#173 - The Rich Man’s Roth: A Smarter Way to Retire Tax-Free with Brenyn McConell and Blake Brogan

[00:00:00] [SPEAKER_04] Welcome back to Passive Income Pilots, everyone. Tait Duryea and Ryan Gibson here on another week of financial education on the Passive Income Pilots podcast. Ryan, how you doing, man?

[00:00:09] [SPEAKER_00] Ryan Gibson I'm doing great. You know, just nice to be back here in the studio and recording an episode.

[00:00:15] [SPEAKER_04] Ryan Gibson Yeah, I know. The dust has settled since the conference.

[00:00:19] [SPEAKER_00] Ryan Gibson Yeah, it's been a good, it was a good conference. And, you know, it was, it was awesome. And I'm just excited to get back in the group of things and get back to talking about, you know, there was a Wall Street Journal article. Ryan Gibson Yes. Ryan Gibson Obviously, we're going to talk about that today about pilots and having a bunch of money in their traditional 401k and not realizing that they have to pay a bunch of taxes when they withdraw it.

[00:00:42] [SPEAKER_00] Ryan Gibson And man, how can we find ways around that? I, you know, was talking to a captain who had retired from Delta and became a Delta instructor and he was like, Oh man, I want to tell you, you know, I've got $5 million in my 401k, you know, it sucks. I had to pay taxes on it still. Ryan Gibson Yeah. You young guys, you gotta, you gotta know that you gotta get that converted to Roth. And I was like, Ryan Gibson Well, Cap, guess what? I got a podcast that talks about this stuff. And he's like, really? And so anyway, super fun to talk about that.

[00:01:11] [SPEAKER_04] Ryan Gibson Yeah, you know, you think you have an $8 million 401k, 8 million, it's really 5 million if it's all on the traditional side, because you're going to be paying income tax on that as it comes out. So today we're going to be talking about tax free income in retirement. There are multiple ways to create that. We're specifically going to be talking about life insurance today.

[00:01:29] [SPEAKER_04] Ryan Gibson Which I know, we've talked about it before. But there's just a lot of different angles to look at this from. And it's a very powerful tool if you know how to use it. And so we want to really explore all of these different angles, so that you can make sure that you're utilizing it correctly. Ryan Gibson We're going to talk about sort of the phase two of these policies. We've talked a lot in the past. If you haven't listened to the previous episodes on life insurance that we have had, I encourage you to go back and look at those.

[00:01:56] [SPEAKER_04] We've had Rod Zabriskie and Christian from Money Insights Group on before. Today we have Blake and Brennan on. But Ryan, before we jump into this, just in the interest of No Pilot Left Behind, do you want to give a quick overview of how these policies work?

[00:02:12] [SPEAKER_00] Ryan Gibson Yeah, I'm going to do that. Here's the thing, guys. When you're listening to this show, I want you to think about something. As pilots, we have one airline we work for, one medical that we could lose at any time. We have one 401k, right? One paycheck. Ryan Gibson And so what happens is, when you read that Wall Street Journal article, you realize that when you get to retirement, you have a 401k and that's it. Zip. That's like flying around with one engine, right?

[00:02:39] [SPEAKER_00] Ryan Gibson And so we talk about the four bucket flight plan and having all these different strategies to start earning income. And we want them to start to make sense to you, right? We want you to start building the tools and kind of layering on things that are tax advantaged and things that are diversification and things that can provide you with passive income streams before you hit 59 and a half.

[00:03:02] [SPEAKER_00] Ryan Gibson So as you hear about this, I just want you guys to think about this is another arrow in the quiver of what you can do to live at a tax, lowering your tax bracket in your life. Ryan Gibson So life insurance policies, right? So we all as airline pilots all have a term policy, right? You work for Delta United America and they pretty much just give it to you, right?

[00:03:23] [SPEAKER_00] Ryan Gibson So life insurance, right? At Delta, it's $2,500 at the highest pay category of aircraft. Great, right? You get that on the day you die. So that's $2,500. It's like, it's basically two and a half years of pay, you know? Ryan Gibson So that's a term policy. That means that it goes to a certain point in your life and then it stops. And you can add to that, right? Like, you know, when we're in open enrollment season, you can go on to your open enrollment and you can actually buy more term insurance through your airline, right?

[00:03:51] [SPEAKER_00] Ryan Gibson You don't need, you know, size that to what you need it, but that's not what we're talking about today. Ryan Gibson It's a rented policy. Ryan Gibson What we're talking about is a policy that lasts your whole life. And so you can design them a million different ways. And I think the mistake that people think is that you just go in and you just make a whole life policy. And it's like, well, why do I need a whole life policy when I already have a term life? And there's confusion. And so what the whole life does is it lasts your whole life A.

[00:04:18] [SPEAKER_00] Ryan Gibson And then there's a bunch of features and benefits you could, and a bunch of tweaks. Think of it like a bunch of modifications you can make to the airplane. You can modify your plan a million different ways, as long as you set it up in a way that makes sense. Ryan Gibson And today we're going to talk about like several of the modifications that you should consider when you set up your whole life policy. But here's how, here's how the fundamentals work on it. You put money into your whole life policy, let's say a hundred grand a year, and I'm going to use nice round numbers. Don't get wrapped up around. So a hundred grand a year goes in there.

