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

[HoosierLife]

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.

See if I run it for for 25 year and end at 2009, you’re getting a 6.5%ish annualized return.

I’m assuming an IUL would be lower around 5%, but you still have the account value that doesn’t go away as you take loans.

I’ve tried finding IUL illustrations that will look back further than 10 years, but they don’t seem to exist.

 

[pfg1]

The account value doesn't go away, but effectively it does unless you keep paying premiums. You are depleting the funds (via loans and interest) AND the policy is paying to keep itself in force, and those expenses can be high in some carriers. So your surrender value is the real number you are working with, once that gets to zippo, you lapse. Will it? Who knows.

As I mentioned way early on in this thread, all this is hypothetical, nobody has ever paid in for 20-25yrs, and taken income out for 20-30yrs. Looks great on paper, but since most companies offer few guarantees on these contracts... only time will tell.

Plenty of folks have ridden the stock market to death and beyond. I believe max funded LI is great, but shouldn't be relied on as the only thing. Its a supplement to your other planning, and can be a great hedge against bad sequence of returns and maximize your retirement income. Personally, I like WL. Its proven and no surprises and if designed and funded properly can push 5% IRR.

 

[Tahoe Ray]

See if I run it for for 25 year and end at 2009, you’re getting a 6.5%ish annualized return.

I’m assuming an IUL would be lower around 5%, but you still have the account value that doesn’t go away as you take loans.

I’ve tried finding IUL illustrations that will look back further than 10 years, but they don’t seem to exist.

6.9%ish but ok.

You have loan interest (which can be substantial) that effectively reduces account value by washing out the total that you can w/d (if you wanted to surrender for example).

You can see the 25 year accumulation value for any IUL product. Are you saying one that uses a rolling period greater than 25 years? It won't really matter since you can literally make up the performance on most products (up to the max historical performance) and it will run that rate for every year.

That's the complaint made earlier in the thread. VUL illustrations will show the actual sequence of returns, whereas IUL won't.

And if you're talking about 2009, several insurance companies almost went out of business including a lot of big names. I definitely wouldn't want to have the lions share of my retirement assets tied up with one of them. Even though it ended up turning out ok, that would be a stressful year.

As I said before, life insurance w/ cash values can be a great supplement to a well-diversified portfolio but it isn't a magic bullet.

 

[rousemark]

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.

Josh, I realize they are long term strategies but long term will become short term at some point in time. I was referring to taking the money at retirement, not before. There were people ready to retire in 1929. But when it came time they either could not retire or had to retire on less than the planned. Sure over the next 20 years it recovered but they could not wait that long. In 1987, it only took a little over 2 years to get back to even but even that is a long time to put off retirement if you are 65-70 years old. There comes a time when you have to take Will Rogers attitude on investing. "I am not so much concerned with the return ON my money as I am the return OF my money."

 

[Allen Trent]

but you still have the account value that doesn’t go away as you take loans.

it actually does essentially go away in both net cash value & death benefit. Every dollar of outstanding loan(each loan + cumulative loan interest charged) reduces the net surrender value by the exact same amount. the death benefit is also reduced by the exact same amount. Lastly, if the IUL includes a Chronic Illness rider for LTC type expenses, those loans & distributions also deplete the CIA rider fund, so the plan to help cover LTC costs from this Swiss Army knife of a plan wont be there to help pay those LTC type costs if you have taken loans or withdrawals to supplement retirement.

Do you have an IUL illustration you are thinking of for yourself showing loans in retirement? if so, lets start with looking at that. we could then try to put a similar amount into S&P ETF you mention.

note, they wont ever be able to be easily compared side by side because you would have to delete from the S&P ETF some sort of equivalent term life insurance cost to be fair to the IUL that is covering an early death. Also, there would need to be some sort of tax comparison on the back side of the S&P ETF that you would owe some taxes each year on taxable dividends reported & during the distribution phase a tax amount ballpark on capital gains as you sell off shares to live on.

