What’s Palm Beach Letter’s “Invisible Retirement Fund” that the IRS Can’t See?

Checking in on what they most recently called the "Magic Contract" and the "770 Account," being pitched anew Tom Dyson for the Palm Beach Letter?

By Travis Johnson, Stock Gumshoe, January 7, 2015

“Strange Disappearances May Hold Key to Retirement in America”

This ad pitch we’re covering today has been through a few iterations over the last year or two — Palm Beach Letter started pitching it as the “770 Account,” then the “President’s Account”, then last Fall they touted it as the “Magic Contract” for 100% tax-free retirement… and now, as we enter a new year, I’m being asked about this again — only now, Tom Dyson and the Palm Beach folks are calling it the “Invisible Retirement Account” that’s helping “millionaires disappear” (“invisible” because the IRS can’t see it).

And yes, it’s still the same thing. A variety of life insurance that earns dividends, has tax advantages, and can include some other features if tweaked in a special way. Read on and I’ll explain more, though I don’t use or sell this kind of insurance and I’m not an expert on the detailed implementation.

What follows is the version we updated when Dyson called this the “Magic Contract” last month, but the “Invisible Account” is the same thing, just a different name. Enjoy!

—from 12/8/14—

The thing that keeps me up at night is retirement. And I’m a long way off from that magical, mystical time when I get to walk around in flip flops in Florida with a herd of dachshunds and not worry about anything anymore.

That’s what retirement is, right?

No?

Damn.

Well, the thing that worries thousands of people who are coming up within a decade or two of retirement age is, of course, having enough money to live when you’re no longer working and bringing in some income. Assuming that we want and can afford to stop working (which many people cannot). That’s why we all invest in the stock market, because even those of us who were not fantastic in math class know that if we’re only going to work for 15 or 20 more years (or less), there’s no way to turn that into a retirement-worthy nest egg if you’re earning 1% a year in a savings account or some super-safe short-term bonds. Not unless you’re suddenly able to start saving half of your income.

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But we also have tremendous fear of the stock market. People who are of the age to most likely be thinking about their retirement in the next decade or two, like me, have lived through two very dramatic market crashes as 401k-feeding adults (the bursting dot-com bubble and the financial crisis) that destroyed retirement accounts and scared the hell out of everyone — at least for a few years.

So we dream of a guarantee, and we want safety, and we hope to get returns that are a lot better than have been available in guaranteed savings accounts for the past few years.

And on top of that, we don’t trust bonds because “everyone” says that the bull market in bonds that has now lasted for 25 years is is really officially over. The Fed will start raising rates at some point, long-term rates can’t really get much lower than the recent 1.75-2% (they’ve popped up a bit lately) unless there’s severe deflation (though many of us thought that when 10-year treasuries first dropped below 4%, almost a decade ago, and we were very wrong)… so near-retirees and folks who need portfolio growth are starting to get very worried about government and “investment grade” corporate bonds and municipal bonds, the traditional fountain of guaranteed safety and income for the aging portfolio.

What the heck do you do?

Well, Tom Dyson has a big new ad out for his Palm Beach Letter that says this problem can be cured with a “Magic” piece of paper.

Man, what a relief!

I always knew there was some secret that folks weren’t telling me about, some club they wouldn’t let me join, some joyous cartel of wealth that was eluding me just because I hadn’t signed up for the right investment newsletter. So maybe this is it, eh?

So what’s he talking about? Well, I’ll give you a little taste of the ad “presentation” first…

“… what I’m holding in my hands could make you rich.

“I call it a ‘magic contract,’ because this special piece of paper allows regular Americans and Canadians the ability to retire tax-free… without ever having to notify the IRS or any government agency.

“Currently, our research indicates this is only available in North America. And it’s 100% legal.

“Already, I’ve told several of my closest friends and colleagues about this and, armed with their own ‘magic contract,’ they are now on the path to an abundant, tax-free retirement.

“So what’s so special about this contract?

“Well, for one, you don’t have to worry about creditors… (thanks to this contract, your money is safe)…

“You can also pass on your wealth to future generations, free of income taxes…

“You don’t have to declare a dime of your profits to Uncle Sam…

“And, with the right ‘magic’ contract, you can also get a guaranteed growth of 4% a year — about 100 times more than what most banks pay.”

This is a little bit of a tough thing to sell, because most investment newsletters are promising the moon and giving you dreams of an easy retirement from 1,000% winning stock trades — so we’ll give them credit for that, even as we weep for a world in which the hot enticement is for growth of 4% a year.