[00:04:47] [SPEAKER_00] Ryan Gibson All of a sudden you're going to have a death benefit of a million, let's say, right? Put a hundred grand in, you get a million dollar death benefit. Great. And every time you put more and more and more and more money in there, your death benefit grows. Great. Who cares about the death benefit for a second?

[00:04:59] [SPEAKER_00] Ryan Gibson That hundred grand a year that you're putting in becomes what's called a cash value. That's like your money going into a bank. And that money that goes in there is earning interest. It's invested. The plan is investing it into different strategies, right? Life insurance companies have a litany of things they invest your money in. And they're going to make, let's just say for the purpose of illustration, they're going to make five and a half percent on your money. Ryan Gibson So you have a hundred thousand dollars in there making you fifty five hundred bucks a year. Great. And you've got a death benefit and it lasts your whole life.

[00:05:29] [SPEAKER_00] Ryan Gibson Now, you can borrow against that hundred thousand dollars and take it out of your plan and borrow against it. And you can borrow against it for potentially less than what you're earning. So let's say you go borrow against it at four and a half percent and it's in there making five and a half percent.

[00:05:46] [SPEAKER_00] Ryan Gibson Now you're making a hundred thousand dollars doesn't actually stop making that five and a half percent when you borrow against it. And gosh, I wish somebody would have explained this to me more concisely a long time ago because it's like, yeah, you can borrow against it and it sounds like a dirty loan, but really you're making a percent of arbitrage. You're making that one point of additional money and you still have a death benefit growing and you continue to contribute to it.

[00:06:13] [SPEAKER_00] Ryan Gibson So what's insane is today we're going to talk about how you can actually build that up. You know, I've seen people get to two and a half, three and a half, four million dollars by the time they get into retirement. And when they leave the airlines, they can actually start to withdraw that money tax free. Ryan Gibson Just like a Roth. Ryan Gibson Just like a Roth. And I heard this term for the first time on the show. Maybe I've heard it before, but honestly, we were talking about-

[00:06:39] [SPEAKER_04] Ryan Gibson First time for me.

[00:06:40] [SPEAKER_00] Ryan Gibson Rich man's Roth. This is the rich man's Roth. Ryan Gibson So as pilots, you know, the cool thing about being an airline pilot is- Ryan Gibson There's a lot of cool things.

[00:06:50] [SPEAKER_00] Ryan Gibson There's a lot of cool things. I mean, you get to tell people what you're doing, but the cool thing about being an airline pilot right now is you make enough money to where, you know, the airline can only contribute $72,000 between your contributions and the airline contributions, right? Which if you do the math, 18% of $360,000 is the 64,000. You can only put in eight grand after that and then it's capped, right? Ryan Gibson

[00:07:14] [SPEAKER_00] Ryan Gibson And what's really cool is then you have this extra income, right? Because you're not contributing to your IRA and things like that. And maybe you opted out of your market-based cash balance plan and you got this extra cash. And what you can do is you can start building these policies that give you a death benefit, give you long-term insurance, long-term care insurance if you need it. And you can withdraw it tax-free later on. Ryan Gibson Yeah.

[00:08:06] [SPEAKER_00] Ryan Gibson And so I think people think they have more in their retirement than they actually do. And I think that was the whole point of that Wall Street Journal article. So there it is. Well, with that, let's get to the show.

[00:08:17] [SPEAKER_03] Ryan Gibson Welcome to Passive Income Pilots, where pilots upgrade their money. This is the definitive source for personal finance and investment tactics for aviators. Ryan Gibson We interview world-renowned experts and share these lessons with the flying community. So if you're ready for practical knowledge and insights, let's roll.

[00:08:41] [SPEAKER_04] Ryan Gibson Brendan McConnell Benjamin Brendan Brendan McConnell and Blake Brogan Welcome back to the show, you gentlemen.

[00:08:45] [SPEAKER_01] Michael Brennan Thank you. Excited to be here. Ryan Gibson It's been a while for us. I know you've had her on a few times, but we're happy to be joining you here.

[00:08:51] [SPEAKER_00] Mike, you're the celebrity. You're a celebrity at the Passive Income Pilots conference in Vegas. And everybody knows who you are, man. You've been on the show. I like it. it's the life I live. I think it's because you're tall and you have glasses. That's true. I think that's a defining character. You kind of look like a celebrity, so I like that very much. I'll take it as a compliment. But you're not just a pretty face today. We're going to get into some pretty big topics that are going to make our listeners' mind and heads explode. That's right. Tate, what do we got in store?

[00:09:19] [SPEAKER_04] Well, today we're talking about tax-free income and retirement. There was recently this Wall Street Journal article. I'm sure all of you saw it, this United pilot who gets to retirement and then is shocked at the taxes that he's paying on his required minimum distributions. I think, Ryan, what was it? A tidal wave of taxable income?

[00:09:39] [SPEAKER_00] Yeah. I think the direct quote from the article, and by the way, this article came out. It said, the volatile finances of airline pilots, America's unpredictable millionaires and the headliners, they can earn fortunes in a single month but are dependent on one airline for their entire careers. I think about 30 people sent me this article and all at the same time. I don't know if your text message lit up, but it was pretty funny. I'm like, well, yes, I saw the article.

