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Message
re: Indexed Universal Life Insurance
Posted on 4/2/13 at 8:28 am to Janky
Posted on 4/2/13 at 8:28 am to Janky
LT are capped at 20% for the very highest of investment income earners like Warren Buffett. $93/month is most likely not gonna come close. Qualified dividends are taxed at 15%. So at most you'd get taxed 35%, and you'd have to have some pretty ridiculous returns with only $93/month invested to hit that. A lot better than the historical stock market average of 11.3%. And you are only taxed on gains, not principal.
But let's say you were taxed at 35%
35% of 11.3 = 3.96
11.3- 3.96 = a tax adjusted average return of..................................WAIT FOR IT....................... .. 7.34%.
if that $93 goes into a Roth, you pay no taxes on the gains (as long as you don't take any early unqualified distributions) and your principal is still liquid.
But let's say you were taxed at 35%
35% of 11.3 = 3.96
11.3- 3.96 = a tax adjusted average return of..................................WAIT FOR IT....................... .. 7.34%.
if that $93 goes into a Roth, you pay no taxes on the gains (as long as you don't take any early unqualified distributions) and your principal is still liquid.
This post was edited on 4/2/13 at 8:34 am
1
Posted on 4/2/13 at 8:28 am to Janky
Double post.
This post was edited on 4/2/13 at 8:32 am
Posted on 4/2/13 at 8:30 am to Vols&Shaft83
Its not wise to liquidate a fully funded whole life policy. Why would you want to pay taxes unless you have to? Leave it in force and draw it down as you need it while it continues to accrue dividends. Investors don't liquidate managed accounts or retirement accounts when it hits a target number, why would they liquidate the life insurance?
That's the biggest flaw I see in anti- whole life arguments.
That's the biggest flaw I see in anti- whole life arguments.
Posted on 4/2/13 at 8:40 am to Vols&Shaft83
quote:
After that, the return will average 2.6% per year for whole life, 4.2% for universal life, and 7.4% for the new-and-improved variable life policy
Don't know where you are getting these figures because they are just not accurate at all. ETA: just saw the magazine report (though I still would like to see where try got their numbers. 90% of the WL products out there are complete garbage).
The 7.4% investment return is pretty good for the vast majority of people.
But to your scenario, what happens after 20 years? You lose the $125K of death benefit, and have have the $50K or so still invested. That is a $50K capital exposure, that you pay taxes on. What if you still need insurance? I would hope you could get, but lord knows I've seen enough situations of people not.
Now, say you did the WL, you have the $125K (most good policies appreciate over time though), the cash value that has accumulated has zero market exposure, and cannot go backwards. It is just, if not more liquid than your investment account, and at that point, your dividend will probably be able to pay the premiums, and you have insurance for the rest of your life.
Can buying term and investing the difference do better? Yes. Can WL do better? Yes. Why not do some of both to diversify and solidify your portfolio? Another beauty of WL is it can allow you to stay aggressive longer in your investment accounts if used as the base of your portfolio.
This post was edited on 4/2/13 at 8:43 am
Posted on 4/2/13 at 8:43 am to wasteland
quote:
wasteland
Exactly. Plus, on the best policies, you still earn interest on money taken out of the policy.
Posted on 4/2/13 at 8:44 am to Vols&Shaft83
This is based on what the market did in returns. BTW, what market returns are you quoting?
I am telling you what the actual investor did in returns.
I am not arguing one way or the other about the insurance. Although, I will say permanent insurance DOES make sense in some situations. However, as an investment is not typically one of them.
quote:
11.3- 3.96 = a tax adjusted average return of..................................WAIT FOR IT....................... .. 7.34%.
I am telling you what the actual investor did in returns.
quote:
According to an analysis by Dalbar, the average investor earned 2.1% over the twenty year period ended Dec. 31, 2011.
I am not arguing one way or the other about the insurance. Although, I will say permanent insurance DOES make sense in some situations. However, as an investment is not typically one of them.
This post was edited on 4/2/13 at 8:48 am
Posted on 4/2/13 at 8:59 am to Janky
quote:
However, as an investment is not typically one of them.
I've been a planner for 15 years. I haven't had the need for it yet.
Posted on 4/2/13 at 9:21 am to Janky
I don't know what went into the Dalbar analysis, we're they looking at stock market investors or all types of investors? Is that 2.1% after or before inflation and taxes?
Not arguing with you either, but if you look at the S&P, the WORST it has performed in a 30 year time period is 8.5% average.
Not arguing with you either, but if you look at the S&P, the WORST it has performed in a 30 year time period is 8.5% average.
Posted on 4/2/13 at 9:38 am to Vols&Shaft83
quote:
Not arguing with you either, but if you look at the S&P, the WORST it has performed in a 30 year time period is 8.5% average.
I understand this, but the S&P is not a person with emotions. Under your assumptions, you would first have to put 100% of your money in the S&P 500 index, which I am not sure any rational investor would do. Then you would have to assume that investor never gets scared and pulls his money out like plenty did in 2008-2009. These are very big assumptions.
quote:
To make it very simple, the S&P 500 returned 7.8%, while the Barclays Capital US Aggregate Bond Index returned 6.5% over the same time period. A 50/50 blend of these two asset classes would have yielded a nominal annualized return of 7.2%. Wait, it gets even worse. After including inflation, the average investor got a negative real return. Inflation (CPI) grew at an annualized rate of 2.5% during the period. So the average investors' net real return was -0.4%. The average investor is not very good at capturing the market return of a simple balanced portfolio, never mind outperforming it.
I guess my issue was this absolutist and condescending post. Permanent insurance does have certain situations where it makes sense. It just so happens that as an investment it usually doesn't.
quote:
This is the standard response of somebody who either sells Universal/whole life products, or someone who has no idea what they are talking about and wants to sound intelligent. NO it really doesn't depend on him and his situation, no person or situation conforms to a piece of shite product.
