Case Study - Wealth Creation

Michael Cena, 40

Michael Cena needs at least an expected annual income of $200,000 (pre-tax) for 25 years to retire comfortably. He also wanted to be able to provide for his family's needs if anything should happen to him.

Leveraged Planning®

At 40, Michael’s appetite for risk had lessened as his time horizon was shortened substantially. Because of this, he was looking at many options that were likely to produce lower returns than he might have hoped to earn. Narrowing down his options, Michael found himself considering two: a more traditional savings vehicle and a solution his advisor had introduced to him – Leveraged Planning.

Looking at a traditional savings product and assuming an annual return rate of 5.5%, Michael would have to allocate $96,895 in pre-tax dollars every year for the next 25 years to meet his nest egg goal of $3,221,700 by age 65.

Over the coming 25 years, this meant Michael would be putting away $2,422,385 pre-tax dollars in order to meet his future income goals if he used the traditional product.

The problem for Michael was clear: starting with nothing and using a traditional product offering meant that his money would have to work very hard to get him where he needed to be. 

Examining the Leveraged Planning solution, Michael found a somewhat different situation. With Leveraged Planning, Michael found that, by allocating just $1,621,743 (pre-tax) over only 15 years into a principal protected insurance product, he would meet the same retirement income goal AND realize far greater downside protection and the strong estate planning component he hoped to include as well.

Using the Leveraged Planning solution, Michael’s firm would take out a simple interest-only commercial loan – one for which he was not personally liable. The firm, in turn, would service the loan with monthly payments of $6,275 for an annual total of $75,295 after tax ($1,621,743). This meant that the total allocation over the subsequent 15 years was only $1,054,133. Comparing the two options for funding his retirement income needs, the differences were very clear and compelling.

Michael’s plan was designed in such a way that he could pay back the loan from the policy and earning enough to fully fund his future income needs from his insurance product. Michael still ends up paying far less over just 15 years than he would have if he went with the traditional savings option he was considering funding for 25 years.

Michael chose the Leveraged Planning solution. He made this choice because his future income needs would be met, he would be protected from downside loss in the markets, he would provide his family with significant death benefit protection, and he would be able to put his business to work funding his future personal financial needs. The combination of these factors made Leveraged Planning the clear choice for Michael.