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Hi Spinning,

This makes the same mistake. The drawdowns only happen occasionally. Averaged over many people, you get the 14% despite the drawdowns. Some will be unlucky and get less, others will be lucky and get more.

No... nobody will get more than the actual gross returns, but many will get significantly less because of the effects of 'reverse dollar cost averaging' and the risk of ruin. That's what's missing on Ray's calcs.

I still don't see a clear argument for why IULs beat S&P.
Try this exercise;

2 people have a lifetime investable savings of $1,000,000, after basic living cost reserves. (Doesn't matter whether the persons are currently 80 or 20 years old... the 80 year old has a past accumulation of $1M, the 20 year old has a future investable $1M.)

Let's assume X amount of this net worth is *just enough* to throw sufficient yield to cover all living expenses at 80 years old.

For mental simplicity, just focus on 2 80 year olds (so the tolerance of sacrificing growth on future earnings doesn't get confusing.)

Out of that $1M, how much is suitable to put into the S&P500?

If X = $1M, then $Zero can go into the S&P, because any drawdown at all, if it occurs while funds are required to be spent (which is now,) can afford to be lost.

If the S&P potential drawdown is 50% (rounding down) then $500,000 can be put at risk in the S&P.

With the IUL, the full $1M can be "put at risk" (because there is no downside risk.)

The IUL compounds the full $1M, the S&P account compounds $500k.

*THAT* is apples-to-apples, dollar-to-dollar, on a risk-weighted basis for retirement investing. Retirement investing has a set amount of assets that can go to risk, and a specific finish line.

Comparing dollar-to-dollar without risk-weighting is speculative gambling, not retirement investing.

NOW, run the calcs.

Dave Donhoff
Leverage Planner
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