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22 minutes ago, ghostguy123 said:

I believe it is.............but does anyone actually "expect" that over the next 10, 20, 30, 40, 50 years???

Remember when buying a house was a "great" investment?

Just seems like as time passes the things that were once the best of the best investments somehow have all sorts of extra fees and taxes placed on them. 

Yes

A house isn't an investment

Just invest in the S&P and forget it

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10 minutes ago, Slapdash said:

Yes

A house isn't an investment

Just invest in the S&P and forget it

All I am in is S/P index.

I know your family house isn't supposed to be an investment, but it actually USED to be a pretty good investment. 

And I personally think it's a bit crazy to EXPECT an annual 8% return from here on out on the index funds.  Sure it could happen.  ANYTHING can happen. I sure as hell hope I am wrong and it DOES happen

Edited by ghostguy123
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23 minutes ago, Slapdash said:

Yep, when reinvesting dividends

 

42 minutes ago, Walking Boot said:

I think 8% is the historical stock market average? 

Yeah, as ghostguy said, my question was more about what financial planners were suggesting that the historical trend would continue.  That would be a nice suprise as long as inflation didn't out pace the difference.  

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Ghost guy, you appear to approach the world asking 'sell me on this', at which point the salesmen do just what you ask (sell you on something). You then turn to the public and ask the public to unsell you on the same thing. 

At some point you might want to read a few books, make some independent conclusions, and stop looking for the salesmen to educate you 

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1 hour ago, wilked said:

Ghost guy, you appear to approach the world asking 'sell me on this', at which point the salesmen do just what you ask (sell you on something). You then turn to the public and ask the public to unsell you on the same thing. 

At some point you might want to read a few books, make some independent conclusions, and stop looking for the salesmen to educate you 

You say as you post on a site designed to eliminate the need for research and independent conclusion in the fantasy football realm.

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14 hours ago, Sand said:

 

 

Given there is no telling what Congress will do with tax law I've always believed, if possible, a person would be well served to hedge and have assets in tax deferred (tIRA, 401k), tax free (Roth), and taxable.

It should also be noted that there is significant opportunity after retirement to move money from an traditional IRA to a Roth without a tax hit (depending on your income).  That money can also come from a 401k rolled to an IRA after retirement (early or not).  If you can keep income under limits (like 90k if married) you can move tax deferred money from an IRA to a Roth such that you never pay taxes on the money - free-free.  HSAs provide this opportunity, also.  You can squeeze out lots and lots of money with (very legal) tax avoidance techniques like these.

:thumbup: That's my plan.

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8 hours ago, ghostguy123 said:

All I am in is S/P index.

I know your family house isn't supposed to be an investment, but it actually USED to be a pretty good investment. 

And I personally think it's a bit crazy to EXPECT an annual 8% return from here on out on the index funds.  Sure it could happen.  ANYTHING can happen. I sure as hell hope I am wrong and it DOES happen

 

People were probably thinking the same thing after the 70's when the s&p 500 was actually down for that period.

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1 hour ago, wilked said:

Ghost guy, you appear to approach the world asking 'sell me on this', at which point the salesmen do just what you ask (sell you on something). You then turn to the public and ask the public to unsell you on the same thing. 

At some point you might want to read a few books, make some independent conclusions, and stop looking for the salesmen to educate you 

I'm on your side on the term/whole life argument.  However, mattyl gave a very clear example of when a whole life policy was > term.  I believe it was a 500K policy.  Term (invest the difference) had a value of 234K (or 223K).  Whole life had a cash value of 290K.  No one pointed out a flaw or error in that example.  A few of us agreed that while it looked convincing, term must be better, but we're not sure why.  I think we're just looking for the why (specifically) from those of you in the know.

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For the record, according to Ibbotson data, the historical annual return of large cap stocks (~S&P 500) is 9.93%. A 60/40 mix of said stocks and long-term government bonds is ~8%.  Most people refer to a 60/40 mix as a "balanced" portfolio and hence the long-term projections for an 8% return. 

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11 hours ago, Andrew74 said:

Well the one asset was "bonds" (which is funny they didn't break that out like the stick side), so if you had good asset class diversification, you're portfolio wouldn't have been absolutely crushed.  If you were light on credit in your bond portfolio, you're probably getting 8%-10% returns, IIRC. 

Yeah, if 100% of your portfolio was in bonds at the time.  Who was doing that at the time?  According to this, if you were in US bonds at the time, you were only getting 5.24% (again, if your entire portfolio was in that asset class - so much for diversification if you were) - same as this one.  So I'm not sure how you would have been getting 8-10% net after tax that year when the asset class was only doing 5.2%.

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9 hours ago, ghostguy123 said:

I think it was in the middle of the life insurance debate, and I will be damned if I am going to go back and read through that again.  It just confused me more.

