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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74775  
Subject: Re: IUL vs. S&P500 spreadsheet Date: 5/29/2013 12:52 PM
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Hi AJ,

1. what are the odds of a significant drawdwon within 1, 5, or 10 years of a dollar coming in,
Ummmmm.....these are retirement funds, not funds for drawing down before retirement.


Sorry... "drawdown" as in the markets... not spend-downs.

2. what are the odds of a significant cash-demand in life elsewhere during the same periods,
That's what emergency funds are for. You keep telling us that the people that IULs are best suited for are those who have fully funded retirement savings and emergency funds, and still have investment capital available.

Uhh... no... I've never set such restrictions. I think you're getting confused with somebody else.

IULs are good for the financial foundation levels of the risk pyramid, and are outstanding as pools for emergency reserves in themselves... except they gain with the market.

People with fully funded emergency funds should have little need for a significant cash-demand in life elsewhere that can't be handled by the emergency fund.
Even standard-practice emergency funds (3-6 months full living expenses, plus 6-12 months standby credit,) have their own limits. If you are in a position where you need more than that when the markets have collapsed, and your financial foundation has collapsed with the markets because you're in a naked position, you are simply screwed.

If you are suggesting that emergency funds be rolled into IULs, resulting in paying fees on your emergency funds, which would then only be available to you in the form of a loan that interest would accrue on, that seems even less desirable than the risk of losing money to inflation risk because of the rates that safe, liquid accounts are paying.
You have zero idea what you're saying here (or, more realistically, zero understanding of a well-fit IUL structure.)

IULs are good foundational accounts *after* your 3-6 months lifestyle cash reserves are established. Loan interest is equal or less than the net (after expense) market credit paid on the IUL cash principal.

The risks of losing principal in a naked S&P position is dramatically more expensive than the (non)costs of liquidity from an IUL.

3. what are the lost opportunities if liquidity is unavailable during these periods.
With fully funded retirement savings and emergency funds, why would liquidity be unavailable?

Because you are theoretically naked in a market that just halved your position. A 50% surrender charge in the S&P is heavier than anything in any IUL contract.

If you started with $100,000, and the market drops it to $50,000... the homerun opportunities are available at *THIS* point in time... but your ammunition is gone.

Dave Donhoff
Leverage Planner
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