Best use of $5k annual premium for retirement cash?

Jan 31, 2019

  1. Blr19
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    Blr19 New Member

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    52 year old male non-smoker looking to stuff away about $5000/year into a policy to accumulate cash value to draw on in retirement. DB not a concern as I have other insurance in place for that.

    I am looking for opinions (backed with reasoning) on whether a Par WL or IUL would work better for retirement income considering I'm looking at only (at most) 15 years of premium.

    Yeah, I know, shoulda started sooner. I plan to have more to put away in the future but want to get something started now.

    Thanks
     
    Blr19, Jan 31, 2019
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  2. pfg1
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    pfg1 Guru

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    The unfortunate problem is with that amount of funding and time horizon you won't really be able to accumulate much to use for retirement income, with either product. If you really can fund more later, maybe doing an IUL designed to allow a higher funding would be better, but if you don't end up funding it higher it won't perform. If you run illustrations you can get a realistic idea of what both could look like from a cv perspective and potential income stream.

    If your goal is strictly tax free income and you have adequate other insurance, you might also consider a Roth IRA aggressively invested (assuming you can do a Roth and don't already max fund one). You could contribute $7k/yr.
     
    pfg1, Jan 31, 2019
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  3. Allen Trent
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    Allen Trent Guru

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    If you have no need for the life insurance, it will likely not make sense to go through the life insurance policy costs & fees to get to the savings component as most life contracts have heavier costs/fees/loads in the earlier years, meaning your short term horizon is even more complicated.

    Maybe look at boosting 401k/SEP/SIMPLE/Traditional deposits for you or spouse if you like the idea of it going in pre-tax. If ok with it not being pre-tax & looking for it to be tax free when taken out, Roth on you or spouse if eligible. if not any of these, likely looking at buying low cost index mutual funds or Exchange Traded Funds in an after tax account.

    if you insist on using the life policy for this, you might be best with Par WL if you can find a carrier that will allow 2/3 to 3/4 of the total premium to go directly into the PUAR fund. May need to add a 10 yr term rider to open up the 7 pay/MEC test premium room to get the max ratio of PUAR allowed into the contract to keep it from violating the MEC premium guidelines.
     
  4. hunschuld
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    hunschuld Expert

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    PFG1 gave you the best thing be far a Roth IRA. I assume you are insurance only licensed.

    In that case you need an IUL minimum DB increasing face amount with ROP if possible, with contractually guaranteed interest bonuses or crazy caps like Ameritus.
    Whole Life would be the worst thing you could do for this person.
    The 8.5% or so annual load on his PUA's will destroy any meaning full cash growth for 15 to 20 years. No whole life policy issued today will ever meet it's illustrations.for a very simple reason.
    Dividends are based on 3 things mortality charges accessed on the life insurance,expenses charged to policies and the return on a companies investment portfolio. This year 30 year bonds are rolling off all companies balance sheet that have been earning over 10% a year and they are being replaced with bonds earning just over 3%. This is going to continue to happened every year for probably 15 years. The only way companies can even come close to dividend projections is to either increase the policy internal costs which will kill cash growth or take much more risk with their investments..
     
  5. Golfnut2112
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    Golfnut2112 Guru

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    If a Roth IRA is the best solution in this case and he is not security licensed his best option is to tell them he is not licensed and they should look for someone who is. He may me able to use a indexed annuity with low minimums and flexible premiums if the guy is very conservative.
     
    Last edited: Feb 4, 2019
  6. hunschuld
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    hunschuld Expert

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    You are right.

    There is one other option for insurance agents They can enter into solicitor agreements with RIA's and get paid part of the management fee as long as this is disclosed to the client.
     
  7. AboutThatLife
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    AboutThatLife Guru

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    On $5,000 in premium? This would equal them making less than $50.
     
  8. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    The best option... is to do a thorough fact-find. All we know of the unlicensed OP is that he wants to plan for a $5,000 annual contribution. We don't know the full financial picture of everything else going on.

    We don't know the retirement planning time horizon. I can assume age 70, but I don't want to assume anything.

    Is the house paid-off? What about leveraging life insurance to offset a reverse mortgage when he turned 62 - get a reverse mortgage line of credit and let it grow for a few years?

    There's so much more to this decision than "I want to contribute $5,000 to a life policy. What do you recommend?"
     
    DHK, Feb 4, 2019
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  9. hunschuld
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    hunschuld Expert

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    Yup! however AUM is a different mind set than upfront commission. Over 10 years he would earn triple what he would earn on the life insurance sale and over 20 years who knows how much..
     
  10. hunschuld
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    hunschuld Expert

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