's thing and they take this rich person's thing, then try to apply it to every single person.
Speaker #0
That sounds like a lot of the investment strategies we've talked about on the show. This is like the house hack, buy all your multifamily houses. This is, you know, the last episode was like buy all the Airbnbs, but people don't realize how much work it is. Yeah. I feel like that's a theme here that like there's no get rich quick scheme that actually really works.
Speaker #1
No, there's not. Not at all. So basically this concept is you use a life insurance policy.
Speaker #0
We're talking about life insurance? Yeah, yeah. This is life insurance?
Speaker #1
Yeah, so it sounds like it's really cool and sexy, but it's just life insurance.
Speaker #0
Like grandpa old life insurance. Yeah,
Speaker #1
like since like the 1700s, we're like at our pickaxe for gold and we got a life insurance policy. Wow,
Speaker #0
I did not know.
Speaker #1
Yeah, and basically the concept is... because with there's basically two types of insurance there's term insurance uh and i'll do a quick aside uh is you're basically like renting a policy so you have a let's say a 20 year term policy you're buying half a million dollars of coverage for 20 years at the end of 20 years hopefully you're still alive hopefully if not you got your money someone's got your money you don't have you don't have your money right if you have somebody's got your money uh if not then uh you gotta start over yeah start over again and buy it and now you're 20 years older right so you're just totally renting it um a permanent policy you're putting money in uh the difference is the insurance company is going to basically pay out a death benefit at some point but along the way it builds up what's called cash value so it does have an investment component to it so it's not like you know nothing happens it does exist um the challenge is there's multiple types of permanent policies they all work a little differently i don't know if it's worth quickly going into those do it do it because i life insurance for me is that like
Speaker #0
thing that nobody wants to talk about because you don't benefit until you're dead and you don't want to talk about the people you love dying. So you sort of should have it, but it feels ugly. But then it also feels like a scam at the same time.
Speaker #1
Yeah. Well, I think the other thing is I don't want to jinx myself. I always hear that. It's like, well, just because you signed up for it doesn't mean you're going to die.
Speaker #0
Yeah. But you are going to die. That's the reality of this, people, is you are in fact going to die. We hope it would be later, but it's going to happen at some point.
Speaker #1
Right. So there's basically three main types of permanent. right so the boring one is called whole life insurance you want to think of this as like the bond one it just earns a very consistent rate of return usually it's like two to three percent per year it just chugs along and they basically the insurance company is basically paying you dividends so they're giving money back from what the investments that they made on you kind of like how a bank gives you interest same kind of thing um the other side of the extreme is a variable uh permanent policy right so the way that works is they're going to invest in stocks or mutual funds within your... life insurance policy so one year you could be up 20 when you could be down 20 so there's a lot more variability with those variable universal life policies are called uh and then in between it's called an indexed universal um the difference there is usually you can't lose money on it because they have a floor of zero so let's say the market goes down 30 in one year you
Speaker #0
just don't lose money you just you you right where you started yeah um but it also has a cap
Speaker #1
So it's a downside. They're not going to give you all the upside and another downside, right? No one does that. If they did, that'd be great. And I'd definitely buy that policy.
Speaker #0
I feel like that would be the smart policy.
Speaker #1
Yeah. But the caps are usually much lower than what you could get in the S&P, for example. So let's say the S&P goes up 25% in one year, your cap may be eight. So instead of getting 25%, you're getting eight that year.
Speaker #0
But if it goes down 30%, you're fine.
Speaker #1
You're fine. Yeah. So some ways it can even out. The other thing to consider is Because they buy options, you don't have to know any of this part of it, but they don't pay you dividends. So you only get the price return of S&P. So some companies like Verizon will pay you a dividend each year. That's included in the S&P, which is usually about 2% of returns per year on average. So you have a little less actual return to keep in mind.
Speaker #0
Have my eyes glazed over yet? They did.
Speaker #1
Yeah, they did.
Speaker #0
They glazed over. Cool, cool.
Speaker #1
Just a little wonky thing to know, and this is probably going to come in later. So I just wanted to...
Speaker #0
Yeah, well, and again, I think this is super valid because people fall for this sort of hype stuff because of the eyes glazing over part, right? That the technicalities of these sort of things, you're like, I don't really care. But when you tell me infinite bank policy, that sounds really exciting. And my eyes are no longer glazed over. Well,
Speaker #1
I'll just give you, let's say the cap is 10, right? For easy math. And then the S&P does 10 that year. But 2% of that is the... dividends so you're really going to get eight in your contract yeah because the two the two is dividends and went stayed with the life insurance company because they're like this is our this is our cut here sort of yeah yeah that's that's fair fair enough uh so those are those are the kind of the three types of policies now the infinite banking folks go with you either the whole life or the iul okay because the investment stuff is too risky for them because they they got to borrow this money yeah because it's a bank so here's here's kind of like with the you know have you Have you ever heard the term, it's a Swiss army? investment.
Speaker #0
Yeah. And that is, again, I think when I hear that my eyes glaze over, that's a glaze over moment for me where I'm like, okay, but isn't that all investments that they're all sort of, I don't know. What does a Swiss army investment mean? Well,
Speaker #1
cause they're saying, okay, look, so you're getting a death benefit. So that's one benefit for it, right? It'll build cash value. So it's, it has an investment component to it. So that's another one. It has tax deferred growth. So while the cash value is building up, you pay no taxes.
Speaker #0
That sounds kind of good.
Speaker #1
So that doesn't suck. you can take a loan against it and have tax-free income out of it.
Speaker #0
Also sounds kind of good.
Speaker #1
So it does, it can do a couple things and, you know, there's certain riders, so if you get disabled it'll actually pay the policy for it. You know, some have long-term care components to it where you can borrow a percentage of the death benefit to pay for a long-term care expense. So it has all these features. The challenge is it can't do all of them at the same time.
Speaker #0
Oh, okay. So yes, these are valid. Yes, they can be great. But where, again, infinite banking people go wrong is that it can only be doing one of its jobs. It can't be doing all of its jobs at the same time.
Speaker #1
Yeah. So if I'm talking to a client about life insurance, we get to like, what is the goal of this? Is the goal of this to have the death benefit for estate taxes or something like that? Or is the goal to really build it up and use it as an investment vehicle? Because if that's the case, then the death benefit should be kind of pushed aside.
Speaker #0
That's not what we're worried about.
Speaker #1
And yeah, but they're kind of telling you, okay, how's all this cool stuff? Because I'll give an example. So if you take a loan out and you never pay it back, let's say your death benefits are $500,000, you take out $100,000 and you owe $100,000 when you die, your beneficiaries get $400,000. So they don't get that plus.
Speaker #0
Yeah. The loan is a real loan.
Speaker #1
It's a loan. It needs to be paid back at some point.
Speaker #0
So where is this sort of hype about infinite banking coming from? Is this overzealous salespeople who want their commission and they're trying to, ooh, this thing is sexy. Are they just trying to sexify something that's been around forever to sell more of it? Because I do think one of the millennial traits is that we both want to make money because money has been a struggle. We've covered that in other episodes. We've lived in a money scarce time that feels like we both have a lot of money and no money. So we're always looking for ways to make money. But we're also very skeptical of old fashioned ways of making money because they feel irrelevant to us. So are we just taking something that's been around forever and trying to trying to hype it up for the younger generation? Well,
Speaker #1
this this this concept has been around for a while. So infinite banking, I think, was invented like the late 70s, early 80s, if I remember correctly. But basically, the concept is you put money in this policy, it builds up cash value. And at some point you can say, hey, look, I want to buy a house. whether it's a rental property or maybe it's a primary residence or you want to use it for something, you borrow against the policy because I'll give you an example. Like, you know, in 2008, credit went away, right? Yeah,
Speaker #0
it was very hard to get a loan.
Speaker #1
But you said all these houses are on sale. I've got this asset over here I can borrow against and then I can buy a couple of houses and I don't need to get a loan. I don't need to have any.
Speaker #0
Well, I don't need to get a loan from someone else.
Speaker #1
From someone else. So I don't need to get. you know, I'm not dealing with their liquidity issues on that, you know, like you are your own bank. So you have your own power to say, look, I'm going to go put a down payment on this house.
Speaker #0
Yeah. You're not getting qualified. You're not dealing with someone like me or you want that. You want it. Here you go.
Speaker #1
And your policy is already the collateral. So you don't have to put up additional collateral. Like let's say you want to buy a house. You already own one. Oh, you're not putting up your own house. You're putting up your policy essentially. So there is a use case for it. But I think we're. I see it goes awry is like, oh, you borrow against it, put it back in there. You put a borrow against it and put it back in there. And like, you can keep borrowing and pay like I paid off $120,000 of credit card debt by doing this, which is just total BS.
Speaker #0
Yeah. Well, you're using an asset to pay for liability. Like,
Speaker #1
yeah, but the problem is, you have to put the money back in there to keep it growing. Because I guess it's probably important to know kind of how mechanically these policies work. And a lot of people are probably like that are life insurance people that are like, listen, screaming at me right now. You got to fund it properly and all that stuff. So let's maybe take a second to talk about what that's about. So all insurance has a cost. So I looked up just for my 39-year-old self. And here's a quick tip for everyone. If you're within six months of your birthday, they treat you as the next birthday. So I'm 39 right now, but I'll be 40 in July.
Speaker #0
So you are 40?
Speaker #1
I am 40. Oh, I love that. Looking at buying a policy. This is like when you're five, you're like, I'm five and a half. This is where the actual half comes into play again when you're an adult for the only other time. But I can get myself a 30-year term policy for half a million dollars for $540 a year.
Speaker #0
That's the rented policy.
Speaker #1
The rented one, right?
Speaker #0
That's pretty cheap.
Speaker #1
Pretty cheap, right? The index universal one is about $7,179. A year. A year. A year. So not cheap. So yeah, a lot more expensive. A whole life one is $8,945.
Speaker #0
Okay. So not... crazy more than option two.
Speaker #1
No, the point of that is you're paying, you're buying insurance. So you still have to pay for the insurance part of it. It's still going to build up cash. And where the infinite banking concept comes in is like, you have the thing with life insurance, we can actually overpay for something. So instead of putting like 8,000 in or 9,000 for the policy, you'd be putting in like 18,000 or 25,000. So it's some insurance. And the way that you design this is to minimize the death benefit and maximize the cash value.
Speaker #0
So Can we just pause for a minute so I can ask this question? Yeah. Like, this is still your money that you're putting in. So, like, the difference between using a bank and using this is when you use a bank, it's not your money. Right? It's not your money. It's somebody else's money. So you're leveraging somebody else's money. When you're doing this, it's your money, which also means you're not putting it somewhere else.
Speaker #1
Right. There's an opportunity cost to this.
Speaker #0
Yeah. It's not in your... retirement account. It's not in an investment account where it could be making 20%. It's not in a...
Speaker #1
In your home even.
Speaker #0
In your home, in real estate investments. It's... It's just your money that's chilling for you to borrow it again.
Speaker #1
Right, basically. And, you know, so I was like, I was looking around to kind of research, like, why are people doing this? And, like, what are they selling? So I actually did find, so when you do an insurance policy, you get what's called an illustration. It shows you all these ridiculous columns that you probably can never read.
Speaker #0
It's like an amortization schedule for a mortgage. Yeah.
Speaker #1
That's a lot of numbers, right? So, you know, so they look at, they're using a 31-year-old in this example here that I have. So obviously health is a factor. So if you're, you know... have cancer or you're like a chain-spoking overweight diabetic, you're probably not going to get this policy.
Speaker #0
Well, and this is just a quick pause. For those of you who have life insurance or don't have life insurance, when you get life insurance through your work, generally, it's just auto-assigned to you. You don't have to do anything. If you are getting life insurance with an outside policy, you are usually having a physical, you are giving a medical history, you may be giving medical documentation from your doctors, you're giving permission for them to to speak to your doctor. So like, If you have made it to 40 and do not have any medical problems, God bless you. Enjoy. Have a great time. But most of us have something. And that can greatly impact what these policies cost. Right. Right. So full stop. Just know that. This is what you want to do when you're younger. But I got life insurance, I don't know, two years ago. And I was astounded by the work that it took to make that happen. And they don't just want to talk to your primary care. I had to give them. all of my doctors.
Speaker #1
It's a house a big thing now.
Speaker #0
Everybody, my OBGYN and they pulled like birth records of my kids and like, have you had your mammogram? And like, they want everything because they're betting on how long you're going to live.
Speaker #1
Right.
Speaker #0
And like people have to get that part of it. Like, yeah, it's invasive.
Speaker #1
Yeah. They price it in. All right. So anyway, like, so this example they use, this person's like, oh, this is the best way to go. So the base premium is $3,500. Okay. Okay. They're putting an additional $28,000 in. and change, right? So their total amount they're putting in is $25,000 a year into this policy.
Speaker #0
A year.
Speaker #1
Every single year. So that's the other thing you got to think about. You're funding this every year. If you're borrowing from it, you're paying yourself interest, but also you have to pay premiums too on top of paying back the interest. I know you're paying yourself the interest,
Speaker #0
but it's like a mortgage, right?
Speaker #1
You can't just say like, hey, I'm taking a home equity line out of my mortgage. I'm going to stop taking the mortgage payments. You're still making the mortgage payments. So think of it that way with the life insurance policy. You're still making the premium payments. So they're overfunding it by a really large amount. So after five years, you put $125,000 in this policy. What do you think the policy is actually worth right now, the cash value, based on this illustration?
Speaker #0
If this is a good investment, more than $125,000.
Speaker #1
It is at $120,184, and that's the non-guaranteed amount.
Speaker #0
Where? So how many years did you say this is over?
Speaker #1
Five years.
Speaker #0
So I want everybody to contemplate that, too. if you put $125,000. in five years into an investment account, it would be worth more.
Speaker #1
Hopefully. Yeah.
Speaker #0
Like pretty much it would be worth more.
Speaker #1
Yeah. I'd say if you invest it correctly, it should be worth more than that.
Speaker #0
Okay. Just for clarity. Just want to make sure that I'm understanding this.
Speaker #1
So then after 10 years, we're at 250,000. Okay. Now we're at 288,000 of cash values.
Speaker #0
Okay. So I got made a little money there.
Speaker #1
Yeah. 38,000 right after a couple of years. And they're going to show you, Hey, look, well, after a year... four, you put $25,000 and you're getting $25,000, $26,000 increase in your cash value. So like, we're already like up there of like, yeah. So generally you're paying for the insurance the first few years and then you're kind of catching up after that. But you have to commit to this for a long time. And a lot of things that I have a problem with is like, oh, it's liquid. It's not liquid because you're not getting your money back right away. I mean, yeah, you've like, so after one year you put $25,000 in and this one you have $19,000 of cash available. Like, that doesn't sound great. No. And you're not going to borrow, you're not going to pay anything meaningfully with that. No. Anyway, you may as well just use the cash at that point. Well,
Speaker #0
that's it. You put $25,000 in to borrow $19,000 back. Well,
Speaker #1
you can't even always borrow the whole amount either. So you have to keep some cash in there to keep the policy afloat.
