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Investing/Strategies / Retirement Investing
|Subject: Re: Hi gang... wow!!!||Date: 9/14/2013 7:48 PM|
|Author: Dwdonhoff||Number: 72843 of 82227|
Looks like the life insurance is $250,000 level term, with the premium increasing each year. BTW, I thought it cute that they ran the illustration out to age 120. ;-)
No, actually I solved for the 1st year minimum non-MEC death benefit allowed on the funds we are dumping in ($15k lump, plus $150/month.) That came to $810,334 in death benefit.
Then I blended it to be fulfilled by 80% increasing annual term, and 20% underlying base policy (basically full-fat 'whole life style' premium costs... but exploded out in unwrapped fees, and minimized to the thinnest amount Allianz allows, for performance.)
I ran that blend through year 7, which was the earliest point that Allianz' interpretation of IRS code formulas allowed me to drop the 80% term blend, and find the absolute lowest amount of remaining base coverage allowed, on an increasing basis, to keep the tax advantages in place. On the IRR report you can see in year 8 the combined DB dropping from $843k down to $286k, and then rising per IRS code from there, at the least amount required by the laws to keep the tax bene's in place.
Starting at age 67, the life insurance premium is LARGER than the $1800 deposit, so rather than adding to the investment, the investment is being drawn down to pay for the life insurance.
Actually, its at the end of age 68, beginning 69... but you got it. The growth yield is sufficient to cover the internal cost shortage, and still grow the account (and that never reverses.)
Nonetheless, that's more-or-less okay. When you retire that's when you switch from accumulation to decumulation -- so that's the point at which you stop adding to the investment account and begin withdrawing from it.
We'd turn off income premiums the year prior to turning on distributions. I didn't dial that into this illustration... just did a vanilla pay-in all the way to maturity (dirt nap.)
If we're looking to retire at 65, I'd turn off inbound premium at that point & turn on distribution age 66, either solving for maximum flat income out through maturity or a nominated age... or inflating income by a specified rate to maturity or named age.
This brings up the question of why a 67 year old would want to have life insurance at all.
They don't have to want life insurance... if they don't want the death benefit they can give it to charity.
The purpose of life insurance is to replace the paycheck income in case somebody dies early, but once you've retired there is no paycheck and hence no income that needs to be replaced. But that's not really pertinent here.
Not in this case. In this case the purpose of life insurance is to get the financial performance. Any death benefit that comes along with the deal is like a toy in the crackerjack box.
Now, going back to look at age 50 ..... the total fees are $180 (premium charge + policy fee). Um, that's 10% -- TEN PERCENT -- of $1800. Or 12% of $1520. That seems like a lot.
A. Compared to what? Even *INCLUDING* that hit, it outperforms the "near zero fee" buy & hold... what's more important, what you pay, or what you get?
B. Remember, the secret sauce to the FRI strategy when executed in an IUL is the new money returns on the safe leg at the seasoned portfolio rates of the company's general account. That's a 3-4% advantage every year that buys the higher returns on the options hedge than you could get on a DIY basis.
C. That $90 + $90 charge is the same regardless of account size... so just like with small mortgages, it *appears* as a much bigger percentage for smaller cases. Such is life... it still outperforms the alternatives, despite hauling that load.
So logically, in order to compare like to like, you should add an insurance premium to the non-IUL S&P500 alternative -- even though nobody rational would keep life insurance after they retire.
I know some IUL salespeople that do exactly that... but I don't see it as being necessary to handicap the naked strategy more than the natural volatility costs already do.
99% of the people who've had me set up IULs for them arrived certain they neither needed nor wanted any more death benefit than they already had. I've not changed their mind about that at all, and usually agree. They leave with funding performance that results in more death benefit anyway... but it's
toss away" death benefit... they *COULD* donate it to charity (but, interestingly... its usually the wife that ends up deciding its a pretty cool thing to keep.)
There are some amusing things in the data. I chuckled at the thought of the 90 year old owner of a $6,000,000 account studiously making her annual $1800 deposit so she could keep her $250k life insurance in effect.
Yeah... silly, I agree. I was trying to at least incrementally deliver on my word. I'll jump on & readjust at age 65 a bit later... still juggling a weekend with my kiddo.
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