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First a little background, my wife and I are both 26, no “bad debt”, very decent salaries, have a house (paying a mortgage), no kids (but plans), and trying to figure out how to retire at 45 

Retirement planning seemed to be somewhat overwhelming at first and we hadn't done much to get it going (besides maxing out my employer matched 401k contributions). So when given an offer to go see a financial advisor we took it; hoping that he could steer us in the right direction.

So we gave him all our financial information and he got back to us, with a nicely bound professional looking “financial plan” that showed which AMEX funds are right for me. He then started telling us that our “Age and financial status gives us a unique opportunity to invest in a very special tax-advantaged vehicle, a Variable Universal Life Insurance plan.” We were so entranced by the sales pitch I almost handed over a check and signed the paperwork. But after a few questions and a “what? you don't trust me?” statement we decided to sleep on it.

I have since done some digging around and it seems our “unique opportunity” isn't so unique, since this seems to be the standard AMEX sales pitch, and it seems opinions are generally negative of it.

So this brings me to my question. My wife's employer does not offer a retirement plan. We are planning on maxing out contributions to an IRA for her and one for me. As well as contributing the maximum employer matched amount on my 401k.

If after doing this we still have money left over, is there any other tax-advantaged account my wife can contribute to since her employer doesn't offer one? Or is this VUL plan really the best choice for that money? Or just put the money on a brokerage account, take the tax hit, and use one of these foolish investment strategies?

I've tried to search the forums and google for answers to these questions, but I always seem to go off on a tangent and haven't had much luck. So I figure I might as well post here… If I need to do some more research on my own, I'll gladly accept a “shut up newbie” 

Thanks in advance for your opinions!
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With the current low tax rate on dividends and long term capital gains, you might be just as well off to put the extra money in a taxable brokerage account. Just pick investments you can hold for at least a year. Despite all the campaign retoric it's unlikely these tax rates will be raised anytime soon.
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0xf001: "First a little background, my wife and I are both 26, no ¡§bad debt¡¨, very decent salaries, have a house (paying a mortgage), no kids (but plans), and trying to figure out how to retire at 45 ƒº

. . .

So we gave him all our financial information and he got back to us, with a nicely bound professional looking ¡§financial plan¡¨ that showed which AMEX funds are right for me. He then started telling us that our ¡§Age and financial status gives us a unique opportunity to invest in a very special tax-advantaged vehicle, a Variable Universal Life Insurance plan.¡¨ We were so entranced by the sales pitch I almost handed over a check and signed the paperwork. But after a few questions and a ¡§what? you don't trust me?¡¨ statement we decided to sleep on it.

I have since done some digging around and it seems our ¡§unique opportunity¡¨ isn't so unique, since this seems to be the standard AMEX sales pitch, and it seems opinions are generally negative of it."


First, welcome.

Second, good for you for taking a breath and doign some research.

Third, general TMF bboard consensus is that AMEX advisors are average, and that AMEX branded funds are expensive and poor performers.

Fourth, VULs have been discussed extensively on the Insurance Board. General conclusion is that they can be useful for some people, but that they are generally not especially useful for most people.

I do not recall what the FAQ on that board says; for some older threads, see the following (unfortunately I have not bookmarked more recent threads, although I am sure that you could search for VUL):

---seminal FoolWAM post 1605 on the insurance board, and its thread (and 5046)

http://boards.fool.com/message.asp?id=1040016000400003

and especially post 1603,

---You may want to take a look at FoolWAM's post #1913 at http://boards.fool.com/Message.asp?id=1040016000465002 to see if you'd be a good candidate or not.

Also 5188 at http://boards.fool.com/Message.asp?mid=13889886

--- "There are many things that are a consideration in such a decision.

For example:

What about a Roth IRA?
How long do you want to have life insurance?
What is your and your spouse's health history like?
How important is additional tax deferred growth to you?
Where are all your other assets?
Are you prepared to highly over fund such a policy and able to stay committed to following through with it?
What are you plans for your kids college education?
Do you have an adequate Emergency Fund in place?
What is your risk tolerance?
What is your asset allocation model like?
When do you plan to retire?
Just how are you going to use your retirement assets during retirement?
What are your plans for passing on any estate to your heirs?
What are the chances you're be receiving an inheritance and if so, about how big might that be?
What are your future carrier and income prospects like?
Do you receive bonuses? If so, in what form?
Are you aware of the caveats of using such a policy for ¡§a tax-protected means of wealth accumulation¡¨? (the main one being that the policy MUST stay in force your entire lifetime)

Well, I think you get the idea. If your ¡§financial advisor¡¨ hasn't covered these and more issues with you AND your spouse, then it's probable that the recommendation towards ¡§a tax-protected means of wealth accumulation¡¨ may not we a good fit you're a comprehensive financial plan."

TTRoberts Post 9486 Ins.


Last, one thing that you never mentioned in your post was any need for insurance. Do you even need/want permanent insurance?