Speaker #0
This is not sounding great to me. This strategy, again, life insurance, valid, real, people need it. But this particular strategy, I can see like where this can go south.
Speaker #1
Right. And one of the arguments they're going to make, and it's going to be similar to a home equity line of credit, is, okay, let's say I've got $100,000 of cash value built up. I take out 50. I'm going to get a loan payment or interest payment on the 5,000, right? So I have to borrow 50. I'm going to have an interest payment on the 50,000 of, let's say, 5% or 7%. But I'm still earning the same interest on the whole 100,000. So it's like, oh, there's some arbitrage there, right? Like, I haven't taken 50,000. Like, if you took 50,000 out of your bank, you're not earning...
Speaker #0
No, you're earning zero. You're earning $0 even when it's in your bank, but you're earning- No,
Speaker #1
if you had $100,000 in the bank, you take half out, you're only earning interest on the remaining amount, right? So they're saying, well, you still have the whole $100,000 in there that you're earning interest on. But yeah, you're paying. you know, interest rate on the money you borrowed. So you're not exactly getting, it's not a one for one. Not a one for one. Exactly. So you may be earning four, but the interest rate is six.
Speaker #0
And this, I will say the other piece to this is that I'm a belief in like, keep it simple when we're talking about this stuff. And this just feels so complicated, so convoluted and complicated.
Speaker #1
It is because I think people just, it's, well, why would you understand how this goes unless you do this? Like there's a lot of moving parts.
Speaker #0
But people are making this decision from watching like YouTube videos.
Speaker #1
Right. And they're just talking to someone's like, Oh no, we overfunded boom, boom, boom, boom.
Speaker #0
Everything's great.
Speaker #1
And then, yeah, we're all, we're all good in the hood here. Um, but that's the, the challenge is it just doesn't work the way they're telling you it does work. In order for this to really work, you have to a overfund the crap out of it. As you see your, your base premium is 3,500. You're putting an extra 20,000 in.
Speaker #0
Yeah. Right. 20,000. Like we're not talking about a little bit of money.
Speaker #1
No. And, and, you know, if you did, you know, let's say you just doubled it. It's not gonna get you there. Right. Um, two, you have to commit to it for a long time. like it's not a oh we're going to do this for three years and i'm going to have all this money to invest all these properties and i'm just going to build this wealth uh and do all this fun stuff and magical fairy is going to come down from heaven um it's not going to happen right so you just need to have this policy really designed well for you um you know i talked to someone who was really smart about this stuff and i was like well what's what's like what's the real value of it and one of the things he said to me that i was like instead of actually borrowing it from your policy directly you can actually use it as an asset to leverage it from like and borrow from a bank And that could be, you might be able to use that earlier than you would normally just borrowing from the policy itself. But then you have to deal with the underwriting and all the other stuff that we talked about that's a negative.
Speaker #0
We're not a negative, Derek. The bank is a delight.
Speaker #1
Yeah, I love going to banks.
Speaker #0
Everybody loves us.
Speaker #1
So, I mean, that's the real challenge with this strategy in general is that there's a lot of moving parts to it. It's really expensive. You need a lot of dough to make this work. So the rank and file person is... that makes $60,000 a year.
Speaker #0
This isn't it.
Speaker #1
You're not putting half your salary in here.
Speaker #0
No, this isn't it. Now, I think the other piece too to recognize is I also think it's a bit of a psychological trap in that this is still a loan. When you are borrowing this money, it is still a loan. It's a loan from yourself and I totally get that, but there's a negative if you don't repay it.
Speaker #1
Right. Yeah. I mean, eventually there's... So because the problem is the loan actually will build up if you don't pay it off. And then it eats away either the cash value or you'll be able to get dividends. It can ruin your death benefit. And if it gets to a certain point where you don't do it, the policy can actually collapse, especially if you have, let's say, like 2000 and 2002, where you had multiple negative years of the stock market. Oh. So if you're like zero, zero, zeros, yeah, you're not losing money, but there's fees to these policies. So fees are usually like half a percent to 1% a year on the policies. There's annual fees of like $35 to $75. So it's going to slowly erode anyway if you're not even earning enough. So that's another challenge you can have.
Speaker #0
Well, and I think the collapse piece too, if we go back to your Swiss Army knife, the other collapsible part is you have these intentions for this. You start borrowing against it, taking loans, then you get sick, then you have no money left in the policy, but now you can't get a new policy to help your family if something was to happen to you because now you're old and sick and you've taken all the money out of it. And now the the main purpose. of the policy no longer exist. Like the benefit isn't there anymore. Right. So like, that's the real collapse fear for me is that like, you've been sold this thing that's supposed to solve all these problems, but it's a solution or it's a solution in search of a problem. Like it's not, it's, it cannot do all the things.
Speaker #1
No, this to me is, this is like a rich person's thing. Like if you're, if you're already stuffing your 401k and you already have a bunch, a bunch saved in your investment account, you already maxed out all your Roth accounts. Like, You're looking for some other way to have some tax efficient growth and things like that. Like this could be an option for you. But like I said, you need a lot of money to keep feeding this thing because if you don't, it can collapse on itself. And the other thing is there are other alternatives to kind of quote unquote, be your own bank. Like you mentioned your house, right? You can take money out of a home equity line of credit. Like I use that to get my property here in Connecticut.
Speaker #0
And that's a super, you know, in mortgage world, super common all the time. Like people do that all the time. It is very smart. And I also like it because it's... to like investments. And so the risk is usually similar. I always get nervous when people are mucking in one investment, which has one level of risk to purchase or add to another investment, which has a very different level of risk. And that I just don't think people always contemplate what that means for them.
Speaker #1
Yeah. I mean, that's a great point too. And like, and speaking of like the risk part of it, like in order for you to basically return my IUL policy, what you would with like the S&P 500, for example. you probably need a cap rate of like 12 to 15 to 17 depending on what time frame you're looking at and they're like they're at like eight or nine right now so they're well below that so you're pretty much guaranteeing that you're gonna i don't say guarantee but you're you're probably get most likely gonna underperform the s p there anyway because the other thing you could do is um they have what's called securities based lending and if you ever heard of this no this is what also a lot of rich folks do like you know if they got all this company stock you actually borrow against your equity position. So you have, let's say, $200,000 in equities or investments in S&P or company stock. You can usually borrow up to about half of that. Same concept. The money's still invested, so it's still going to grow. And the market could go up 20%. And now that growth is 20%. I mean, it could go down the other way too. So there's margin calls. There's definitely some options for that to definitely go awry. But that's also another option where you say, hey, look, I've got this investment account. If something really happens, I've got an option. Or you can still borrow against it. So there's not like only one alternative to quote unquote be your own bank. You've got your 401k you could borrow against and you have your home properties that you can always borrow against.
Speaker #0
Now, all of these concepts live because they do work for someone. Is there anyone other than rich people that this may be a sound way to invest or way to be your own bank? Or is it at its core still kind of, I don't want to say like shammy because again, life insurance isn't a sham. It's real. You need it. using it in this way or thinking about it in this way is where it becomes.
Speaker #1
I think if you're too aggressive with it, I think that's the problem. I think if it's kind of like the example I used earlier where it's like, hey, I've been putting a little extra in my life insurance policy because I want to build up the cash value. And I just want to be ready in case something happens. And there's an opportunity. To me, that's where it's good. And you have the ability to kind of pay that loan fairly quickly. That's when it can work pretty well. And that can be something for an average person where they're just putting like 10 grand in a year. And, you know, it's built up over time. And, hey, 10 years from now, like, hey, we want to get a vacation home and something just went on sale because a hurricane hit the area or whatever. Right. So they can they can jump in and do that pretty quickly. You know, the other thing I kind of had talked about in my book a little bit, it was it's you know, if you do a whole life policy, it's a it's a non-correlated asset, which means that it's not tied to what the market does. So if the market's going crazy, like drops 50 percent like it did in 2008, it's going to keep chugging along. You can actually use that as a leverage point and borrow against that for a year or two. let your investment accounts recover for a couple of years and then kind of refund the account back that way. So you can use it in different ways. But I think you really need to have a plan for the life insurance policy before you get into it. Because you want to know, like, am I building up the cash value or am I using this for the death benefit? Because that's your first decision point. Yeah,
Speaker #0
it's one or the other. Really, it's one or the other.
Speaker #1
Yeah, because if you're doing one, you're taking away from the other, basically.
Speaker #0
And I think the other message that I'm getting here, because again, I have seen some of these videos and I, like most of us, get sucked into the YouTube trap sometimes where you can learn so many things on YouTube and so many of those things are not true. Or they're just overblown or overhyped is that this sounds like a concept that has some merit, does have some value for very niche specific people in specific circumstances, but it is being sold on the internet as an amazing solution for all. that everybody should be doing this. And people get really sucked into that sort of narrative that I'm missing out if I'm not doing this thing, or this is the path to the wealth. And I think, and we've talked about this on other episodes, is that is just a true millennial vibe that we want the path to the wealth because it's been hard for us. And we feel like our parents and the boomers got something easier than us. And so we're always looking for like... man, how do we get that too? How do we get that too? And like, this just doesn't sound like it.
Speaker #1
And I think it also falls in the trap of like following that rich person that you know, or rich uncle, like, oh, this is what they did. So I should do that too. It's like, they can have totally different situation where they can afford to do something like this that you cannot, it doesn't make sense for you to do, but it makes sense for them to do. So you really need to look at like the personal part of like personal financial planning.
Speaker #0
That's a good concept too. And I think that that is something that right, when you see what somebody who's really wealthy is doing, you want to emulate them, but their wealth has afforded them opportunities that your financial position hasn't. So you don't know all the under... Some of what they may be doing with their investments is tax harvesting. Some of what they may be doing with their investments is purposeful tax loss. They're depleting assets. They're doing things which don't make sense here for you, but make sense for them way out somewhere else in an asset that you don't own in something that you don't have. I think that's really valid for people is that just because someone rich is doing it doesn't necessarily mean it's the vibe for you.
Speaker #1
Right. Exactly. So hopefully that gave a not so boring life insurance, be your own bank.
Speaker #0
I glazed a little bit, Derek. I glazed a little bit, but you caught me back at the end. I appreciated that. I think, well, I think that's what I love about these sort of conversations that we're having is that, again, as a financial professional. A lot of these concepts are still foreign and they're sold to you in so many different ways, under so many different names, under so many different concepts that it's hard to figure out reality sometimes.
Speaker #1
Yeah, and I think this is we're talking like a professional, someone that's agnostic, like don't talk to the life insurance salesperson who's like they need this commission to do this policy because that's basically a part of this, right? So like find someone that's agnostic that can give you good solid advice that's not there to just sell you a policy. to give you the real skinny on like how this could or could not fit in your life.
Speaker #0
I like it. I like it. I'm here for that. All right. Well, this was super informative. I don't feel like I need a nap after where like some of these I'm like, whew, has a lot of information.
Speaker #1
You're not going to throw any trail mix at me?
Speaker #0
I'm not going to throw trail mix at you. I may go eat some peanut butter though, because that sounds delicious. And then hopefully you will all join us for our next episode.
Speaker #1
Yeah. See you soon.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to affect some of the strategies. Investing involves risks, including possible loss of principal.

About Millennial Money Matters

Welcome to "Millennial Money Matters," your essential guide to navigating the world of finance as a millennial. Hosted by Kelly Turner, a mortgage loan officer, and Derek Mazzarella, a financial advisor, this podcast offers straightforward, practical advice on managing your money.

Kelly and Derek tackle topics like budgeting, student loans, real estate, and investing, breaking down complex financial concepts into easy-to-understand tips. Each episode delivers actionable insights and real-life stories to help you make smart financial decisions and secure your future.

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly Turner.
Speaker #1
And Derek Mazzarella.
Speaker #0
Hey, Derek. It's been a while since we've recorded an episode.
Speaker #1
It has. Yeah, I missed you.
Speaker #0
Yeah. Well, it's Maycember, which if you're a parent, you know that May is worse than any other month of the year for us because it is the month where the weather finally gets nice, you are expected to take care of your house, your garden. your landscaping, your kid has 9,000 baseball and softball games and practices. They all get rained out and then rescheduled on other days. And you need to be at school for your children in the middle of the day 37 times.
Speaker #1
Oh, yeah, yeah. Just because we got to celebrate every little thing about them. Hey, you're moving up from grade one to grade two or you're, you know, whatever.
Speaker #0
It's field day. It's writer's workshop day. It's, I don't know, there's a jump team performance. I'm going to the Yardgoats tonight to watch my daughter jump rope on the field with the jump team. So it's a little... See, right now.
Speaker #1
I didn't realize a jump rope team was a thing.
Speaker #0
Oh, it is a thing. I didn't either until my kid was on it.
Speaker #1
I feel like I'm having withdrawals from not being able to do that as a kid.
Speaker #0
You know, listen, these kids, they live a different life than we lived. They do.
Speaker #1
They do. Can I tell you about my morning meltdown?
Speaker #0
I would love it. Will it make me feel better about my own children?
Speaker #1
Yeah. So for all the parents out here, you're probably going to be nodding your head. So my son, I'm like, what do you want for breakfast? He's like, oh. And he gets very aggro and very angry right away. so I was like alright buddy uh you already had a couple waffles this week let's not do waffles and he was like and i gave him 100 million other options i was like you know but if you can make it yourself go for it so he gets his little stool like moves over our cabinet there and tries to get you know usually puts peanut butter on it uh so he pulls one jar of peanut butter there's not enough peanut butter in that one it was three quarters full oh man he wants he wants another one that is not open yet and he's screaming at me that he wants that when he's throwing things he threw his little stool over he threw trail mix at me.
Speaker #0
So you're like, Hey, happy Friday morning.
Speaker #1
I'm like, how are you this angry this early on a Friday?
Speaker #0
So what was the result? Did he eat his peanut butter?
Speaker #1
Uh, yeah, eventually he calmed down and got his own peanut butter and globbed it on there himself. Uh, yeah, but he did, it was, it took like 20 minutes of screaming though.
Speaker #0
And you said, live your best life with your peanut butter, sir.
Speaker #1
I'm going to go over here.
Speaker #0
Yeah.
Speaker #1
Yeah. I need a minute. Uh, you go do your thing.
Speaker #0
So your next life is I have taught my seven-year-old how to make scrambled eggs himself and it has alleviated all of my my breakfast arguments because he wants to eat them and he wants to make them. So I'm like, bro, go make. And he puts his butter in his pan and scrambles his egg. And he is then happy to eat it. And I don't have to have the breakfast fight with him.
Speaker #1
No, no.
Speaker #0
My middle child did cry about breakfast this morning, too, though. So like you're never free from that.
Speaker #1
I'm always like, how are you this mad this early?
Speaker #0
This early. Yeah.
