UnThreaded | Threaded | Whole Thread (318) | Ignore Thread Prev Thread | Prev | Next | Next Thread
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 75340  
Subject: Re: Hi gang... wow!!! Date: 9/16/2013 8:50 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Sykesix,
I see & agree with where you are going... there are definitely degrees of tolerance in the expected rates (unless the point of financial retirement of set firm via an annuitization spend down from a fixed rate yield... whether that's DIY or institutional/insurance provided.) That would eliminate the question of future returns at the point of financial retirement.

Still, if yield and principal are both calculated in the SWR spend down in order to determine when the finish line is crossed, *ANY* loss of principal due to a forced distribution while underwater will extend out the retirement finish line.

The question is which strategy gets to that point earliest, assuming the same life expectancy (so the earlier the point reached, the longer the spend down must last.)

Question: What is the SWR for a IUL?
Answer: Impossible to say.

No, its calculated (within supportable tolerances) in the illustrations when distributions are run. I have a data question in to Allianz, and once I have the answer I'll run one out for us here.
===============

Hi Ray,

Any loan is charged interest (around 5.5%-6%), so in a down market you don't get any arbitrage, you get a gain of 0% and pay interest of 6%.
The loan interest charge is deferred, just as is your accumulation... so in down years you *might* accumulate more interest than your credits, and then in up years you accumulate more credit than your charges. The average yield is 2%+ greater than the average charge.

When you take money from the account, you are withdrawing money from the account, and the Net Value goes down by the amount of the draw.
Not on an IUL. You are using the contract as collateral for the loan. The insurance company (Allianz in this case) guarantees they will lend up to 90% of the cash value at 5.5%... but there are banks that will currently lend it at lower rates, even fixed rates without amortization demands.

I have to say that I doubt that you get the arbitrage.
Don't. Its fact.

Say you have $1,000,000 in an IUL, and you borrow out $900,000. The company says, "No problem, the index increases 12% this year, so we'll just give you $120,000 -- even though you only have a net account balance of $100,000." Unbelievable.
Believe it. If you borrow the $900,000 from your bank, collateralized by the IUL, the insurance company would have no basis to withhold your full credit on the $1M. Same regardless who makes the loan.

What is more likely -- and more believable -- is they'll say, "You get $12,000. 12% on $100,000."
BWDIK?

Now you know.

Hmmmm. In a down market you hit the floor of 0%. So the company says, "No soup for you. 0% of anything is $0. And you owe us 6% of $900K or $54,000. We'll just take that out of your $100,000, so now your account value is $46,000. Oh, but you're not allowed to go above 90% LTV, so please wire us the $54,000 by tomorrow morning."
Nope;
1. the interest charge accrues, it is not taken out of the credited cash value account.
2. no margin calls. If they ever accidentally lend too much (which doesn't happen, but if they did,) they simply stop lending on that contract.

Dave Donhoff
Leverage Planner
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (318) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Value Hounds

Medallion Financial: TAXI!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement