Great video! What's your take on using an IUL for supplementing retirement income shortfalls? For example, I want to net $100,000 but can only take $80,000 out of my 401k. Can I fill the gap with a lirp? The reason I'm asking is because not everybody has different sources of retirement income. Thank you
I have so much data on the "using whole life in down markets" using the E/Y study. I am not a fan of the IUL however. Surrender Charges (that do fade, sure, 8-10 years later) and fees (that are charged a lot of times in down markets), do not provide the stability that traditional portfolio based whole life can offer. If done wrong, which i find most UL's (in any form) are, the person ends up using the money too soon, paying those surrender charges, and dropping the policy, or has it implode. If they have funded a 401k (Roth or otherwise) and other investment tools, a safer well funded whole life policy without the fees or surrender charges would be a better play if you follow the E/Y study. The risk would lie in their investments, and to your point, be a place to pull from in good times the market, where the whole life would serve as the place to pull in down markets, allowing their investments to rebound. If you fully understand UL's (which could be argued that most don't) then sure, but otherwise, keep it simple. Investments = risk, whole life = safe.
The issues I have with whole life are two-fold. First, the loan provisions. Note that in the EY study they had to pay the loans back. In other words, they’re taking money out of their stock portfolio to put it back into the whole life policy, once the portfolio recovers. Why did they do that? Because of the loan interest that would have otherwise accrued. It could have jeopardized the policy. My second issue is the low rates of return.. Remember, for the volatility buffer concept to work, you need to accumulate between three and five years worth of lifestyle expenses by day 1 of retirement. That’s much more difficult to do if you’re only earning 3 to 4% per year. You have to contribute even more money that could have otherwise been growing within your stock portfolio. So the loan provisions and the low rates of return far overshadow any predictability the WL policy could provide.
That is correct. Cash value is part of the death benefit when you die, however the entire death benefit is not used to collateralize the loan, just the cash value.
I want to make sure I'm understanding correctly. Are saying that if we have down year, like in 2022, then we should have used an IUL loan in 2023 for living costs to allow the portfolio to recover? Also, do you take the IUL loan at the beginning of the year and set the money in a high yield savings account to use or take loans as needed throughout the year?
Right, take the loan out of the IUL in January following a down year in the market. You could take out monthly loans to avoid having to set everything aside in the HYSA during the course of the year.
Good morning David, ARE there LIRP/IUL consumer safety guards in place, to control the internal costs? In other words-keep the insurance companies from increasing fees or adding additional premiums?
Some companies guarantee their expenses but at the end of the day all reserve the right to raise mortality costs if people start dying at a much more accelerated rate.
@@juliansanchezbiz because financial motivations cloud the discussion. It's like asking McDonald's and Burger King executives what's better, the Whopper or the Big Mac.
Great video! What's your take on using an IUL for supplementing retirement income shortfalls? For example, I want to net $100,000 but can only take $80,000 out of my 401k. Can I fill the gap with a lirp? The reason I'm asking is because not everybody has different sources of retirement income. Thank you
So long as you're using it to supplement your other streams of stock market-based investments, it would be a great application.
@@davidmcknight8201 thank you David, always a pleasure to watch your videos.
Thanks for watching!
I have so much data on the "using whole life in down markets" using the E/Y study. I am not a fan of the IUL however. Surrender Charges (that do fade, sure, 8-10 years later) and fees (that are charged a lot of times in down markets), do not provide the stability that traditional portfolio based whole life can offer. If done wrong, which i find most UL's (in any form) are, the person ends up using the money too soon, paying those surrender charges, and dropping the policy, or has it implode. If they have funded a 401k (Roth or otherwise) and other investment tools, a safer well funded whole life policy without the fees or surrender charges would be a better play if you follow the E/Y study. The risk would lie in their investments, and to your point, be a place to pull from in good times the market, where the whole life would serve as the place to pull in down markets, allowing their investments to rebound. If you fully understand UL's (which could be argued that most don't) then sure, but otherwise, keep it simple. Investments = risk, whole life = safe.
The issues I have with whole life are two-fold. First, the loan provisions. Note that in the EY study they had to pay the loans back. In other words, they’re taking money out of their stock portfolio to put it back into the whole life policy, once the portfolio recovers. Why did they do that? Because of the loan interest that would have otherwise accrued. It could have jeopardized the policy. My second issue is the low rates of return.. Remember, for the volatility buffer concept to work, you need to accumulate between three and five years worth of lifestyle expenses by day 1 of retirement. That’s much more difficult to do if you’re only earning 3 to 4% per year. You have to contribute even more money that could have otherwise been growing within your stock portfolio. So the loan provisions and the low rates of return far overshadow any predictability the WL policy could provide.
So collateral is against cash value and not the value of the life death benefit/policy
That is correct. Cash value is part of the death benefit when you die, however the entire death benefit is not used to collateralize the loan, just the cash value.
I want to make sure I'm understanding correctly. Are saying that if we have down year, like in 2022, then we should have used an IUL loan in 2023 for living costs to allow the portfolio to recover? Also, do you take the IUL loan at the beginning of the year and set the money in a high yield savings account to use or take loans as needed throughout the year?
Right, take the loan out of the IUL in January following a down year in the market. You could take out monthly loans to avoid having to set everything aside in the HYSA during the course of the year.
@@davidmcknight8201 thanks for the clarification. I enjoy your work!
So can LIRPs be funded with qualified funds or only non qualified? Great video thx
Non-qualified.
Good morning David, ARE there LIRP/IUL consumer safety guards in place, to control the internal costs? In other words-keep the insurance companies from increasing fees or adding additional premiums?
Some companies guarantee their expenses but at the end of the day all reserve the right to raise mortality costs if people start dying at a much more accelerated rate.
so have you and the Whole life guys come to a verdict which one is better?
Did that debate ever happen?
The debate has been ongoing for years.
@@DavidMcKnight correct, thus how is there not yet a definitive answer?
@@juliansanchezbiz because financial motivations cloud the discussion. It's like asking McDonald's and Burger King executives what's better, the Whopper or the Big Mac.
some states are going to start requiring long term care insurance due to it's rising costs and burden on the State's taxpayers
Indeed.
You get a low cost LTC. Low benefit. Like 1500mo for 48mo. Then get the IUL as well. Use both.