[00:10:03] [SPEAKER_04] It's pretty funny. The comments are hilarious because people love to hate this kind of stuff online because they're like, ooh, so sad for you that you have this giant 401k.

[00:10:12] [SPEAKER_00] Yeah, exactly. Yeah, but the direct quote is here, Jeff Barrett had never had a need for a financial advisor. Then he retired last year at 65 and it threatened to unleash a tidal wave of taxable income because he had $3.5 million in his 401k. Once he starts taking his required minimum distributions, his income will be well over $300,000 a year, including Social Security, which is more than he

[00:10:39] [SPEAKER_00] earned most years while he was working. It says this is a high-class problem. I think the mindset shift of our listeners needs to be, you used to think that you were going to make less in retirement. Right. The reality is now you're going to make more in retirement. Right. And so, you know, you have an option, right? You have an option right now. And I'm a 42-year-old, you know, airline guy. Tate's a, how old are you, Tate? Turn 40 next week.

[00:11:09] [SPEAKER_00] Oh, oh, that's right. Right. And so even guys like us, like what we need to do today, right? I was just talking to a Delta pilot instructor in Atlanta and, and, you know, he's, he's, you know, in his, I think his early seventies or something like that, late sixties. And, you know, he retired Delta and he was in, you know, talking to us, uh, us pilots. And he's like, you know, one thing I wish people told me when

[00:11:35] [SPEAKER_00] I was still, you know, your age and working, you know, on the line is you guys got to, uh, put more money into Roth because when you retire, if it's all in traditional, you're required to distribute your 401k when you hit 72 years old, required minimum distributions. And, and it's the way of the government basically saying, we need to flush your retirement account because we want to make

[00:12:03] [SPEAKER_00] money on the taxes that you'll have to pay. Cause you put it in traditionally, which is, you know, pre-tax dollars. Now you, now you save the money when it went in there and that was all great, but now you got to take it out and you got to pay the tax bill. And then, you know, of course, you know, when you turn 65, like, how are you going to live? Well, you're going to live by taking that three and a half million, 4 million. I've seen pilots with 10 million in a 401k, and you're going to start flushing that cash. And, you know, the, the, the whole point of this show is to tell

[00:12:32] [SPEAKER_00] you that, you know, to kind of fix the problem, which is in this article, this is literally, this is the article. This is why we do what we do. This is probably why 30 plus people sent me this article because they're like, Oh my God, like, this is exactly what you guys talk about, right? Which you're dependent on one airline for their entire career. And then you have one 401k, right? And I, and I always say this like one medical certificate, one 401k, one airline, it's like you're flying over

[00:12:59] [SPEAKER_00] the middle of the ocean with one engine, right? And so we're going to get into ways that you can mitigate and, you know, potentially avoid this happening to you in retirement. So.

[00:13:11] [SPEAKER_04] Well, and part of that is Roth conversions. We talk a lot about that on the show. I'm actually going to be utilizing that strategy. It looks like for 2026, because I have why my wife and I bought a big short-term rental. We've got oil and gas investments. We are, our income is going to be pretty much completely wiped out. And so there's a great opportunity for me to ratchet up my tax liability in 2026 by doing a Roth conversion. That's going to move some of that money over so that

[00:13:36] [SPEAKER_04] you're not having to pay taxes on it when it comes out. But another way that you can do this is through life insurance, which again, you know, we don't want to, we're not beat a dead horse, but there are just so many different angles that you can approach whole life with. And so we have Brendan McConnell and Blake Brogan again on the show. And we kind of want to talk about this phase two of life insurance because, you know, Brendan, you were talking about a pilot that reached out

[00:14:05] [SPEAKER_04] recently and was like, Hey, this is all well and good. Like I, I, I overfund these policies. I borrow against it. I make investments with it. And this is like a way that I can be more efficient with my cash by flowing it through the policy. But what happens when I'm done? What happens when like, do I just have to die and give it all to my kids? Like, how does this work in phase two? So we want to talk a little bit about the tax-free income nature of what these policies can turn into, how they can act as a volatility buffer so that in down years in the stock market,

[00:14:34] [SPEAKER_04] you don't actually have to sell assets in order to make those, those RMDs. So Brendan, Blake, over to you. Would love to hear your thoughts on sort of this tax-free income and retirement strategy.

[00:14:46] [SPEAKER_02] Yeah, listen, this is something that actually a pilot, uh, to your point, Tate messaged me about the other day and it was actually his wife coming in with a question. So he, you know, he was discussing the strategy with his wife, uh, talking through borrowing from the policy, taking that money, investing it into different, different assets, uh, to produce cashflow, uh, good returns, you know, tax strategy, uh, and then flowing that money back in. And then her question was, was, well,

[00:15:13] [SPEAKER_02] you know, what happens when we're done investing, right? What happens when we move into that, uh, you know, traditional retirement stage of life? Is that just going to be, you know, a death benefit for our kids or is there somehow that we can use this? You know, what, what kind of benefit can we use while we're still living or is the money all just trapped inside the life insurance policy? Uh, and I think it's a fairly common question. You know, a lot of people kind of start thinking that, or they forget about the initial conversations that we had.