Speaker #1
It's like you just woke up and you're like, I hate this.
Speaker #0
I hate this so much. Yeah. Well, there's a lot of things we hate, Derek.
Speaker #1
Yeah. So we've got the most soundproof investment concept known to man. You want to talk about it today?
Speaker #0
I do. I'm here for this.
Speaker #1
All right. Let's hear the sales pitch. Imagine. I'm going to use my sales pitch voice.
Speaker #0
I love it. Do it.
Speaker #1
Imagine if you could take control of your financial future, never rely on a traditional bank or loan again, and have your money working for you uninterrupted every single day. That's the power of infinite banking.
Speaker #0
I can't even take that seriously. yeah Okay.
Speaker #1
So the question is, what is infant banking?
Speaker #0
So I have heard the term before on the tiki-takis.
Speaker #1
You may have heard be your own bank.
Speaker #0
Be your own bank on the tiki-takis. But I don't even know what it means. I don't know, is it like you just put your own money in the bank and you borrow it? What does that even mean?
Speaker #1
Well, you put money in this magical investment vehicle where it grows, and then you can take out as much as you want. You can borrow against it. You can... and blah, blah, blah. You can add, it adds interest when it's in there. So it's really just like this magical unicorn investment and I feel like everyone should be doing it.
Speaker #0
Okay. What, what's the catch? Okay. There's obviously a catch.
Speaker #1
Yeah. No, this is a little extreme, right? So I feel like it drives me nuts as a financial advisor to see this advice all the time. Especially when it comes to like the average income person. Like this is, to me, this is like a rich person's thing and they take this rich person's thing, then try to apply it to every single person.
Speaker #0
That sounds like a lot of the investment strategies we've talked about on the show. This is like the house hack, buy all your multifamily houses. This is, you know, the last episode was like buy all the Airbnbs, but people don't realize how much work it is. Yeah. I feel like that's a theme here that like there's no get rich quick scheme that actually really works.
Speaker #1
No, there's not. Not at all. So basically this concept is you use a life insurance policy.
Speaker #0
We're talking about life insurance? Yeah, yeah. This is life insurance?
Speaker #1
Yeah, so it sounds like it's really cool and sexy, but it's just life insurance.
Speaker #0
Like grandpa old life insurance. Yeah,
Speaker #1
like since like the 1700s, we're like at our pickaxe for gold and we got a life insurance policy. Wow,
Speaker #0
I did not know.
Speaker #1
Yeah, and basically the concept is... because with there's basically two types of insurance there's term insurance uh and i'll do a quick aside uh is you're basically like renting a policy so you have a let's say a 20 year term policy you're buying half a million dollars of coverage for 20 years at the end of 20 years hopefully you're still alive hopefully if not you got your money someone's got your money you don't have you don't have your money right if you have somebody's got your money uh if not then uh you gotta start over yeah start over again and buy it and now you're 20 years older right so you're just totally renting it um a permanent policy you're putting money in uh the difference is the insurance company is going to basically pay out a death benefit at some point but along the way it builds up what's called cash value so it does have an investment component to it so it's not like you know nothing happens it does exist um the challenge is there's multiple types of permanent policies they all work a little differently i don't know if it's worth quickly going into those do it do it because i life insurance for me is that like
Speaker #0
thing that nobody wants to talk about because you don't benefit until you're dead and you don't want to talk about the people you love dying. So you sort of should have it, but it feels ugly. But then it also feels like a scam at the same time.
Speaker #1
Yeah. Well, I think the other thing is I don't want to jinx myself. I always hear that. It's like, well, just because you signed up for it doesn't mean you're going to die.
Speaker #0
Yeah. But you are going to die. That's the reality of this, people, is you are in fact going to die. We hope it would be later, but it's going to happen at some point.
Speaker #1
Right. So there's basically three main types of permanent. right so the boring one is called whole life insurance you want to think of this as like the bond one it just earns a very consistent rate of return usually it's like two to three percent per year it just chugs along and they basically the insurance company is basically paying you dividends so they're giving money back from what the investments that they made on you kind of like how a bank gives you interest same kind of thing um the other side of the extreme is a variable uh permanent policy right so the way that works is they're going to invest in stocks or mutual funds within your... life insurance policy so one year you could be up 20 when you could be down 20 so there's a lot more variability with those variable universal life policies are called uh and then in between it's called an indexed universal um the difference there is usually you can't lose money on it because they have a floor of zero so let's say the market goes down 30 in one year you
Speaker #0
just don't lose money you just you you right where you started yeah um but it also has a cap
Speaker #1
So it's a downside. They're not going to give you all the upside and another downside, right? No one does that. If they did, that'd be great. And I'd definitely buy that policy.
Speaker #0
I feel like that would be the smart policy.
Speaker #1
Yeah. But the caps are usually much lower than what you could get in the S&P, for example. So let's say the S&P goes up 25% in one year, your cap may be eight. So instead of getting 25%, you're getting eight that year.
Speaker #0
But if it goes down 30%, you're fine.
Speaker #1
You're fine. Yeah. So some ways it can even out. The other thing to consider is Because they buy options, you don't have to know any of this part of it, but they don't pay you dividends. So you only get the price return of S&P. So some companies like Verizon will pay you a dividend each year. That's included in the S&P, which is usually about 2% of returns per year on average. So you have a little less actual return to keep in mind.
Speaker #0
Have my eyes glazed over yet? They did.
Speaker #1
Yeah, they did.
Speaker #0
They glazed over. Cool, cool.
Speaker #1
Just a little wonky thing to know, and this is probably going to come in later. So I just wanted to...
Speaker #0
Yeah, well, and again, I think this is super valid because people fall for this sort of hype stuff because of the eyes glazing over part, right? That the technicalities of these sort of things, you're like, I don't really care. But when you tell me infinite bank policy, that sounds really exciting. And my eyes are no longer glazed over. Well,
Speaker #1
I'll just give you, let's say the cap is 10, right? For easy math. And then the S&P does 10 that year. But 2% of that is the... dividends so you're really going to get eight in your contract yeah because the two the two is dividends and went stayed with the life insurance company because they're like this is our this is our cut here sort of yeah yeah that's that's fair fair enough uh so those are those are the kind of the three types of policies now the infinite banking folks go with you either the whole life or the iul okay because the investment stuff is too risky for them because they they got to borrow this money yeah because it's a bank so here's here's kind of like with the you know have you Have you ever heard the term, it's a Swiss army? investment.
Speaker #0
Yeah. And that is, again, I think when I hear that my eyes glaze over, that's a glaze over moment for me where I'm like, okay, but isn't that all investments that they're all sort of, I don't know. What does a Swiss army investment mean? Well,
Speaker #1
cause they're saying, okay, look, so you're getting a death benefit. So that's one benefit for it, right? It'll build cash value. So it's, it has an investment component to it. So that's another one. It has tax deferred growth. So while the cash value is building up, you pay no taxes.
Speaker #0
That sounds kind of good.
Speaker #1
So that doesn't suck. you can take a loan against it and have tax-free income out of it.
Speaker #0
Also sounds kind of good.
Speaker #1
So it does, it can do a couple things and, you know, there's certain riders, so if you get disabled it'll actually pay the policy for it. You know, some have long-term care components to it where you can borrow a percentage of the death benefit to pay for a long-term care expense. So it has all these features. The challenge is it can't do all of them at the same time.
Speaker #0
Oh, okay. So yes, these are valid. Yes, they can be great. But where, again, infinite banking people go wrong is that it can only be doing one of its jobs. It can't be doing all of its jobs at the same time.
Speaker #1
Yeah. So if I'm talking to a client about life insurance, we get to like, what is the goal of this? Is the goal of this to have the death benefit for estate taxes or something like that? Or is the goal to really build it up and use it as an investment vehicle? Because if that's the case, then the death benefit should be kind of pushed aside.
Speaker #0
That's not what we're worried about.
Speaker #1
And yeah, but they're kind of telling you, okay, how's all this cool stuff? Because I'll give an example. So if you take a loan out and you never pay it back, let's say your death benefits are $500,000, you take out $100,000 and you owe $100,000 when you die, your beneficiaries get $400,000. So they don't get that plus.
Speaker #0
Yeah. The loan is a real loan.
Speaker #1
It's a loan. It needs to be paid back at some point.
Speaker #0
So where is this sort of hype about infinite banking coming from? Is this overzealous salespeople who want their commission and they're trying to, ooh, this thing is sexy. Are they just trying to sexify something that's been around forever to sell more of it? Because I do think one of the millennial traits is that we both want to make money because money has been a struggle. We've covered that in other episodes. We've lived in a money scarce time that feels like we both have a lot of money and no money. So we're always looking for ways to make money. But we're also very skeptical of old fashioned ways of making money because they feel irrelevant to us. So are we just taking something that's been around forever and trying to trying to hype it up for the younger generation? Well,
Speaker #1
this this this concept has been around for a while. So infinite banking, I think, was invented like the late 70s, early 80s, if I remember correctly. But basically, the concept is you put money in this policy, it builds up cash value. And at some point you can say, hey, look, I want to buy a house. whether it's a rental property or maybe it's a primary residence or you want to use it for something, you borrow against the policy because I'll give you an example. Like, you know, in 2008, credit went away, right? Yeah,
Speaker #0
it was very hard to get a loan.
Speaker #1
But you said all these houses are on sale. I've got this asset over here I can borrow against and then I can buy a couple of houses and I don't need to get a loan. I don't need to have any.
Speaker #0
Well, I don't need to get a loan from someone else.
Speaker #1
From someone else. So I don't need to get. you know, I'm not dealing with their liquidity issues on that, you know, like you are your own bank. So you have your own power to say, look, I'm going to go put a down payment on this house.
Speaker #0
Yeah. You're not getting qualified. You're not dealing with someone like me or you want that. You want it. Here you go.
Speaker #1
And your policy is already the collateral. So you don't have to put up additional collateral. Like let's say you want to buy a house. You already own one. Oh, you're not putting up your own house. You're putting up your policy essentially. So there is a use case for it. But I think we're. I see it goes awry is like, oh, you borrow against it, put it back in there. You put a borrow against it and put it back in there. And like, you can keep borrowing and pay like I paid off $120,000 of credit card debt by doing this, which is just total BS.
Speaker #0
Yeah. Well, you're using an asset to pay for liability. Like,
Speaker #1
yeah, but the problem is, you have to put the money back in there to keep it growing. Because I guess it's probably important to know kind of how mechanically these policies work. And a lot of people are probably like that are life insurance people that are like, listen, screaming at me right now. You got to fund it properly and all that stuff. So let's maybe take a second to talk about what that's about. So all insurance has a cost. So I looked up just for my 39-year-old self. And here's a quick tip for everyone. If you're within six months of your birthday, they treat you as the next birthday. So I'm 39 right now, but I'll be 40 in July.
Speaker #0
So you are 40?
Speaker #1
I am 40. Oh, I love that. Looking at buying a policy. This is like when you're five, you're like, I'm five and a half. This is where the actual half comes into play again when you're an adult for the only other time. But I can get myself a 30-year term policy for half a million dollars for $540 a year.
Speaker #0
That's the rented policy.
Speaker #1
The rented one, right?
Speaker #0
That's pretty cheap.
Speaker #1
Pretty cheap, right? The index universal one is about $7,179. A year. A year. A year. So not cheap. So yeah, a lot more expensive. A whole life one is $8,945.
Speaker #0
Okay. So not... crazy more than option two.
Speaker #1
No, the point of that is you're paying, you're buying insurance. So you still have to pay for the insurance part of it. It's still going to build up cash. And where the infinite banking concept comes in is like, you have the thing with life insurance, we can actually overpay for something. So instead of putting like 8,000 in or 9,000 for the policy, you'd be putting in like 18,000 or 25,000. So it's some insurance. And the way that you design this is to minimize the death benefit and maximize the cash value.
Speaker #0
So Can we just pause for a minute so I can ask this question? Yeah. Like, this is still your money that you're putting in. So, like, the difference between using a bank and using this is when you use a bank, it's not your money. Right? It's not your money. It's somebody else's money. So you're leveraging somebody else's money. When you're doing this, it's your money, which also means you're not putting it somewhere else.
Speaker #1
Right. There's an opportunity cost to this.
Speaker #0
Yeah. It's not in your... retirement account. It's not in an investment account where it could be making 20%. It's not in a...
Speaker #1
In your home even.
Speaker #0
In your home, in real estate investments. It's... It's just your money that's chilling for you to borrow it again.
Speaker #1
Right, basically. And, you know, so I was like, I was looking around to kind of research, like, why are people doing this? And, like, what are they selling? So I actually did find, so when you do an insurance policy, you get what's called an illustration. It shows you all these ridiculous columns that you probably can never read.
Speaker #0
It's like an amortization schedule for a mortgage. Yeah.
Speaker #1
That's a lot of numbers, right? So, you know, so they look at, they're using a 31-year-old in this example here that I have. So obviously health is a factor. So if you're, you know... have cancer or you're like a chain-spoking overweight diabetic, you're probably not going to get this policy.
Speaker #0
Well, and this is just a quick pause. For those of you who have life insurance or don't have life insurance, when you get life insurance through your work, generally, it's just auto-assigned to you. You don't have to do anything. If you are getting life insurance with an outside policy, you are usually having a physical, you are giving a medical history, you may be giving medical documentation from your doctors, you're giving permission for them to to speak to your doctor. So like, If you have made it to 40 and do not have any medical problems, God bless you. Enjoy. Have a great time. But most of us have something. And that can greatly impact what these policies cost. Right. Right. So full stop. Just know that. This is what you want to do when you're younger. But I got life insurance, I don't know, two years ago. And I was astounded by the work that it took to make that happen. And they don't just want to talk to your primary care. I had to give them. all of my doctors.
Speaker #1
It's a house a big thing now.
Speaker #0
Everybody, my OBGYN and they pulled like birth records of my kids and like, have you had your mammogram? And like, they want everything because they're betting on how long you're going to live.
Speaker #1
Right.
Speaker #0
And like people have to get that part of it. Like, yeah, it's invasive.
Speaker #1
Yeah. They price it in. All right. So anyway, like, so this example they use, this person's like, oh, this is the best way to go. So the base premium is $3,500. Okay. Okay. They're putting an additional $28,000 in. and change, right? So their total amount they're putting in is $25,000 a year into this policy.
Speaker #0
A year.
Speaker #1
Every single year. So that's the other thing you got to think about. You're funding this every year. If you're borrowing from it, you're paying yourself interest, but also you have to pay premiums too on top of paying back the interest. I know you're paying yourself the interest,
Speaker #0
but it's like a mortgage, right?
Speaker #1
You can't just say like, hey, I'm taking a home equity line out of my mortgage. I'm going to stop taking the mortgage payments. You're still making the mortgage payments. So think of it that way with the life insurance policy. You're still making the premium payments. So they're overfunding it by a really large amount. So after five years, you put $125,000 in this policy. What do you think the policy is actually worth right now, the cash value, based on this illustration?
