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

[DHK]

Read the OP again. He's asking for himself.

 

[Allen Trent]

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

While I tend to agree a WL or IUL is not the best idea for this person based on the limited info we have, not all carriers have an 8.5% load on modal PUAR. some carriers have priced their PUAR performance to be better than their base contract. If it takes more PUAR to create good overall performance, it saves the carrier expenses in the form of compensation because the PUAR is such a low commission compared to the Base WL that has built in planned dividend performance. Basically, base policy for pure insurance protection with limited to no dividend performance & PUAR greater performance & projected dividend.

Also, most IUL also have hefty loads when the money goes in. They all have pricey ART term rates & many have pretty costly policy fees especially for the 1st 10 years & lastly have a surrender charge for 10-15 years depending on product design chosen. I am totally fine with these facts about IUL or UL that I own.

While I don't think either life product is likely a good fit in this original posters case, you might be mistaken on IUL being a better fit for 100% certainty. Caps & participation rates are not great currently for index products. Each product has its place I think, but the client should help make that decision, not the producer based on their own personal belief system for their own personal circumstances.

 

[DHK]

Actually, a life product for collateralizing for retirement income loans could be a PERFECT fit. Remember that in retirement, if taking out non-direct recognition loans, the original balance continues to grow, and there is only a small amount of loan interest added against the expenses of the policy each year and for each additional loan taken out. This can be FAR more advantageous during the course of retirement years than investing where you have to take capital distributions for income that lower the ongoing values for sustaining the asset.

It COULD be a great option... but I'd still like to see a more coordinated fact-find to see what else is going on in their financial situation.

 

[hunschuld]

Allen I am sorry to be contrary but it is not about belief or what we think. It comes down to math. You and DHK both choose to ignore the fact that for the last 20 years no whole life policy has met the values illustrated at sale,( in fact the 20 year IRR on whole life is 2.5% to 3.5%) and for at least the next 15 years they won't meet the illustrated cash growth because their portfolio returns are falling and have been falling by 60% per year based on the rate of interest they have been earning on maturing bonds compared to the rate of interest they earn on new money. In addition the mutual companies have lost their second greatest source of return,interest on 4 out of 7 policies. These are almost all off the books now.
The other ways for a company to maintain a competitive dividend rate all have negative effects on policy cash growth. Increase mortality or expenses charges and you can maintain a dividend rate but you do this by taking more out of premiums paid and therefore reducing the pot of money that earns a dividend. The other route already being taken by Mass and others is to increase their holdings of ordinary ,not preferred, common stock.
This then increases risks of reductions in surplus if equity values, fall another negative.

Versus a good IUL. Many over the last couple of years have reduced their current caps to a point that reflects the current low interest rate period.The caps are based on new money investment returns and the assumption that low interest rates will continue well into the future. This makes the policy far more likely of meeting illustrated values and provides the ability to raise caps if interest rates rise, add guaranteed bonus's and the ability to actually reduce death benefit if mortality costs rise and the potential loan arbitrage reduces the comparison of which product to use if the goal is cash accumulation for retirement to personal bias and emotion. The math is clear.

 

[hunschuld]

Read the OP again. He's asking for himself.

It doesn't matter you are still assuming he doesn't know his own situation and what he wants.
If he thought he needed a planner I am sure he would get one.

 

[DHK]

No one knows the REAL value of what real financial planning is and does!!!

Yes, it's MY JOB to assume that he does NOT know his own situation and the factors behind his other monetary habits!

 

[DHK]

Allen I am sorry to be contrary but it is not about belief or what we think. It comes down to math. You and DHK both choose to ignore the fact that for the last 20 years no whole life policy has met the values illustrated at sale,( in fact the 20 year IRR on whole life is 2.5% to 3.5%) and for at least the next 15 years they won't meet the illustrated cash growth because their portfolio returns are falling and have been falling by 60% per year based on the rate of interest they have been earning on maturing bonds compared to the rate of interest they earn on new money. In addition the mutual companies have lost their second greatest source of return,interest on 4 out of 7 policies. These are almost all off the books now.
The other ways for a company to maintain a competitive dividend rate all have negative effects on policy cash growth. Increase mortality or expenses charges and you can maintain a dividend rate but you do this by taking more out of premiums paid and therefore reducing the pot of money that earns a dividend. The other route already being taken by Mass and others is to increase their holdings of ordinary ,not preferred, common stock.
This then increases risks of reductions in surplus if equity values, fall another negative.