[00:15:43] [SPEAKER_02] And the answer to it is it can actually become a really powerful, uh, tool in retirement. And can it become tax-free income? Absolutely. It can also be used for a handful of different things throughout retirement in a few different ways. And so maybe we can touch on those as we go. So maybe, you know, first to start off, let's talk about the tax-free income. Which is counterintuitive, right? Because

[00:16:06] [SPEAKER_04] life insurance, death benefit, you think, okay, I have to die in order to utilize this. Well, no, you're borrowing against it to make investments during your investment, sort of the phase one. And then you can actually just use it. You can just borrow the money and never pay it back in phase two, essentially. I just want to kind of hit that on the head.

[00:16:23] [SPEAKER_02] It's exactly right. And to your point, Tate, in phase one, when we're borrowing money to invest in assets, those assets are producing cashflow. Then we're flowing that cashflow back into the policy, repaying the loans, and then just repeating that process, right? Kind of that flywheel that we talk about. In this stage, we're not going to pay back those loans and we're not even going to pay interest on those loans. We don't care. And maybe to even dive a little bit further into how

[00:16:49] [SPEAKER_02] we're accessing this money as income. In whole life insurance, it's unique in that it's first in, first out. So we can actually access all of our basis that we put into it first before touching any of the growth, which means that we can withdraw all that money before touching any of the growth. And that doesn't trigger any sort of taxable event. After we get through our basis, then we'll

[00:17:17] [SPEAKER_02] switch from taking withdrawals from the policy to taking policy loans. And the reason we do that is when we get to that growth, if we're taking policy loans, that keeps that money coming to us tax-free, right? Their loans, we're not paying taxes on them. We're not going to pay any interest on the loans. We're not ever going to pay them back. Eventually we will. But the way that that happens is the tax-free

[00:17:41] [SPEAKER_02] death benefit eventually is going to pay out. And first, all of those loans get repaid first and foremost. And then the remainder of that death benefit will go to the beneficiaries at that time.

[00:17:52] [SPEAKER_04] Right. So if you just spend it down really aggressively, you could get to a point where there's really nothing left in the policy, right? Yeah. I would say probably, you know,

[00:18:00] [SPEAKER_02] $100,000, $150,000 of death benefit would actually go to your beneficiaries if you aggressively

[00:18:05] [SPEAKER_04] spent down the cash value. Right. And if you went the complete opposite direction and you continued sort of watering the garden, so to speak, you know, flowing money back into the policy and paying the interest on the loans that were outstanding, keeping everything in the policy, that death benefit would just grow and grow. The cash balance and the death benefit together would just grow and grow and grow. And then you'd have this massive wealth transfer to your beneficiaries upon death. But again, today we're

[00:18:32] [SPEAKER_04] talking more about, hey, how do you use this policy? How is it not just for the next generation, but for you personally in retirement? So can you give us an example of what this would look like? Let's say, you know, airline pilot, they're going to have five to $8 million in their 401k. They start with one of these policies with a reasonable contribution when they're 40 and they've got 25 years to grow this thing. What would that look like for them in the long term? I mean, I think it would be helpful for a lot of listeners who

[00:19:02] [SPEAKER_04] have not broached this subject yet to get some hypothetical numbers around it so they can wrap their arms around it.

[00:19:08] [SPEAKER_02] Yeah, it's a great question. Let's say, you know, they're funding something like 50,000 a year flowing money in, you know, they were utilizing it in phase one to go out and create wealth outside of the policy. But let's say they got towards, you know, the retirement age, maybe it's 60, 65, 70, somewhere around there, we'll use 65. And let's say that they just flown all that money right back into the policy. And they've got two and a half million dollars sitting in their life insurance policy as a cash value, as a cash value. Yeah. So the cash

[00:19:38] [SPEAKER_02] value is at two and a half million, that means the death benefits probably going to be right around 5 million at that point, roughly, right? These are rough numbers. But a two and a half million dollar cash value $5 million death benefit. At that point, there's really a couple ways that you can use it for income. The first way that I like to describe it is if you're looking at that death benefit, that $5 million, and you said, Hey, that's really important to me, I really want that to be

[00:20:06] [SPEAKER_02] available for my kids. But I also want to spend money from this policy, right? I also want to draw an income. I want best of both worlds income now and and death benefit tax free death benefit for my family. At that point, two and a half million dollars is going to generate roughly $150,000 a year of tax free income. So you could just pull that 150,000 every year, you could pull that as tax free

[00:20:33] [SPEAKER_02] income from 65 to 95. And you're going to have roughly $5 million at the end of that, that will pass on to the next generation. So you'll you'd be able to spend 150,000 for 30 years tax free, and leave behind this really large seven figure death benefit tax free to your family.

[00:20:53] [SPEAKER_00] Right. Or you can do the max, the MCBD, or whatever the acronym is, what's the acronym Tate? I'm messing it up. MCPB, God, market based, market based cash balance plan, and they'll pick whatever you invest in, and they'll put it all in there as traditional and you can't access any of it. And you'll pay a bunch of taxes when it comes out. So sorry, sorry, I just had to jab because I'm a

[00:21:22] [SPEAKER_00] little sour at my R&I committee because I was out on a leave of absence for Delta and I just came back and I was like, Hey, I want to elect no. And they're like, Oh, too late. You can't do it. And I was like, well, then I want that money just coming directly to me. And they're like, Oh, no, they can't, you can't touch it till 59 and a half. And it's going in traditional. So then you have to pay taxes on it when it comes out. So it's not helping me really all that much because I have depreciation right now and I don't need the tax breaks rant over, but this is why you want to have extra cash.

