Securing Your Child's Financial Future: An Introduction to The $50 Retirement Plan

Are you struggling to secure your child's financial future? 

As a fiduciary financial advisor and a new parent myself, I'm excited to introduce you to a simple, yet effective strategy - the $50 retirement plan, a financial safety net for your child that can be accessed tax-free, both throughout their life and as a tax-free retirement income. I'll break down this bucket-like plan, that not only allows you to grow your money completely tax-free but also enables your children to benefit from the good years of the market without ever going backwards. 

Additionally, we'll delve into another foolproof method - the government-sponsored cash value life insurance plan for children. I'll share my personal journey with this plan, and reveal how an investment of just a thousand dollars per year can snowball into a whopping fifty-two thousand dollar per year tax-free income for your child. So, sit back and join me as we navigate the complex world of financial planning for our children's future, one step at a time.

Interested in learning more? Visit us at https://www.hollifieldfinancial.com/ or give us a call at (843) 400-3022.

Transcript

Speaker 1: 0:00

Hey, this is Kim Z Hallifield with Hallifield Financial Group. I want to show you today what I call the $50 retirement plan. Now you can take $50 per month and provide money that your child can access tax-free throughout their life and can turn into a tax-free retirement income for them way down the road. Hey, kim Z Hallifield, here with Hallifield Financial Group, I'm a financial advisor, business owner and new father, and if you're a parent, you're watching this. You know it's tough to be a parent, right, there's a lot of things to keep up with and it's tough to know what to do for your children when you become a parent. Right, you're still maybe just trying to figure things out for yourself, but there's a few things that you should do from a financial aspect when you become a parent. So what I want to do today is I want to take a minute and I want to go over a few things that you should do once you have kids. I want to go over one particular program that I'm very passionate about, that I've done for my daughter and I've done for a lot of you out there, and I'm going to take a second and I'm going to show the actual illustration for my daughter's account. So a couple of things that you need to do right off the bat when you have children is to make sure that you have a will. You should make sure that you have a will so, if something happens to you, you know that they're going to be okay and that everything's going to go smoothly. In that same thought, you need to have life insurance for yourself. If you don't have life insurance and listen, guys, you can do a 20 or 30 year term really really inexpensively. It's kind of like on the airplane you have to put the oxygen mask on yourself before you can put it on someone else you have to make sure that you're taken care of so that if something happens to you because chances are more likely that you pass away before your children, that they're okay. And listen, there's nothing wrong with doing a 20 year life insurance policy term so that you know if something happens while the kids are little, they're going to be okay, but once they're out of the house, then you sort of regroup. There's a couple of things, though, that we're going to talk about today that you can do specifically for the kids. Yes, you can do a 529 plan. That is an account where you save money for college, you can do what's called a UGMA. That is basically an account. That's a minor account for your minor, your kid. But what I want to really talk to you about today is something that I call the $50 retirement plan. Most of you right now have 401Ks or IRAs and you know that you're putting a lot more than $50 in this thing, and the reason is because we're older. But if you start a program for your child, you can actually start it with like $50 a month. That's all you have to put in, and if you do that because your kids are so young, they have all this time.

Speaker 1: 3:19

Albert Einstein said that one of the greatest things in the world is compound interest, and you have to have time. So what is the one thing that your children have more of than you have and you have more of than your parents, and they have more than your parents? It's time. So putting a smaller amount of money away and letting it sit for a longer period of time can really do wonderful things. I'm going to show you how this thing works, just as though you were sitting in my office and I'm going to describe it in that way, and then I'm going to take just a second and run you through the illustration of the account that I did for my daughter. So this account is like, think about like a bucket, right, and in this bucket, the government allows you to put money in and the money can grow completely, 100% tax free. That's very, very important because taxes are going to probably go up in the future. If you want more information on that, I can link the video talking more about taxes. But let's just understand that our children are going to face challenges that we are not facing Right now. We're in one of the lowest tax brackets, or the one of the lowest tax rates that we've had in a long, long time, and so putting this together for your kids in a tax-free way is tremendous.

Speaker 1: 4:48

So there is no 59 and a half rule, right, in a Roth IRA, in a 401k, in a traditional IRA, you typically will have to wait until you're 59 and a half. There is no taxes. As it grows, there's no tax when they take the money out. We're going to say no tax on withdrawals, okay, there's no contribution limits, there's no income limits. You know now the income limits. That's not a big deal for the children, but what is is there's no income requirements To have a traditional IRA or a Roth IRA, which is fantastic to do for your children.

