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116 of 126 people found the following review helpful:
1.0 out of 5 stars
Follow this advice at your own peril!, December 20, 2007
This review is from: The Last Chance Millionaire: It's Not Too Late to Become Wealthy (Hardcover)
This book is primarily a sales pitch aimed at getting you to borrow against your home to buy indexed universal life insurance. The author advises you to not only not contribute to a 401(k) or IRA but encourages you to withdraw the funds to buy insurance. His illustrations regarding the tax consequences of distributions from your tax deferred retirement accounts are simplistic. He also omits entirely the tax savings you have when contributing to a 401(k). If you contributed $20500 (the limit for 2007 for someone age 50 or over to a 401(k) and were paying a marginal tax combined state and federal tax rate of 33%. (A rate the author uses in many of his illustrations) you would save $6765 in taxes immediately. The tax savings can also be invested in either a taxable account or possibly a Roth IRA or even a nondeductible traditional IRA. You would then have $26,765 (not including the employer match) working for you instead of just the $20500 that you would have paid in premiums for the universal policy. The author does not mention this possibility at all. He compares a pretax 401(k) contribution to an after-tax insurance premium. He states that the 401(k) distributions are taxable when received (a true statement)and therefore you have not improved your retirement situation. However, you will have been able to save more than 30% more each year than you would have put into the insurance policy and since a significant portion of the total retirement balance will have already been taxed you can pay taxes from that side of the savings.
The author is several places compares the returns of a mutual fund to the universal life policy by assuming a 10%-11% return to both investment vehicles, conveniently ignoring that you must pay substantial insurance expense and mortality charges from the returns. If both a index mutual fund earns 10% and index universal policy earns 10% before expenses, you must compare the two vehicles after charges and expenses are deducted. In that case the mutual fund may have a 9.5% return while the insurance policy would have a 7-8% return. Although the policy credits are not subject to income taxes, the net after-tax difference is not as large as first appears. However, this is only comparing the after-tax rate of return on the policy. You must also compare the balances which will earn those returns. You will pay substantial commissions (loads) to buy an index universal policy (generally 5%-12% of the premium). After commissions you will have considerably less money working for you. You could pay as much as $24,000 in commissions on a $200,000 premium. This means that your policy will have a much lower balance than your investment for several years. See the author's illustration of values on pages 292-293. While looking at that table also note that the illustration has an initial premium payment of $62700 while he compares it to a 401(k)/IRA contribution of approximately $35,000 for a married couple (and ignores the tax savings which can also be invested). He also assumes that the 401(k)/IRA are subject to 3% sales charges and a 1% expense ratio. You can buy no-load index mutual funds all day long with no sales charge and expense ratios of less than 0.25%. In this illustration he assumes contributions to the alternative investments all cease after 10 years at age 60 and that the couple will retire at age 70 and begin taking distributions. Having shown a comparison of smaller contributions to a 401(k) with larger contributions to the retirement account, he then "proves" that the insurance policy will last longer than the 401(k)! I can present an analysis to my clients which shows that the same after-tax investment in a combination of a 401(k) and taxable account will be far superior to the insurance policy.
The advice to continue refinancing your mortgage ignores the costs of refinancing. You will incur transaction costs in refinancing. Although some mortgage brokers will advertise no closing costs you must compare the effective annual percentage rate of the loans offered. The mortgage brokerage business can be just as deceptive as the insurance brokerage business. The author also ignores the itemized deduction phase-out and alternative minimum tax consequences of his strategy to refinance and use the proceeds to buy life insurance.
I could go on for hours about problems with this author's strategies and the misleading arguments he makes. The long-term rate of appreciation on residential real estate is aproximately 6% or 3% above inflation, which coincidentally, is approximately the market rate on conventional mortgages. The current housing credit crunch is a product of strategies such as those presented in this book.
If you wish to assure an insurance agent and a mortgage broker of a good retirement, follow the strategy. Otherwise consult a good fee-only financial planner for sound planning advice. You can buy a lot of advice for the commissions you will incur following this author's sales pitch.
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44 of 54 people found the following review helpful:
1.0 out of 5 stars
What your Life Insurance Agent hopes you NEVER read, October 1, 2007
This review is from: The Last Chance Millionaire: It's Not Too Late to Become Wealthy (Hardcover)
When did Life Insurance become a good Investment?
Did they stop charging those 90% plus commissions on target premiums?
When did the Life Insurance Agent become a charitable organization?
Anyone who is believing this so called NEW way of thinking is either really bad with math or simply does NOT understand Life Insurance. There is a REASON you don't see REAL professionals using this concept they KNOW the TRUTH!!!
What is the ROI on my home Equity? MORE THAN ANY LIFE POLICY!!!!
After you learn how to subtract out all the commissions and fees, then the REAL cost of the death benefit, loan fees for your house loan fees for the life policy let's sit down and compare which approach works best. Having my house free and clear with NO COMMISSIONS to pay, no loans, and no INCREASING internal costs for the life insurance will BEAT any Life Policy I GUARANTEE IT!