[00:21:52] [SPEAKER_00] You want the extra cash. You want the spill cash going to things like this, because that's a beautiful thing. I have a question. So you're saying, okay, I have a $2.5 million cash benefit or cash value, and you have a $5 million death benefit. And then I'm going to spend 150 of it a year for 30 years. And that comes to me tax free. Can you go through the logistics? Like, so are you, is that a loan you take against it? That gives you the 150? How does that work? I'm a little confused on how you

[00:22:21] [SPEAKER_02] spend that down. Yeah. Great question. So the way that it works is at this stage or this strategy, I'm just pulling the growth from the policy, right? So the growth of the policy is going to be roughly five, five and a half percent off of two and a half million dollars. That's about $150,000 a year, right? Now, how I pull that income is first going to be withdrawing my basis first. So if I put

[00:22:47] [SPEAKER_02] in a 50,000 a year for 25 years, you know, that's going to be 1.5 million is going to be my basis at that point, or let's say it was 20 years. So my basis is a million dollars. And I'm going to pull that million dollars out as a withdrawal first. So the first million dollars of that 150K each year that I take is just going to be a simple withdrawal for my policy. Once I get to that growth, once I've

[00:23:16] [SPEAKER_02] eaten up my basis as a withdrawal, that's when I switch over to taking those policy loans. And then again, the idea is when you're pulling it as income and retirement, you don't have to worry about paying interest and in a year, you don't have to worry about paying those loans back because the death benefit is going to keep pace with those loans and be able to knock out any outstanding loans when

[00:23:40] [SPEAKER_00] that death benefit pays out. That's an interesting thing because the other thing too is like, I guess I just never really thought you could take out the cash value. Like you could just draw down the basis. Like, is that something you have to wait until a certain age or can you just kind of do that

[00:23:53] [SPEAKER_02] whenever? No, that's what's great, right? So if you retire at 52, right? Or if you want to start pulling, maybe you're not retired, but you want to pull money from it. You can do it at any age. There is no, you know, they're not qualified plans. You don't have to wait till 59 and a half. There's no penalties or fees for pulling the money out like that at any point. So it's really whenever you decide to start pulling money. And it's not something too, that it's like a one switch on and it stays on forever. This isn't an annuity that you're pulling. You're just saying, Hey,

[00:24:22] [SPEAKER_02] you know, my policy grew by 150 grand this year. I'm going to take that as income. And then next year I don't need it. I'm not going to pull anything, but maybe the year of year following, you want to pull income again. And tax-free income.

[00:24:35] [SPEAKER_00] Tax-free income. And that income doesn't account like, cause you know, it's all about your next dollar, right? It's all about how your next dollar is taxed. That doesn't stack upon any other income that I'm withdrawing. And, you know, God forbid I still, I mean, I have my market-based cash balance plan that I'm going to have to pay taxes on when that comes out. Sorry, another jab. And then, you know, my, my, uh, any other traditional money that I have, like, that's not going to stack on top of that.

[00:24:59] [SPEAKER_02] This is just purely tax-free income. There's a reason they call this the life insurance policies, the rich man's Roth, right? It has a, it has that nickname for a reason. Right. Yeah. I love it.

[00:25:10] [SPEAKER_00] And what's great is like, not only getting the interest on it and some people might say, you know, I've heard like Dave Ramsey and stuff go off about like how life insurance policies are terrible investments. But the cool thing about this is in my mind is that you've benefited from having that death benefit insurance policy, like all along, right? Like you're not just earning the five and a half or 5% on the policy. Like you're also creating a death benefit, uh, policy. And also like within the policy, you have a bunch of other benefits like long-term care and things

[00:25:39] [SPEAKER_00] like that. So I think it goes beyond just, just like this being my singular investment vehicle. This is what you do in addition to all the other things.

[00:25:48] [SPEAKER_04] 100%. And if I can tack onto that, you know, the reason that it gets a bad rap with Ramsey is because a lot of people don't have the discipline to, you know, be disciplined with the policy. They take out a policy loan, they never pay it back. And then, you know, the numbers don't work when that's the case. I think that, you know, we talk about pulling that money back out of the policy at any time, but Brennan or Blake, do you want to talk a little bit about that critical,

[00:26:16] [SPEAKER_04] that the crossing over of the event horizon on one of these policies where it starts to self-fund, where it starts, it's the, the snowball is rolling so fast downhill that it just, it's just creating income for you. And then as well, before, before I turn it over to you, I just want to make sure that everybody understands this is not the investment. This is the vehicle. And we've talked many times when we talk about these policies is that if you're going to park money in it and then never pull money out and invest with it or do anything else with it,

[00:26:45] [SPEAKER_04] it doesn't make sense. There are better places that you can park money for a higher rate of return over the longterm. But if you're going to use the policy, like it was designed, it's, they're awesome. And, and they're, they're designed super, super well. I love that, that term, the rich man's Roth, because that really is what it is. You're taking post-tax money that you've earned, you've paid taxes on it. You're stuffing it in over here and it can create tax-free income in the future. So anyway, back over to you to kind of clarify those topics.