I suggest reviewing the Insurance board and following the links and or posts excerpts that I provided.

Regards, JAFO


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0xf001, you asked:

<< First a little background, my wife and I are both 26, no “bad debt”, very decent salaries, have a house (paying a mortgage), no kids (but plans), and trying to figure out how to retire at 45

Retirement planning seemed to be somewhat overwhelming at first and we hadn't done much to get it going (besides maxing out my employer matched 401k contributions). So when given an offer to go see a financial advisor we took it; hoping that he could steer us in the right direction.

So we gave him all our financial information and he got back to us, with a nicely bound professional looking “financial plan” that showed which AMEX funds are right for me. He then started telling us that our “Age and financial status gives us a unique opportunity to invest in a very special tax-advantaged vehicle, a Variable Universal Life Insurance plan.” We were so entranced by the sales pitch I almost handed over a check and signed the paperwork. But after a few questions and a “what? you don't trust me?” statement we decided to sleep on it.
>>

Excellent decision! As compelling as it may be to start something NOW, it prudent to take time when deciding on a course of action for long-term commitments.

<< I have since done some digging around and it seems our “unique opportunity” isn't so unique, since this seems to be the standard AMEX sales pitch, and it seems opinions are generally negative of it. >>

While I'm not suggesting that this “unique opportunity” has any good or appropriate value in you're particular case, I would point out that most of the generally negative opinions come from a substantial lack of knowledge and understanding of such a product (even by most who sell the product) . . . and the fact that they ARE often inappropriately applied and over sold.

<< So this brings me to my question. My wife's employer does not offer a retirement plan. We are planning on maxing out contributions to an IRA for her and one for me. As well as contributing the maximum employer matched amount on my 401k.

If after doing this we still have money left over, is there any other tax-advantaged account my wife can contribute to since her employer doesn't offer one? Or is this VUL plan really the best choice for that money? Or just put the money on a brokerage account, take the tax hit, and use one of these foolish investment strategies?
>>

Well . . . as was pointed out in a previous post by JAFO, you've not said ANYTHING about your needs for life insurance. The VUL "plan" is a life insurance contract. And being a life insurance contract it has costs for that life insurance. If you don't want any life insurance, then such a "plan" would have some very high costs associated with it since not only would you have the costs that revolve around the life insurance, but you'll also have costs like you have with mutual funds. So, when you have no need/want for the life insurance, this is a pretty high price to pay. Also, if you don't plan on keeping the life insurance in place for your entire lifetime and plan to surrender the policy at some point, there's a tax issues that can become a big problem too.

With this said, I'll point out that these kinds of life insurance policies can indeed work well as PART of a comprehensive retirement plan. They shouldn't be used as a primary source of retirement income, but can be used as a supplementary source . . . and preferably on an if needed basis.

They're a very complex type of life insurance contract. And if you're really not all that financially sophisticated and/or don't want to be, thin a variable life contract is really not a suitable contract for you. You need to understand them well so you can manage them well, as they take a lot of attention to make them work well.

<< I've tried to search the forums and google for answers to these questions, but I always seem to go off on a tangent and haven't had much luck. So I figure I might as well post here… If I need to do some more research on my own, I'll gladly accept a “shut up newbie” >>

It is a difficult thing to find the kind of information you need to understand with this kind of “plan” is all about. Since this “plan” is dealing with a life insurance policy and using it in a particular way, you might consider getting hold of the book titled The New Life Insurance Investment Advisor by Ben Baldwin. It's not a book really written for “advisors,” but one actually written for consumers to help them better understand life insurance contracts. I find this book an easy read for consumers wishing to understand this kind of stuff better. This book will probably answer all the questions you might have about how a VUL works and might be used in such a “plan.”
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As well as contributing the maximum employer matched amount on my 401k.

If after doing this we still have money left over, is there any other tax-advantaged account my wife can contribute to since her employer doesn't offer one?


If there is still money to invest for retirement, if the expenses on your 401(k) aren't excessive, it may be better to contribute up to the plan limit on the 401(k) after you have maxed out your and your wife's contributions to some flavor of IRA.

Generally, if you have more money to invest than would be allowed in the retirement accounts available to you and your wife (401(k), 403(b), Roth IRA or Traditional IRA, etc.), the next step would generally be a taxable account and investing in something reasonably tax efficient, such as the Vanguard Total Stock Market Fund. However, if you or your wife's occupation tends to attract lawsuits, you might check to see if a non-qualified Annuity might provide protection from creditors in your state. (The 401(k) and 403(b) have ERISA protection, but protection of IRAs and non-qualified annuities from creditors varies based on state law.) If you do go the non-qualified annuity route, generally one should look for low expenses and, if you don't need the life insurance component, exemption from the life insurance component. Generally TIAA-CREF is the best source of non-qualified annuities (low expenses) with Vanguard a close second. But if your occupation doesn't attract lawsuits, Vanguard's mutual funds tend to have the lowest expenses available for index funds available to the public, with TIAA-CREF in second place.
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