Speaker #0
If this is a good investment, more than $125,000.
Speaker #1
It is at $120,184, and that's the non-guaranteed amount.
Speaker #0
Where? So how many years did you say this is over?
Speaker #1
Five years.
Speaker #0
So I want everybody to contemplate that, too. if you put $125,000. in five years into an investment account, it would be worth more.
Speaker #1
Hopefully. Yeah.
Speaker #0
Like pretty much it would be worth more.
Speaker #1
Yeah. I'd say if you invest it correctly, it should be worth more than that.
Speaker #0
Okay. Just for clarity. Just want to make sure that I'm understanding this.
Speaker #1
So then after 10 years, we're at 250,000. Okay. Now we're at 288,000 of cash values.
Speaker #0
Okay. So I got made a little money there.
Speaker #1
Yeah. 38,000 right after a couple of years. And they're going to show you, Hey, look, well, after a year... four, you put $25,000 and you're getting $25,000, $26,000 increase in your cash value. So like, we're already like up there of like, yeah. So generally you're paying for the insurance the first few years and then you're kind of catching up after that. But you have to commit to this for a long time. And a lot of things that I have a problem with is like, oh, it's liquid. It's not liquid because you're not getting your money back right away. I mean, yeah, you've like, so after one year you put $25,000 in and this one you have $19,000 of cash available. Like, that doesn't sound great. No. And you're not going to borrow, you're not going to pay anything meaningfully with that. No. Anyway, you may as well just use the cash at that point. Well,
Speaker #0
that's it. You put $25,000 in to borrow $19,000 back. Well,
Speaker #1
you can't even always borrow the whole amount either. So you have to keep some cash in there to keep the policy afloat.
Speaker #0
This is not sounding great to me. This strategy, again, life insurance, valid, real, people need it. But this particular strategy, I can see like where this can go south.
Speaker #1
Right. And one of the arguments they're going to make, and it's going to be similar to a home equity line of credit, is, okay, let's say I've got $100,000 of cash value built up. I take out 50. I'm going to get a loan payment or interest payment on the 5,000, right? So I have to borrow 50. I'm going to have an interest payment on the 50,000 of, let's say, 5% or 7%. But I'm still earning the same interest on the whole 100,000. So it's like, oh, there's some arbitrage there, right? Like, I haven't taken 50,000. Like, if you took 50,000 out of your bank, you're not earning...
Speaker #0
No, you're earning zero. You're earning $0 even when it's in your bank, but you're earning- No,
Speaker #1
if you had $100,000 in the bank, you take half out, you're only earning interest on the remaining amount, right? So they're saying, well, you still have the whole $100,000 in there that you're earning interest on. But yeah, you're paying. you know, interest rate on the money you borrowed. So you're not exactly getting, it's not a one for one. Not a one for one. Exactly. So you may be earning four, but the interest rate is six.
Speaker #0
And this, I will say the other piece to this is that I'm a belief in like, keep it simple when we're talking about this stuff. And this just feels so complicated, so convoluted and complicated.
Speaker #1
It is because I think people just, it's, well, why would you understand how this goes unless you do this? Like there's a lot of moving parts.
Speaker #0
But people are making this decision from watching like YouTube videos.
Speaker #1
Right. And they're just talking to someone's like, Oh no, we overfunded boom, boom, boom, boom.
Speaker #0
Everything's great.
Speaker #1
And then, yeah, we're all, we're all good in the hood here. Um, but that's the, the challenge is it just doesn't work the way they're telling you it does work. In order for this to really work, you have to a overfund the crap out of it. As you see your, your base premium is 3,500. You're putting an extra 20,000 in.
Speaker #0
Yeah. Right. 20,000. Like we're not talking about a little bit of money.
Speaker #1
No. And, and, you know, if you did, you know, let's say you just doubled it. It's not gonna get you there. Right. Um, two, you have to commit to it for a long time. like it's not a oh we're going to do this for three years and i'm going to have all this money to invest all these properties and i'm just going to build this wealth uh and do all this fun stuff and magical fairy is going to come down from heaven um it's not going to happen right so you just need to have this policy really designed well for you um you know i talked to someone who was really smart about this stuff and i was like well what's what's like what's the real value of it and one of the things he said to me that i was like instead of actually borrowing it from your policy directly you can actually use it as an asset to leverage it from like and borrow from a bank And that could be, you might be able to use that earlier than you would normally just borrowing from the policy itself. But then you have to deal with the underwriting and all the other stuff that we talked about that's a negative.
Speaker #0
We're not a negative, Derek. The bank is a delight.
Speaker #1
Yeah, I love going to banks.
Speaker #0
Everybody loves us.
Speaker #1
So, I mean, that's the real challenge with this strategy in general is that there's a lot of moving parts to it. It's really expensive. You need a lot of dough to make this work. So the rank and file person is... that makes $60,000 a year.
Speaker #0
This isn't it.
Speaker #1
You're not putting half your salary in here.
Speaker #0
No, this isn't it. Now, I think the other piece too to recognize is I also think it's a bit of a psychological trap in that this is still a loan. When you are borrowing this money, it is still a loan. It's a loan from yourself and I totally get that, but there's a negative if you don't repay it.
Speaker #1
Right. Yeah. I mean, eventually there's... So because the problem is the loan actually will build up if you don't pay it off. And then it eats away either the cash value or you'll be able to get dividends. It can ruin your death benefit. And if it gets to a certain point where you don't do it, the policy can actually collapse, especially if you have, let's say, like 2000 and 2002, where you had multiple negative years of the stock market. Oh. So if you're like zero, zero, zeros, yeah, you're not losing money, but there's fees to these policies. So fees are usually like half a percent to 1% a year on the policies. There's annual fees of like $35 to $75. So it's going to slowly erode anyway if you're not even earning enough. So that's another challenge you can have.
Speaker #0
Well, and I think the collapse piece too, if we go back to your Swiss Army knife, the other collapsible part is you have these intentions for this. You start borrowing against it, taking loans, then you get sick, then you have no money left in the policy, but now you can't get a new policy to help your family if something was to happen to you because now you're old and sick and you've taken all the money out of it. And now the the main purpose. of the policy no longer exist. Like the benefit isn't there anymore. Right. So like, that's the real collapse fear for me is that like, you've been sold this thing that's supposed to solve all these problems, but it's a solution or it's a solution in search of a problem. Like it's not, it's, it cannot do all the things.
Speaker #1
No, this to me is, this is like a rich person's thing. Like if you're, if you're already stuffing your 401k and you already have a bunch, a bunch saved in your investment account, you already maxed out all your Roth accounts. Like, You're looking for some other way to have some tax efficient growth and things like that. Like this could be an option for you. But like I said, you need a lot of money to keep feeding this thing because if you don't, it can collapse on itself. And the other thing is there are other alternatives to kind of quote unquote, be your own bank. Like you mentioned your house, right? You can take money out of a home equity line of credit. Like I use that to get my property here in Connecticut.
Speaker #0
And that's a super, you know, in mortgage world, super common all the time. Like people do that all the time. It is very smart. And I also like it because it's... to like investments. And so the risk is usually similar. I always get nervous when people are mucking in one investment, which has one level of risk to purchase or add to another investment, which has a very different level of risk. And that I just don't think people always contemplate what that means for them.
Speaker #1
Yeah. I mean, that's a great point too. And like, and speaking of like the risk part of it, like in order for you to basically return my IUL policy, what you would with like the S&P 500, for example. you probably need a cap rate of like 12 to 15 to 17 depending on what time frame you're looking at and they're like they're at like eight or nine right now so they're well below that so you're pretty much guaranteeing that you're gonna i don't say guarantee but you're you're probably get most likely gonna underperform the s p there anyway because the other thing you could do is um they have what's called securities based lending and if you ever heard of this no this is what also a lot of rich folks do like you know if they got all this company stock you actually borrow against your equity position. So you have, let's say, $200,000 in equities or investments in S&P or company stock. You can usually borrow up to about half of that. Same concept. The money's still invested, so it's still going to grow. And the market could go up 20%. And now that growth is 20%. I mean, it could go down the other way too. So there's margin calls. There's definitely some options for that to definitely go awry. But that's also another option where you say, hey, look, I've got this investment account. If something really happens, I've got an option. Or you can still borrow against it. So there's not like only one alternative to quote unquote be your own bank. You've got your 401k you could borrow against and you have your home properties that you can always borrow against.
Speaker #0
Now, all of these concepts live because they do work for someone. Is there anyone other than rich people that this may be a sound way to invest or way to be your own bank? Or is it at its core still kind of, I don't want to say like shammy because again, life insurance isn't a sham. It's real. You need it. using it in this way or thinking about it in this way is where it becomes.
Speaker #1
I think if you're too aggressive with it, I think that's the problem. I think if it's kind of like the example I used earlier where it's like, hey, I've been putting a little extra in my life insurance policy because I want to build up the cash value. And I just want to be ready in case something happens. And there's an opportunity. To me, that's where it's good. And you have the ability to kind of pay that loan fairly quickly. That's when it can work pretty well. And that can be something for an average person where they're just putting like 10 grand in a year. And, you know, it's built up over time. And, hey, 10 years from now, like, hey, we want to get a vacation home and something just went on sale because a hurricane hit the area or whatever. Right. So they can they can jump in and do that pretty quickly. You know, the other thing I kind of had talked about in my book a little bit, it was it's you know, if you do a whole life policy, it's a it's a non-correlated asset, which means that it's not tied to what the market does. So if the market's going crazy, like drops 50 percent like it did in 2008, it's going to keep chugging along. You can actually use that as a leverage point and borrow against that for a year or two. let your investment accounts recover for a couple of years and then kind of refund the account back that way. So you can use it in different ways. But I think you really need to have a plan for the life insurance policy before you get into it. Because you want to know, like, am I building up the cash value or am I using this for the death benefit? Because that's your first decision point. Yeah,
Speaker #0
it's one or the other. Really, it's one or the other.
Speaker #1
Yeah, because if you're doing one, you're taking away from the other, basically.
Speaker #0
And I think the other message that I'm getting here, because again, I have seen some of these videos and I, like most of us, get sucked into the YouTube trap sometimes where you can learn so many things on YouTube and so many of those things are not true. Or they're just overblown or overhyped is that this sounds like a concept that has some merit, does have some value for very niche specific people in specific circumstances, but it is being sold on the internet as an amazing solution for all. that everybody should be doing this. And people get really sucked into that sort of narrative that I'm missing out if I'm not doing this thing, or this is the path to the wealth. And I think, and we've talked about this on other episodes, is that is just a true millennial vibe that we want the path to the wealth because it's been hard for us. And we feel like our parents and the boomers got something easier than us. And so we're always looking for like... man, how do we get that too? How do we get that too? And like, this just doesn't sound like it.
Speaker #1
And I think it also falls in the trap of like following that rich person that you know, or rich uncle, like, oh, this is what they did. So I should do that too. It's like, they can have totally different situation where they can afford to do something like this that you cannot, it doesn't make sense for you to do, but it makes sense for them to do. So you really need to look at like the personal part of like personal financial planning.
Speaker #0
That's a good concept too. And I think that that is something that right, when you see what somebody who's really wealthy is doing, you want to emulate them, but their wealth has afforded them opportunities that your financial position hasn't. So you don't know all the under... Some of what they may be doing with their investments is tax harvesting. Some of what they may be doing with their investments is purposeful tax loss. They're depleting assets. They're doing things which don't make sense here for you, but make sense for them way out somewhere else in an asset that you don't own in something that you don't have. I think that's really valid for people is that just because someone rich is doing it doesn't necessarily mean it's the vibe for you.
Speaker #1
Right. Exactly. So hopefully that gave a not so boring life insurance, be your own bank.
Speaker #0
I glazed a little bit, Derek. I glazed a little bit, but you caught me back at the end. I appreciated that. I think, well, I think that's what I love about these sort of conversations that we're having is that, again, as a financial professional. A lot of these concepts are still foreign and they're sold to you in so many different ways, under so many different names, under so many different concepts that it's hard to figure out reality sometimes.
Speaker #1
Yeah, and I think this is we're talking like a professional, someone that's agnostic, like don't talk to the life insurance salesperson who's like they need this commission to do this policy because that's basically a part of this, right? So like find someone that's agnostic that can give you good solid advice that's not there to just sell you a policy. to give you the real skinny on like how this could or could not fit in your life.
Speaker #0
I like it. I like it. I'm here for that. All right. Well, this was super informative. I don't feel like I need a nap after where like some of these I'm like, whew, has a lot of information.
Speaker #1
You're not going to throw any trail mix at me?
Speaker #0
I'm not going to throw trail mix at you. I may go eat some peanut butter though, because that sounds delicious. And then hopefully you will all join us for our next episode.
Speaker #1
Yeah. See you soon.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to affect some of the strategies. Investing involves risks, including possible loss of principal.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

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Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly Turner.
Speaker #1
And Derek Mazzarella.
Speaker #0
Hey, Derek. It's been a while since we've recorded an episode.
Speaker #1
It has. Yeah, I missed you.
Speaker #0
Yeah. Well, it's Maycember, which if you're a parent, you know that May is worse than any other month of the year for us because it is the month where the weather finally gets nice, you are expected to take care of your house, your garden. your landscaping, your kid has 9,000 baseball and softball games and practices. They all get rained out and then rescheduled on other days. And you need to be at school for your children in the middle of the day 37 times.
Speaker #1
Oh, yeah, yeah. Just because we got to celebrate every little thing about them. Hey, you're moving up from grade one to grade two or you're, you know, whatever.
Speaker #0
It's field day. It's writer's workshop day. It's, I don't know, there's a jump team performance. I'm going to the Yardgoats tonight to watch my daughter jump rope on the field with the jump team. So it's a little... See, right now.
Speaker #1
I didn't realize a jump rope team was a thing.
Speaker #0
Oh, it is a thing. I didn't either until my kid was on it.
Speaker #1
I feel like I'm having withdrawals from not being able to do that as a kid.
Speaker #0
You know, listen, these kids, they live a different life than we lived. They do.
Speaker #1
They do. Can I tell you about my morning meltdown?
Speaker #0
I would love it. Will it make me feel better about my own children?
Speaker #1
Yeah. So for all the parents out here, you're probably going to be nodding your head. So my son, I'm like, what do you want for breakfast? He's like, oh. And he gets very aggro and very angry right away. so I was like alright buddy uh you already had a couple waffles this week let's not do waffles and he was like and i gave him 100 million other options i was like you know but if you can make it yourself go for it so he gets his little stool like moves over our cabinet there and tries to get you know usually puts peanut butter on it uh so he pulls one jar of peanut butter there's not enough peanut butter in that one it was three quarters full oh man he wants he wants another one that is not open yet and he's screaming at me that he wants that when he's throwing things he threw his little stool over he threw trail mix at me.
Speaker #0
So you're like, Hey, happy Friday morning.