[00:27:13] [SPEAKER_01] Yeah. So one of the kind of the unique ways that we're setting up these policies, we talk, you know, we, we throw out this term whole life insurance, the way the policies are designed are extremely important. And what I mean by that is unlike term insurance, we're not solving for how much death benefit you need, right? We have to have the IRS says there has to be a certain amount of life insurance on this for us to give you all these tax benefits. So when we're doing it that way,

[00:27:38] [SPEAKER_01] we're funding, you know, five or six times the amount of into the policy each year than we actually need for the insurance. So I'll use Brendan's example. You know, the insurance company might only be expecting you to put in eight to 10,000 a year, but we designed the policies so that you can put in up to 50,000 in that example. And that ratio can scale up or down. So after we funded these policies really for three or four years, depending on your age, there's ample cash value

[00:28:05] [SPEAKER_01] in there to be able to never put any more money into the policy again, in the policy is going to be self-sustaining your cash value, your death benefits going to grow. Now, at the same time, often, I mean, we're younger guys, we like I'm planning on funding my policies for 20, 30, 40 years. And the reason is because I've got this machine built up just kind of like you said, this isn't an investment. This is a tool that I can use to put a dollar in, it's going to grow my

[00:28:33] [SPEAKER_01] cash value by more than a dollar, sometimes two or $3, you know, as time goes on. So I put the dollar in, it grows by $2. And then I can use that to go fund, you know, higher yielding investments. So I want to keep funding these policies for as long as I can. And then at the end of the day, yeah, I can just turn that into a tax free income, I can use it for long term care, I can use it for estate planning, all of those decisions I can make, you know, later down the road.

[00:28:57] [SPEAKER_00] Yeah, I think you Blake, you kind of hit something that I that, you know, strikes a nerve, I think with both me and me and Tate, which is, you have to make sure the design well, I think Tate went down the road of having a design plan. And then I went down the road, similar thing where I kind of got sold something that I don't think the guy had ill will. And I don't think he had the wrong intention. But you know, if you're not, if you're not going into this with some kind of intention, right? Where if you're like, Hey, you know, I heard these guys

[00:29:27] [SPEAKER_00] talking about, you know, this strategy, and this is the way that it fits with my financial plan, that I'm trying to accomplish, you know, I'm trying to save, you know, 50 to 100 grand a year for syndications. And I want to have the life insurance policy be the holding tank for that money. And then I want to have this policy grow. You know, I have a financial goal of growing it to two and a half or $3 million by the time I'm in retirement, so that I can have distributions tax

[00:29:55] [SPEAKER_00] free, you know, and some kind of a death benefit or whatever, then you can start with that intention. And then you can explain to your, to your insurance professional, like, this is the way that I want it designed. And, and I think that's super important, because I think too many too often people go and they just feel like, yeah, I need to get a whole life policy, because I heard it on a podcast. And then it's like, okay, well, how do you want to set it up?

[00:30:18] [SPEAKER_04] A million ways to set it up.

[00:30:19] [SPEAKER_00] And then, and they were just like, I don't know, like, it sounded like a good idea, just set it up for me. And then, and then, you know, five years later, you know, you run into guys like, you know, Brennan and Blake and Rod and money. And then I'm like, hey, can you look at my policy and how it was set up? And then it's like, oh crap, like I got exactly what I should have expected, which is not what I wanted, because I didn't tell them what I wanted in the first place. So, you know, I think that's where the pain comes in. I don't think anybody did anything malicious or wrong. But I wasn't intentional about what I wanted when I when I did it. And

[00:30:49] [SPEAKER_00] I think that's where I ended why I ended up right where I ended up. So

[00:30:52] [SPEAKER_04] It's the same thing for me, I had somebody set up basically a pension that the IUL the index universal life policy that they had set up was the investment vehicle. Well, I'm a real estate investor. I'm an alternative investor, you know, I'm all over the place, putting money into unique and interesting opportunities that I understand. And I don't want that cash tied up in a policy that I can't take it out from. It didn't make any sense. It was

[00:31:18] [SPEAKER_04] low returning. And so I had to walk away from many five figures that I had already plowed into that policy. So don't make that mistake. That's why we do this podcast. I want to talk about long term care, because this is something that, you know, we a lot of us, myself included, Ryan, a lot of our listeners are dealing with aging parents, which is is difficult to go through. And it's unfortunately something that we're all going to go through at some point in our life. And I think that the desire of

[00:31:47] [SPEAKER_04] any individual is that, of course, you want loved ones around you as you age, but you don't necessarily really want to be their financial responsibility. And yes, sure, you can use your savings and retirement dollars to fund long term care in your older years. But let's talk about how the death benefit can actually be used when you are alive. This is something I didn't know before we met you,

[00:32:13] [SPEAKER_04] you guys and Money Insights and Rod educated us on this a few episodes ago. But this is a really interesting strategy and something that you can have in your back pocket as a plan for that phase of your

[00:32:27] [SPEAKER_01] life. Yeah, I had multiple conversations with people at your conference a couple weeks ago, about this long term care issue. Because as you said, Tate, people see their parents go through it, they weren't planning for it. And they're like, whatever we got to do, let's not do that. Right?

