Middle America’s Plan (MAP) is a game-changer for the middle class. Here’s why.
The demographic for MAP is middle class Americans, age 30-45, earning salaries from $50,000-$100,000. We limit MAP to this demographic because this income bracket is uniquely suited to leverage the benefits of deferring social security to replace a substantial portion of their pre-retirement income.
In our illustrations, we assume a 35-year-old making $65,000 has only saved $25,000 in a 401(k). We assume a 45-year-old making $85,000 has saved only $50,000 in a 401(k).
At age 35, with an annual salary of $65,000, the premium for the whole life policy is $3,395. This, combined with their 4% contribution to a 401(k) or IRA, represents a very achievable 9% savings rate for retirement.
At age 45, with an annual salary of $85,000, the premium for the whole life policy is $7,016. This, combined with their 4% contribution to a 401k or IRA, represents a 12% savings rate for retirement, which is also achievable.
Our projections make reasonable assumptions for living expenses, unexpected expenses, debt obligations, and housing costs. See our FAQ section: “How can the middle class afford Life Insurance?”
Specialized and focused insurance
(a) Limited Pay Whole Life
The type of whole life policy we are using has a shortened premium-paying period, which accelerates the cash value growth in the policy, and maximizes the long-term rate of return for the client. We project a rate of return between 3-4%, over a 25-year time horizon for a 35-year old. It could be higher if we used illustrations assuming dividends are paid in full each year.
In our illustrations, the premium payments stop at age 60. So, a 45-year-old is paid-up in 15 years, while the 35-year-old has to make 25 years of payments. This is the primary reason why the 45-year-old has a higher premium payment.
(b) Deferred Income Annuity
MAP uses a Deferred Income Annuity to lock-in additional income to supplement Social Security benefits at age 70.
Although deferring Social Security to age 70 can replace as much as 60 percent of after-tax pre-retirement income for the middle class (as defined), it’s not enough. In order to maintain their quality of life, the middle class needs to replicate at least 70 percent of that income.
Deferred Income Annuities are relatively new to the market, and under-utilized by pre-retirees. The type of DIA we recommend provides guaranteed lifetime income and offers customizable features, including the option to make additional premium payments, select from a variety of payout options (life only, life with cash refund death benefit, single or joint payout), and the ability to take a one-time partial withdrawal in the case of an emergency.
We assume this annuity will be purchased between the ages of 45 and 55, which is the age where our analysis shows the middle class can afford to start making premium payments.
These insurance products are available from a number of highly rated insurance companies.
Why MAP is a game-changer
Here’s where MAP excels: We can take those with modest assets, ask them to save at a very realistic rate, and give them a guaranteed stream of income in retirement that will replicate a minimum of 70% of their pre-retirement income, without significant reliance on the stock market.
That’s the really unique aspect of MAP. To our knowledge, no one has proposed solving the middle class retirement crisis in this manner.
If you are a member of the middle class interested in learning more about MAP, you can either implement it yourself or seek the assistance of one of the advisors listed on our webpage.
If you are a financial advisor or insurance professional, and wish to be listed as a resource, please use this form.