So what is it? More from the ad:

“Now, this is not some kind of insurance annuity…

“It’s not a real estate contract (there’s nothing tax-free OR guaranteed about that).

“And it’s not a bond or stock certificate, either.

“In fact, this ‘magic’ contract is about as far removed from Wall Street possible. You see, the companies that issue these special papers (I’ve located about a dozen so far) don’t even trade on the stock exchange.

“That’s why the only way you’ve probably heard about this before is if you accidentally stumbled onto it… because your broker’s not going to tell you about it.”

And this “magic” account has been used by heads of state, we’re told:

“President John F. Kennedy had his own ‘magic’ contract…

“So did President Roosevelt. In fact, here’s a paper we found at the Georgia Archives that shows FDR held about $560,000 of his money—over $7 million in today’s dollars—inside this special contract…

“John A. MacDonald, Canada’s first Prime Minister, also had one. As did Senators John McCain, Mark Warner (the richest members of senate), and Vice President Biden.”

And he makes the point over and over that it’s not something you’ve heard of before, or used:

“It wasn’t related to stocks, bonds, CDs, precious metals, or real estate. And although these returns were all but guaranteed over the long term… and one company we found even guaranteed 4% returns… it wasn’t an “annuity” either. (That’s great, because although annuities have become quite popular of late, they’re not the bastions of security they’re made out to be.)”

He also gives some examples of the other famous people who’ve used this “Magic Contract,” even in times of huge investment tumult like the Great Depression:

“Let’s take a short trip back to 1929…

“We’re smack dab in the middle of the Great Depression, and 9,000 banks are about to go bankrupt—and J.C. Penney’s fledgling chain of clothing stores is about to experience the same fate…

“Luckily, J.C. doesn’t keep his money in the bank. He’s got the bulk of his wealth stored in a ‘magic’ contract, which, by 1929, has grown to over $3,000,000 in value.

“But the key question is… is it still safe?

“Yes—not a single dime would be affected during the depression. Thanks to his ‘magic’ contract, James Cash Penney is able to save his business….”

Is this all starting to sound a little bit familiar?

Dyson goes on to call this “Manhattan’s Secret Vault,” telling us that bankers and wealthy families have secretly been putting their money in these “Magic Contracts” for generations, and not telling anyone about it — partly because they want you putting your money into their investment vehicles, or their banks. A deep, dark conspiracy.

And one final bit of Dyson’s inducement:

“… I’m currently earning a 5.5% yield in my “magic” contract, and remember, this is SAFE money that, if history is any indication, is all but guaranteed to go up….

“Don’t forget taxes and fees. For example, a 5.5% “magic” contract (which already includes fees) can be equivalent to a mutual fund that averages a 9.2% return! (That’s assuming a 30% tax bracket and 2% fees, which is only HALF the 4% fee Bloomberg reports as being the average for mutual funds.)

“And lastly, unlike CDs, Treasuries and the like, the money you store in a ‘magic’ contract is not locked up for months and years….

“… if an emergency or new opportunity comes up, you can access your money in your ‘magic’ contract fast. Plus, you don’t have to pay any penalties to withdraw your money!”

So what is this “magic” in the “Magic Contract?” What is this secret thing that Tom Dyson calls “by far the most important thing you should be doing with your money right now?”

Yep, you guessed it, this is the “770 Account” again — he’s teasing life insurance.

But not the regular kind that most of you probably have — he’s not talking about plain vanilla whole life insurance, or even indexed life insurance contracts or universal life, and he’s definitely not talking about term life insurance, which is the inexpensive kind that most of us rely on for catastrophe planning.

Dyson’s Palm Beach Letter has, for 18 months now, been touting the “770 Account” or the “Presidents Account” — we were the first folks to cover that ad pitch, and our readers discussed it for months (including several folks who sell these kinds of policies either explaining details or trolling for customers) as the ads continued to roll.

What they’re really talking about is essentially the same thing that has been promoted for a couple decades now as the “Bank on Yourself” or “Infinite Banking” strategy — there are several books about it from various proponents, and a subset of insurance agents who specialize in this strategy.

What is it? Basically, you buy whole life insurance, also called permanent life (the kind that builds in value and is designed to be held through a natural death in old age, not the kind that gives you cheap immediate death coverage for ten or twenty years so your family can replace your income if calamity strikes — that’s term life insurance)… but in this case, your insurance agent structures it in such a way that you are minimizing the death benefit and maximizing the cash value of the account. If you do this through a mutual insurance company (meaning, a company owned by its policyholders like Mass Mutual or Northwestern Mutual or a dozen or so other big ones — not a publicly traded insurance company like Metlife or Prudential), and you make sure to choose a participating policy, then you earn dividends for your insurance policy from the profits that the company makes.

