The Retirement Miracle Book Review
It's tough to properly fund a retirement, as you can probably guess from all the magazines, websites and blogs that devote themselves to just that subject. Add in the likely changes (probably including great increases) likely coming in the world of taxes, and it's even tougher to find a method of providing future income while ensuring that Uncle Sam doesn't get most of your money. What sort of retirement vehicle has the potential to grow your money substantially, prevent monetary losses and dodge the worst of future taxes?
The Retirement Miracle claims to provide just that vehicle. Author Patrick Kelly presents a method of putting money aside for retirement that (if it works as described) can raise your net worth as the market rises, has no risk of loss, and still proving to be (income) tax free for both you and your family. Is this miracle as miraculous as described, or is it just a parlor trick? Let's find out!
Chapter 1:It's Worse Than I Thought
The Retirement Miracle opens by discussing how taxes are likely to increase in the future. It looks at where government debt currently stands in terms of current tax income and national expenditures, as well as future debts, particularly Social Security. The chapter closes by noting how high the highest tax rate has been in the past and the chance of returning to such a 90+% highest marginal income tax rate in the near future.
Chapter 2: Storm Clouds on the Horizon
Continuing in the same vein, chapter two looks back at the recent housing market bubble and crash, noting that it's impossible to ignore financial principles too long before they come back in force. Kelly suggests that with the brewing storm in our economy at large, there are few choices in the future other than to cut government spending or (as he feels is more likely) raise taxes.
Chapter 3: Can Anyone Escape?
With that opening sentiment expressed, chapter three looks at another flawed topic, in this case the ‘buy and hold' investment strategies. Using the Japanese Nikkei Index as its example, it shows that $1000 invested in 1989 (at its peak) would still be down by 76% as a result of buying and holding. It notes that if you could get only the positive years' results, though, your result would be a gain of over 100%, leading to the next chapter.
Chapter 4: A Rocky Beginning
Chapter four opens by stating that Indexed Universal Life Insurance (IUL) is the way to capture the gains of the stock market without taking on the risks. The rest of the chapter is devoted to looking at some previous Universal Life variations, namely Traditional Universal Life and Variable Universal Life, and why neither was truly successful.
Chapter 5: The Solution
With the previous forms of Universal Life Insurance out of the way, this chapter is the first devoted to the advantages of IUL policies. The chapter lays out fifteen of these advantages, from the death benefit and protection against market loss to ‘accurate return figures', elaborated on in the next chapter.
Chapter 6: The Big Lie
The title of this chapter refers to the fact that ‘average' investment returns (the arithmetic mean) touted by most investment firms are not the ‘actual' returns you'd experience (that is, the compound annual growth rate), once you factor in the negative values. By eliminating those negative values, then, IUL will be able to increase returns compared to other investments.
Chapter 7: But I Heard Life Insurance is a Bad Investment
In response to the argument raised in this chapter's title, Kelly starts by maintaining that IUL is, at its heart, a form of life insurance, meaning that it shouldn't be evaluated solely as an investment. With that, the chapter argues that there are some amazing advantages by IUL policies.
Chapter 8: A Story About Tom
This chapter tells the story of Tom, and illustrates how if Tom had $2.5 million in an account as of November 2007, it would have been down to $1.2 million by November 2008 (if entirely held in an investment that matched the performance of the S&P 500), and how that would have devastated Tom's retirement plans.
Chapter 9: Is It Really Tax-Free?
Here some of the tax-related advantages of IUL policies are discussed, such as how it is possible to take tax-free loans against the cash value of the insurance and how the death benefits of the policy are income tax free. The overall policies are noted to be tax-deferred, not tax-free, but these methods help ensure the avoidance of taxes during the policy holder's life.
Chapter 10: Never Lose Money
Short twenty-four word chapter: Basically, IUL policies never lose money to a market decline.