Speaker #1
I'm like, how are you this angry this early on a Friday?
Speaker #0
So what was the result? Did he eat his peanut butter?
Speaker #1
Uh, yeah, eventually he calmed down and got his own peanut butter and globbed it on there himself. Uh, yeah, but he did, it was, it took like 20 minutes of screaming though.
Speaker #0
And you said, live your best life with your peanut butter, sir.
Speaker #1
I'm going to go over here.
Speaker #0
Yeah.
Speaker #1
Yeah. I need a minute. Uh, you go do your thing.
Speaker #0
So your next life is I have taught my seven-year-old how to make scrambled eggs himself and it has alleviated all of my my breakfast arguments because he wants to eat them and he wants to make them. So I'm like, bro, go make. And he puts his butter in his pan and scrambles his egg. And he is then happy to eat it. And I don't have to have the breakfast fight with him.
Speaker #1
No, no.
Speaker #0
My middle child did cry about breakfast this morning, too, though. So like you're never free from that.
Speaker #1
I'm always like, how are you this mad this early?
Speaker #0
This early. Yeah.
Speaker #1
It's like you just woke up and you're like, I hate this.
Speaker #0
I hate this so much. Yeah. Well, there's a lot of things we hate, Derek.
Speaker #1
Yeah. So we've got the most soundproof investment concept known to man. You want to talk about it today?
Speaker #0
I do. I'm here for this.
Speaker #1
All right. Let's hear the sales pitch. Imagine. I'm going to use my sales pitch voice.
Speaker #0
I love it. Do it.
Speaker #1
Imagine if you could take control of your financial future, never rely on a traditional bank or loan again, and have your money working for you uninterrupted every single day. That's the power of infinite banking.
Speaker #0
I can't even take that seriously. yeah Okay.
Speaker #1
So the question is, what is infant banking?
Speaker #0
So I have heard the term before on the tiki-takis.
Speaker #1
You may have heard be your own bank.
Speaker #0
Be your own bank on the tiki-takis. But I don't even know what it means. I don't know, is it like you just put your own money in the bank and you borrow it? What does that even mean?
Speaker #1
Well, you put money in this magical investment vehicle where it grows, and then you can take out as much as you want. You can borrow against it. You can... and blah, blah, blah. You can add, it adds interest when it's in there. So it's really just like this magical unicorn investment and I feel like everyone should be doing it.
Speaker #0
Okay. What, what's the catch? Okay. There's obviously a catch.
Speaker #1
Yeah. No, this is a little extreme, right? So I feel like it drives me nuts as a financial advisor to see this advice all the time. Especially when it comes to like the average income person. Like this is, to me, this is like a rich person's thing and they take this rich person's thing, then try to apply it to every single person.
Speaker #0
That sounds like a lot of the investment strategies we've talked about on the show. This is like the house hack, buy all your multifamily houses. This is, you know, the last episode was like buy all the Airbnbs, but people don't realize how much work it is. Yeah. I feel like that's a theme here that like there's no get rich quick scheme that actually really works.
Speaker #1
No, there's not. Not at all. So basically this concept is you use a life insurance policy.
Speaker #0
We're talking about life insurance? Yeah, yeah. This is life insurance?
Speaker #1
Yeah, so it sounds like it's really cool and sexy, but it's just life insurance.
Speaker #0
Like grandpa old life insurance. Yeah,
Speaker #1
like since like the 1700s, we're like at our pickaxe for gold and we got a life insurance policy. Wow,
Speaker #0
I did not know.
Speaker #1
Yeah, and basically the concept is... because with there's basically two types of insurance there's term insurance uh and i'll do a quick aside uh is you're basically like renting a policy so you have a let's say a 20 year term policy you're buying half a million dollars of coverage for 20 years at the end of 20 years hopefully you're still alive hopefully if not you got your money someone's got your money you don't have you don't have your money right if you have somebody's got your money uh if not then uh you gotta start over yeah start over again and buy it and now you're 20 years older right so you're just totally renting it um a permanent policy you're putting money in uh the difference is the insurance company is going to basically pay out a death benefit at some point but along the way it builds up what's called cash value so it does have an investment component to it so it's not like you know nothing happens it does exist um the challenge is there's multiple types of permanent policies they all work a little differently i don't know if it's worth quickly going into those do it do it because i life insurance for me is that like
Speaker #0
thing that nobody wants to talk about because you don't benefit until you're dead and you don't want to talk about the people you love dying. So you sort of should have it, but it feels ugly. But then it also feels like a scam at the same time.
Speaker #1
Yeah. Well, I think the other thing is I don't want to jinx myself. I always hear that. It's like, well, just because you signed up for it doesn't mean you're going to die.
Speaker #0
Yeah. But you are going to die. That's the reality of this, people, is you are in fact going to die. We hope it would be later, but it's going to happen at some point.
Speaker #1
Right. So there's basically three main types of permanent. right so the boring one is called whole life insurance you want to think of this as like the bond one it just earns a very consistent rate of return usually it's like two to three percent per year it just chugs along and they basically the insurance company is basically paying you dividends so they're giving money back from what the investments that they made on you kind of like how a bank gives you interest same kind of thing um the other side of the extreme is a variable uh permanent policy right so the way that works is they're going to invest in stocks or mutual funds within your... life insurance policy so one year you could be up 20 when you could be down 20 so there's a lot more variability with those variable universal life policies are called uh and then in between it's called an indexed universal um the difference there is usually you can't lose money on it because they have a floor of zero so let's say the market goes down 30 in one year you
Speaker #0
just don't lose money you just you you right where you started yeah um but it also has a cap
Speaker #1
So it's a downside. They're not going to give you all the upside and another downside, right? No one does that. If they did, that'd be great. And I'd definitely buy that policy.
Speaker #0
I feel like that would be the smart policy.
Speaker #1
Yeah. But the caps are usually much lower than what you could get in the S&P, for example. So let's say the S&P goes up 25% in one year, your cap may be eight. So instead of getting 25%, you're getting eight that year.
Speaker #0
But if it goes down 30%, you're fine.
Speaker #1
You're fine. Yeah. So some ways it can even out. The other thing to consider is Because they buy options, you don't have to know any of this part of it, but they don't pay you dividends. So you only get the price return of S&P. So some companies like Verizon will pay you a dividend each year. That's included in the S&P, which is usually about 2% of returns per year on average. So you have a little less actual return to keep in mind.
Speaker #0
Have my eyes glazed over yet? They did.
Speaker #1
Yeah, they did.
Speaker #0
They glazed over. Cool, cool.
Speaker #1
Just a little wonky thing to know, and this is probably going to come in later. So I just wanted to...
Speaker #0
Yeah, well, and again, I think this is super valid because people fall for this sort of hype stuff because of the eyes glazing over part, right? That the technicalities of these sort of things, you're like, I don't really care. But when you tell me infinite bank policy, that sounds really exciting. And my eyes are no longer glazed over. Well,
Speaker #1
I'll just give you, let's say the cap is 10, right? For easy math. And then the S&P does 10 that year. But 2% of that is the... dividends so you're really going to get eight in your contract yeah because the two the two is dividends and went stayed with the life insurance company because they're like this is our this is our cut here sort of yeah yeah that's that's fair fair enough uh so those are those are the kind of the three types of policies now the infinite banking folks go with you either the whole life or the iul okay because the investment stuff is too risky for them because they they got to borrow this money yeah because it's a bank so here's here's kind of like with the you know have you Have you ever heard the term, it's a Swiss army? investment.
Speaker #0
Yeah. And that is, again, I think when I hear that my eyes glaze over, that's a glaze over moment for me where I'm like, okay, but isn't that all investments that they're all sort of, I don't know. What does a Swiss army investment mean? Well,
Speaker #1
cause they're saying, okay, look, so you're getting a death benefit. So that's one benefit for it, right? It'll build cash value. So it's, it has an investment component to it. So that's another one. It has tax deferred growth. So while the cash value is building up, you pay no taxes.
Speaker #0
That sounds kind of good.
Speaker #1
So that doesn't suck. you can take a loan against it and have tax-free income out of it.
Speaker #0
Also sounds kind of good.
Speaker #1
So it does, it can do a couple things and, you know, there's certain riders, so if you get disabled it'll actually pay the policy for it. You know, some have long-term care components to it where you can borrow a percentage of the death benefit to pay for a long-term care expense. So it has all these features. The challenge is it can't do all of them at the same time.
Speaker #0
Oh, okay. So yes, these are valid. Yes, they can be great. But where, again, infinite banking people go wrong is that it can only be doing one of its jobs. It can't be doing all of its jobs at the same time.
Speaker #1
Yeah. So if I'm talking to a client about life insurance, we get to like, what is the goal of this? Is the goal of this to have the death benefit for estate taxes or something like that? Or is the goal to really build it up and use it as an investment vehicle? Because if that's the case, then the death benefit should be kind of pushed aside.
Speaker #0
That's not what we're worried about.
Speaker #1
And yeah, but they're kind of telling you, okay, how's all this cool stuff? Because I'll give an example. So if you take a loan out and you never pay it back, let's say your death benefits are $500,000, you take out $100,000 and you owe $100,000 when you die, your beneficiaries get $400,000. So they don't get that plus.
Speaker #0
Yeah. The loan is a real loan.
Speaker #1
It's a loan. It needs to be paid back at some point.
Speaker #0
So where is this sort of hype about infinite banking coming from? Is this overzealous salespeople who want their commission and they're trying to, ooh, this thing is sexy. Are they just trying to sexify something that's been around forever to sell more of it? Because I do think one of the millennial traits is that we both want to make money because money has been a struggle. We've covered that in other episodes. We've lived in a money scarce time that feels like we both have a lot of money and no money. So we're always looking for ways to make money. But we're also very skeptical of old fashioned ways of making money because they feel irrelevant to us. So are we just taking something that's been around forever and trying to trying to hype it up for the younger generation? Well,
Speaker #1
this this this concept has been around for a while. So infinite banking, I think, was invented like the late 70s, early 80s, if I remember correctly. But basically, the concept is you put money in this policy, it builds up cash value. And at some point you can say, hey, look, I want to buy a house. whether it's a rental property or maybe it's a primary residence or you want to use it for something, you borrow against the policy because I'll give you an example. Like, you know, in 2008, credit went away, right? Yeah,
Speaker #0
it was very hard to get a loan.
Speaker #1
But you said all these houses are on sale. I've got this asset over here I can borrow against and then I can buy a couple of houses and I don't need to get a loan. I don't need to have any.
Speaker #0
Well, I don't need to get a loan from someone else.
Speaker #1
From someone else. So I don't need to get. you know, I'm not dealing with their liquidity issues on that, you know, like you are your own bank. So you have your own power to say, look, I'm going to go put a down payment on this house.
Speaker #0
Yeah. You're not getting qualified. You're not dealing with someone like me or you want that. You want it. Here you go.
Speaker #1
And your policy is already the collateral. So you don't have to put up additional collateral. Like let's say you want to buy a house. You already own one. Oh, you're not putting up your own house. You're putting up your policy essentially. So there is a use case for it. But I think we're. I see it goes awry is like, oh, you borrow against it, put it back in there. You put a borrow against it and put it back in there. And like, you can keep borrowing and pay like I paid off $120,000 of credit card debt by doing this, which is just total BS.
Speaker #0
Yeah. Well, you're using an asset to pay for liability. Like,
Speaker #1
yeah, but the problem is, you have to put the money back in there to keep it growing. Because I guess it's probably important to know kind of how mechanically these policies work. And a lot of people are probably like that are life insurance people that are like, listen, screaming at me right now. You got to fund it properly and all that stuff. So let's maybe take a second to talk about what that's about. So all insurance has a cost. So I looked up just for my 39-year-old self. And here's a quick tip for everyone. If you're within six months of your birthday, they treat you as the next birthday. So I'm 39 right now, but I'll be 40 in July.
Speaker #0
So you are 40?
Speaker #1
I am 40. Oh, I love that. Looking at buying a policy. This is like when you're five, you're like, I'm five and a half. This is where the actual half comes into play again when you're an adult for the only other time. But I can get myself a 30-year term policy for half a million dollars for $540 a year.
Speaker #0
That's the rented policy.
Speaker #1
The rented one, right?
Speaker #0
That's pretty cheap.
Speaker #1
Pretty cheap, right? The index universal one is about $7,179. A year. A year. A year. So not cheap. So yeah, a lot more expensive. A whole life one is $8,945.
Speaker #0
Okay. So not... crazy more than option two.
Speaker #1
No, the point of that is you're paying, you're buying insurance. So you still have to pay for the insurance part of it. It's still going to build up cash. And where the infinite banking concept comes in is like, you have the thing with life insurance, we can actually overpay for something. So instead of putting like 8,000 in or 9,000 for the policy, you'd be putting in like 18,000 or 25,000. So it's some insurance. And the way that you design this is to minimize the death benefit and maximize the cash value.
Speaker #0
So Can we just pause for a minute so I can ask this question? Yeah. Like, this is still your money that you're putting in. So, like, the difference between using a bank and using this is when you use a bank, it's not your money. Right? It's not your money. It's somebody else's money. So you're leveraging somebody else's money. When you're doing this, it's your money, which also means you're not putting it somewhere else.
Speaker #1
Right. There's an opportunity cost to this.
Speaker #0
Yeah. It's not in your... retirement account. It's not in an investment account where it could be making 20%. It's not in a...
Speaker #1
In your home even.
Speaker #0
In your home, in real estate investments. It's... It's just your money that's chilling for you to borrow it again.
Speaker #1
Right, basically. And, you know, so I was like, I was looking around to kind of research, like, why are people doing this? And, like, what are they selling? So I actually did find, so when you do an insurance policy, you get what's called an illustration. It shows you all these ridiculous columns that you probably can never read.
Speaker #0
It's like an amortization schedule for a mortgage. Yeah.
Speaker #1
That's a lot of numbers, right? So, you know, so they look at, they're using a 31-year-old in this example here that I have. So obviously health is a factor. So if you're, you know... have cancer or you're like a chain-spoking overweight diabetic, you're probably not going to get this policy.
Speaker #0
Well, and this is just a quick pause. For those of you who have life insurance or don't have life insurance, when you get life insurance through your work, generally, it's just auto-assigned to you. You don't have to do anything. If you are getting life insurance with an outside policy, you are usually having a physical, you are giving a medical history, you may be giving medical documentation from your doctors, you're giving permission for them to to speak to your doctor. So like, If you have made it to 40 and do not have any medical problems, God bless you. Enjoy. Have a great time. But most of us have something. And that can greatly impact what these policies cost. Right. Right. So full stop. Just know that. This is what you want to do when you're younger. But I got life insurance, I don't know, two years ago. And I was astounded by the work that it took to make that happen. And they don't just want to talk to your primary care. I had to give them. all of my doctors.
Speaker #1
It's a house a big thing now.
Speaker #0
Everybody, my OBGYN and they pulled like birth records of my kids and like, have you had your mammogram? And like, they want everything because they're betting on how long you're going to live.