Speaker 1: 5:35

They should be doing when they get a job, when they are two, one, three, five years old, seven years old. They don't have income, so you have all of these benefits here, and here is how the money in this account grows. You know, through your kids' lifetimes, the stock market it's going to go up and down, over and over and over, right? This account grows in a way that's not subject to stock market risk, but when the account, when the market, grows, then your account will go up. So your kids get to participate in the good years of the market. But when the bad years happen, they're guaranteed to never go backwards. So each year, they will stair step and it will either grow or it'll stay flat. So a very simple way to earn interest that people can really understand. And so this is basically how the account works Now.

Speaker 1: 6:36

It is tremendous and if you look at this, you'd say all right, this is a perfect account. What are the catches? Right, this has to be too good to be true. Well, there are a couple of catches that you really have to be okay with to open an account like this for your kids, right? The first catch is time. You are committing to a time period of 12 years Now, typically it's 12 years. You have limited access, so you might have access of, let's say, 40% of what you have in there every year for 12 years. Now, most people you're not opening this account for your three-year-old so they can liquidate it all at 15 and go buy 85 puppies, right? So this is not really that big of a deal In my opinion. I open these accounts for people knowing, hey, their kids are probably not going to touch this money for decades, right, and it's going to keep growing and you can see if it grows until they retire. It's a tremendous, tremendous benefit.

Speaker 1: 7:46

The next thing is that you're going to have a cap every year on the growth. Now, the caps can be really tremendous, right? If the market goes up, you can have some really good years. You can have some 15s and some 18s. But just so you understand how a cap works, let's say that you do this account and your cap is 12% and the S&P 500 goes up 10%. What can you get? You can get 10% If you have a cap of 12 and the market goes up 15,. What do you get 15. The next year the market goes down 15,. You're guaranteed no less than zero. I believe that my account that I have, like this, has a cap of 11.5, but the caps are much higher now. So let's just say you're going to have no less than zero and you're probably never going to have a year more than maybe 15% or so. These accounts will typically average 6% to 9% over time, some years more, some years less, never going backwards, but complete 100% tax-free growth.

Speaker 1: 9:00

The last thing is there are some charges on these accounts and what I want you to think about it, as I want you to think about it like this, is a bucket of money or a bucket of water here and off the side there is a spigot that flows charges. These charges come out every single year. Now they start higher in the early years and then they go down and they average around 1 to 1.5%. Now these numbers here, this 6 to 9% and the numbers that I'm going to show you for my daughter, are all net of all of these charges. And what do these charges go to? These charges go to something called cost of insurance, because the government says, if you're going to have this type of account and we're going to protect it. We're going to allow you to protect it from all taxes. We're going to give you early access. We're not going to have it tied to any income. We are going to provide all of those things for you. You have to have this inside a sponsoring company that also ties it to life insurance. So these charges start out higher in the beginning and they average normally about 1 to 1.5% over time, because they start to go down as you get more money in it and these charges go to fund cost of insurance.

Speaker 1: 10:33

The sponsoring companies of this program offer insurance tied to this plan and that's the way the government set it up. The government says, hey, if you have this money inside a cash value life insurance policy, a specific type of cash value life insurance policy, then it will grow tax-free. You'll get all these benefits and many more we didn't even talk about. But there's also going to be a death benefit there as well.

Speaker 1: 11:05

Now, right now, maybe it's not important for your kids to have insurance, but at some point it will be. They'll be 30, 40, 50. They'll be in the same situation that you are and they'll be able to have, in some situations, hundreds of thousands of dollars of insurance that they're just putting their 50 or 60 or 70 dollars per month in. That they've always put in for their retirement plan. So it is a fantastic program for you to do for your children. Take care of the other steps as well, but this is a fantastic way to set aside a small amount of money every month to really provide for your children for the rest of their lives. So in part two of the video, I'm actually going to open up the policy, the account that I did for my daughter. I'm going to show you exactly how it works over time and I'm going to show you how we're able to turn a thousand dollars per year investment into a 52,000 dollar per year tax-free income for her for the rest of her life.