Posted on 4/2/13 at 10:36 am to Janky
Isn't it against the rules to pitch these things as investments anyway?
Posted on 4/2/13 at 10:43 am to Broke
ok...switch gears then since I don't understand most of what you guys are talking about.
If you had $15K-$30K/year to invest yearly for the next 20 years, what vehicle would you use?
Looking to spit off retirement income at year 20.
If you had $15K-$30K/year to invest yearly for the next 20 years, what vehicle would you use?
Looking to spit off retirement income at year 20.
Posted on 4/2/13 at 10:46 am to Broke
quote:
Isn't it against the rules to pitch these things as investments anyway?
Not sure, I haven't sold life insurance in years except for little term policies for friends and family.
Posted on 4/2/13 at 10:49 am to Broke
The indexed universal life products get dicey on that, since they sort of are an investment. Traditional WL you cannot sell as purely an investment (though many terrible agents do).
To the OP's question. You will get a ton of different answers because there is no "correct answer" per say. The most important thing is that you invest in something. If it was me, I would make sure I have the right death benefit for the life side. Use some traditional WL from one of the best companies (NML, NYL, or Mass), as well as an investment account ("love vanguard retirement funds). That way you capture everything. Retirement accounts capture the real upswings in the market, WL protects during the down swings, and you have diversity with regards to taxes and distributions during retirement. (Pull from insurance if income tax is really high, investments when it is not).
The best thing you can do is give yourself multiple buckets to pull from in retirement so that you have flexibility with regards to liquidity, taxes, market exposure, etc.
To the OP's question. You will get a ton of different answers because there is no "correct answer" per say. The most important thing is that you invest in something. If it was me, I would make sure I have the right death benefit for the life side. Use some traditional WL from one of the best companies (NML, NYL, or Mass), as well as an investment account ("love vanguard retirement funds). That way you capture everything. Retirement accounts capture the real upswings in the market, WL protects during the down swings, and you have diversity with regards to taxes and distributions during retirement. (Pull from insurance if income tax is really high, investments when it is not).
The best thing you can do is give yourself multiple buckets to pull from in retirement so that you have flexibility with regards to liquidity, taxes, market exposure, etc.
This post was edited on 4/2/13 at 10:52 am
Posted on 4/2/13 at 1:07 pm to Vols&Shaft83
quote:
NO it really doesn't depend on him and his situation, no person or situation conforms to a piece of shite product.
How do you know that? Do you know his tolerance for risk? I'm not sure what you have against permanent life insurance. Should it be used as a primary savings vehicle for retirement? Maybe, maybe not. Depends on the individual. Some people actually like the idea of a guaranteed amount of money in the future with no risk of loss. You can't force someone to take on the risk and invest in the market because they could potentially earn more money.
My problem is that many people invest above their risk tolerance and are overexposed to the market. They invest in the market because they have no idea of the other savings options available. They are put into a mutual fund that they have no idea about and don't see an advisor ever again. Sure they could potentially have a higher return by investing in the S&P long term. However, they could also lose 40% of their portfolio value, like in 2008.
You say, "Buy term, invest the difference." The problem is people don't invest the difference, they spend it. This approach could work if the average American was disciplined with his/her finances, but they're not. It's why 75% of retirees have not saved enough for retirement. For the financially savy/disciplined, more power to you.
The great thing is everyone has their own investment philosophy and tolerance for risk. I have no problem with people who want to buy term and invest only in the stock market. I also have no problem with people who want to use permanent insurance cash value, CDs, and annuities.
Posted on 4/2/13 at 1:10 pm to Broke
quote:
Isn't it against the rules to pitch these things as investments anyway?
I believe so.
Posted on 4/2/13 at 1:55 pm to Ex-Popcorn
quote:
If you had $15K-$30K/year to invest yearly for the next 20 years, what vehicle would you use?
Looking to spit off retirement income at year 20.
First you should know how much income you will need annually at retirement and how long it will need to last.
You mentioned in your OP you'd like around $60k. If you retire at age 60 you may need 60k/year for 20 years and 35k/year for 10 years (lets say you live to 90).
60k x 20= $1.2 million
35k x 10= $350,000
Total= $1.55 million needed (assuming no inflation)
Now you need to know what kind of return you need to get on your $20k/year investment over the next 20 years to get the $1.55 million:
FV= 1,550,000
PV= 0
PMT= 20,000
N= 20
IR= 12.63%
If you changed the yearly payment to 25,000 your return would need to be 10.695%, 30k/year would be 9.09%.
In order to hit your retirement goal you'll need a 9-12% annual return. This example has a lot of assumptions but gives you a basic idea. You will probably need less than that total since it will continue to earn interest during retirement.
If the following is true and guaranteed:
quote:
I would pay a yearly premium ($15-20K) for the next 20 years and then use the guaranteed lifetime income benefit to spit off $50K-75K of yearly retirement income starting at age 60.
Then it's a great option for you.
This post was edited on 4/2/13 at 2:09 pm
Posted on 4/2/13 at 2:06 pm to gatorsimz
I should have been more clear...this is not the only retirement income I would have. I want to live very comfortably in retirement.
I have a 401k now with 190K in it...current income of $250K. Funding max yearly.
I have an interest in a REIT (rolled over from prior 401k) worth $38K. No additional contributions.
I'm in my mid-30s and want to retire before I'm 60.
I have a 401k now with 190K in it...current income of $250K. Funding max yearly.
I have an interest in a REIT (rolled over from prior 401k) worth $38K. No additional contributions.
I'm in my mid-30s and want to retire before I'm 60.
This post was edited on 4/2/13 at 2:08 pm
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