Speaker #1
Right.
Speaker #0
And like people have to get that part of it. Like, yeah, it's invasive.
Speaker #1
Yeah. They price it in. All right. So anyway, like, so this example they use, this person's like, oh, this is the best way to go. So the base premium is $3,500. Okay. Okay. They're putting an additional $28,000 in. and change, right? So their total amount they're putting in is $25,000 a year into this policy.
Speaker #0
A year.
Speaker #1
Every single year. So that's the other thing you got to think about. You're funding this every year. If you're borrowing from it, you're paying yourself interest, but also you have to pay premiums too on top of paying back the interest. I know you're paying yourself the interest,
Speaker #0
but it's like a mortgage, right?
Speaker #1
You can't just say like, hey, I'm taking a home equity line out of my mortgage. I'm going to stop taking the mortgage payments. You're still making the mortgage payments. So think of it that way with the life insurance policy. You're still making the premium payments. So they're overfunding it by a really large amount. So after five years, you put $125,000 in this policy. What do you think the policy is actually worth right now, the cash value, based on this illustration?
Speaker #0
If this is a good investment, more than $125,000.
Speaker #1
It is at $120,184, and that's the non-guaranteed amount.
Speaker #0
Where? So how many years did you say this is over?
Speaker #1
Five years.
Speaker #0
So I want everybody to contemplate that, too. if you put $125,000. in five years into an investment account, it would be worth more.
Speaker #1
Hopefully. Yeah.
Speaker #0
Like pretty much it would be worth more.
Speaker #1
Yeah. I'd say if you invest it correctly, it should be worth more than that.
Speaker #0
Okay. Just for clarity. Just want to make sure that I'm understanding this.
Speaker #1
So then after 10 years, we're at 250,000. Okay. Now we're at 288,000 of cash values.
Speaker #0
Okay. So I got made a little money there.
Speaker #1
Yeah. 38,000 right after a couple of years. And they're going to show you, Hey, look, well, after a year... four, you put $25,000 and you're getting $25,000, $26,000 increase in your cash value. So like, we're already like up there of like, yeah. So generally you're paying for the insurance the first few years and then you're kind of catching up after that. But you have to commit to this for a long time. And a lot of things that I have a problem with is like, oh, it's liquid. It's not liquid because you're not getting your money back right away. I mean, yeah, you've like, so after one year you put $25,000 in and this one you have $19,000 of cash available. Like, that doesn't sound great. No. And you're not going to borrow, you're not going to pay anything meaningfully with that. No. Anyway, you may as well just use the cash at that point. Well,
Speaker #0
that's it. You put $25,000 in to borrow $19,000 back. Well,
Speaker #1
you can't even always borrow the whole amount either. So you have to keep some cash in there to keep the policy afloat.
Speaker #0
This is not sounding great to me. This strategy, again, life insurance, valid, real, people need it. But this particular strategy, I can see like where this can go south.
Speaker #1
Right. And one of the arguments they're going to make, and it's going to be similar to a home equity line of credit, is, okay, let's say I've got $100,000 of cash value built up. I take out 50. I'm going to get a loan payment or interest payment on the 5,000, right? So I have to borrow 50. I'm going to have an interest payment on the 50,000 of, let's say, 5% or 7%. But I'm still earning the same interest on the whole 100,000. So it's like, oh, there's some arbitrage there, right? Like, I haven't taken 50,000. Like, if you took 50,000 out of your bank, you're not earning...
Speaker #0
No, you're earning zero. You're earning $0 even when it's in your bank, but you're earning- No,
Speaker #1
if you had $100,000 in the bank, you take half out, you're only earning interest on the remaining amount, right? So they're saying, well, you still have the whole $100,000 in there that you're earning interest on. But yeah, you're paying. you know, interest rate on the money you borrowed. So you're not exactly getting, it's not a one for one. Not a one for one. Exactly. So you may be earning four, but the interest rate is six.
Speaker #0
And this, I will say the other piece to this is that I'm a belief in like, keep it simple when we're talking about this stuff. And this just feels so complicated, so convoluted and complicated.
Speaker #1
It is because I think people just, it's, well, why would you understand how this goes unless you do this? Like there's a lot of moving parts.
Speaker #0
But people are making this decision from watching like YouTube videos.
Speaker #1
Right. And they're just talking to someone's like, Oh no, we overfunded boom, boom, boom, boom.
Speaker #0
Everything's great.
Speaker #1
And then, yeah, we're all, we're all good in the hood here. Um, but that's the, the challenge is it just doesn't work the way they're telling you it does work. In order for this to really work, you have to a overfund the crap out of it. As you see your, your base premium is 3,500. You're putting an extra 20,000 in.
Speaker #0
Yeah. Right. 20,000. Like we're not talking about a little bit of money.
Speaker #1
No. And, and, you know, if you did, you know, let's say you just doubled it. It's not gonna get you there. Right. Um, two, you have to commit to it for a long time. like it's not a oh we're going to do this for three years and i'm going to have all this money to invest all these properties and i'm just going to build this wealth uh and do all this fun stuff and magical fairy is going to come down from heaven um it's not going to happen right so you just need to have this policy really designed well for you um you know i talked to someone who was really smart about this stuff and i was like well what's what's like what's the real value of it and one of the things he said to me that i was like instead of actually borrowing it from your policy directly you can actually use it as an asset to leverage it from like and borrow from a bank And that could be, you might be able to use that earlier than you would normally just borrowing from the policy itself. But then you have to deal with the underwriting and all the other stuff that we talked about that's a negative.
Speaker #0
We're not a negative, Derek. The bank is a delight.
Speaker #1
Yeah, I love going to banks.
Speaker #0
Everybody loves us.
Speaker #1
So, I mean, that's the real challenge with this strategy in general is that there's a lot of moving parts to it. It's really expensive. You need a lot of dough to make this work. So the rank and file person is... that makes $60,000 a year.
Speaker #0
This isn't it.
Speaker #1
You're not putting half your salary in here.
Speaker #0
No, this isn't it. Now, I think the other piece too to recognize is I also think it's a bit of a psychological trap in that this is still a loan. When you are borrowing this money, it is still a loan. It's a loan from yourself and I totally get that, but there's a negative if you don't repay it.
Speaker #1
Right. Yeah. I mean, eventually there's... So because the problem is the loan actually will build up if you don't pay it off. And then it eats away either the cash value or you'll be able to get dividends. It can ruin your death benefit. And if it gets to a certain point where you don't do it, the policy can actually collapse, especially if you have, let's say, like 2000 and 2002, where you had multiple negative years of the stock market. Oh. So if you're like zero, zero, zeros, yeah, you're not losing money, but there's fees to these policies. So fees are usually like half a percent to 1% a year on the policies. There's annual fees of like $35 to $75. So it's going to slowly erode anyway if you're not even earning enough. So that's another challenge you can have.
Speaker #0
Well, and I think the collapse piece too, if we go back to your Swiss Army knife, the other collapsible part is you have these intentions for this. You start borrowing against it, taking loans, then you get sick, then you have no money left in the policy, but now you can't get a new policy to help your family if something was to happen to you because now you're old and sick and you've taken all the money out of it. And now the the main purpose. of the policy no longer exist. Like the benefit isn't there anymore. Right. So like, that's the real collapse fear for me is that like, you've been sold this thing that's supposed to solve all these problems, but it's a solution or it's a solution in search of a problem. Like it's not, it's, it cannot do all the things.
Speaker #1
No, this to me is, this is like a rich person's thing. Like if you're, if you're already stuffing your 401k and you already have a bunch, a bunch saved in your investment account, you already maxed out all your Roth accounts. Like, You're looking for some other way to have some tax efficient growth and things like that. Like this could be an option for you. But like I said, you need a lot of money to keep feeding this thing because if you don't, it can collapse on itself. And the other thing is there are other alternatives to kind of quote unquote, be your own bank. Like you mentioned your house, right? You can take money out of a home equity line of credit. Like I use that to get my property here in Connecticut.
Speaker #0
And that's a super, you know, in mortgage world, super common all the time. Like people do that all the time. It is very smart. And I also like it because it's... to like investments. And so the risk is usually similar. I always get nervous when people are mucking in one investment, which has one level of risk to purchase or add to another investment, which has a very different level of risk. And that I just don't think people always contemplate what that means for them.
Speaker #1
Yeah. I mean, that's a great point too. And like, and speaking of like the risk part of it, like in order for you to basically return my IUL policy, what you would with like the S&P 500, for example. you probably need a cap rate of like 12 to 15 to 17 depending on what time frame you're looking at and they're like they're at like eight or nine right now so they're well below that so you're pretty much guaranteeing that you're gonna i don't say guarantee but you're you're probably get most likely gonna underperform the s p there anyway because the other thing you could do is um they have what's called securities based lending and if you ever heard of this no this is what also a lot of rich folks do like you know if they got all this company stock you actually borrow against your equity position. So you have, let's say, $200,000 in equities or investments in S&P or company stock. You can usually borrow up to about half of that. Same concept. The money's still invested, so it's still going to grow. And the market could go up 20%. And now that growth is 20%. I mean, it could go down the other way too. So there's margin calls. There's definitely some options for that to definitely go awry. But that's also another option where you say, hey, look, I've got this investment account. If something really happens, I've got an option. Or you can still borrow against it. So there's not like only one alternative to quote unquote be your own bank. You've got your 401k you could borrow against and you have your home properties that you can always borrow against.
Speaker #0
Now, all of these concepts live because they do work for someone. Is there anyone other than rich people that this may be a sound way to invest or way to be your own bank? Or is it at its core still kind of, I don't want to say like shammy because again, life insurance isn't a sham. It's real. You need it. using it in this way or thinking about it in this way is where it becomes.
Speaker #1
I think if you're too aggressive with it, I think that's the problem. I think if it's kind of like the example I used earlier where it's like, hey, I've been putting a little extra in my life insurance policy because I want to build up the cash value. And I just want to be ready in case something happens. And there's an opportunity. To me, that's where it's good. And you have the ability to kind of pay that loan fairly quickly. That's when it can work pretty well. And that can be something for an average person where they're just putting like 10 grand in a year. And, you know, it's built up over time. And, hey, 10 years from now, like, hey, we want to get a vacation home and something just went on sale because a hurricane hit the area or whatever. Right. So they can they can jump in and do that pretty quickly. You know, the other thing I kind of had talked about in my book a little bit, it was it's you know, if you do a whole life policy, it's a it's a non-correlated asset, which means that it's not tied to what the market does. So if the market's going crazy, like drops 50 percent like it did in 2008, it's going to keep chugging along. You can actually use that as a leverage point and borrow against that for a year or two. let your investment accounts recover for a couple of years and then kind of refund the account back that way. So you can use it in different ways. But I think you really need to have a plan for the life insurance policy before you get into it. Because you want to know, like, am I building up the cash value or am I using this for the death benefit? Because that's your first decision point. Yeah,
Speaker #0
it's one or the other. Really, it's one or the other.
Speaker #1
Yeah, because if you're doing one, you're taking away from the other, basically.
Speaker #0
And I think the other message that I'm getting here, because again, I have seen some of these videos and I, like most of us, get sucked into the YouTube trap sometimes where you can learn so many things on YouTube and so many of those things are not true. Or they're just overblown or overhyped is that this sounds like a concept that has some merit, does have some value for very niche specific people in specific circumstances, but it is being sold on the internet as an amazing solution for all. that everybody should be doing this. And people get really sucked into that sort of narrative that I'm missing out if I'm not doing this thing, or this is the path to the wealth. And I think, and we've talked about this on other episodes, is that is just a true millennial vibe that we want the path to the wealth because it's been hard for us. And we feel like our parents and the boomers got something easier than us. And so we're always looking for like... man, how do we get that too? How do we get that too? And like, this just doesn't sound like it.
Speaker #1
And I think it also falls in the trap of like following that rich person that you know, or rich uncle, like, oh, this is what they did. So I should do that too. It's like, they can have totally different situation where they can afford to do something like this that you cannot, it doesn't make sense for you to do, but it makes sense for them to do. So you really need to look at like the personal part of like personal financial planning.
Speaker #0
That's a good concept too. And I think that that is something that right, when you see what somebody who's really wealthy is doing, you want to emulate them, but their wealth has afforded them opportunities that your financial position hasn't. So you don't know all the under... Some of what they may be doing with their investments is tax harvesting. Some of what they may be doing with their investments is purposeful tax loss. They're depleting assets. They're doing things which don't make sense here for you, but make sense for them way out somewhere else in an asset that you don't own in something that you don't have. I think that's really valid for people is that just because someone rich is doing it doesn't necessarily mean it's the vibe for you.
Speaker #1
Right. Exactly. So hopefully that gave a not so boring life insurance, be your own bank.
Speaker #0
I glazed a little bit, Derek. I glazed a little bit, but you caught me back at the end. I appreciated that. I think, well, I think that's what I love about these sort of conversations that we're having is that, again, as a financial professional. A lot of these concepts are still foreign and they're sold to you in so many different ways, under so many different names, under so many different concepts that it's hard to figure out reality sometimes.
Speaker #1
Yeah, and I think this is we're talking like a professional, someone that's agnostic, like don't talk to the life insurance salesperson who's like they need this commission to do this policy because that's basically a part of this, right? So like find someone that's agnostic that can give you good solid advice that's not there to just sell you a policy. to give you the real skinny on like how this could or could not fit in your life.
Speaker #0
I like it. I like it. I'm here for that. All right. Well, this was super informative. I don't feel like I need a nap after where like some of these I'm like, whew, has a lot of information.
Speaker #1
You're not going to throw any trail mix at me?
Speaker #0
I'm not going to throw trail mix at you. I may go eat some peanut butter though, because that sounds delicious. And then hopefully you will all join us for our next episode.
Speaker #1
Yeah. See you soon.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to affect some of the strategies. Investing involves risks, including possible loss of principal.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly Turner.
Speaker #1
And Derek Mazzarella.
Speaker #0
Hey, Derek. It's been a while since we've recorded an episode.
Speaker #1
It has. Yeah, I missed you.
Speaker #0
Yeah. Well, it's Maycember, which if you're a parent, you know that May is worse than any other month of the year for us because it is the month where the weather finally gets nice, you are expected to take care of your house, your garden. your landscaping, your kid has 9,000 baseball and softball games and practices. They all get rained out and then rescheduled on other days. And you need to be at school for your children in the middle of the day 37 times.
Speaker #1
Oh, yeah, yeah. Just because we got to celebrate every little thing about them. Hey, you're moving up from grade one to grade two or you're, you know, whatever.
Speaker #0
It's field day. It's writer's workshop day. It's, I don't know, there's a jump team performance. I'm going to the Yardgoats tonight to watch my daughter jump rope on the field with the jump team. So it's a little... See, right now.
Speaker #1
I didn't realize a jump rope team was a thing.
Speaker #0
Oh, it is a thing. I didn't either until my kid was on it.
