IUL vs. Roth 401k/401k vs. Roth IRA/IRA

[disneysteve]

It wasn't projected...I went backwards with real numbers. Projected would be like an illustration going forward right

Where did you get the "real" numbers?

The real S&P 500 %s

That's very nice for learning what your Roth would have returned but it tells you absolutely nothing about what the IUL would have returned. That's the point that I don't think you're understanding. You need to find out what the IUL account actually paid after commissions and fees. That is NOT the same thing as what the S&P returned - not even close. So what you are doing is very much a fantasy projection.

[noel1993]

Facts

Many people on here do NOT have a license and are giving unfair advice and should not be.
401 K and IUL are good for different reasons.
Positives for IUL:
--Would you rather pay for the seed or harvest? Taxes may go up, you will probably be in a higher tax bracket and you will have more taxes to be paid on the 401K on withdrawl vs IUL.
--When market goes down, IUL protects your money at $0 decrease. In 401K if your money goes down, you have to make up for that lost money. If you had $100 and market crashed 25%, you lost $25 dollars. If market rebounds 20% next year, you are still in hole $5.

Negatives
-Cap
-No company equaling funds which would be upside for 401K
-Taxed before going into account
-Only allow so much money to be invested

The Death Benefit is the best and most companies do NOT make you pay extra for living benefit rider. It is included.

Just a few quick things

[Petunia 100]

Many people on here do NOT have a license and are giving unfair advice and should not be.
401 K and IUL are good for different reasons.
Positives for IUL:
--Would you rather pay for the seed or harvest? Taxes may go up, you will probably be in a higher tax bracket and you will have more taxes to be paid on the 401K on withdrawl vs IUL.
--When market goes down, IUL protects your money at $0 decrease. In 401K if your money goes down, you have to make up for that lost money. If you had $100 and market crashed 25%, you lost $25 dollars. If market rebounds 20% next year, you are still in hole $5.

Negatives
-Cap
-No company equaling funds which would be upside for 401K
-Taxed before going into account
-Only allow so much money to be invested

The Death Benefit is the best and most companies do NOT make you pay extra for living benefit rider. It is included.

Just a few quick things

Giving sound advice doesn't require a license to sell insurance; it just requires a grasp of basic mathematics.

[disneysteve]

Many people on here do NOT have a license and are giving unfair advice and should not be.

Wonderful. Yet another insurance salesman coming by to tell us why we are all wrong.

Taxes may go up, you will probably be in a higher tax bracket and you will have more taxes to be paid on the 401K on withdrawl vs IUL.

This is entirely irrelevant since the 401K is an investment and the IUL is not. Yes you can take a LOAN from your IUL account but taxes have no affect since it is a loan, not a withdrawal.

When market goes down, IUL protects your money at $0 decrease.

This is simply not true. IULs can and do lose money in bad years. Why? Because fees still get deducted. So if the fees exceed the return, there can be a negative year.

Negatives
-No company equaling funds which would be upside for 401K

Yep, that's kind of a biggie since the typical 401K match is 50%. That's an instant and guaranteed 50% return on your money. It is impossible for the IUL to compete with that.

-Only allow so much money to be invested

Actually, the IUL doesn't allow ANY money to be invested. An IUL is NOT an investment. Any money you put in can not be said to be invested.

[dczech09]

This is simply not true. IULs can and do lose money in bad years. Why? Because fees still get deducted. So if the fees exceed the return, there can be a negative year.

I would just like to add that if the insurance company goes belly-up, the IUL is not guaranteed. If the insurance company goes belly-up, you could lose all of it: the death benefit and the cash value. Insurance companies are not impervious to loss, especially if their investments do not perform enough to cover the downside guarantees.

Nothing is guaranteed. So stop acting like it is!

[dczech09]

Many people on here do NOT have a license and are giving unfair advice and should not be.

A license is required to SELL insurance and take a commission. Not give advice. I should know; I used to have my licenses until I let them expire!

And actually, I argue that people who DO NOT sell insurance are the better people to give advice. Do you know why? Because we do not have a conflict of interest.

This is a public forum that exists for providing general education and general advice. If you do not like it, you do not need to be posting here.

[feh]

I would just like to add that if the insurance company goes belly-up, the IUL is not guaranteed. If the insurance company goes belly-up, you could lose all of it: the death benefit and the cash value. Insurance companies are not impervious to loss, especially if their investments do not perform enough to cover the downside guarantees.

Nothing is guaranteed. So stop acting like it is!

You guys are arguing with shills. They aren't going to capitulate.

All we can do is hope that folks reading this thread do their homework.

[disneysteve]

You guys are arguing with shills. They aren't going to capitulate.

All we can do is hope that folks reading this thread do their homework.

I certainly realize that. I don't post to these threads to try and convince the salesperson. I know that isn't going to happen. I post to educate everyone else, especially those who might be considering falling for the sales pitch.

[dczech09]

I certainly realize that. I don't post to these threads to try and convince the salesperson. I know that isn't going to happen. I post to educate everyone else, especially those who might be considering falling for the sales pitch.

Same here. That is why it bothers me when these salespeople keep dropping the same ol garbage on here. Someone who does not understand the product could be "talked in" to it simply because a supposed "financial advisor" said it was a good idea.

The salespeople are convinced that what they are selling is a golden idol. I can't talk them off of the cliff no more than they can talk me onto it.

[JDK]

Fuzzy Investment Math

This is mathematically impossible. $1 compounded for 40 years at a rate of 7.5% = $1 compounded for 40 years at a rate of 7.5%. To get one side to be larger/smaller than the other, you must change something. You can charge more/less fees on one than the other, which would impact the rate of return and change the final number. You can tax one differently than the other, which would change the net.