Here is a shocker to reality. If you bought into this BS and mortgaged your house and placed the money into a life policy order a current statement for your policy showing the SURRENDER CASH VALUE in the first year, HOW MUCH did you LOSE? Then look at the 5th year how much have you LOST? Tenth year? Do the REAL MATH find out the REAL FACTS.
LIFE INSURANCE is one of the HIGHEST commissioned products in the financial industry if not the HIGHEST FACT! Where do you think that money comes from, YOUR POCKET. 90% first year target premium commission and then about 6% commission each year thereafter. Do the math if the insurance company is paying out 90% of the first year target premium in commissions and 6% each year how long does it take for YOU to make MONEY or even breakeven on your so called investment? It will take OVER 20 YEARS!
Here is a little KNOWN FACT there are currently MANY so called experts out there today TRAINING for a large fee many other life insurance agents and mortgage brokers how to SELL LARGE COMMISSIONED life insurance policies. They don't care if you need a policy or NOT they only care about SELLING a policy. Check the facts. Some are even paying for cruises for Seniors then encouraging them to apply for insurance. IT IS HIGHLY PROFITABLE to someone BUT NOT YOU the policyholder.
You will see many lawsuits in the coming years from these abuses when the you know what finally hits the fan.
By the way did you know that it was illegal for you stock broker to encourage you to take out a mortgage to buy an REAL INVESTMENT? It should also be illegal for Insurance Agents but it's not, well not YET, time will tell.
I wish more people would ask the harder questions before believing this new line of BS.
FACTS: Insurance agents make about a 30-50% commission on term life insurance and around 90-95% commission on whole life products. Keep in mind that this is the first year commission on the premium and subsequent year commissions are much lower with an average of 6% per year for whole life products and 4% per year on term life insurance products.
One of the great problems with whole life is only an expert can tell if a policy you own or are considering will ever become a decent investment. James Hunt, actuary for the Consumer Federation of America, who has analyzed thousands of policies, notes that whole life policies hardly ever yield a reasonable return unless held for 20 years or more.
So if you buy one be prepared to pay into it for the very long haul.
The key to a whole life policy is its internal rate of return -- the yield on the policy after all fees and charges are subtracted. A competent analysis can determine at a minimum whether the weight of the fees and charges built into one of these policies will ever allow a worthwhile return. Such an analysis will also pinpoint the minimum amount of cash value that you can derive from a policy at any given time interval.
Some financial planners, actuaries and accountants can perform internal rate of return analysis on your policy. The Consumer Federation has a service that will do this, calculating the real return year by year and comparing it with other investments.
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37 of 45 people found the following review helpful:
4.0 out of 5 stars
Money, Time and Piece of Mind, July 4, 2007
This review is from: The Last Chance Millionaire: It's Not Too Late to Become Wealthy (Hardcover)
The Last Chance Millionaire's title reveals the author's selected audience very clearly: the retirement or slightly pre-retirement crowd. As a member of that group, I wanted to read this book to explore alternate investment strategies from a high-profile financial professional like Mr. Andrew.
The author's approach is very different from old-school thinking toward personal long-term investing, as you might expect. Mr. Andrew continues with the theme he revealed in Millionaire 101, which includes having interest-only mortgages with side investment vehicles to protect real estate equity, insurance products that offer high interest rates, flexibility, and easy transferral to heirs, and more. The key investment strategy is to finance to the max, and invest the equity elsewhere at a higher rate of interest. This approach makes sense if everything continues to work as it should, if real estate values remain constant and if you are able to continue to make those higher payments.
In a declining real estate market such as we now find ourselves, selling property may be difficult and may result in a sale for less than the mortgage balance, which will cause the owner to have to fork out cash at the closing, and in some cases, a lot of cash. The current proliferation of real estate foreclosures has been caused, in part, by over-zealous real estate investors divesting themselves of property with low cash-down mortgages and thus, not much to lose. Selling real estate at a loss, foreclosure and other mishaps can wreak havoc with cash flow, credit worthiness, and long term financial plans. If you choose this investment route, make sure you understand the downside as well as the upside, and make preparations to be able to respond if things head south for awhile.
I have been NASD and SEC licensed, and worked in the tax-deferred annuity, pension, and investment field. Our rule of thumb was this. Prepare for the future. Protect the basics, like your home, your car and your income. Invest aggressively at a younger age to accumulate for the future.
I have mixed feelings about this book, and the predominant reason I gave this book 4 stars is that I feel that this book is better suited to younger investors, with lots of time for cash to accumulate, time for a couple of missteps, and plenty of time to make any corrections, well before retirement time. As a general investment book, it offers a creative approach to wealth accumulation that may appeal to many. And if you're equity-rich and cash poor, this book will show you the way to re-adjust those imbalances.
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