Versus a good IUL. Many over the last couple of years have reduced their current caps to a point that reflects the current low interest rate period.The caps are based on new money investment returns and the assumption that low interest rates will continue well into the future. This makes the policy far more likely of meeting illustrated values and provides the ability to raise caps if interest rates rise, add guaranteed bonus's and the ability to actually reduce death benefit if mortality costs rise and the potential loan arbitrage reduces the comparison of which product to use if the goal is cash accumulation for retirement to personal bias and emotion. The math is clear.

I'm looking for strategy, not "best product". You're looking at the product's internal benefits without looking outside the product for other intangible benefits and the "ripple effect" throughout their entire financial situation.

 

[hunschuld]

OK now I am interested . What are these intangible benefits to be found outside of a whole life policy for cash accumulation purposes that over come the best product for the client based on internal benefits. Since we are talking cash accumulation and distribution guaranteed Death benefit is irrelevant.

 

[DHK]

First - an article substantiating that most people are afraid to meet with a financial advisor and why:
https://www.fa-mag.com/news/people-are-afraid-of-financial-advisors--study-says-23680.html

I have a blog that helps explain most of that. This post references some of my more interesting articles I wrote last year.
https://davidkinderfinancial.wixsit...st/2018/11/02/DING-DING-DING-WE-HAVE-A-WINNER

 

[Allen Trent]

Allen I am sorry to be contrary but it is not about belief or what we think. It comes down to math. You and DHK both choose to ignore the fact that for the last 20 years no whole life policy has met the values illustrated at sale,( in fact the 20 year IRR on whole life is 2.5% to 3.5%) and for at least the next 15 years they won't meet the illustrated cash growth because their portfolio returns are falling and have been falling by 60% per year based on the rate of interest they have been earning on maturing bonds compared to the rate of interest they earn on new money. In addition the mutual companies have lost their second greatest source of return,interest on 4 out of 7 policies. These are almost all off the books now.
The other ways for a company to maintain a competitive dividend rate all have negative effects on policy cash growth. Increase mortality or expenses charges and you can maintain a dividend rate but you do this by taking more out of premiums paid and therefore reducing the pot of money that earns a dividend. The other route already being taken by Mass and others is to increase their holdings of ordinary ,not preferred, common stock.
This then increases risks of reductions in surplus if equity values, fall another negative.

Versus a good IUL. Many over the last couple of years have reduced their current caps to a point that reflects the current low interest rate period.The caps are based on new money investment returns and the assumption that low interest rates will continue well into the future. This makes the policy far more likely of meeting illustrated values and provides the ability to raise caps if interest rates rise, add guaranteed bonus's and the ability to actually reduce death benefit if mortality costs rise and the potential loan arbitrage reduces the comparison of which product to use if the goal is cash accumulation for retirement to personal bias and emotion. The math is clear.

you are forgetting about human nature & writing agent disappearance. max funded UL or IUL (which I own) need to be held long term to get through the gauntlet of fees. Most consumers bail on their long term plans either because of financial trouble, divorce, hearing a radio talk show guy or merely consumerism spending. IUL pricing appears to have a great deal of great performance in later years when the projected math plays out. But, those that back off the throttle after only 3-10 years & never hear from their agent wont realize the problems they have created for many years later or decades.

max funded WL (which I own) has some exit strategies legally & contractually to keep the coverage in place by either changing dividend option to reduce premium, surrendering PUAR to cover premiums & electing reduced paid up coverage.

Again, to each his own as I have seen horribly designed UL/IUL & WL where the client suffers. Lastly, so you believe IUL carriers will never have to raise COI to offset bad UW, worse mortality or costly/inefficient options markets? why would they not have the same chance at that as UL carriers have faced the last decade. Some UL carriers have raised COI to offset their inability to make money on their General account in the low interest rate environment even though they have had better mortality expense than originally priced in their UL design.

I am hopeful that IUL will out perform illustrated values. I just think you are naïve to believe some consumers wont select a product with the left side that has better worst case scenarios. some want guaranteed certain over hopeful maybe. That is fine with me, it is their choice to make unless their agent is force feeding the client their only product offering as the swiss army knife to solve all things financial. It is a tool, but not the only tool. Too many agents in our trade only have 1 tool because it is easy. The best utilize all available tools in the toolkit based on the item being built or fixed