[00:32:43] [SPEAKER_04] Let's let's do something like, let's not, let's not be the financial responsibility of our children in, you know, 4050 years from now, right?

[00:32:51] [SPEAKER_01] Yeah. And what's so unique about these strategies that that we work with is you, you know, we talked to people, we're like, I really don't care about the death benefit from an estate planning play. I mean, some people really do other people really don't, that's totally fine. But even if you have no thought to be using this death benefit for next generations, the death benefits going to be extremely valuable to you down the road. And in the first way, we talked about, you know, using, allowing that death benefit to pay off the loan at, you know, upon your desk,

[00:33:21] [SPEAKER_01] so you could take out tax free income for 30 years down the road, and never pay it back, because we have this death benefit. The second way you can use the death benefit is, is for long term care. So what happens is, they have riders that are on these policies that are free of charge. So you're not paying anything extra for it. And they're chronic or terminal illness riders, which basically say, if you qualify, you know, for chronic or care, or you're terminally ill,

[00:33:48] [SPEAKER_01] what the insurance company will do is forward you a portion of your death benefit, before you pass away, to pay for end of life type of care. In the long term care world, if you just go buy long term care insurance, it's very hard to price healthcare is extremely expensive. Just like you said, you got to take money to and put it into a policy that you're really not going to use unless you need unless you need the care, like the hopefully you don't use, but you lost all that

[00:34:15] [SPEAKER_01] access to capital, where when you set up these policies to use for investing, oh, by the way, you've got this seven, eight figure death benefit. Well, the insurance company knows they already have to, they're going to pay you that eventually, this is whole life, right? So when you pass away, that's going to be a distribution to your family. So they're saying, hey, we'll let you tap into that, you know, earlier than when you pass away for the last five to 10 years of your life, you can tap into that death benefit prematurely, again, tax free, right? So you don't have to spend

[00:34:45] [SPEAKER_01] down your other assets and it just comes off your death benefit. Um, you know, when you do end up

[00:34:50] [SPEAKER_00] passing away. And I think this is important because as pilots, like we want to plan, right? If you're 20, 30, 40, 50 years old, and you're sitting here and you're saying, wow, I'm really happy with my income. I am happy with my job. What do I do with my money? Right. And, and I think the last thing as pilots, we want to do is we, we get to an age where, you know, we're now are dependent on others to take care of us. Right. And we see that with our parents right now as millennials, right? We see

[00:35:17] [SPEAKER_00] our parents getting to an older age and, you know, that means like going into a retirement home or, or getting some kind of assisted living and it's expensive, really expensive. And the last thing you want to do is burden your kids with a, having to decide how, like the quality of the home that they want to put you in. Right. Let's be honest. Cause these things are, these things are crazy expensive and, and fighting over or, or not being around. Right. Cause I mean, like, I mean, I think

[00:35:43] [SPEAKER_00] of my family, like we live all over the country, like we're not even centrally located to take care of mom and dad. And so like, you don't want that burden, you know, passed on to your kids. And so that's why I think this is such an important thing to start thinking about. And again, when you're planning and you're talking to your life insurance, you know, professional about it, it's like, Hey, let's design a plan that you want with all the bells and whistles and all the riders and all the things on it that, that you really want it to do. And I think this is such a critical

[00:36:12] [SPEAKER_00] piece of the pie. I mean, maybe you don't care, but this is something that, uh, you know, for me, I wish I would have known going into it. Right. So, cause I really don't want my kids to have to have any financial obligation to me when I'm, you know, in a, in a, in a nice old age and I need help. Right. And I don't want them to feel like they have to come over and change my diapers, frankly. Right. So I, I, I want to have this help. And it, and again, do you think care insurance or you

[00:36:40] [SPEAKER_00] think care costs are going up or down? I'll tell you they're going up. Right. And so like, let's hedge that bet now. Right. This is the same, the same thing with taxes and sorry to go on a little bit of a rant about this, but taxes are not going down. Right. You know, politics aside, turn on the news. The national debt just hit 40 trillion. Right. Like, I mean, I'll, I'll speak as a Washington state resident. Like they're going to try to pass a 9.9% income tax. I think there's

[00:37:10] [SPEAKER_00] only like seven or eight States left, uh, that don't have an income tax. And you know, it's like everybody's moving on, you know, people are moving out of the state to avoid it and they're going to other States and guess what's going to happen to those other States. You know, this is the way that we can start planning for it today. And I think that's so, so critical. We're kind of touching

[00:37:27] [SPEAKER_04] today on phase two tax-free income using that death benefit, using up the policy. Right. And we're, I want to, I want to tease out, we're going to do another episode and we're going to have, uh, a trust and estate planning attorney join us to talk about, um, succession planning and passing large amounts of wealth to the next generation. A lot of you that are listening to this show are

[00:37:53] [SPEAKER_04] going to have massive estates by the time that you are the, uh, at the ripe old age of, uh, you're not talking about living in an assisted living facility. And we want to make sure that we're planning effectively and proactively for that. So Blake, you mentioned that, you know, some, some people just don't care about that death benefit. Some people do that death benefit is a very effective way to circumnavigate the estate tax, right. And pass big amounts of wealth onto the next generation.