Good stuff, just really hard to peg down a direct comparison and that includes worst case scenario, best & average

 

[HoosierLife]

it actually does essentially go away in both net cash value & death benefit. Every dollar of outstanding loan(each loan + cumulative loan interest charged) reduces the net surrender value by the exact same amount. the death benefit is also reduced by the exact same amount. Lastly, if the IUL includes a Chronic Illness rider for LTC type expenses, those loans & distributions also deplete the CIA rider fund, so the plan to help cover LTC costs from this Swiss Army knife of a plan wont be there to help pay those LTC type costs if you have taken loans or withdrawals to supplement retirement.

Do you have an IUL illustration you are thinking of for yourself showing loans in retirement? if so, lets start with looking at that. we could then try to put a similar amount into S&P ETF you mention.

note, they wont ever be able to be easily compared side by side because you would have to delete from the S&P ETF some sort of equivalent term life insurance cost to be fair to the IUL that is covering an early death. Also, there would need to be some sort of tax comparison on the back side of the S&P ETF that you would owe some taxes each year on taxable dividends reported & during the distribution phase a tax amount ballpark on capital gains as you sell off shares to live on.

Good stuff, just really hard to peg down a direct comparison and that includes worst case scenario, best & average

Now we’re talking.

 

[Tahoe Ray]

Now we’re talking.

If I use the same calc from my other post, assume an end year of 2009, and start 27 years prior contributing 3k/mo, you end up with an account value of just over 3m (2.85 after cap gains taxes).

If you wanted to retire and take almost no risk, you could buy a SPIA with cash refund (bene gets anything left of the 2.85m) with your 2.85m and generate 159k annually for life.

Or just stick the whole thing in bonds and live on interest plus a little principal.

There are plenty of advisors who use MEC IULs for a client's non-qual money (annuity alternative) and it works great. Others use IUL as a supplement for retirement savings... which can also work great.

Again, not hating on IUL, just saying that it's not the end all and shouldn't be the primary savings vehicle for retirement.

 

[DayTimer]

One thing that is missing in this discussion( suprisingly for a life insurance forum) is discussion of the death benefit.

No doubt that is in part due to the video posted by the OP and the OP himself (he is sometimes not to bright).

Anyhow, what got me interested in this use of life insurance as supplemental retiement income was the fact that it provided that death benefit during the funding phase in case we don't have left all the time needed to max fund it to retirement. Then, one life insurance needs are less, that money used to provide death beneift protection could, in a sense, be recouped to help fund retirement.

But that death benefit is very important to me. If I keep putting this particular $100/month into a Vanguard fund, or simply buy shares of SPY, and I die next year, there is no benefit to my family beyond my contributions and any capital gain ... which could also be a (loss0.

I do not want to discount that death benefit.

 

[KRobby]

The deeper the pockets, the better advantages you have when it comes to investing and self diversifying. Consider how the insurance companies are able to offer what they do (for investment purposes), and to who that benefits the most. The most affluent won't even consider management fee mutual funds other than a small portion. Instead they'll do what insurance companies do.. which isn't buying other company annuities or WL. The further down the line you are, the more these things become attractive.

 

[Tahoe Ray]

One thing that is missing in this discussion( suprisingly for a life insurance forum) is discussion of the death benefit.

No doubt that is in part due to the video posted by the OP and the OP himself (he is sometimes not to bright).

Anyhow, what got me interested in this use of life insurance as supplemental retiement income was the fact that it provided that death benefit during the funding phase in case we don't have left all the time needed to max fund it to retirement. Then, one life insurance needs are less, that money used to provide death beneift protection could, in a sense, be recouped to help fund retirement.

But that death benefit is very important to me. If I keep putting this particular $100/month into a Vanguard fund, or simply buy shares of SPY, and I die next year, there is no benefit to my family beyond my contributions and any capital gain ... which could also be a (loss0.

I do not want to discount that death benefit.

The death benefit is definitely important.

Normally, when selling max funded UL, you'll also sell term (assuming that's not yet in place).

The idea is that once the term falls off, you're already at retirement age and any DB from the IUL is a bonus.

As Allen said above, you need to account for that however in most cases, the cost is nominal (especially in these general discussions).