Sleep Insurance and Snake Oil

Sleep Insurance and Snake Oil

Originally aired 3/24/2021



The financial world is full of spiels that either play on fear or are too good to be true. On this episode of the Get Ready For The Future Show, we’re talking all about pitches designed to capture your money and leave you less prepared for a healthy retirement. 

You’ll learn:
– How to steer clear of snake oil disguised as sleep insurance
– Why avoiding one risk leads you right into another
– Tips to help you work toward financial independence


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You Can Check Out Anytime You Like, But You Can Never Leave

  • The financial industry is flooded with voices that claim to be interested in giving you advice about your money.
    • It seems that everywhere you look, someone has the next great idea of how to invest, save and become wealthy.
  • When times are uncertain or when markets are volatile, it is very predictable that those preaching fear and offering a magic formula will come out of the woodwork to pitch you on their ideas. History has shown that often, those pitches amount to little more than snake oil.
    • At best, those pitches for so-called “sleep insurance” or beating the IRS often set your money up to be exposed to the risk of rising prices as your return fails to keep up with the cost of living.
    • At worst, their prescriptions can lead you into investment products that you soon discover are a bit like the infamous “Hotel California” – You can check out anytime you like, but you can never leave.
      • i.e. Fixed indexed annuities with 20-year surrender periods
    • If you are not deluded by the pitch for safety and comfort, it is pretty easy to spot these come-ons.
      • Often, they focus on magnifying your fears and take advantage of behavioral biases.
      • Most of the time, they urge you to put “all your money” in one certain product.
      • They focus on only one type of risk while ignoring other risks that can be just as harmful.
      • Their pitches are delivered to you without any regard to your personal circumstances, needs, wants, and wishes.
    • Case in point: One of our clients had their curiosity peaked by a national advertisement about gold.
      • Gold is one option in an asset class known as “precious metals”
      • There is nothing inherently wrong with an investment in gold if you have a desire to invest in a speculative, somewhat volatile asset.
      • This client simply contacted a firm that had pitched gold as a “safe haven in these uncertain times”. They were simply looking for information.
      • Before they knew it, the representative for the gold marketer had pressured her into conference calling with GenWealth to make a transfer of all of her accounts to this company hawking gold investments.
      • She told us she never intended to open an account, only to satisfy her curiosity.
      • The Client Service Specialist on the phone understood that this was not a move we would make and got an advisor to redirect the conversation and avoid a decision the client didn’t want to make.
  • Throughout our show today, we will shine the light on these pitches that are often designed to play on your fears and your predisposition to avoid short-term losses. And we will explain why a balanced, well-rounded approach to financial planning is your best friend both in volatile times and for your long-term future.

The Fear of Tax Increases and the Pitch for a “Tax-Free Retirement”

  • There is no doubt that the threat of higher taxes is real.
    • It has been the stated objective of the Biden administration to increase taxes in a number of different ways.
    • From tax-bracket increases on high-income earners to capital gain tax increases, the need for more revenue is on the mind of government officials.
  • Most Arkansans at their income level won’t be impacted by the current proposed tax increases from the Biden administration
    • 400k/year or more
  • But the fear of higher taxes has caused an explosion of pitches from a variety of characters trying to sell you on the idea of dodging the IRS and creating a tax-free retirement.
    • These people target folks who have built a substantial amount of retirement assets and often the solutions they offer aren’t in your best interest.
  • The best lies are shrouded in a layer of truth.
  • Case in point: There are a number of come-ons that could potentially involve you in very expensive products and (ironically) potentially higher taxation.
    • Once you have a large amount of money in pre-tax accounts, you need to understand there is no way to AVOID taxation of those assets.
    • There are some strategies that involve blending withdrawals from non-qualified and qualified accounts that COULD reduce the amount of taxes you owe, but you will still owe taxes on the qualified portion.
  • One of the pitches we have run across is called the “Tax-Free Retirement”. This scheme involves a proposal to take money out of qualified plans over a period of 4 or 5 years to fund cash value life insurance.
  • There are four potential problems with this idea:
    • 1: the withdrawals from qualified money are taxable, and doing it over a relatively short period of time surely would cause someone to pay taxes in a higher than normal bracket due to the sheer size of the withdrawals.
    • 2: the pitch to put the money into cash value life insurance is problematic due to the heavy front-end charge with most life insurance policies. Also, the withdrawals from life insurance are taken as policy loans.
      • Those loans carry an interest rate that may not be competitive and can serve to further decrease the cash value.
    • 3: do you qualify for life insurance from a health standpoint? There might be paying a higher rate if you have some sort of physical impairment.
    • 4: making matters worse is the fact that borrowing against a life insurance policy reduces the death benefit on the policy and if all the money is drained from the cash value it could make any gains from the policy to be taxable when the policy lapses.
  • An alternative strategy might be to utilize a Roth IRA as your primary retirement vehicle. However, keep in mind that taxes must be paid on any money that goes into a Roth IRA.
    • The best scenario for a ROTH IRA investor is to start early. Roths are great vehicles for young people to save for retirement. When you start young with a Roth, you give yourself a long time for tax-free compounding to take effect. That would potentially create a large pool of tax-free retirement dollars.
  • A Roth conversion might be an alternative, but again, the funds in the traditional account would still be subject to tax.
    • A potential strategy would be to make partial conversions in small bites to keep the taxes low.
  • Remember, never make an investment decision solely on tax reasons.
    • The investment has to make sense on its own merits because there is no guarantee that Congress won’t change the tax laws in the future, potentially blowing up your strategy.
  • Are you on track for a successful retirement?

