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Subject:  Re: Retirement, college, and Obamanomics Date:  1/5/2013  6:44 PM
Author:  sykesix Number:  71216 of 90520

I'll offer a double or nothing opportunity (you already lost the prior wager, in case you didn't know it.)

...You name any 30 year period, the amount of initial and/or periodic principal contributions, tax rates, inflation rates, and the starting age & health of your designated 'investor.'

You can even choose your 30 year run to backwards fit whatever strategy you plan to apply.

Mandatory strategy outcomes;
Zero market downside participation per year
(Hedge or diversify any way you like, such that you can back a zero-downside guarantee.)

This is like asking what NFL quarterback has thrown for the most yards who also has Tim Tebow's height, weight, and birthday. The answer is Tim Tebow. But it doesn't say anything about Tebow's meager abilities as an NFL quarterback, or even if you want him on your team. Unless you want the answer to be Tim Tebow is is a meaningless question.

If our investment horizon is 30 years, then why do we care at all about capping market risk at zero in any given year? It is a nonsensical condition. We only care about the result at the end of 30 years. If your horizon is five years or less, then sure, it is something to think about. But 30? C'mon.

And I already lost? Just the fact the index is excluding dividends neatly chops your potential upside in half. That's a hellvua hit! No tax savings will make up for that.

But just for fun, I decided to explore further so I fired up the Google and the first result I found was Hartford's Frontier Indexed Universal Life

The fixed portion currently offers 4.25%. Compare to Vanguard's long term investment grade bond fund (VWESX) distribution yield of 4.49%. Pretty much a wash.

Next, the growth cap is 12%. Other people have been saying 15%, but I'm just reporting what I see. I tried to figure out how they set the cap and it didn't say but I did find this in the definitions:

Index Growth Cap is maximum rate used in the calculation of the Index interest Rate. We set the Index Growth Cap for a new segment on the Segment Start Date. The Guaranteed Minimum Index Growth Cap is 3%.

That's interesting! The 12% cap is only fixed over one year, not 30. They can drop all the way down to 3%. Kind of hard to do the backtest if you don't know what the cap is. But you can be assured they jigger the cap for their benefit, not yours.

I'm reminded of the halcyon days of the 1980s when regular UL's were all the rage. The salesman would show you have they were offering 12% and if you extend that out into the future 30 years your main problem would that you had park your car in the driveway because your garage would be filled with giant bundles of money. What really happened was that interest rates dropped and many people had underfunded policies they couldn't afford anymore and the policies went bust. As intrcst points out, that's that's a taxable event. Not good. A IUL might make sense in some circumstances with a 15% cap. Maybe. No way does it make sense at 5%.
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