So it’s a whole life participating insurance policy from a mutual insurance company, with the cash you put in maxed out to get the immediate cash value higher, and to maximize the earnings from the “participating” part — often that cash value is maximized through a rider that allows “paid up additions.” The “bank on yourself” part of it is that some people advocate putting as much money as possible into these policies and then, when you need money (to buy a car, finance a college education, etc.) you borrow from the cash value of your account and pay yourself back over time — so you’re essentially acting as your own banker. Sometimes they continue to pay dividends on the money you’ve borrowed (though usually at a lower rate), and no one earns any interest from you, so it does look appealing on a spreadsheet.

Another way to describe this (and part of the problem with researching this stuff is that every proponent uses different terms, and each insurance agent and company probably emphasizes different parts of the process or explains it differently), is to say that you are buying a dividend-paying whole life insurance policy and you’re overfunding it fairly dramatically in order to maximize your dividends. Really, the point is to have as little “death benefit” coverage as possible without losing the life insurance tax treatment (you don’t want this to become a “Modified Endowment Contract” or MEC, if that happens the IRS essentially starts treating it like a retirement account), and to have as much cash build-up as possible.

Is it “Magic?” No, not really — though I guess a long-term contract that gets you contractual investment returns of at least a few percent a year could sound kind of magical to some (the dividend part is never guaranteed, though several big mutual companies have paid dividends for at least 100 years running).

The problem, really, is that this is a decidedly individualized and opaque process — so it’s very difficult, unless you go to a couple agents and do a lot of scenario planning with each of them, to compare the different contracts (and their riders) and the possible outcomes over the 20-40 years that you’d probably be using this kind of insurance as a savings and investment vehicle. And, of course, there’s a pretty substantial sunken cost in whole life (taxes, fees and commissions depress the cash value most in the first few years), so if you decide this is the right thing for you you really have to understand it well and get it set up correctly in the beginning.

Though these kinds of accounts vary pretty dramatically, the anecdotal experiences I hear from people and see online note that they’re typically best for folks who have at least 5-10 years in which they can make premium payments to fund their insurance at a pretty high cash cost before they really want to start borrowing from the policy — so, folks who are not particularly close to retirement. The whole magilla may not “break even” for policyholders until a decade or so has passed, largely because commissions for insurance agents are front-loaded (meaning, more of the early payments go to compensate the agent who sold you the policy, so the value takes longer to build).

This is complicated considerably by the fact that, although there are agents who specialize in “infinite banking” or “bank on yourself” or other terms they might use to describe it, my impression is that for the most part agents are incentivized NOT to set up “bank on yourself”-type policies — agents, who primarily earn money through commission, earn higher commissions for standard policies than they do for policies that attempt to maximize the cash value versus the death benefit.

And, of course, for these strategies to work over the long term it’s important to be disciplined enough to make the payments (your policy can be canceled if you don’t pay premiums, or you can adjust and use the cash value to pay the premiums — but then your cash value doesn’t rise), and you’d probably be best off with an agent you’re very comfortable with and can follow up with once or twice a year to make sure you’re still on track and are handling stuff like loans and dividends and tax implications properly. And ask a LOT of questions.

I have never had a whole life/permanent life policy, I haven’t seen the need for it, but they are indeed widely held by banks (banks often have life insurance on their employees or executives, and they might also buy it on the secondary market, kind of like a different type of fixed income investment to help diversify their balance sheet). It’s also a big deal for estate planning, primarily because of the tax advantage (named beneficiaries of the death benefit don’t generally owe taxes, as I understand it, and life insurance may also be used sometimes to bypass estate taxes for folks who are above that threshold — roughly $5 million).

The “bank on yourself” stuff is an added level of complexity, since you also have to structure the loans and determine how and when to pay yourself back (or if, sometimes — loans don’t necessarily have to be paid back … though again, policies and contracts differ), and you have to determine whether your policy still pays dividends on funds that are lent out, among other details that can differ. Discipline is important, too, if you’re using this as a wealth compounder — are you the kind of person who’s going to pay himself back if it’s not required?

The whole idea of permanent insurance is, to some degree, a possible way to force savings discipline for people who are relatively well off and don’t have a lot of other solid, tax-advantaged investments available to them — particularly if they also want to avoid stocks and feel the need to have a long-term death benefit (personally, I probably won’t have much reason for a substantial death benefit once my kids are well into their 20s, but every individual has different wants and needs). I personally think of these policies not as a way to invest or “bank” better, but as a way to build a bequest for your heirs while still also growing a cash value that you can tap if needed — though many will argue with that.

