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67 of 71 people found the following review helpful:
1.0 out of 5 stars
Follow this advice at your own peril!, December 20, 2007
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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31 of 36 people found the following review helpful:
4.0 out of 5 stars
Money, Time and Piece of Mind, July 4, 2007
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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14 of 16 people found the following review helpful:
4.0 out of 5 stars
Geared toward Mom and Dad, June 29, 2007
I have read both "Missed Fortune" and " missed Fortune 101. I learned allot from both books, and picked up even more from "Last chance Millionaire". I'm only in my early thirty's but these books have change my approach at retirement. This book is better suited at a person or couple ready to retire. But I feel everyone could benefit. Mr. Andrew's techniques for creating an income that will never run out and is left to your heir's tax free is golden. I also feel that other key point of this book is to not just leave money to your family and spouse when you die but "teach them to fish" and create their own wealth. I have completely changed my approach to retirement and wealth. I was at first skeptical of insurance contracts, but after careful research I determined that the "fee's" that may scare someone off are a drop in the bucket. In the end plus I will have tax favored returns. I'd rater give my hard earned money to a company that will in turn offer stable rate of return and security. Besides the government will get their's when I spend my money in retirement. I now have two insurance contracts and have re-fi'd my home to an interest only. This isn't a get rich quick scheme, but a technique for lower taxes in retirement and never ending income with out depleting your principle or being taxed on the back end. Go into this with an open mind and I don't think you will be disappointed.
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