Talk with Love | Issue 3 | May 2022

Updated: May 16

Welcome - the format of my newsletter will always be the same. We will take a current event from the last month, and share what you as a Financial Professional should know about it. Then I will give you insights as to the effect it may have on your clients' and prospective clients' financial goals. I will then give examples of conversation starters built around these events, and my own input. This can help you become a person of interest.

Thomas F. Love


Bond Rout Promises More Pain for Investors

Topic #1

-Facts you need to know-

Bonds are usually long term investments ranging in single year durations up to 20 years. The bond is issued by a company, and the investor gets a consistent yield payable in equal installments for the duration of the investment.

  • The value of the bond during the payment period can either be the value for which the bond was purchased (PAR) or a discounted or appreciated in value.

  • If current interest rate yields are higher today than that of the day of purchase, the underlying value of the bond would be less, discounted to PAR. If interest were to fall today and you own a bond yielding a higher rate, your bond could be worth more than what you paid for it, premium to PAR value. Insurance companies love bonds as their yield to maturity should match the expectations of any liabilities owed during that time. Insurance companies seldom "trade" bonds taking advantage of premiums they could earn if sold early.

-Impact on Clients' and Prospective Clients' Financial Goals-

For participating life insurance contracts where dividends are earned, the yield on their bond profiles could have significant impact on the actual dividend paid to policy holders.

  • If interest rates rise, especially during an inflationary period of time, individual investors of bonds could experience a loss of value if they were to trade the bond prior to maturity.

  • Insurance companies normally will buy and hold bonds to maturity. As a result, they are less impacted by fluctuations in interest rates.

  • As new premiums are collected, the purchase of newer bonds over time could increase the portfolio's net return gradually over time.

-Talk With Love-


In most cases, individual bond holders are more impacted by inflation and the underlying value of the bond than insurance companies. Life insurance companies consider their bond holdings as a source of income and seldom look at opportunities to sell bonds early at a profit. The income stream expected from the bond is matched with expenses and liabilities in the future. I believe this to be a positive reason to reach out to our clients when inflation and higher interest rates are in the media on a daily basis. The general public may believe that insurance companies may be at risk, and as a result may be concerned about their individual policy's performance.

Owners of participating life insurance have benefited by the insurance company's long term bond holdings over the last several decades. As interest rates fell, the new bonds purchased by insurance companies had a lower yield than the bonds purchased years before. The replacement of higher yielding bonds with lower yielding bonds reduced the total yield on the portfolio overtime.

This long period of low interest rates has been rather troublesome for many insurers. higher interest rates can be a good thing for owners of interest sensitive life insurance contracts. Since the beginning of 2021 it appears inflation is coming back, therefore yields on new bonds could be higher. This could represent an opportunity for new policy holders to experience better than anticipated results.

-Conversation Starters-
  • "The higher interest rates we are experiencing now could have an immediate effect on our borrowing costs, but I'd like to share with you how life insurance products react to the higher interest rate environments."

  • "With the life insurance contracts you own, there may be some silver linings during theses inflationary times."

  • "As interest rates rise, the long-term outlook on your life insurance contracts may be positively impacted. Let's get together and discuss how the current environment may have affected your long-term goals."


"How will you fund your next big thing?"

Topic #2

-Facts you need to know-
  • A 2022 study of high-net-worth investors was conducted by the Northern Trust Institute. They found 60% of high-net-worth non-retirees may be interested in making a large purchase in the next ten years.

  • Nearly 66% of those considered super-wealthy with $25 million and up indicated they would sell assets rather than borrow.

  • Understanding how leverage works in the right circumstances can be very beneficial to the borrower.

  • Borrowing AGAINST a portfolio versus liquidating positions helps keep your investment strategy intact and delays the immediate affect capital gain has on your wallet.

  • Arbitrage in this sense, is an opportunity to earn more on your investable assets than what is charged for acquiring the loan against those assets (this is an example of how margin works against investment values).

  • Life insurance cash value can be borrowed against at set rates.

-Impact on Clients' and Prospective Clients' Financial Goals-

Collateralization may not be part of your clients' or prospective clients' current financial plan, but it can have an amazing impact on their financial plan. Most people are under the impression there are only two choices, liquidate assets or finance. With collateralization being a third option, you can continue your investment strategy leaving your assets alone, and effectively borrow against those investments assuring the completion of your investment strategy. The article summarized for every two million dollars borrowed using collateral saved the individual $372,000 over a five-year period of time. Another way of wording this is a 18.6% savings by understanding and effectively using collateral.

-Talk With Love-


As articles are written about interest rates rising, and the cost to borrow money going up, many people are not aware of how life insurance loans work. When you take out a loan from life insurance company, you are borrowing from the company itself and your cash value is held as collateral. Depending on what type of life insurance policy it is, will determine how the cash value is used. For example, universal life policies, fixed indexed, or variable sperate the assets held as collateral and are charged interest. You may opt for a "zero loan" interest rate but there is sometimes a fee for that right.

