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

[Tahoe Ray]

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.

This is a good idea if you have a 15+ year time horizon. Especially if you're contributing to it on an ongoing basis.

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?

You should not be fully invested in equities if you're closer to retirement. Most people will gradually shift assets from aggressive to conservative as they age.

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.

If you're allocated properly and manage your distributions accordingly, there is no reason for your account to go to zero.

 

[Tahoe Ray]

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.

To add, a lot of those variables are not guaranteed. How's that plan going to look if the carrier experiences a major challenge and decides to max charges/minimize crediting?

 

[HoosierLife]

This is a good idea if you have a 15+ year time horizon. Especially if you're contributing to it on an ongoing basis.



You should not be fully invested in equities if you're closer to retirement. Most people will gradually shift assets from aggressive to conservative as they age.



If you're allocated properly and manage your distributions accordingly, there is no reason for your account to go to zero.

Well someone do a real side by side comparison. Do a hypothetical Vangaurd Index Fund from the last 50 years based on the S&P. Take the average and extrapolate out over the next 20 years.

Do the same for an IUL assuming a modest 5% rate.

The account value with the IUL seems like it would keep the income going for much longer.

I'm not saying you're wrong, but please show me where I'm wrong in my thinking.

 

[dbab]

This is a great thread so far. Unfortunately, I'm also trying to learn as much as possible about IULs so I don't have very much to offer. I do have this IUL calculator that might to visualize some things. It could be too vague though, I would love to hear the thoughts of others.

LifePro Financial Services, Inc. > Financial Calculators > Test Drive an IUL

 

[HoosierLife]

This is a great thread so far. Unfortunately, I'm also trying to learn as much as possible about IULs so I don't have very much to offer. I do have this IUL calculator that might to visualize some things. It could be too vague though, I would love to hear the thoughts of others.

LifePro Financial Services, Inc. > Financial Calculators > Test Drive an IUL

That looks nothing like a real illustration.

 

[Tahoe Ray]

Well someone do a real side by side comparison. Do a hypothetical Vangaurd Index Fund from the last 50 years based on the S&P. Take the average and extrapolate out over the next 20 years.

Do the same for an IUL assuming a modest 5% rate.

The account value with the IUL seems like it would keep the income going for much longer.

I'm not saying you're wrong, but please show me where I'm wrong in my thinking.

That won't even be close.

If you want a side by side, contact a financial advisor who is securities and insurance licensed and they can do a compare/contrast for you.

Just look at it practically though:

Let's say you deposit 1k/mo into two buckets. The first earns 5% and the second is the S&P.

First bucket is going to have around 2.5m in 50 years. The second bucket would have 13.7 million (accounting for estimated taxes and fees).

S&P 500 Periodic Reinvestment Calculator, With Dividends– DQYDJ

This assumes that you reinvest dividends for the second bucket (won't matter for the IUL since those credits aren't eligible for dividends).

If you have a runway that long, just buying the market is a no-brainer.

 

[dbab]

That looks nothing like a real illustration.

It's not meant to be a real illustration.

That won't even be close.

If you want a side by side, contact a financial advisor who is securities and insurance licensed and they can do a compare/contrast for you.

Just look at it practically though:

Let's say you deposit 1k/mo into two buckets. The first earns 5% and the second is the S&P.

First bucket is going to have around 2.5m in 50 years. The second bucket would have 13.7 million (accounting for estimated taxes and fees).

S&P 500 Periodic Reinvestment Calculator, With Dividends– DQYDJ

This assumes that you reinvest dividends for the second bucket (won't matter for the IUL since those credits aren't eligible for dividends).

If you have a runway that long, just buying the market is a no-brainer.

I think this is missing the point of where an IUL should come into play. From what I can tell, an IUL is best when you have hit the max contribution on your retirement accounts and need somewhere else to put additional funds. Someone shouldn't really solely on an IUL for retirement income, but the IUL being a supplement to retirement income plus its unique features make it desirable.

 

[Tahoe Ray]

I think this is missing the point of where an IUL should come into play. From what I can tell, an IUL is best when you have hit the max contribution on your retirement accounts and need somewhere else to put additional funds. Someone shouldn't really solely on an IUL for retirement income, but the IUL being a supplement to retirement income plus its unique features make it desirable.

I agree with this. I sell IUL (and other cash accumulation insurance products).

My point was if you have to choose between the two and you're still 15+ years from retirement, I would choose the market (low-cost ETF).

 

[rousemark]

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.

Something people very seldom take into account is what will you have when you actually need the money. If you need it a week after a Black Monday has just occurred, you are in a world of hurt.

 

[HoosierLife]

Something people very seldom take into account is what will you have when you actually need the money. If you need it a week after a Black Monday has just occurred, you are in a world of hurt.

Yeah but that’s not what these types of investment are intended for. These are long term strategies.

If someone can’t max fund an IUL then it’s a waste. If they need to pull money out of their account before retirement, then they’re doing something wrong.