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Investing/Strategies / Retirement Investing
|Subject: Re: 7702 Private Plans (indexed universal life)||Date: 3/27/2013 7:05 PM|
|Author: Dwdonhoff||Number: 71517 of 74001|
And the gains are tax free!
There is no gain anywhere that is "tax-free". Not if you are a US citizen. The IRS isn't in the business of letting people make money without taking a cut of it. Don't confuse "tax free" with "tax deferred".
Uh, Ray... ever heard of the newfangled IRS code regarding "ROTH" accounts?
Yeah... 'tax free'...
Oh... and when you have time on your hands, you can look up the IRS code referenced in this very thread subject title... it will give you a clue about how you can grow money tax free. Even as a U.S. citizen.
That's like the gullible people who fall for the bit about dividends from a whole-life policy being tax free. What they actually are is not dividends but return of excess overpayment -- so says the IRS, which is why they don't get taxed.
Excellent point... but irrelevant.
IUL's are indexed to the raw value of the index, EXCLUDING dividends. People kinda think, "No big deal, the dividends are pretty small, so I'm not missing out on much." Wrong.
Actually, people think "who gives a crap what its indexed to... at 8%-ish tax free it oculd be indexed to the snail trails on the sidewalk after a rain, for all I care!
If you started out with $10,000 in the S&P in 1993, using the price-only index it would be worth $34,000 today. But including dividends it would be worth $50,000. That's 45% more.
We've already been around this mulberry bush before, remember?
The floor/cap indexing strategy outperforms the S&P in most markets,
But far more importantly, you'll never be caught with your pants around your ankles in a down market urgently needing your capital, but being told to "hang on for the lon haul."
And you are assuming that the index cap is fixed and won't ever be lowered. Most of the IUL contracts I've seen say that the company can unilaterally reduce the cap.
Companies are competitively pressured to keep their caps as high as their safe-leg yield allows. A few have tried to drop their caps below the competitive field, and quickly saw their general account reserves decimated by an exodus of contract holders. Due to the dropping interest rate trend of the last 35 years, we are most likely at or near the lowest levels the caps are ever likely to go industrywide.
That thread was concerned with monthly returns, but for IULs it is more appropriate to do quarterly.
Nobody calculates quarterly. There are various crediting methods that can be chosen (even mixed & matched,) but the overwhelming most common is annual point-to-point. Its also the easiest to compare & calculate on a simple apples-to-apples basis.
When they say "12% cap" they mean 1% a month or 3% a quarter, not 12% a year.
These kinds of statements, alone, are telling of the ignorance you have of the products and industry. A 12% cap means annually, not 1% monthly or 3% quarterly.
Even crediting methods that calculate monthly don't do it on a 1/12th of the annual cap basis.
The longer the period, the better it is for you.
THIS IS TRUE!
Although annual is common, there are several product designs offering a choice of a 5 year point-to-point, and at least one offering a rolling annual 5 year point-to-point calculation.
Again, none of this is magic, and I can explain to anyone interested how to structure a trade using your own money to achieve the same results... but not as cheaply as inside the IUL contracts. Nothing outside the insurance industry can do the same results at less costs.
just to add to this: How many years was the S&P up over 12%? IUL's would not have participated in that.
Its the equivalent of agreeing to play baseball with rules saying the at-bat batter can never proceed past 3rd base on his own hit, but no batter will ever be thrown, pop, or strike out. You give away the home runs (including the sexy grand slams,) but you also remain undefeated.
It doesn't matter how many homeruns you rack up if you're behind on the scoreboard when the innings run out.
Again, refer to previous work already done;
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