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Retirement Saving for Mega-Millionaires - Mar 23, 2009

Posted by: David Kirkup in Articles

I have a solid retirement plan...

Every time the Mega - Million Lottery prize exceeds $150 million, I buy a ticket. Cynics may scoff at the odds and try and tell me that I am wasting my money. But the vicarious thrill of imagining how I will spend my $235 million lasts the whole weekend, even with the inevitable Tuesday disappointment that yet another garbage worker in New Jersey has picked the winning ticket.

Of course, I also have a Plan B. I invest for retirement in whole life insurance that comes with a guaranteed minimum return and long term average rate of 7%, tax free distributions at retirement and no-hassle loan capabilities at any time, together with a substantial tax free estate at the end game. Cynics again may scoff: "You should buy term, and invest the rest", but I say my nest egg is still growing. And I'm not alone: 68% of the Fortune 1000 utilize company owned life insurance in their long term investments, and 99% of banks own large amounts of life insurance.

And yet conventional wisdom is 401K and Roth IRA - as the only game in town? Well, the 401K contribution will max out at about $16,000 a year - which is too low for many successful business owners. Other qualified plans - i.e. those following arcane tax rules to ensure tax deductibility of contributions - are not much better. Sure you can save tax free, but you have to take the money out at 70, and what do you think will happen to tax rates by then?

So..what can a successful, high income business owner do to invest for retirement and minimize taxes? One promising option is the Executive Retirement Supplement Alternative. This type of plan adopts many of the benefits of whole life insurance such as guarantees, solid returns, tax free distributions and an estate legacy, while providing company tax deduction for contributions. There are no practical limits on funding your plan and no requirements that you spread the wealth across all employees. But it can also be used to reward valuable, highly compensated executives who you would like to engage with "golden handcuffs".

Another promising area for larger companies is the captive insurance arrangement which allows a company to set up tax deferred insurance plans to dedicate funds for purchase of competitors, employee buyouts or family transitions. More in a future blog.

For insight on ways to maximize the value of your exit plan, while reducing lack of control and volatility, call David Kirkup - your B2B CFO^® - on 770 845 6897.