Financial Roadmap from Here to Retirement


I have been a Certified Public Accountant for over 25 years.  For many of those years I was also a licensed financial advisor.  A few years ago, through my reading and personal experience, I learned how much the financial markets are stacked against the ordinary investor.  The Investment Risk section of this document will explain some of the things I have learned in this area.  And I came to understand that most of my tax clients should not be putting their money at risk in the market.  What I found was that my clients were “investing” money they could not afford to lose, in hopes of earning enough to provide a comfortable lifestyle – someday.  It was from that perspective that I decided to give up my securities licenses.  I began to look for other methods and tools to help my clients achieve financial success.


Traditional retirement as our parents and grandparents thought of it, was funded by the company they worked for perhaps most of their working life.  The company took care of their retired employees by providing a lifetime stream of income as a reward for their years of loyalty to the company.  Then in the 1980’s the tax code was changed to allow individuals to begin to supplement their retirement income and receive a tax benefit (deduction) for money they put away into special accounts called Individual Retirement Arrangement (IRA) accounts.  As the working public began to embrace the concept of saving for their own retirement, companies cut back on the lifetime benefits they had previously provided.  Soon there was demand for broader choices in personal retirement savings accounts and the 401(k) plan was established as part of the tax code.

The IRA and the 401(k) plans were originally intended to supplement the retirement provided by employers.  Over time as companies cut back on benefits, they became the primary retirement savings vehicle for most Americans.  It didn’t take long for the Wall Street marketing machine to recognize the potential to create vast amounts of wealth (for themselves) by charging a small fee to lots of people who now believed they needed to invest their money in the stock market to provide for retirement.  About this time, the phrase “buy term and invest the difference” became commonly used among financial professionals.  This precipitated a move away from insurance products which provide a lifetime stream of income and toward higher risk market based investments.

But think about it.  What is important as we approach retirement?  Is the goal to have a large pile of money, or is it to have a lifetime income stream?  Wall Street marketing urges us to keep growing the pile of money to fund retirement.  But this gives rise to other questions, such as, “How big does the pile of money need to be?”  “How long will it last?”  “How much of it can I spend each year?”  And, “Will I run out of money?”  There are also other questions that are often overlooked, such as, “What risk am I taking with my retirement money?”  And, “Is there a better way?”


I believe that Investors in general do not understand the costs and risks built into their investment portfolio.  Financial professionals and others are guaranteed to make money off your investment decisions, but you are not.  The investment broker gets paid from your money.  The mutual fund manager gets paid from your money, sometimes in addition to your personal money manager.  The brokerage firm that executes trades for the mutual fund, or your personal money manager gets paid from your money.

All these people get paid from your money whether you gain or lose from the investments.  Mutual fund investors take 100% of the risk and may receive only 30% of the potential return… and even that is not guaranteed.  If all of your retirement money is invested in the market, then all of it is at risk.

Wall Street banks and investment firms would like you to believe the stock market returns an average of 7% per year.  Barry Dyke, in his book, Guaranteed Income:  A Risk-Free Guide to Retirement, cites the Dalbar report (published by a well-respected Boston research firm) showing the average investor return in equity mutual funds from 1/1/1984 to 12/31/2013 was an astonishing 3.69%.  Asset allocation mutual funds returned 1.85% over the same time period, and fixed income funds under 1%.  So, I have to ask, “For that rate of return, is it worth the risk?”

All this seems lopsided and unfair.  How did we get to this point?  Robert B. Reich, in his book, Saving Capitalism:  For the Many, Not the Few, provides some perspective and a thorough explanation.  Over the past 25 years or so, massive wealth has been concentrated in the top 1% of Americans.  Those individuals and institutions that control the wealth have great influence over legislation and government regulations concerning how that wealth is created and protected.

A landmark event occurred in 1999 during the Bill Clinton administration with the repeal of the Glass-Steagall Act, which had separated commercial from investment banking.  Glass-Steagall was originally enacted in 1933 as the country was recovering from the Great Depression brought on by failures in the financial markets.  After the repeal, banks were allowed to own investment firms.  This gave them more freedom to take risks because the government was there to bail out the bank if their investment risks did not work out.

