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URL:  https://boards.fool.com/ltltltltquotmy-financial-planner-has-11376031.aspx

Subject:  Re: Pension Maximization Question Date:  10/15/1999  8:58 AM
Author:  honda97 Number:  14564 of 102726

<<<<"My financial planner has told me to take the Single Life option (maximum money to me)
 and invest that $5,000 in a Variable Universal Life (VUL)Policy. He says that if I pay into his
 policy for about 12 years,  I would not have to pay anymore (policy would be paid  up), and the benefit to my wife (annuitized) should be  more than she would have received (about 30k/year) if I choose the Joint/Survivor option.">>>>

 "What I hear is your FP is selling you a product he will make money on and it may not be
 the best investment for you or your wife.

 I would want to know what the cost of the investment (load) is, the cost of the insurance  portion, the cost of surrender and time needed before the surrender fee goes away."

(honda97)
My FP has provided the cost of the VUL to me.  Yes he
makes a nice profit, 'but' this may not matter to me.
My ratationale is that at the end of about 12 years,
I am able to stop paying the premium and still have
the life insurance policy stay in force to cover MY
life.  The alternative is to stay with the company
pension, and continue with a pension loss of about 5k
a year FOREVER.  As the goal of this exercize is to
provide my wife with about 30k/year annuity at the 
least expensive outlay to me.



 "I would also like to know the return history of the investment within the VUL. I would like
 to know if there is any guarantee that after 12 years of $5,000 invested per year that your
 payout would be $5,000 per year and for how long this stream of $5,000 would continue." 


(honda97)
The investment choices within the policy are mine to
make from quite a few sub accounts available.  The
return is as good as the choices that I make.

 I think that second sentence misses the heart of the question. The issue is not a $5,000 payout
 after 12 years; it is a $30,000 payout after H dies.

 "If I was to invest $5,000 per year, I would select an S&P 500 Index fund. Over the past, an
 Index fund on average will return about 12% per year and if you invest $5,000/yr, this will
 grow to $120,000. If your wife then draws 4% per year which is a conservative value, she
 would receive $4,800 without touching the principle and her draw would grow as the
 principle grows. If the principle grows at 12%, her 4% draw at the end of the next 12 years
 would be $12,100 and the principle would be $300,000."

 This analysis, IMO, misses the issue of what happens if H dies next year. Wife has $5,000
 invested, no pension, and no insurance. Alternative pension choice would have assured W of
 $30,000 per year.

 "I doubt that your FP will be guaranteeing the return."

 I agree, and I think that this is a fundamental issue. On the other hand, guaranteeing the W 30k per
 year would have permanently reduced H's pension while alive, therefore, so long as the insurance
 cost never exceeds the $5,000 per year increase in H's pension, then H and W are no worse off
 than if they had elected to guarantee W 30k.

 "If he is guaranteeing that your wife would definitely be assured $5,000/year after 12 years
 of investing $5,000, then this might be a deal that would be worth further evaluation."

 I agree, but why this fixation on guaranteeing W 45k per year instead of the 30k per year that is
 forgone by selecting the higher pension for H?

 The other real variable in this equation is how long H and W will each live? If lower pension is
 selected (guaranteeing W 30k) and W predeceases H, than choice was for nought. If higher
 pension is elected and H lives long enough to invest 5k, then insurance may have been less
 valuable than investing. If higher penison is elected and H dies first and quickly (i.e. before
 investing 5k per year can guarqntee 30k to W), W is SOL. 


(honda97)
There is no guarentee that after 12 years, the policy
 will be paid up.  If my sub account investments do
 well than it might be possible to pay into the policy
 for fewer than 12 years.  Longer if they perform 
 poorly.

I think the equations are ok for this approach, my big
concern is wanting to know if this is a good way to
provide for my wife.  It is not as safe as the
guaranteed pension from my company, but than again,
 if after 12 years of payment, we would than have an
'extra' 5k/year.  

Still not sure of what approach to take.  Please 
continue the discussion.

  Thanks,

    Hond97

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