Wealthy and Wise: Sample Presentations

Good Logic vs. Bad Logic

Click here if you would like to review an interview with InsMark’s President, Bob Ritter, regarding Good Logic vs. Bad Logic which discusses this Case Study in more detail.

Simon and Ann Scott, age 55 and 50, plan to retire in 10 years.

They have the following liquid assets:

  $    500,000 Simon’s IRA assumed yield: 8.00%
  $    500,000 Ann's IRA assumed yield: 8.00%
  $ 3,500,000 Mutual Funds assumed yield: 7.00% growth; 1% dividend
    cost basis:  $2,000,000
  $ 1,000,000 Tax exempt Account assumed yield: 3.50%
  $ 1,000,000 Certificate of Deposit assumed yield: 4.00%
  $ 6,500,000 Total (plus $900,000 in home value & personal property)








Assume Simon and Ann want $300,000 a year in after tax retirement cash flow -- compounding annually by 3.00% as an inflation offset. Imagine that it is the first day of their retirement. They need to withdraw $25,000 from their assets ($300,000/12). From which account should they take it -- and does it make any difference? It makes a huge difference!

Scenario 1 – Bad Logic: Let’s first have them access their liquid assets for the cash flow in the order listed above. Their assets can support this level of cash flow, but see the graphic on the bottom of the Analysis of After Tax Cash Flow Requirements report (page 3) for what happens to their long-range hypothetical net worth (for obvious reasons, we call this result Bad Logic).

Scenario 2 – Good Logic: The order in which liquid assets are accessed for cash flow should be prioritized in order to produce the highest possible long-range Net Worth. This is generally the most overlooked aspect of wealth planning – even by the most sophisticated Monte Carlo simulations -- due to the complex coding required. See the graphic on the bottom of the Analysis of After Tax Cash Flow Requirements report (page 3) for what happens to their long-range hypothetical net worth when the feature, Maximize Net Worth, is used.

Note: This is not the time for a Monte Carlo simulation for those who like to use that tool. Once an overall plan is designed, then an asset-by-asset Monte Carlo analysis may make sense.

Comparison 1 – Bad Logic vs. Good Logic: To see the two graphs superimposed on one another, see the Comparative Graph on page 1 of this Comparison.

Scenario 3 – Good Logic + Tax Planning: With over $12.5 million more in Net Worth, some interesting tax planning becomes available. This Scenario shows the Scotts converting both their IRAs to Roth IRAs with the income tax on the conversion withdrawn from their assets -- plus the addition of a W.R.T. that is funded with $2 million of survivor life insurance covering both Simon and Ann.

Comparison 2 – Compares best to worst: To quickly see just how important this plan is to the Scotts, view the Comparative Analysis Graph on page 3.

Comparison 3 – Compares all three plans: Here is a quick look at the long-range results of all three plans: Bad Logic vs. Good Logic vs. Good Logic + Roth IRAs + W.R.T. Again, review the Comparative Analysis Graph on page 3 -- there is likely no more dramatic graphic anywhere in the world of wealth planning.