Sleep Insurance and the Shrinking Value of “Safe Money” Investments

  • One of the most potentially harmful pitches these days is one that plays on fears of an economic meltdown of unprecedented proportions that totally wipes out your investment savings.
    • These merchants of fear over-dramatize the threat of market risk in an effort to sell some “risk-free” investment.
  • Let’s look at some historical facts. Of course, past performance is not necessarily indicative of future results. But history does give us some insight into how certain investments perform.
    • Inflation marches on: Even during low periods of inflation, the effect of rising prices erodes the purchasing power of your money.
      • As an example, take a cup of coffee that costs 2 dollars today. The effect of a 3 percent inflation rate would have that same cup of coffee cost $3.81 in 20 years (nearly double the cost.)
    • History indicates that only two broad asset classes (Real Estate and Equities) have outpaced inflation over the long-term.
  • Those two facts set up a losing scenario when you commit money to long-term, low-yielding investments that don’t keep pace with inflation.
    • These investments are pitched as “sleep insurance” supposedly giving you a sense of well-being because you “can’t ever lose a dime.”
  • The key question to consider is: What kind of loss should you be fearing?
    • The threat of inflation is real, even though it has been relatively tame.
    • The chances of higher inflation in the future have grown with the current economic conditions and the stimulus spending of the government.
    • A reduction of your purchasing power by as much as 50% over your lifetime in retirement is truly a loss that you can’t recover from.
  • As we mentioned, equities and real estate are the only two asset classes that have historically stayed ahead of inflation.
    • Likewise, the short-term risk of loss is very real.
      • The S&P 500 historically on a rolling one-year period has demonstrated a 75% chance of showing a positive return and a 25% chance of a negative return.
    • But, equities are long-term investments. To that point:
      • Go out 10 years and you see that history shows the threat of a negative return on a 10-year rolling basis is less than 6%
      • 16 years: History indicates that there has never been a 16-year rolling period of negative returns on the S&P 500.
    • Let’s say this in a different way:
      • 15 years ago, had you invested in a fixed-income investment that mirrored the Barclay’s short-term bond index you would have had a cumulative rate of return of just under 40% or about 2.6% per year.
      • 15 years ago was just before the start of the financial crisis (arguably one of the worst starting points for investing in equities given the downturn that followed).
      • The results 15 years later: An investment reflecting the returns of the S&P 500 would have gained a cumulative return of 325.99% or an average of over 20% per year.
    • We would point out that this time period encompasses the Great Recession of 2007-2008 and the dramatic downturn of the COVID 19 pandemic.
      • Yet, these merchants of fear constantly raise the threat of those two periods as the reason you should run to buy their sleep insurance. Don’t buy into the hype.
    • Here are the facts:
      • Equities are long-term investments. You should use them accordingly.
      • There is a place for low-risk investments, it’s just not for all of your money.
    • Find out if you’re on track for a successful retirement.

Balance is the Key

  • A central truth to today’s show: If you are near retirement, never allow someone to tell you that all your money belongs in one particular place.
    • History has shown that the result of a single-minded investment philosophy can be dangerous.
  • So, what’s an investor to do?
    • At GenWealth, we believe in balance. There is a time and a place for a variety of investments and a variety of risks.
    • The risk with so-called risk-free investments is the effect of inflation over the long term. Therefore, we believe in using fixed income for short-term needs. This avoids the negative effects of inflation while keeping your money safe and available.
    • The risk of equities is in the short-term performance. We believe equities are long-term vehicles, designed to take advantage of the prospects of great American and International companies. History has shown equities and real estate, over time, can potentially be a great way to combat inflation and keep your money growing.
  • In the big picture, what we are describing is a balance of safe and risk-based assets to create an optimal portfolio.
    • A solid retirement income plan isn’t about chasing returns.
    • Nor is it about hiding your money under a rock, fearing every economic headline that comes out.
  • Fear has never been a good investment strategy for long-term financial objectives. Anyone who has ever bet long-term against the American economy hasn’t fared well.
  • The GenWealth Ready to Retire Process is a trademarked strategy that is designed to manage and transfer risk for retirees, designed with balance in mind. The process covers 7 key areas:
    • Investment strategy
    • Social Security Maximization
    • Creating guaranteed income to meet your basic needs
    • Protect against inflation and providing for lifestyle income
    • Address long-term care needs
    • Reducing taxes during retirement
    • All documented in a written plan (on paper, on purpose)


    • The financial world is full of pitches designed to capture your money and leave you less prepared for a healthy retirement.
      • Don’t fall for the hype.
    • How to tell if a pitch is snake oil:
      • Often, they focus on magnifying your fears and take advantage of behavioral biases.
      • Most of the time, they urge you to put “all your money” in one certain product.
      • They focus on only one type of risk while ignoring other risks that can be just as harmful.
      • Their pitches are delivered to you without any regard to your personal circumstances, needs, wants, and wishes.
    • Are you on track for a successful retirement?