Life Insurance has a powerful friend in Ed Slott
For a guy that doesn’t sell life insurance, Ed Slott is one heck of a life insurance salesman.
He’ll be the first to tell you he’s a tax advisor, not an insurance guy. He does not directly sell life insurance or annuities. But that has never stopped him from being an outspoken advocate for the power of life insurance and its place in any sound financial plan.
“As a tax advisor, I have to constantly remind people that the single biggest benefit in the tax code is the tax exemption for life insurance. There’s no question that that’s the way to keep most of your money if not all of it protected from taxes forever,” says Slott, who sat down for an exclusive interview with Insurance Forums in late September.
While it is hard to find many more high-profile advocates for life insurance than Slott, he is, of course much more well known as an individual retirement account distribution expert. Slott was named “The Best Source for IRA Advice” by The Wall Street Journal and called “America's IRA Expert” by Mutual Funds Magazine. He is a professional speaker, best-selling author, and the creator of several public television specials, including the most recent, “Ed Slott’s Retirement Road Map!”
He established the IRA Leadership Program and Ed Slott’s Elite IRA Advisor Group to specifically help financial institutions and advisors, financial advisor firms and insurance companies become recognized leaders in the IRA marketplace. He regularly presents seminars on IRA distribution planning for financial advisor firms, mutual fund companies, brokerage firms, insurance professionals, financial planners, banks, CPAs, and attorneys all across the country.
Slott has no question been able to carve out a great niche as an IRA distribution expert as the country has transitioned in recent decades from pension plans to retirement accounts.
“The reason this is a big deal now is that you’re seeing the first wave of retirees with retirement accounts,” Slott says. “Before the birth of the 401(k) and the proliferation of IRAs and tax-deferred accounts, most people had pensions. They didn’t have to do any of this ‘retirement planning.’ They got their check and it was guaranteed for life.”
Once companies realized they could transfer the risk and the responsibility of investing from themselves to their employees, Slott says, they figured, “That’s a good deal for us,” and everybody switched to 401(k)s. A lot of that money also ended up in IRAs.
Slott says as people were weaned off pensions they were taught to save, but did so in tax-deferred accounts where they will in the future have to pay taxes, possibly at a much higher rate when they can afford it the least.
“Nobody wants to go into retirement with tax bill hanging over their head of an unknown amount, based on how much the government needs at that time,” Slott says. “Could you imagine if you went to a bank to get a loan on a mortgage, and the bank said, ‘don’t pay us anything on the loan yet – we’ll let you know when we need money – and how much we need – and then we’ll tell you what the rate is.’ Who would sign up for that? Because we all signed up for these tax-deferred accounts – IRAs. They sounded good at the time – you got a tax deduction up front – but most people didn’t realize that they’re going to pay for it and then some later. We don’t even know how much we’re going to pay.”
With all of that money subject to some future tax bill, Slott says it’s a mistake to do nothing, because it leaves you at the mercy of the government to determine how much your tax bill will be at a time when you are no longer working.
“I think there’s a better system, so that’s why you hear me talking about tax-free, Slott says. “My mantra, you might say, is the mission is to move your money from accounts that are forever taxed to accounts that are never taxed. And there are ways to do it like Roth IRAs, but life insurance is a also big way.”
Slott says life insurance is certainly a legitimate tax strategy, and it is being used effectively by insurance advisors with specialized knowledge who know how to make the transition from traditional IRAs and 401(k)s to a vehicle like life insurance that can take away the tax risk and the investment risk.
And to the Dave Ramseys and Suze Ormans of the world that rail against whole life and preach “buy term, invest the difference,” Slott says there’s a big problem with that strategy, particularly if you are a retiree or near-retiree with a tax-deferred retirement account.
“Now you’re up against the two biggest risks to your money – tax risk and investment risk (investment risk meaning stock market risk). Nobody wants those two nooses around their neck, especially going into retirement,” Slott says. “Insurance is the kind of product where you can eliminate the taxes and the investment risk. So to me, that is essential for anybody who wants to sleep at night. I don’t know of any other product that attacks both risks at once.”
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