[00:38:23] [SPEAKER_01] Yeah. It's interesting. Cause you know, when you're, you're young, you get married, you think, Hey, if, if I pass away, my kids are going to need, you know, some money. My wife is going to need some money, whatever. And then you get to this phase where people like, well, I'm self-insured. I don't, you know, I don't really need life insurance when I'm older. And then you start to, cause I got enough money. Cause I got, you know, I've got my, what was it? $3.8 million in my 401k or whatever, you know, whatever that amount was. Now the reality is, especially, you know, pilots

[00:38:52] [SPEAKER_01] right now, you guys are making incredible incomes, especially for the younger guys, the guys in their thirties, forties and gals. And gals. Yes. Thank you. That is going to turn into big dollars down the road. Right. And so one of the things you're probably going to run into at some point is estate tax issues. So as currently set up today, you know, it's a, I think it's, you know, for a husband and wife might be 30 million in that range. 30 million. So it's 15 million per individual

[00:39:21] [SPEAKER_04] that can pass down to the next generation tax-free. Once you get above that, there's, there's large estate

[00:39:27] [SPEAKER_01] taxes that start hitting very large. And so there's ways where all of a sudden, once you start getting into the wealthy slash ultra wealthy, um, you know, tax brackets and income levels and wealth that how are we going to be able to keep our assets within the family? How are we going to come up with the liquid cash to either pay these taxes or how are we going to move these assets outside of our estate? And that's why, you know, wealthy people own tons of permanent life insurance because

[00:39:57] [SPEAKER_01] we might need that to pay the tax or to do, you know, different strategies. Really, you're guaranteeing that there's going to be a major liquidation event upon your passing. Well, we'll

[00:40:08] [SPEAKER_04] get into that on another episode. That'll be, that'll be the, uh, the great wealth transfer episode where we talk about estate planning, um, for, for large estates. But for today, I just kind of want to put a bow on, on this and talk about, you know, Hey, these, we, we talked a lot during the conference about asset protection structures using LLCs and land trusts and things like that to, to make sure that your assets are protected from lawsuits. We talked a lot about trust and estate

[00:40:35] [SPEAKER_04] planning, making sure that you have a revocable living trust and making sure that if something happens to you, that, that your family members don't have to go fight over all of your assets in probate court. Uh, and, and we talked about life insurance, you know, this is just one of those things that, that should be in your quiver. And I, I love the fact that, you know, this isn't all about, you know, pouring money into a policy that's locked up and you can't use it quite the contrary. It's even more liquid than your 401k. And it's a way that you can generate tax-free income in

[00:41:03] [SPEAKER_04] retirement. So with that, any closing remarks and, uh, we'd love to make sure that, that, um, our listeners know how to get in touch with you if they'd like to explore this further.

[00:41:13] [SPEAKER_02] Yeah. I'll give you my last closing remarks as I've been listening to you guys, uh, make some really great points. So very first, what I'd echo, uh, is just intentionality, right? What, what is your intention behind getting these policies? That's the very first thing that you should think about before getting one of these policies is how are you going to use it now? Uh, what I like about these policies, uh, is I, I feel like they're, uh, very similar to,

[00:41:38] [SPEAKER_02] I have an uncle that's a general contractor and he can fix anything. If I have an electrical problem, I call my uncle. If I have a leak in my basement and my carpet needs to get restretched after I, I dried it all the water up, uh, I'm calling my uncle. Uh, if I have cabinets that need to be built, I'm calling my uncle. My point is phase one of this is to utilize these policies, take loans, invest it in assets that are going to build your wealth, right? Right. We're looking to create

[00:42:07] [SPEAKER_02] massive amounts of wealth. Uh, we're looking to, to put it into, uh, real estate deals or private equity deals, uh, things that are going to, to build our net worth. Then it gets into a second phase where we can utilize it for a ton of different things, including tax-free income, uh, and then towards the end of life, long-term care. And then to your point, Tate, that you kind of touched on this, it can even become a really phenomenal tool, uh, for estate planning and

[00:42:34] [SPEAKER_02] estate maximization, providing liquidity for your kids to make sure that all of the hard work that you did in creating the hard assets, the real estate, the business entities, uh, all of those get to stay whole because you provided the liquidity necessary for your kids to pay that estate tax. So, uh, it's an incredibly flexible tool, uh, but it only makes sense to use if you understand how to go in and

[00:42:59] [SPEAKER_02] utilize it. And so first and foremost, you know, do some, some work, uh, educate yourself, understand how these policies operate, talk to professionals that then that know what they're doing. Uh, and if you utilize it the right way with, with intention, they can be a phenomenal tool in your tool belt,

[00:43:17] [SPEAKER_04] not the only tool, but a great. Absolutely. Thanks, Brennan. And, uh, how did listeners get in touch with you? Um, uh, we'll link to it in the show notes, but what's the best way to reach out?

[00:43:28] [SPEAKER_02] Yeah, we actually just set up a page specifically for the passive income pilot podcast. If you go to, uh, money insights, group.com slash pilots, uh, you'll be able to get in contact with us right there, uh, as well as get a little bit more information and education right there on that page.

[00:43:45] [SPEAKER_04] Excellent. Thank you so much, gentlemen. We'll see you again on a, a, an estate planning episode in the very near future. We appreciate your time. Looking forward to it. Thanks.

[00:43:58] Thank you.