In Episode 4 of The Alemian File, retirement expert David Alemian discusses how the late savings start physicians get can become a retirement killer if physicians aren't proactive.
Are you behind in your retirement savings because you got a late start in your career?
You’re in your 40s, 50s or even 60s and now you realize that you’re behind in your retirement savings. So how do you make up for lost time? You do it by combining the power of financial leverage and compound interest. You borrow money from a bank at a low simple interest rate and put the money into a cash value life insurance policy. The money in the life insurance policy grows at a higher interest rate than the loan interest rate. Moreover, the loan interest rate is simple interest, whereas the money in the life insurance policy is compound interest. It has been said that man’s greatest invention is compound interest. I don’t know if it’s man’s greatest invention, but I do know that it is the power of compound interest that will enable you to make up for lost time. Add to that—the power of putting someone else’s money to work for you in this case the banks money—and it is the ideal way to catch up on your retirement savings.
Most of the collateral for the loan is the cash value in the life insurance policy. Depending on how the plan is designed, the only additional collateral required is sometimes a letter of credit. Which means in some cases, you can actually start a retirement plan with relatively little or no out-of-pocket expense.
The question is, can you qualify for this type of plan? To qualify, you need to be in good health, and meet certain financial requirements such as income and/or net worth. That being said, most healthy physicians should be able qualify.
The best way to discover if this kind of plan is right for you is to talk to someone who specializes in this type of retirement plan. If you haven’t done so already check out Episode 3 of The Alemian File to get a good overview of this type of plan
Take action now and send me an email with your questions and I will get back to you with the information that you are looking for. Make sure you come back here next week for another edition of The Alemian File.