Speaker #1
I feel like I'm having withdrawals from not being able to do that as a kid.
Speaker #0
You know, listen, these kids, they live a different life than we lived. They do.
Speaker #1
They do. Can I tell you about my morning meltdown?
Speaker #0
I would love it. Will it make me feel better about my own children?
Speaker #1
Yeah. So for all the parents out here, you're probably going to be nodding your head. So my son, I'm like, what do you want for breakfast? He's like, oh. And he gets very aggro and very angry right away. so I was like alright buddy uh you already had a couple waffles this week let's not do waffles and he was like and i gave him 100 million other options i was like you know but if you can make it yourself go for it so he gets his little stool like moves over our cabinet there and tries to get you know usually puts peanut butter on it uh so he pulls one jar of peanut butter there's not enough peanut butter in that one it was three quarters full oh man he wants he wants another one that is not open yet and he's screaming at me that he wants that when he's throwing things he threw his little stool over he threw trail mix at me.
Speaker #0
So you're like, Hey, happy Friday morning.
Speaker #1
I'm like, how are you this angry this early on a Friday?
Speaker #0
So what was the result? Did he eat his peanut butter?
Speaker #1
Uh, yeah, eventually he calmed down and got his own peanut butter and globbed it on there himself. Uh, yeah, but he did, it was, it took like 20 minutes of screaming though.
Speaker #0
And you said, live your best life with your peanut butter, sir.
Speaker #1
I'm going to go over here.
Speaker #0
Yeah.
Speaker #1
Yeah. I need a minute. Uh, you go do your thing.
Speaker #0
So your next life is I have taught my seven-year-old how to make scrambled eggs himself and it has alleviated all of my my breakfast arguments because he wants to eat them and he wants to make them. So I'm like, bro, go make. And he puts his butter in his pan and scrambles his egg. And he is then happy to eat it. And I don't have to have the breakfast fight with him.
Speaker #1
No, no.
Speaker #0
My middle child did cry about breakfast this morning, too, though. So like you're never free from that.
Speaker #1
I'm always like, how are you this mad this early?
Speaker #0
This early. Yeah.
Speaker #1
It's like you just woke up and you're like, I hate this.
Speaker #0
I hate this so much. Yeah. Well, there's a lot of things we hate, Derek.
Speaker #1
Yeah. So we've got the most soundproof investment concept known to man. You want to talk about it today?
Speaker #0
I do. I'm here for this.
Speaker #1
All right. Let's hear the sales pitch. Imagine. I'm going to use my sales pitch voice.
Speaker #0
I love it. Do it.
Speaker #1
Imagine if you could take control of your financial future, never rely on a traditional bank or loan again, and have your money working for you uninterrupted every single day. That's the power of infinite banking.
Speaker #0
I can't even take that seriously. yeah Okay.
Speaker #1
So the question is, what is infant banking?
Speaker #0
So I have heard the term before on the tiki-takis.
Speaker #1
You may have heard be your own bank.
Speaker #0
Be your own bank on the tiki-takis. But I don't even know what it means. I don't know, is it like you just put your own money in the bank and you borrow it? What does that even mean?
Speaker #1
Well, you put money in this magical investment vehicle where it grows, and then you can take out as much as you want. You can borrow against it. You can... and blah, blah, blah. You can add, it adds interest when it's in there. So it's really just like this magical unicorn investment and I feel like everyone should be doing it.
Speaker #0
Okay. What, what's the catch? Okay. There's obviously a catch.
Speaker #1
Yeah. No, this is a little extreme, right? So I feel like it drives me nuts as a financial advisor to see this advice all the time. Especially when it comes to like the average income person. Like this is, to me, this is like a rich person's thing and they take this rich person's thing, then try to apply it to every single person.
Speaker #0
That sounds like a lot of the investment strategies we've talked about on the show. This is like the house hack, buy all your multifamily houses. This is, you know, the last episode was like buy all the Airbnbs, but people don't realize how much work it is. Yeah. I feel like that's a theme here that like there's no get rich quick scheme that actually really works.
Speaker #1
No, there's not. Not at all. So basically this concept is you use a life insurance policy.
Speaker #0
We're talking about life insurance? Yeah, yeah. This is life insurance?
Speaker #1
Yeah, so it sounds like it's really cool and sexy, but it's just life insurance.
Speaker #0
Like grandpa old life insurance. Yeah,
Speaker #1
like since like the 1700s, we're like at our pickaxe for gold and we got a life insurance policy. Wow,
Speaker #0
I did not know.
Speaker #1
Yeah, and basically the concept is... because with there's basically two types of insurance there's term insurance uh and i'll do a quick aside uh is you're basically like renting a policy so you have a let's say a 20 year term policy you're buying half a million dollars of coverage for 20 years at the end of 20 years hopefully you're still alive hopefully if not you got your money someone's got your money you don't have you don't have your money right if you have somebody's got your money uh if not then uh you gotta start over yeah start over again and buy it and now you're 20 years older right so you're just totally renting it um a permanent policy you're putting money in uh the difference is the insurance company is going to basically pay out a death benefit at some point but along the way it builds up what's called cash value so it does have an investment component to it so it's not like you know nothing happens it does exist um the challenge is there's multiple types of permanent policies they all work a little differently i don't know if it's worth quickly going into those do it do it because i life insurance for me is that like
Speaker #0
thing that nobody wants to talk about because you don't benefit until you're dead and you don't want to talk about the people you love dying. So you sort of should have it, but it feels ugly. But then it also feels like a scam at the same time.
Speaker #1
Yeah. Well, I think the other thing is I don't want to jinx myself. I always hear that. It's like, well, just because you signed up for it doesn't mean you're going to die.
Speaker #0
Yeah. But you are going to die. That's the reality of this, people, is you are in fact going to die. We hope it would be later, but it's going to happen at some point.
Speaker #1
Right. So there's basically three main types of permanent. right so the boring one is called whole life insurance you want to think of this as like the bond one it just earns a very consistent rate of return usually it's like two to three percent per year it just chugs along and they basically the insurance company is basically paying you dividends so they're giving money back from what the investments that they made on you kind of like how a bank gives you interest same kind of thing um the other side of the extreme is a variable uh permanent policy right so the way that works is they're going to invest in stocks or mutual funds within your... life insurance policy so one year you could be up 20 when you could be down 20 so there's a lot more variability with those variable universal life policies are called uh and then in between it's called an indexed universal um the difference there is usually you can't lose money on it because they have a floor of zero so let's say the market goes down 30 in one year you
Speaker #0
just don't lose money you just you you right where you started yeah um but it also has a cap
Speaker #1
So it's a downside. They're not going to give you all the upside and another downside, right? No one does that. If they did, that'd be great. And I'd definitely buy that policy.
Speaker #0
I feel like that would be the smart policy.
Speaker #1
Yeah. But the caps are usually much lower than what you could get in the S&P, for example. So let's say the S&P goes up 25% in one year, your cap may be eight. So instead of getting 25%, you're getting eight that year.
Speaker #0
But if it goes down 30%, you're fine.
Speaker #1
You're fine. Yeah. So some ways it can even out. The other thing to consider is Because they buy options, you don't have to know any of this part of it, but they don't pay you dividends. So you only get the price return of S&P. So some companies like Verizon will pay you a dividend each year. That's included in the S&P, which is usually about 2% of returns per year on average. So you have a little less actual return to keep in mind.
Speaker #0
Have my eyes glazed over yet? They did.
Speaker #1
Yeah, they did.
Speaker #0
They glazed over. Cool, cool.
Speaker #1
Just a little wonky thing to know, and this is probably going to come in later. So I just wanted to...
Speaker #0
Yeah, well, and again, I think this is super valid because people fall for this sort of hype stuff because of the eyes glazing over part, right? That the technicalities of these sort of things, you're like, I don't really care. But when you tell me infinite bank policy, that sounds really exciting. And my eyes are no longer glazed over. Well,
Speaker #1
I'll just give you, let's say the cap is 10, right? For easy math. And then the S&P does 10 that year. But 2% of that is the... dividends so you're really going to get eight in your contract yeah because the two the two is dividends and went stayed with the life insurance company because they're like this is our this is our cut here sort of yeah yeah that's that's fair fair enough uh so those are those are the kind of the three types of policies now the infinite banking folks go with you either the whole life or the iul okay because the investment stuff is too risky for them because they they got to borrow this money yeah because it's a bank so here's here's kind of like with the you know have you Have you ever heard the term, it's a Swiss army? investment.
Speaker #0
Yeah. And that is, again, I think when I hear that my eyes glaze over, that's a glaze over moment for me where I'm like, okay, but isn't that all investments that they're all sort of, I don't know. What does a Swiss army investment mean? Well,
Speaker #1
cause they're saying, okay, look, so you're getting a death benefit. So that's one benefit for it, right? It'll build cash value. So it's, it has an investment component to it. So that's another one. It has tax deferred growth. So while the cash value is building up, you pay no taxes.
Speaker #0
That sounds kind of good.
Speaker #1
So that doesn't suck. you can take a loan against it and have tax-free income out of it.
Speaker #0
Also sounds kind of good.
Speaker #1
So it does, it can do a couple things and, you know, there's certain riders, so if you get disabled it'll actually pay the policy for it. You know, some have long-term care components to it where you can borrow a percentage of the death benefit to pay for a long-term care expense. So it has all these features. The challenge is it can't do all of them at the same time.
Speaker #0
Oh, okay. So yes, these are valid. Yes, they can be great. But where, again, infinite banking people go wrong is that it can only be doing one of its jobs. It can't be doing all of its jobs at the same time.
Speaker #1
Yeah. So if I'm talking to a client about life insurance, we get to like, what is the goal of this? Is the goal of this to have the death benefit for estate taxes or something like that? Or is the goal to really build it up and use it as an investment vehicle? Because if that's the case, then the death benefit should be kind of pushed aside.
Speaker #0
That's not what we're worried about.
Speaker #1
And yeah, but they're kind of telling you, okay, how's all this cool stuff? Because I'll give an example. So if you take a loan out and you never pay it back, let's say your death benefits are $500,000, you take out $100,000 and you owe $100,000 when you die, your beneficiaries get $400,000. So they don't get that plus.
Speaker #0
Yeah. The loan is a real loan.
Speaker #1
It's a loan. It needs to be paid back at some point.
Speaker #0
So where is this sort of hype about infinite banking coming from? Is this overzealous salespeople who want their commission and they're trying to, ooh, this thing is sexy. Are they just trying to sexify something that's been around forever to sell more of it? Because I do think one of the millennial traits is that we both want to make money because money has been a struggle. We've covered that in other episodes. We've lived in a money scarce time that feels like we both have a lot of money and no money. So we're always looking for ways to make money. But we're also very skeptical of old fashioned ways of making money because they feel irrelevant to us. So are we just taking something that's been around forever and trying to trying to hype it up for the younger generation? Well,
Speaker #1
this this this concept has been around for a while. So infinite banking, I think, was invented like the late 70s, early 80s, if I remember correctly. But basically, the concept is you put money in this policy, it builds up cash value. And at some point you can say, hey, look, I want to buy a house. whether it's a rental property or maybe it's a primary residence or you want to use it for something, you borrow against the policy because I'll give you an example. Like, you know, in 2008, credit went away, right? Yeah,
Speaker #0
it was very hard to get a loan.
Speaker #1
But you said all these houses are on sale. I've got this asset over here I can borrow against and then I can buy a couple of houses and I don't need to get a loan. I don't need to have any.
Speaker #0
Well, I don't need to get a loan from someone else.
Speaker #1
From someone else. So I don't need to get. you know, I'm not dealing with their liquidity issues on that, you know, like you are your own bank. So you have your own power to say, look, I'm going to go put a down payment on this house.
Speaker #0
Yeah. You're not getting qualified. You're not dealing with someone like me or you want that. You want it. Here you go.
Speaker #1
And your policy is already the collateral. So you don't have to put up additional collateral. Like let's say you want to buy a house. You already own one. Oh, you're not putting up your own house. You're putting up your policy essentially. So there is a use case for it. But I think we're. I see it goes awry is like, oh, you borrow against it, put it back in there. You put a borrow against it and put it back in there. And like, you can keep borrowing and pay like I paid off $120,000 of credit card debt by doing this, which is just total BS.
Speaker #0
Yeah. Well, you're using an asset to pay for liability. Like,
Speaker #1
yeah, but the problem is, you have to put the money back in there to keep it growing. Because I guess it's probably important to know kind of how mechanically these policies work. And a lot of people are probably like that are life insurance people that are like, listen, screaming at me right now. You got to fund it properly and all that stuff. So let's maybe take a second to talk about what that's about. So all insurance has a cost. So I looked up just for my 39-year-old self. And here's a quick tip for everyone. If you're within six months of your birthday, they treat you as the next birthday. So I'm 39 right now, but I'll be 40 in July.
Speaker #0
So you are 40?
Speaker #1
I am 40. Oh, I love that. Looking at buying a policy. This is like when you're five, you're like, I'm five and a half. This is where the actual half comes into play again when you're an adult for the only other time. But I can get myself a 30-year term policy for half a million dollars for $540 a year.
Speaker #0
That's the rented policy.
Speaker #1
The rented one, right?
Speaker #0
That's pretty cheap.
Speaker #1
Pretty cheap, right? The index universal one is about $7,179. A year. A year. A year. So not cheap. So yeah, a lot more expensive. A whole life one is $8,945.
Speaker #0
Okay. So not... crazy more than option two.
Speaker #1
No, the point of that is you're paying, you're buying insurance. So you still have to pay for the insurance part of it. It's still going to build up cash. And where the infinite banking concept comes in is like, you have the thing with life insurance, we can actually overpay for something. So instead of putting like 8,000 in or 9,000 for the policy, you'd be putting in like 18,000 or 25,000. So it's some insurance. And the way that you design this is to minimize the death benefit and maximize the cash value.
Speaker #0
So Can we just pause for a minute so I can ask this question? Yeah. Like, this is still your money that you're putting in. So, like, the difference between using a bank and using this is when you use a bank, it's not your money. Right? It's not your money. It's somebody else's money. So you're leveraging somebody else's money. When you're doing this, it's your money, which also means you're not putting it somewhere else.
Speaker #1
Right. There's an opportunity cost to this.
Speaker #0
Yeah. It's not in your... retirement account. It's not in an investment account where it could be making 20%. It's not in a...
Speaker #1
In your home even.
Speaker #0
In your home, in real estate investments. It's... It's just your money that's chilling for you to borrow it again.
Speaker #1
Right, basically. And, you know, so I was like, I was looking around to kind of research, like, why are people doing this? And, like, what are they selling? So I actually did find, so when you do an insurance policy, you get what's called an illustration. It shows you all these ridiculous columns that you probably can never read.
Speaker #0
It's like an amortization schedule for a mortgage. Yeah.