Chapter 11: Up, Up, and Away
This chapter looks at how the market is likely to perform in the future, with a particular look at the chance that the market will go sideways, that is, up some years and down others. Â If you can capture the gains of the up years and dodge the loses, as IUL policies allow, you can come out greatly ahead, as noted in tables and a diagram at the end showing how much higher the cash value of the IUL will be than regular investments (ignoring the fees of each).
Chapter 12: How Can They Do That?
Here you get a behind the scenes look at how IUL policies work. It shows that after some of the money that goes into the death benefit and expenses, the remainder is invested largely (about 90+% of the funds) in a stable bond portfolio and the rest goes into buying Call options to benefit from market value increases. Bonds prevent loses, calls allow gains, and thus the IUL policies make their money.
Chapter 13: What If Tax Laws Change?
Chapter thirteen notes that one of the few certainties in life is that there will be changes to tax laws. It shows that highest marginal tax rates have been much higher in the past (those aforementioned 90+% rates), and notes that things will likely head in that direction in the future. It reviews how past tax changes have affected existing life insurance policies and notes that such policies have usually been ‘grandfathered', or allowed to operate under the rules existing at the time they were written, probably allowing IUL policies to continue working as described throughout the book even if the rules change dramatically.
Chapter 14: The Ideal Answer
A fairly short chapter that emphasizes, once again, the advantages of IUL policies and how useful they can prove.
Chapter 15: The Best-Kept Secret
Chapter fifteen notes that IUL policies have the ability to accept a large lump-sum of money (if started years before). In short: there is a maximum premium thatÂ can be paid and minimum that must be paid into the policy, with the difference, if not paid in a given year, rolling over to the next year. Accumulating that difference over numerous years allows a bulk sum potential premium to be paid in the future and tax-advantaged treatment of the cash value that results.
Chapter 16: The Other Option
While the IUL policies discussed throughout the book represent a good means of accumulating money in Kelly's eyes, they aren't much good for those people who already have their retirement money saved, particularly in tax-deferred accounts. For them, this chapter looks at annuities, discussing fixed annuities and variable annuities before getting to the recommended option: index annuities.
Chapter 17: What Next?
The book finishes off with the story of Charles Blondin, an acrobat who was famous for crossing over Niagara Falls on a tightrope, in odd and unusual ways, including while pushing a wheel barrel. Â Kelly notes that when asked for volunteers, though, nobody was willing to get into the wheel barrow. Â Kelly stresses the need to do your own research rather than relying purely on what he has said.
- Thought Provoking: There are interesting points raised about universal life insurance in general, and IUL policies specifically, throughout the book, giving you new information on both (most notably to me, on how to invest sizable lump sums using IUL policies) .
- Encouraging Tone…: The tone is generally upbeat (at least after the first two chapters), insisting that it's possible for readers to build up a sizable retirement fund through IUL.
- …Although Much Like a Salesman: Most of the book reads as more sales pitch than strict information source, such as when Kelly says he can't come up with one negative about IUL policies. Â Speaking of which:
- Ignores the Downsides of IUL Policies: Although there are downsides to IUL policies (and annuities) with the administrative cost being the biggest one, these are brushed off or not mentioned at all.
- Distorts (or Ignores) Alternative Investments/Life Insurance Policies: The buy and hold strategy is misrepresented (no diversification into non-stock holdings is covered, for example) and the phrase ‘term life insurance' is never mentioned at all.
Final Thoughts on the Retirement Miracle Review
The Retirement Miracle provides an interesting look into Indexed Universal Life Insurance (IUL), primarily as a method of investment (that is, growing the cash value of the policy for future use). However, it is a highly distorted look into IUL policies, as well alternative methods of investing and obtaining life insurance.
A Final Note: The negatives of this book should not imply that IUL policies (and annuities, while we're at it) shouldn't be considered as possibilities for you. They might well be very useful to you as forms of life insurance and/or investments. This book is simply not a good source of information about them, and (as even Kelly states on multiple occasions) you should seek advice from a financial professional, specifically one who is not going to profit from the sale of an IUL policy, if you want to learn more about their possible use for your needs.