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|Subject: Re: 7702 Private Plans (indexed universal life)||Date: 3/30/2013 2:08 AM|
|Author: Rayvt||Number: 71574 of 76621|
Its for people who prefer to ELIMINATE the catastrophic probabilities of having less money with no further time to recover.
Yah. Valid concern.
We went to some "plate-licker" free dinners in 2001-2002 after the dot-com crash given by financial advisors looking for new clients. They related a number of sad stories of clients who retired in their 40's & 50's near the top, lost half of it, and then had to try to find another high-paying job. Don't retire on a shoe-string.
I don't know the sizes of the people you typically see. But if you have a $100K account and lose half, it doesn't matter. Neither 100K nor 50K is going to put you on easy street, or make a significant change in your life-style. (Or maybe it would -- perhaps I'm jaded.)
But if you have a $1,000,000 portfolio and lose half -- yeah that would hurt. But in the words of J.J. Astor, "A man who has a million dollars is as well off as if he were rich."
Does anybody have a $1,000,000 IUL? Did anybody with a $1M IUL account build it up from zero? Bet not.
I'd think that somebody who has a $1M account had built it up thru either massive income or built it up by smart investing. They aren't likely to put their entire liquid net worth in an IUL, so probably it they have a $1M IUL it's only half their NW, so they have $2M -- $1m in an IUL and $1M outside.
That's a $2m portfolio. If their portfolio gets cut in half, that's still $1M. Most people could survive on $1,000,000.
So, it seems to me that an IUL is functionally useless to somebody with a low net worth. The protection is useless because half of a low number is still just a low number.
Likewise, an IUL is redundant to somebody with a high net worth. Half of a very large number is still a very larger number. And anyway, as someone's wife said after the dot-com crash, "You built us up from $20,000 to $1,000,000. Just do the same thing and build us up from $500,000. Anyway, it's still $480,000 more than we started with. And anyway, we could live comfortably on $500K, just not luxuriously."
I think the sweet spot for something like IULs is in the midrange, where you have maybe $500K +/- $100K and don't want to risk having to start all over again with only half of it. You could probably squeek by with retiring on $600K, but $300K would be dicey.
So...the prime prospect is probably somebody who is 5-10 years from retirement with a liquid non-IRA, non-401K net worth of around $500K, and who is scared that he'll lose half of it and won't have enough time to re-build it back up. And he has to be okay with the fact that it will generally NOT grow very much once it's in the IUL, and be okay with the restictions on how much and how fast he can pull money out of the IUL. (And no smoke about taking a loan from the IUL. A loan is just a fancy withdrawal.)
Looking at my equity curve chart, with a $10K initial value ....
dropping from $66K to $40K in 2 years (2000-2002) hurts bad.
It took about 4 years to get back.
But it did.
And in 7 years from the 2000 peak, 5 years form the bottom, it got to $76K.
Not such as big catastrophe, is it? 6 years to get back to the previous peak.
And then the drop from $76K to $40K in 1 1/2 years (2008-2009).
It took 3 years to recover back to $76K.
A little under 5 years to get back to the previous peak.
Not such as big catastrophe, is it?
Maybe to some people it is.
'course (new subject alert!), quite a few people _do_ think it is. I know that because I see the money outflow from stocks and flowing into bonds. Bonds which are going to get absolutely *crushed* when interest rates begin to go up.
People who invest with their fearful emotions are gonna get hammered because they can't stand the volatility of stocks. These people would be better served by moving their money into IULs. But I bet they aren't. Scratch that. I know they aren't. The money is flowing into bonds.
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