We saw this come to fruition in the 2008 financial meltdown.  Our tax dollars were spent to bail out large financial institutions who had taken undue (even though legal) risks in the credit markets using contracts such as derivatives and credit default swaps.  When those risky positions went bad, the government stepped in and used our tax dollars to make sure the major banks did not fail, thus averting a greater financial crisis.

You may feel you cannot afford to completely ignore the market.  That’s okay.  It’s just that the market is not the safest place for your retirement funds.  The market should not be the only place you have retirement funds; maybe not even the primary place.

If you would like to learn more about protecting your assets from investment risk, the two books mentioned above would be a great place to start.

You only have one chance to prepare for retirement.  Play it safe.


As with so many things in life, success comes by taking small steps in the right direction over a long period of time.  These steps are intended to take you systematically from where you are today to a financially comfortable retirement.  Each step that you take in this process will improve your overall financial condition based on sound, proven financial strategies.  Begin with Step 1 today whatever your age or occupation.

Step 1 – Buy as much term insurance as the insurance company will sell you.

Life insurance is a “want” product not a “need” product.  Focus on what you want to have happen for your family and loved ones if you are not there to provide for them.  This gives a much different answer to the life insurance question than trying to define and anticipate needs of those you leave behind.  Life insurance is the only tool that will enable you to fulfill those wants.

A life insurance company uses your economic life value … an estimate of the amount of your financial contribution to your family (through wages or services) from now until your normal retirement age … to determine the maximum amount of life insurance they will sell to you.  In a business buyout context, the insurance company may be more flexible on the maximum amount depending on other factors.  In this step calculate your economic life value and apply for at least that amount of term insurance.

For example, a 35 year old could reasonably expect to be in the workforce for another 30 years.  So multiply your annual income by 30 years to estimate your economic life value for insurance purposes.  A stay-at-home Mom (or Dad) can generally be insured for one-half the economic life value of the working spouse.

When considering a term life insurance policy, there are some features that would be very desirable to have.  Certainly select a financially healthy company, preferably a mutual company with a long dividend paying history.  It would be good for the term insurance to be convertible to whole life insurance without additional medical underwriting.  Perhaps there would even be an opportunity to recapture some of the term premium payments and apply them to the whole life policy.

You have from today until your next birthday to complete this step and beat the price increase.  Remember, you will never be younger than you are today.  And you will probably never be in better health than you are today.  Consequently, your cost of insurance will never be lower than it is today.

Step 2 – Save at least 15% of your income each month.

This rate of savings will allow you to build an emergency fund sufficient to weather the storms of life that inevitably come.  A healthy financial plan will have you putting away 15% of your income to counteract the effect of wealth eroding factors that are working against you day and night.  Things wear out and need to be replaced.  Houses, appliances, computers and cars need repair and sometimes replacement.

The easiest way to be consistent with your savings plan is to setup payroll deduction or automatic transfer of the amount on a recurring basis to your designated savings account.

Once that savings account balance equals about half your annual income, it will be time to move to the next step.  For now, your local credit union is a good place to put your savings.

Begin this step with your next paycheck.  Even if you can’t put aside 15% right away, it’s important to get started.  Do what you can now, and increase the amount in a couple of months.

Step 3 – Convert your term insurance to whole life insurance over time.

Term insurance is temporary.  It provides a death benefit only.  There is no exit strategy from term insurance.  At the end of the term you either let it lapse or pay a significantly increased premium.  In either event, the money you spent on the term premiums is lost.  The only way you win with term insurance is if you die before the term expires … and who wants that!

As mentioned in Step 1, certain term insurance contracts can be converted to whole life insurance without medical underwriting.

Whole life insurance provides a number of living benefits in addition to the death benefit that term insurance provides.  The premiums are level for the entire contract period.  The cash value within the policy grows tax free as long as the policy remains in force.  There are legitimate ways to use the cash value for personal purposes tax free during your lifetime.  Depending on the policy contract, the cash value may continue its compound growth when you take a policy loan to use the money for other purposes.  You can even use the cash value to fund your children’s or grandchildren’s college education without adversely affecting their financial aid.  It is also a great way to supplement your retirement income stream.  The many benefits of whole life insurance is probably the subject of another book.