Actually, blashmet is correct! Since investments go down as well as up, consider the following:
You invest $100 at the beginning of year 1. During the 1st year, your investment goes down 50% to $50. During the 2nd year, your investment goes up 50%. But since at the beginning of the year you only had $50, your 50% gain only brings you to $75. So while your average 2 year gain reported by your broker is 0%, you have actually lost 25%.

Since the investment side of IUL's do not go negative, they are not subject to this fuzzy math. A gain of 7.5% is a realistic gain of 7.5%. So while everyone must consider other factors when buying, the investment side of an IUL policy is a great low-risk return.

[disneysteve]

Since the investment side of IUL's do not go negative

This is FALSE. IULs CAN and DO have negative years. Why? Because expenses can exceed returns. So if the fund returns 2% for the year but expenses total 3%, you will have a loss. They can guarantee that you will always have a positive return on the investment. However, they can't guarantee that you won't lose money.

[Petunia 100]

Actually, blashmet is correct! Since investments go down as well as up, consider the following:
You invest $100 at the beginning of year 1. During the 1st year, your investment goes down 50% to $50. During the 2nd year, your investment goes up 50%. But since at the beginning of the year you only had $50, your 50% gain only brings you to $75. So while your average 2 year gain reported by your broker is 0%, you have actually lost 25%.

Since the investment side of IUL's do not go negative, they are not subject to this fuzzy math. A gain of 7.5% is a realistic gain of 7.5%. So while everyone must consider other factors when buying, the investment side of an IUL policy is a great low-risk return.

This is an illustration of the difference between arithmetic mean and geometric mean. It is not an illustration of how two investments, both earning 7.5%, will have different outcomes.

[Reel]

401k vs IUL

It seems the 401k people are missing a big point. You can not compare these just on average returns alone because the IUL has an annual reset while the Roth can experience all down years. So the Roth has to outperform the IUL big time to catch up. On a down year in the market say of 25% the IUL's balance does not grow nor does it loose value while the Roth will have a loss of 25%. Then the next year the market has a 25% gain. The Roth could have 25% gain but the IUL will be limited to say a cap of 17%. Over time the IUL out performs the Roth by simply not having loses and it starts its growth where it left off while the the Roth has to grow to get back to where it was before the loss and then continue to grow to catch up. It typically takes 2 + years to get back to even after a loss in the market. you should run the numbers again with the Roth taking all the gains and losses of the market and the IUL taking the gains up to 17% and no losses, then you will get a more accurate picture of how they compare.

[Petunia 100]

It seems the 401k people are missing a big point. You can not compare these just on average returns alone because the IUL has an annual reset while the Roth can experience all down years. So the Roth has to outperform the IUL big time to catch up. On a down year in the market say of 25% the IUL's balance does not grow nor does it loose value while the Roth will have a loss of 25%. Then the next year the market has a 25% gain. The Roth could have 25% gain but the IUL will be limited to say a cap of 17%. Over time the IUL out performs the Roth by simply not having loses and it starts its growth where it left off while the the Roth has to grow to get back to where it was before the loss and then continue to grow to catch up. It typically takes 2 + years to get back to even after a loss in the market. you should run the numbers again with the Roth taking all the gains and losses of the market and the IUL taking the gains up to 17% and no losses, then you will get a more accurate picture of how they compare.

Actually, what is needed to make a comparison are actual returns of a specific IUL product. Not imaginary illustrations of what might happen, but actual returns which actual customers have actually received.

Unfortunately, this information is not available. I wonder why that is?

[dczech09]

It seems the 401k people are missing a big point. You can not compare these just on average returns alone because the IUL has an annual reset while the Roth can experience all down years. So the Roth has to outperform the IUL big time to catch up. On a down year in the market say of 25% the IUL's balance does not grow nor does it loose value while the Roth will have a loss of 25%. Then the next year the market has a 25% gain. The Roth could have 25% gain but the IUL will be limited to say a cap of 17%. Over time the IUL out performs the Roth by simply not having loses and it starts its growth where it left off while the the Roth has to grow to get back to where it was before the loss and then continue to grow to catch up. It typically takes 2 + years to get back to even after a loss in the market. you should run the numbers again with the Roth taking all the gains and losses of the market and the IUL taking the gains up to 17% and no losses, then you will get a more accurate picture of how they compare.

I get what you are saying, however there are some key points to understand.

First of all, you are trying to compare the IUL with a qualified plan without defining what is "underneath the hood" of said qualified plan. Remember, qualified plans are just shelters (they are not investments alone).

Second of all, the stock market has experiences MANY more ups than downs. In fact, there is not a 20 year period in the stock market's history where you would have lost money.

If the stock market hits its average return of about 8.5%, then both alternatives would perform the same way, right? That depends on fees and other costs. Usually, IUL carries higher annual fees. The IRA and 401k usually only has mutual fund expense ratios; there are some small annual fees in some situations however those can usually be waived by doing something as simple as getting paperless statements.

That aside, there is one thing that the IUL keep forgeting. IUL policies are NOT investments, and technically they do not even use investments in their underlying accounts (they just mimic certain investments).

Never mind the fact that the account owner does not own the cash value, and the beneficiary does not get the cash value (unless they get a rider which changes that, which costs A LOT of money). This is an incredibly important concept that seems to be lost (or it is simply ignored due to cognitive dissonance) for IUL people.

Anyone can do what they want to do. However, I want to ensure that anyone unfamiliar with these products is getting the information that they need.