But really, read and understand this stuff very well before you walk into an insurance agent’s office with your checkbook. It’s not necessarily a scam, but neither is it necessarily a great fit for everyone — and it’s certainly something that is extremely personalized and may be built or structured in substantially different ways by different agents and using different insurance companies (some of which are scammier than others, I assume). It’s not magic, but it might seem magical when it’s first described by proponents who focus on the strengths of the strategy — so ask around, consider the scenarios, and don’t make rash decisions. This is, at the least, a 10-year commitment if you want to make it work well for you — that means there’s no rush to set ink to paper the first time you ask an agent about it.

I’d suggest taking a look at the two most popular books on this concept Becoming Your own Banker by R. Nelson Nash (Infinite Banking, their website is also here) and The Bank on Yourself Revolution by Pamela Yellen, and there’s also the Lifetime Economic Acceleration Process (LEAP) by Robert Castiglione, though his book seems to be out of print… there are probably others, too.

But if those books interest you, also read the critics so you know what questions to ask or what key aspects might stand out as problem areas for your personal situation, and know that when you consult with an agent, the options you have are likely to be different than the rosy scenarios in the books — and yes, both of those authors and their websites sit astride a network of insurance agents and advisors who pay for the privilege of being an authorized “bank on yourself” or “infinite banking” representative, so you can get into sales pitches pretty quickly.

One interesting critical white paper put out for insurance agents is here from an insurance advisor, and there have been scathing reviews of the plans in those best-selling books by several folks in the media, including this one on Bank on Yourself from CBS News (not necessarily picking on Yellen, that was just one of the more interesting reviews — all the plans have similar critics). There are lots of personal finance bloggers who’ve explored the concept and come up with varying opinions, too — I found this one from Jacob Irwin to be pretty thorough and useful, though his perspective may differ substantially from yours.

So there you have it — Palm Beach Letter is pitching a “magic” contract that really is just participating whole life/permanent life insurance from mutual insurance companies, with the cash value maximized by paid-up additions and perhaps other riders. And yes, if you sign up for their newsletter I imagine they’ll explain it probably a bit better than I have — and I’ve heard that Dyson has also recommended some specific agents, though I don’t know who they are or whether they’d be a good fit for you if you do indeed decide to pursue this strategy. We talked this one to death last time around, including lots of arguments between opponents and proponents, but if you have more you’d like to say on the topic, well, feel free to jump right in with a comment below. Thanks for reading!


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Amy Edwardson
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Amy Edwardson

Thank You!!!!

Walter Franklin
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Walter Franklin

interested in getting the book and literature. also the newsletter. Your add stopped before I could signup to receive the information. please let me know how I can receive the book and information. thank you

George Herbert
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George Herbert

Thank you for the very open-minded information on this site . The more knowledge we have going into the Social Security realm the better.

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Yuri Sokolov
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Yuri Sokolov

It looks like the Palm Beach Research Group service is a SCAM. As a retiree, I subscribed to know “a lot of unknown things how to manage income at retirement” as was promised. Actually, all that is offered is the well-known things. This and all others their offers are nothing than the continuous series of “successful stories” and advertisements to rope the credulous people into money spending. Their method is trivial and simple: they intimidate you that market is going down, however they are eager to teach you how to do … absolutely FREE …want to know more? … pay… Read More »

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Rebecca Gaskin
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Rebecca Gaskin

I was dumb enough to bite. Thankfully, Capital One was in my wallet and they got my money back eventually. You get nothing from these jerks but a paperback black book, after about the 60 days’ trial they supposedly give you to change your mind. ( With none of the so-called extras they promise either.) I started trying to cancel after about 30 days. Forget about it; no way to reach them. Please don’t fall for this BS. It is most assuredly a SCAM! Forget about calling them; their phone number is perpetually busy unless it’s late, when you will… Read More »

Laura S.
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Laura S.

Thank you, as well. I had just heard the pitch video and am to start drawing my SS benefits this next January. I came to this web-site to discover that it’s all hype! I very much appreciate your candor and expertise. Thanks to ALL the commenters , as well. You helped with my process and saved me the money for the subscription. Also , I will not be on perpetual hold to try to cancel my membership .

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susan miller
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Excelllently explained, cuts right through the bull. But now can see clearly where it may have a spot in my portfolio.