Speaker #1
That's a lot of numbers, right? So, you know, so they look at, they're using a 31-year-old in this example here that I have. So obviously health is a factor. So if you're, you know... have cancer or you're like a chain-spoking overweight diabetic, you're probably not going to get this policy.
Speaker #0
Well, and this is just a quick pause. For those of you who have life insurance or don't have life insurance, when you get life insurance through your work, generally, it's just auto-assigned to you. You don't have to do anything. If you are getting life insurance with an outside policy, you are usually having a physical, you are giving a medical history, you may be giving medical documentation from your doctors, you're giving permission for them to to speak to your doctor. So like, If you have made it to 40 and do not have any medical problems, God bless you. Enjoy. Have a great time. But most of us have something. And that can greatly impact what these policies cost. Right. Right. So full stop. Just know that. This is what you want to do when you're younger. But I got life insurance, I don't know, two years ago. And I was astounded by the work that it took to make that happen. And they don't just want to talk to your primary care. I had to give them. all of my doctors.
Speaker #1
It's a house a big thing now.
Speaker #0
Everybody, my OBGYN and they pulled like birth records of my kids and like, have you had your mammogram? And like, they want everything because they're betting on how long you're going to live.
Speaker #1
Right.
Speaker #0
And like people have to get that part of it. Like, yeah, it's invasive.
Speaker #1
Yeah. They price it in. All right. So anyway, like, so this example they use, this person's like, oh, this is the best way to go. So the base premium is $3,500. Okay. Okay. They're putting an additional $28,000 in. and change, right? So their total amount they're putting in is $25,000 a year into this policy.
Speaker #0
A year.
Speaker #1
Every single year. So that's the other thing you got to think about. You're funding this every year. If you're borrowing from it, you're paying yourself interest, but also you have to pay premiums too on top of paying back the interest. I know you're paying yourself the interest,
Speaker #0
but it's like a mortgage, right?
Speaker #1
You can't just say like, hey, I'm taking a home equity line out of my mortgage. I'm going to stop taking the mortgage payments. You're still making the mortgage payments. So think of it that way with the life insurance policy. You're still making the premium payments. So they're overfunding it by a really large amount. So after five years, you put $125,000 in this policy. What do you think the policy is actually worth right now, the cash value, based on this illustration?
Speaker #0
If this is a good investment, more than $125,000.
Speaker #1
It is at $120,184, and that's the non-guaranteed amount.
Speaker #0
Where? So how many years did you say this is over?
Speaker #1
Five years.
Speaker #0
So I want everybody to contemplate that, too. if you put $125,000. in five years into an investment account, it would be worth more.
Speaker #1
Hopefully. Yeah.
Speaker #0
Like pretty much it would be worth more.
Speaker #1
Yeah. I'd say if you invest it correctly, it should be worth more than that.
Speaker #0
Okay. Just for clarity. Just want to make sure that I'm understanding this.
Speaker #1
So then after 10 years, we're at 250,000. Okay. Now we're at 288,000 of cash values.
Speaker #0
Okay. So I got made a little money there.
Speaker #1
Yeah. 38,000 right after a couple of years. And they're going to show you, Hey, look, well, after a year... four, you put $25,000 and you're getting $25,000, $26,000 increase in your cash value. So like, we're already like up there of like, yeah. So generally you're paying for the insurance the first few years and then you're kind of catching up after that. But you have to commit to this for a long time. And a lot of things that I have a problem with is like, oh, it's liquid. It's not liquid because you're not getting your money back right away. I mean, yeah, you've like, so after one year you put $25,000 in and this one you have $19,000 of cash available. Like, that doesn't sound great. No. And you're not going to borrow, you're not going to pay anything meaningfully with that. No. Anyway, you may as well just use the cash at that point. Well,
Speaker #0
that's it. You put $25,000 in to borrow $19,000 back. Well,
Speaker #1
you can't even always borrow the whole amount either. So you have to keep some cash in there to keep the policy afloat.
Speaker #0
This is not sounding great to me. This strategy, again, life insurance, valid, real, people need it. But this particular strategy, I can see like where this can go south.
Speaker #1
Right. And one of the arguments they're going to make, and it's going to be similar to a home equity line of credit, is, okay, let's say I've got $100,000 of cash value built up. I take out 50. I'm going to get a loan payment or interest payment on the 5,000, right? So I have to borrow 50. I'm going to have an interest payment on the 50,000 of, let's say, 5% or 7%. But I'm still earning the same interest on the whole 100,000. So it's like, oh, there's some arbitrage there, right? Like, I haven't taken 50,000. Like, if you took 50,000 out of your bank, you're not earning...
Speaker #0
No, you're earning zero. You're earning $0 even when it's in your bank, but you're earning- No,
Speaker #1
if you had $100,000 in the bank, you take half out, you're only earning interest on the remaining amount, right? So they're saying, well, you still have the whole $100,000 in there that you're earning interest on. But yeah, you're paying. you know, interest rate on the money you borrowed. So you're not exactly getting, it's not a one for one. Not a one for one. Exactly. So you may be earning four, but the interest rate is six.
Speaker #0
And this, I will say the other piece to this is that I'm a belief in like, keep it simple when we're talking about this stuff. And this just feels so complicated, so convoluted and complicated.
Speaker #1
It is because I think people just, it's, well, why would you understand how this goes unless you do this? Like there's a lot of moving parts.
Speaker #0
But people are making this decision from watching like YouTube videos.
Speaker #1
Right. And they're just talking to someone's like, Oh no, we overfunded boom, boom, boom, boom.
Speaker #0
Everything's great.
Speaker #1
And then, yeah, we're all, we're all good in the hood here. Um, but that's the, the challenge is it just doesn't work the way they're telling you it does work. In order for this to really work, you have to a overfund the crap out of it. As you see your, your base premium is 3,500. You're putting an extra 20,000 in.
Speaker #0
Yeah. Right. 20,000. Like we're not talking about a little bit of money.
Speaker #1
No. And, and, you know, if you did, you know, let's say you just doubled it. It's not gonna get you there. Right. Um, two, you have to commit to it for a long time. like it's not a oh we're going to do this for three years and i'm going to have all this money to invest all these properties and i'm just going to build this wealth uh and do all this fun stuff and magical fairy is going to come down from heaven um it's not going to happen right so you just need to have this policy really designed well for you um you know i talked to someone who was really smart about this stuff and i was like well what's what's like what's the real value of it and one of the things he said to me that i was like instead of actually borrowing it from your policy directly you can actually use it as an asset to leverage it from like and borrow from a bank And that could be, you might be able to use that earlier than you would normally just borrowing from the policy itself. But then you have to deal with the underwriting and all the other stuff that we talked about that's a negative.
Speaker #0
We're not a negative, Derek. The bank is a delight.
Speaker #1
Yeah, I love going to banks.
Speaker #0
Everybody loves us.
Speaker #1
So, I mean, that's the real challenge with this strategy in general is that there's a lot of moving parts to it. It's really expensive. You need a lot of dough to make this work. So the rank and file person is... that makes $60,000 a year.
Speaker #0
This isn't it.
Speaker #1
You're not putting half your salary in here.
Speaker #0
No, this isn't it. Now, I think the other piece too to recognize is I also think it's a bit of a psychological trap in that this is still a loan. When you are borrowing this money, it is still a loan. It's a loan from yourself and I totally get that, but there's a negative if you don't repay it.
Speaker #1
Right. Yeah. I mean, eventually there's... So because the problem is the loan actually will build up if you don't pay it off. And then it eats away either the cash value or you'll be able to get dividends. It can ruin your death benefit. And if it gets to a certain point where you don't do it, the policy can actually collapse, especially if you have, let's say, like 2000 and 2002, where you had multiple negative years of the stock market. Oh. So if you're like zero, zero, zeros, yeah, you're not losing money, but there's fees to these policies. So fees are usually like half a percent to 1% a year on the policies. There's annual fees of like $35 to $75. So it's going to slowly erode anyway if you're not even earning enough. So that's another challenge you can have.
Speaker #0
Well, and I think the collapse piece too, if we go back to your Swiss Army knife, the other collapsible part is you have these intentions for this. You start borrowing against it, taking loans, then you get sick, then you have no money left in the policy, but now you can't get a new policy to help your family if something was to happen to you because now you're old and sick and you've taken all the money out of it. And now the the main purpose. of the policy no longer exist. Like the benefit isn't there anymore. Right. So like, that's the real collapse fear for me is that like, you've been sold this thing that's supposed to solve all these problems, but it's a solution or it's a solution in search of a problem. Like it's not, it's, it cannot do all the things.
Speaker #1
No, this to me is, this is like a rich person's thing. Like if you're, if you're already stuffing your 401k and you already have a bunch, a bunch saved in your investment account, you already maxed out all your Roth accounts. Like, You're looking for some other way to have some tax efficient growth and things like that. Like this could be an option for you. But like I said, you need a lot of money to keep feeding this thing because if you don't, it can collapse on itself. And the other thing is there are other alternatives to kind of quote unquote, be your own bank. Like you mentioned your house, right? You can take money out of a home equity line of credit. Like I use that to get my property here in Connecticut.
Speaker #0
And that's a super, you know, in mortgage world, super common all the time. Like people do that all the time. It is very smart. And I also like it because it's... to like investments. And so the risk is usually similar. I always get nervous when people are mucking in one investment, which has one level of risk to purchase or add to another investment, which has a very different level of risk. And that I just don't think people always contemplate what that means for them.
Speaker #1
Yeah. I mean, that's a great point too. And like, and speaking of like the risk part of it, like in order for you to basically return my IUL policy, what you would with like the S&P 500, for example. you probably need a cap rate of like 12 to 15 to 17 depending on what time frame you're looking at and they're like they're at like eight or nine right now so they're well below that so you're pretty much guaranteeing that you're gonna i don't say guarantee but you're you're probably get most likely gonna underperform the s p there anyway because the other thing you could do is um they have what's called securities based lending and if you ever heard of this no this is what also a lot of rich folks do like you know if they got all this company stock you actually borrow against your equity position. So you have, let's say, $200,000 in equities or investments in S&P or company stock. You can usually borrow up to about half of that. Same concept. The money's still invested, so it's still going to grow. And the market could go up 20%. And now that growth is 20%. I mean, it could go down the other way too. So there's margin calls. There's definitely some options for that to definitely go awry. But that's also another option where you say, hey, look, I've got this investment account. If something really happens, I've got an option. Or you can still borrow against it. So there's not like only one alternative to quote unquote be your own bank. You've got your 401k you could borrow against and you have your home properties that you can always borrow against.
Speaker #0
Now, all of these concepts live because they do work for someone. Is there anyone other than rich people that this may be a sound way to invest or way to be your own bank? Or is it at its core still kind of, I don't want to say like shammy because again, life insurance isn't a sham. It's real. You need it. using it in this way or thinking about it in this way is where it becomes.
Speaker #1
I think if you're too aggressive with it, I think that's the problem. I think if it's kind of like the example I used earlier where it's like, hey, I've been putting a little extra in my life insurance policy because I want to build up the cash value. And I just want to be ready in case something happens. And there's an opportunity. To me, that's where it's good. And you have the ability to kind of pay that loan fairly quickly. That's when it can work pretty well. And that can be something for an average person where they're just putting like 10 grand in a year. And, you know, it's built up over time. And, hey, 10 years from now, like, hey, we want to get a vacation home and something just went on sale because a hurricane hit the area or whatever. Right. So they can they can jump in and do that pretty quickly. You know, the other thing I kind of had talked about in my book a little bit, it was it's you know, if you do a whole life policy, it's a it's a non-correlated asset, which means that it's not tied to what the market does. So if the market's going crazy, like drops 50 percent like it did in 2008, it's going to keep chugging along. You can actually use that as a leverage point and borrow against that for a year or two. let your investment accounts recover for a couple of years and then kind of refund the account back that way. So you can use it in different ways. But I think you really need to have a plan for the life insurance policy before you get into it. Because you want to know, like, am I building up the cash value or am I using this for the death benefit? Because that's your first decision point. Yeah,
Speaker #0
it's one or the other. Really, it's one or the other.
Speaker #1
Yeah, because if you're doing one, you're taking away from the other, basically.
Speaker #0
And I think the other message that I'm getting here, because again, I have seen some of these videos and I, like most of us, get sucked into the YouTube trap sometimes where you can learn so many things on YouTube and so many of those things are not true. Or they're just overblown or overhyped is that this sounds like a concept that has some merit, does have some value for very niche specific people in specific circumstances, but it is being sold on the internet as an amazing solution for all. that everybody should be doing this. And people get really sucked into that sort of narrative that I'm missing out if I'm not doing this thing, or this is the path to the wealth. And I think, and we've talked about this on other episodes, is that is just a true millennial vibe that we want the path to the wealth because it's been hard for us. And we feel like our parents and the boomers got something easier than us. And so we're always looking for like... man, how do we get that too? How do we get that too? And like, this just doesn't sound like it.
Speaker #1
And I think it also falls in the trap of like following that rich person that you know, or rich uncle, like, oh, this is what they did. So I should do that too. It's like, they can have totally different situation where they can afford to do something like this that you cannot, it doesn't make sense for you to do, but it makes sense for them to do. So you really need to look at like the personal part of like personal financial planning.
Speaker #0
That's a good concept too. And I think that that is something that right, when you see what somebody who's really wealthy is doing, you want to emulate them, but their wealth has afforded them opportunities that your financial position hasn't. So you don't know all the under... Some of what they may be doing with their investments is tax harvesting. Some of what they may be doing with their investments is purposeful tax loss. They're depleting assets. They're doing things which don't make sense here for you, but make sense for them way out somewhere else in an asset that you don't own in something that you don't have. I think that's really valid for people is that just because someone rich is doing it doesn't necessarily mean it's the vibe for you.
Speaker #1
Right. Exactly. So hopefully that gave a not so boring life insurance, be your own bank.
Speaker #0
I glazed a little bit, Derek. I glazed a little bit, but you caught me back at the end. I appreciated that. I think, well, I think that's what I love about these sort of conversations that we're having is that, again, as a financial professional. A lot of these concepts are still foreign and they're sold to you in so many different ways, under so many different names, under so many different concepts that it's hard to figure out reality sometimes.
Speaker #1
Yeah, and I think this is we're talking like a professional, someone that's agnostic, like don't talk to the life insurance salesperson who's like they need this commission to do this policy because that's basically a part of this, right? So like find someone that's agnostic that can give you good solid advice that's not there to just sell you a policy. to give you the real skinny on like how this could or could not fit in your life.
Speaker #0
I like it. I like it. I'm here for that. All right. Well, this was super informative. I don't feel like I need a nap after where like some of these I'm like, whew, has a lot of information.
Speaker #1
You're not going to throw any trail mix at me?
Speaker #0
I'm not going to throw trail mix at you. I may go eat some peanut butter though, because that sounds delicious. And then hopefully you will all join us for our next episode.
Speaker #1
Yeah. See you soon.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to affect some of the strategies. Investing involves risks, including possible loss of principal.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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