Roth IRA on steroids

[DHK]

He paid in $683 per month for a total of $106,000 and his cash value was $94,000.

You didn't mention the death benefit. Looks like the death benefit had a net cost of $12,000 over 13 years ($106,000 / $683 = 13 years)... or $923 a year.

Your analysis reminded me of this:
https://davidkinderfinancial.wixsit.../01/11/Suze-Ormans-Advice-is-Reckless-at-Best

 

[pfg1]

Sounds like it was not max funded. What if it had been $125k in CV?

 

[Golfnut2112]

"Small DI" policies are good for what... 2-3 years? They're meant for income needs, not to insure a savings plan.

It’s not the amount of the policy it’s the insured occupational class that determines length of benefit.

 

[Golfnut2112]

Sounds like it was not max funded. What if it had been $125k in CV?

It still would not have been good. $600 invested in the Putnam equity income fund since March of 2006 would be worth $186,895. So by him investing in life insurance instead of a REAL retirement plan it cost him almost $100,000 in 13 years.

 

[Golfnut2112]

You didn't mention the death benefit. Looks like the death benefit had a net cost of $12,000 over 13 years ($106,000 / $683 = 13 years)... or $923 a year.

Your analysis reminded me of this:
https://davidkinderfinancial.wixsite.com/davidkinderfinancial/single-post/2018/01/11/Suze-Ormans-Advice-is-

WOW was that expensive!!!! He could have bought term for $395 a year and had $186,000 in the Putnam equity income fund so basically that bad advice cost him almost $100,000. Once again life insurance can NEVER compete over the LONG term with a REAL retirement plan.

 

[pfg1]

It still would not have been good. $600 invested in the Putnam equity income fund since March of 2006 would be worth $186,895. So by him investing in life insurance instead of a REAL retirement plan it cost him almost $100,000 in 13 years.

Right, it shouldn't be compared to investing or used as a replacement for investments. That is the error the agent made. (Caveot being someone who is 100% against risk or the being in the stock market).

But none the less, he's about $30k short in the CV due to policy design or funding. That same amount of money "should" have been much more effective for him.

The good thing about these plans if designed correctly, they get better and better each year. Many times by year 20 the cv growth is double the premium payment, no risk. And the DB rises each year.
Should be used WITH investments, not instead.

Time to help that guy set up a Roth! The life policy will roll along well now, should be very efficient at this point. Also, you might check and see if he is max funding the pua's with the design. There could be addl room which would ramp up the effectiveness of it.

 

[pfg1]

The other thing is... we always have the luxury of hindsight. Depending on when we look at something like this -it skews it. Since we've been on a massive bull run it looks alot worse. Had the market been on a big downturn, it wouldn't have looked nearly as bad...especially if it was max funded. Not justifying it, just sayin.

Again, it shouldn't be compared by insurance or investment folks... yet its always done.

 

[Golfnut2112]

The other thing is... we always have the luxury of hindsight. Depending on when we look at something like this -it skews it. Since we've been on a massive bull run it looks alot worse. Had the market been on a big downturn, it wouldn't have looked nearly as bad...especially if it was max funded. Not justifying it, just sayin.

Again, it shouldn't be compared by insurance or investment folks... yet its always done.

He’s actually coming in Friday. We are going to call and get two in force illustrations one using current payments and one as a reduced paid up. You are right he should have done a little better.

 

[DHK]

Of course, your own ideas of where investments will be going should enter the conversation.

Retirement Planning Ain’t What It Used to Be | ThinkAdvisor

U.S. large caps, for example, are not likely to return the 10% average annual gains that have prevailed since 1926 and the 10-year Treasury is unlikely to maintain its historical 5.5% annual yield.

“We have to adjust our expectations,” said Blanchett. A reasonable annual return for U.S. large caps over the next 10 years is 0.95%, said Blanchett, adding that for international equities Morningstar’s projection is 5.4% annually and for small caps 2.88%.

https://www.crestmontresearch.com/docs/Stock-Waiting-For-Avg.pdf

The long-term average return from the stock market is 10.1%. As Baby Boomers continue to retire, they will increasingly rely upon their investments and pensions for income. The youngest Boomers have about a decade to compound their savings into a retirement payload. Even younger Millennials have a vested interest in stock market returns for a secure retirement. So, from 2016, what length of time is needed to assure that you will receive the historical long-term average return of 10.1%?

Answer: It will NEVER happen. From today forward, investors from today will not achieve the long-term average return. Not in ten years, twenty years, fifty years, or the nearly ninety years that represent the most recognized long-term average return.

 

[Golfnut2112]

Of course, your own ideas of where investments will be going should enter the conversation.

Retirement Planning Ain’t What It Used to Be | ThinkAdvisor


https://www.crestmontresearch.com/docs/Stock-Waiting-For-Avg.pdf

I think the guy needs a new crystal ball. Please look at actual S&P 500 returns since he wrote the article in 2005 and since the rewrite in 2016.