Ok, so IUL's have gotten my attention ...

[Allen Trent]

So you are saying that based on historic market averages that $1000/ purchases of SPY would be worth approx. $900K after 22 years?

I’m not disputing anything, as I am here to learn. In other words, I am asking a sincere question.

Thank you

EDIT: I assume that this would include a DRIP program to reinvest the dividends in additional shares?

Correct. SPY has a 26 year average of 9.5%. Expense ratio is .09% (about 1.4% less than spreadsheet showed). Dividend yield is 1.82%. So, a person invested in it would only owe taxes each year on the Dividend paid, not the change in the stock price. Paying taxes, even if assumed at 25%, on the 1.82% would only take about .4% of the annual return illustrated. But keep in mind, many people pay less than 25% on qualified dividends.

Most S&P500 dividends are considered qualified dividends & taxed potentially at 15% or even 0% for some taxpayers. But again, only the dividend would be reported as taxable in most years while client is accumulating money. Only time a capital gain would be if the person sold shares or 1 of the 500 companies went out of the S&P500. the turnover ratio of the S&P is something like 2%, meaning only 10 companies change in any given year, thus not generating a great deal of capital gains reporting. I believe it actually has a negative -.4% capital loss reported, meaning the person would get to take a loss on their holding in some years even if the overall index grew.

Again, I own lots of permanent life. I am not a hater. But a spreadsheet showing less than half the money on average is not showing a fair comparison. It is making a sales presentation to sales reps that run with the concept without knowing what they dont know

 

[jboussea]

The bottom line I really question the credibility of the guy making the video. How does a life insurance policy have more cash than a Roth 401k in 20 years? He is not being honest in his presentation because I’m sure he is adding a persistency bonus on the IUL and never mentions that the IUL does not include dividends which are being paid at 1.85% on the S&P 500 index. He conveniently excludes this info which can mislead both consumers and new agents watching his videos. Why not add the 1.85% to the Roth rate of return since the bonus is being added.

Financial industry in a nutshell... "this product is way better than that product.. matter of fact that product is the Devil" .. and they proceed to give you all the pros of their product without mentioning the cons.

 

[Golfnut2112]

I have been hearing how a UL can be used for retirement income since the 80’s and I have never seen one that worked out, starting with the regular UL during the 80’s and the VUL in the 90’s and 2000’s. I have seen many mutual fund and brokerage accounts have account balances that are in the high six digit or low seven digit figures.

 

[DayTimer]

I have been hearing how a UL can be used for retirement income since the 80’s and I have never seen one that worked out, starting with the regular UL during the 80’s and the VUL in the 90’s and 2000’s.

What is your opinion of using whole life to supplement retirement income?

 

[Allen Trent]

I have been hearing how a UL can be used for retirement income since the 80’s and I have never seen one that worked out, starting with the regular UL during the 80’s and the VUL in the 90’s and 2000’s. I have seen many mutual fund and brokerage accounts have account balances that are in the high six digit or low seven digit figures.

I have actually seen dozens, if not hundreds that were max funded do extremely well. Several with 6 figure cash values & a couple with more than $1M values. However, i have seen many, many more situations where people were paying 20k per year into max face policies that had almost no cash in them after 10 years because the rep sold the case likely as a max commission case with the idea the person would always make more money in the future & raise their ongoing deposits. The opposite usually occurred where the person found new lifestyle expenditures like a bigger house, a cottage, a job loss, divorce, health issues that caused them to want to dial back their deposits, not increase them.

 

[Golfnut2112]

What is your opinion of using whole life to supplement retirement income?

I would first max out any IRA and 401k options I had then maybe ,if I needed life insurance. It also depends on your age and length of time before you need to start taking income.

 

[Tahoe Ray]

I would first max out any IRA and 401k options I had then maybe ,if I needed life insurance. It also depends on your age and length of time before you need to start taking income.

Agreed but I would also examine risk tolerance overall. IUL is inherently riskier than WL but neither is "bad" if used in the right way in the proper situation.

 

[Golfnut2112]

Agreed but I would also examine risk tolerance overall. IUL is inherently riskier than WL but neither is "bad" if used in the right way in the proper situation.

I agree

 

[HoosierLife]

To be fair, I couldn't spell IUL a year ago, but I also have been looking into them. I'm also still learning and just trying to find the best place to throw my excess money.

My original thoughts were to dump a bunch of money into Vanguard Index Fund. Low fees, match the S&P and be done with it.

But I keep coming back to an IUL. I do want the death benefit, but I could always BTID. I actually would.

I know how to set them up OR at least find someone that can set them up so they are give the lowest commission for the highest accumulation.

The biggest benefits I see in the IULs are that you are locking in your gains each year. We talk about the average S&P doing 10%, but those numbers aren't exactly showing you the whole picture either right? If you have $100,000 and you gain 20%, you're up to $120k, with an IUL with a 10.5 cap, you're at $110,500 minus your fees, so whatever that is.

But if next year the market drops 20%, you're investment account would be down to $96,000 and your IUL would be at $110,500 minus the fees for the 2 years.

Now I know that's not how the market really works, but it could actually be worse if (when) we have another 2008. Didn't the market lose over 35%? Now of course we have the second greatest run in the last 10 years to make up for it, but what happens if you're closer to retirement when a 2008 hits?

Then you have the Magic Account Value. If you have 1 Million in the market and start taking distributions at 65, eventually your account value will decrease to $0. Year 1 if you take out $100k, you're down to $900k + whatever interest you've gained, Year 2 $800k and so on until you get to $0.

But with the IUL you're taking loans out at 4-5%, but your account value not only stays at 1 Million, but continues to grow interest at ~5%. So you can create a greater lifetime income stream off a lower account value then what you would have in your investment account even if it was much larger.

Again, I just learned about these in the last year and I really do want someone to create realistic projections comparing an Equity Account and an IUL based on the same index. Not much out there.

 

[Allen Trent]

But with the IUL you're taking loans out at 4-5%, but your account value not only stays at 1 Million, but continues to grow interest at ~5%

Your net cash value can shrink as the loan will grow each year as you borrow more & interest charged against outstanding loan. Taking 100k from a 1m CV iul will likely be empty in 12-18 years and potentially in only 8-10 years if index credits 0% because internal costs will still be deducted

I totally agree with you on the fear of large market hits on an equity account, especially near retirement. But keep in mind, with any UL, the internal cost of insurance gets higher & higher each year per 1000 of net amount at risk because all UL cost of insurance is annually increasing term. Very important that you minimize insurance as much as possible.

You may want to also look into EIA inside of a self employment plan such as a Simple IRA, SEP or solo 401k if you are not already. While EIA dont have caps as high as iul, they can be up to 6% with protection of 0%. You have to ask yourself how a carrier thar offers both EIA & IUL can have a cap on EIA of 6%, but 11% on iul. It is because they make money about 4-5 ways on iul(load fees, polictly fee, COI, loan interest, etc) but with EIA mainly from the spread on what they make on their general account & what tge market index options costs.

So, you will pay for all those components. You should 1st need the life insurance & be willing to endure all the charges to try to create an income stream when yiu have no idea what the iul will credut each year. Projected imcome streams at policy purchase are mere speculation. But someday a 65 yr old will have to attempt to decide how much id the right amount to take each year.