Kai-Zen Retirement Strategy: What Is It and How Does It Work?

According to the Department of Labor, the average American spends roughly twenty years of their life in retirement. How one spends their retirement years depends on how well they save leading up to retirement. Planning for later life can be an overwhelming endeavor. There are so many factors that play into having a successful strategy. How much money do you earn?  What kind of retirement benefits, if any, does your employer offer? How much do you need to have set aside by the time you retire? What standard of living are you accustomed to? How do you want to spend your post-work years? 

These are just a few of the questions you might want to think about when you begin considering your retirement strategy. What kind of retirement plans should you be contributing to, and how much should you contribute each month? These last two questions might be the most important and also the most difficult to answer. From standard pension plans to 401(k)s to IRAs, knowing where to put your money when you want to make sure you will have enough of it set aside to live on throughout your retirement can make all the difference. If you are a high-income earner looking for a way to amplify your savings without major tax ramifications, consider exploring the possibility of a Kai-Zen Retirement plan as a supplement to your other, more traditional retirement plans. 

Kai-Zen Retirement Strategy

So what is a Kai-Zen plan? 

Created by the NIW Corp., a company focused on improving the life insurance industry by centering on the client and creating sustainable strategies, Kai-Zen is a wholly unique savings strategy that combines life insurance, bank-funded financing, and leverage to allow high-income earners to save for retirement without as many limitations as traditional retirement plans. 

Put more simply, the Kai-Zen plan is an indexed universal life insurance policy (IUL) designed to enable the policyholder to accumulate wealth over a fifteen-year (or more) period while providing the protection that a life insurance policy affords. 

The most unique aspect of this plan is the leverage. Just as you might use leverage to finance a house or a car, this plan uses leverage to finance your life insurance policy and help you generate cash at the same time. The plan participant, employer, and contributing bank jointly fund the policy. By leveraging your contributions to the policy by 3 to 1, the bank will provide the bulk of the initial financing for the plan. The policy itself will act as collateral for the bank loan. In order to not default on the loan, the plan participant is expected to make yearly contributions of at least $22k for the first five years. Because of the leverage involved, you are starting with a larger amount of money on which to gain interest. After fifteen years of steady contributions and banking leverage, the cash value of the policy should be enough to pay back the bank loan, including interest accrued. After this time, you will have a fully paid life insurance policy and may use it as you wish. 

Please note that plan participants will not have access to the insurance policy, its cash value, or its living, or death benefits until the bank loan has been completely paid back. This is expected to happen after fifteen years. It is a long-term saving strategy. 

For Individuals

The Kai-Zen strategy is an interesting option for high-income earners who want to diversify their financial portfolios and supplement their other retirement savings plans with a savings strategy that has the potential to earn tax-free interest based on an array of market indexes. This policy is protected from losses due to market declines thanks to a built-in feature called the 0% interest floor. With this plan, there are no credit checks, financial underwriting, interest payments, or loan documents to fill out or sign. If done right, it can become a tax-free income stream in retirement, allowing the policyholder to maintain their usual standard of living and have the assurance of death benefits covered by their life insurance policy. As the policy itself acts as collateral for the loan, if the policyholder loses their job or passes away, the bank will be paid back out of the death benefits accrued in the policy. 

As with any financial investment, there are, of course, risks involved for the policyholder. For starters, until the bank loan has been paid back, the lender owns the insurance policy, and the holder has no access to its benefits or cash value. The lender may choose at any time to stop funding the policy or exit the market. There are also some risks based on interest rate fluctuations. To better understand all of these risks and determine if the Kai-Zen strategy makes sense for you, speak with one of the qualified and dedicated financial advisors at Expertise.com.

For businesses

The Kai-Zen strategy may be an attractive plan for certain individuals, but it can also be a compelling and unique benefit that businesses can use to attract and retain high-quality employees. When seeking jobs and being courted by multiple companies hoping to retain their services, the benefits packages offered by those companies will become part of the decision-making process for potential employees. Businesses that provide something new and unique, in addition to more traditional savings plans or in place of those plans, may be more inclined to attract and hang onto top talent.

Thanks to the bank-funded leverage built into the Kai-Zen plan, businesses can lower the costs associated with offering life insurance and savings plan benefits to their employees. The fact that there are no loan qualifications or documents needing to be signed by employees or employers is another attractive quality of this plan. It’s a low-maintenance, unique opportunity to offer employees nonqualified deferred compensation (NQDC) and set your business apart from competitors regarding employee benefits offerings.

Hire a Financial Advisor

When it comes to financial health and security, there are no guarantees in life, but if you’re hoping to prepare yourself and your family for success in retirement, planning ahead is key. The same is true if you are an employer wanting to help set your employees up for retirement success. Financial matters like savings plans, stocks, bonds, market fluctuations, and interest rates can seem intimidating and tricky to understand. Adding a life insurance policy into the mix may be a daunting idea, but it is not necessarily a bad one. After all, having enough life insurance and savings are both key to a successful retirement and will bring you peace of mind in your post-work years. Don’t let a lack of understanding or the fear of risk hold you back from asking questions about how you can start planning for retirement. You don’t have to create a savings strategy on your own. Have a financial advisor review your options to see if Kai-Zen makes sense for you.

Talk with one of our top-ranked financial advisors today.