Whole life polices with dividends can have a direct recognition or a non-direct recognition feature. Direct recognition is directly affected by loan activity, non-direct is not. With non-direct contracts, the total cash value may continue to earn dividends while the interest rate is charged for the exact amount borrowed. Insurance companies will not lend more than the cash surrender value as life insurance companies are not banks, you cannot borrow more than is in your contract.

The days of arbitrage, borrowing at a lower rate than that which I could be paid from an investment have long been gone. if the individual has to pay a current tax, whether it is long term or short-term capital gain, these factors need to be taken into consideration as well. Early in my career, you could borrow against life insurance at 8% and invest in 6-month CD earing over 10%. With the quick rise of interest rates and the Feds determination to rein in inflation, the idea of several fed rate increases in the future is probable. While I've never been one to suggest borrowing for unnecessary obligations, life insurance contracts are a potentially great source to consider for large purchases.

-Conversation Starters-
  • "Has any financial person ever shown you the flexibility of how you could collateralize your life insurance cash value and take advantage of market opportunities?"

  • "Are you aware of the difference between a structured loan and a non-structured loan?" (Non-Structured loans are loans against cash values in a life insurance contract where there are no structured loan payment amounts or scheduled payment dated.)

  • "If you are considering making a large purchase in the next several months, have you considered the benefits of using your cash value as collateral?"


Cut Your Retirement Spending Now

Says Creator of the 4% rule

Topic #3

-Facts you need to know-
  • The safe withdrawal rate refers to the percentage that may be safely withdrawn from an investment over a 20-year period of time with 85% chance of not running out of money.

  • Sequence of returns, the specific year in which the market performs positively or negatively, is irrelevant on the accumulation side of the equation. On the distribution side of the equation, the years in which you experience a negative return could reduce significantly the number of payments you will receive.

  • Stock market volatility, the ups and downs experienced while taking withdrawals, is one of the reasons the rate is s low. When that stock value drops from the previous month, more shares are needed to be surrendered in order to keep the necessary cash flow the same for the next month.

  • When you borrow against a non-direct recognition participating life insurance contact, the guaranteed value of the contract will be worth more every year.

  • The baby-boom generation is in the full swing of their retirement years.

  • With the stock market's recent bull tendencies, it is easy to expect double digit returns to last forever. Be careful not to consider short-term burst as long term trends.

  • The safe withdrawal rate has been as high as 7%.

  • The person who developed the safe withdrawal rate, Bill Bengen is currently recommending a withdrawal rate of less than the current rate of 2.9%.

  • Life insurance loans are one of the only loans where the lender guarantees the growth of asset used as collateral. The net effect is the ability to potentially use a distribution rate higher than the safe withdrawal rate.

-Impact on Clients' and Prospective Clients' Financial Goals-

A reduction of the safe withdrawal rate to less than 3% means that your client's annual withdrawal may be less than what they need, and certainly less than what they expect. Currently, the owner of a $1MM retirement account can safely withdraw 3%, or $30,000 adjusted for inflation annually, and expect to have that amount every year for 30 years. With the lowering of the rate, your client should expect less than $30,000 annually, how much less is yet to be known.

-Talk With Love-


David Bengen says that the volatility of current events should require all investors to readdress how much they can safely withdraw annually from their retirement accounts. The safe withdrawal rate has been as much as 7%, is currently less than 4%, and Bengen is recommending we even assume less. Our clients may find this hard to believe given the performance of the market over the last several years. Our job is to show the reality of the long-term effects to our clients. This is extremely problematic when the average investor is comfortable with double digit returns.

We, as financial advisors who use life insurance as a source of income in retirement, recognize that other options are available where Bengen's safe withdrawal rate is irrelevant.

life insurance strategies allow for not only a safe withdrawal rate calculation, but also potentially allows an increase in distribution because the lender, the life insurance company, guarantees the growth of the asset they have loaned against. As a result, with a properly structured life insurance strategy, the client receives a higher distribution rate than the safe withdrawal rate. In addition, there is a death benefit component which allows for a legacy opportunity as well.

-Conversation Starters-
  • "With the recent announcement from the founder of the safe withdrawal rate indicating every retiree should re-address their withdrawal percentage strategy, have you considered how this may affect your long-term goals?"

  • "The safe withdrawal rate has been readjusted downward by the founder of the safe withdrawal rate concept because of recent current events, would you like to meet and go over the founders' new recommendations and how it may affect you?"

  • "Have you ever thought about how much you can annually withdraw from your retirement accounts in light of suggestions that the safe withdrawal rate should be lowered?"


Secure Act 2.0

likely to pass the senate by the end of 2022

Topic #4

-Facts you need to know-
  • Most Americans believe they have not saved enough for retirement.

  • The SECURE ACT stands for "Setting Every Community for Retirement Enhancement."

  • It passed the House 414 votes to 5. The US Senate is expected to pass by year end.


  1. Plans established after the enactment date will mandate employees enroll.

  2. Minimum co