The unique features of whole life insurance serve to enhance the value of every other financial product you may own.

Step 4 – Use a pay-down strategy to move your accumulated cash reserve from the bank to your whole life insurance.

Cash in the bank is good.  Compound interest earned on cash in the bank is good … to a point.  When the compound interest leads to compound taxes, it’s time to move the money.  The pay-down strategy systematically moves accumulated cash to a whole life policy where it will continue its compound growth, but without compound taxes.  You maintain full liquidity, access, and control of the cash while providing the additional benefit of increased life insurance protection.  There is a small decrease in total cash for the first few years, but then the cash value in the life insurance contract begins to grow exponentially.

Here is an example for a 35 year old male in good health.  Suppose he is earning $100,000 per year and has saved $50,000 using Step #2 and earns 2% on his savings.  He asks me to design a pay-down strategy for him to use over the next ten years.  Here is what that could look like.


annual savings savings cash total
life ins balance balance value in cash death
year payment beginning ending insurance available benefit
1      (5,457)        50,000    45,434          3,623      49,057    191,234
2      (5,457)        45,434    40,776          8,496      49,272    207,490
3      (5,457)        40,776    36,025       13,610      49,635    223,598
4      (5,457)        36,025    31,179       19,011      50,190    239,493
5      (5,457)        31,179    26,237       24,675      50,912    255,265
6      (5,457)        26,237    21,195       30,614      51,809    270,809
7      (5,457)        21,195    16,053       36,839      52,892    286,145
8      (5,457)        16,053    10,807       43,396      54,203    301,329
9      (5,457)        10,807      5,457       50,262      55,719    316,443
10      (5,457)          5,457             –       57,432      57,432    331,410


After ten years he has transferred the full $50,000 to an account where it can compound tax free without giving up liquidity, access, or control of his cash.  In addition he has provided a significant death benefit that was not available while he held the cash in his savings account.

Step 5 – Borrow a life to increase your savings.

The owner of a whole life policy controls the cash value of the policy.  The owner does not have to be the insured.  When you want more whole life insurance than the insurance company will sell you or when you want to put away more money into tax free savings using whole life insurance, then it is time to “borrow a life” to purchase a policy on someone else.  Of course, it has to be someone in whom you have an insurable interest, like a family member or business associate.  But with that perspective, think about younger members of your family.  The cost of insurance will be less because of their age.  And it gives you the ability to create an even larger deferred compensation arrangement for yourself, or provide tax free funds for future generations.

This technique can be used to super-charge your tax free savings.  It can also be used to transfer assets to others.  Let’s say that I purchase a whole life insurance on my daughter.  I make the premium payments for a few years and the cash value builds.  So then in five years, she wants to purchase a house.  I could gift the policy to her, including the cash value (subject to annual limits on gift tax exclusions) and she would have immediate and unrestricted access to the cash to use as she chooses.

Again, there may be many other reasons to borrow a life, but that is probably another book.

Step 6 – Cover your risk for long term care.

At or about age 60 is time to consider the cost of long term care insurance.  Stand-alone LTC policies are available, but they are pricey.  As with any stand-alone account, if you don’t use it for its intended purpose it can be very expensive.

Consider instead a LTC rider on a new whole life insurance policy.  This is a much less expensive option to obtain the same or better benefits than offered with a stand-alone policy.  Plus it includes all the benefits of whole life insurance.

Step 7 – Transition to retirement.

If you’ve followed the steps to this point, you probably own several whole life insurance policies with substantial cash value.  Begin selectively converting the cash value in those policies into annuity contracts to provide your lifetime stream of income.  And enjoy your retirement!

Why not start by purchasing an annuity?  Two reasons:  the cash value builds faster in a life insurance policy; and secondly, the life insurance provides the death benefit protection and other benefits during life if you don’t make it to retirement.

Disclosure and Call to Action

The suggestions and strategies described in this article are my opinions developed over years of tax and financial planning experience.  Every person’s financial situation is different.  Carefully consider this information in light of your own finances before implementing any of these suggestions.

If any of these ideas caught your interest, let’s meet so I can personalize a plan for you.  I would like to review your personal financial situation with you and show you specific improvements that can make your current income achieve the best possible results … FOR YOU!