I tried to make it simple enough.  It's not a simple product, though.  Then again, neither is tax code. 

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8 hours ago, Doctor Detroit said:

Is whole life guy trying to sell me whole life in this thread?  What am I financially illiterate now?  :coffee: 

Just saying it's definitely worth looking at for certain situations.  If you want to maximize your pension plan, it's a great tool for that.  If you want to leave a legacy, it's the best tool for that.  If you want to plan for estate tax purposes (what will estate taxes be in 5 years, much less 50-70 when I may need to worry about it), it's the best tool for that. 

Again, if you're going to "buy term and invest the difference" (and having coverage after the term would have expired is worth nothing to you) then you'd have to get 5-6% net after tax on your side fund.  If you feel you can do that in a safe, liquid way go right ahead.  No one is saying it the only place to put money - of course it isn't - but if you understand how works and doesn't work, it's a great tool.

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8 hours ago, Doctor Detroit said:

Someone provided a good link earlier but fees, hidden fees, strange investment stacks, hundreds of pages of fine print, your money is illiquid, lagging returns, and in the end only the face value of the policy really matters.  Get term life for fraction of the cost, invest your money in stocks and bonds with low fee scales, don't take sales pitches.  If term life was so wonderful smart people I know would have it, yet none do.  Makes you think. 

and investments don't have hundreds of pages of fine print - and investing doesn't have fees?  The money is not illiquid at all (I've already tapped into my own policy twice and it's only 14 years old - couldn't have done that nearly as easily with a 401k or IRA).  I know many very smart people that have it, but I don't know what that's suppose to mean anyway.

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27 minutes ago, Random said:

I'm on your side on the term/whole life argument.  However, mattyl gave a very clear example of when a whole life policy was > term.  I believe it was a 500K policy.  Term (invest the difference) had a value of 234K (or 223K).  Whole life had a cash value of 290K.  No one pointed out a flaw or error in that example.  A few of us agreed that while it looked convincing, term must be better, but we're not sure why.  I think we're just looking for the why (specifically) from those of you in the know.

Again, it's not for everyone.  The above example you brought up assumed a 25 or 30 year old bought a 20 year term, lived through the entire 20 years and purchased another one at 45 or 50 - and the whole life guy funded the whole life policy for the entire 40 years without taking a loan (or with taking a loan and paying it back). 

Some people it's not for - those who are expecting a 8-10%+ net after tax ROR on the "invest the difference" - the whole life policy generally isn't going to do that.  If you're trying to accumulate money in the short term 5-10 years) it doesn't do that well at all (the above article even mentions it takes time for the whole life to really look good) - and my example had a 40 year window which may be unrealistic.  The premiums are also substantially higher than term (especially when you're young and healthy).  One poster above said he could get term for 15 a month, and his was was like 10 a month.  When the term is that cheap, that's a great move.  It's not that cheap when you're in your mid 40s and up (when the term of a term policy is getting closer to actual life expectancy).  I mean, many term carriers stop selling term policies at age 60+, and other stop selling 30+ year terms at age 50 (because the premium difference between it and whole life is very small and easily offset by the cash value). 

Here's an example I'm working on this week (feel free to stop reading if you've already made up your mind, though) - husband and wife both mid 60s and both just retired from jobs where they had pensions.  They can each take their full pensions (call it 5k each a month), or each can decide to do a "life and survivor", where each can take a lower amount (call it 4k a month) and if either pass away the surviving spouse would continue to get the deceased spouse's reduced 4k pension (10k/m when both alive, 5k/m if either die, 0k/m if both die vs 8k a month when both or just one alive, 0k/m when second dies).  I'm proposing a whole life policy for both.  Why?  The combined premiums will be a shade under $12k a year (about half of what their reduced pensions would be, so they are netting a $12k a year raise in retirement income) - and should either pass away, the survivor gets a lump sum of 250k (or more in the later years) to do with as they like, instead of receiving it in 4k per month (taxable) amounts.  Should both pass within a few years of each other (which is statistically more likely) both lump sums would be paid (half a mil) and likely not consumed, leaving money to their kids.  The whole life plans work wonderfully for this mid 60s couple.  Now imagine they had purchased these plans in their 40s rather than the term products, and kept them in place when they were only half their current price tag - they'd have an even large retirement now.

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14 hours ago, eoMMan said:

We should talk about disability insurance....some experts would say it's even more important than life insurance. 

How much is it if your work doesn't offer it? Fairly cheap for an office warrior?

My work offers it, so can't comment on that part....but I think I would agree in concept that it's probably more important than life insurance.  One view - http://budgeting.thenest.com/important-life-insurance-disability-income-insurance-21674.html

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Yes, a disability (lasting more than 60-90 days) is more likely than a premature death for those in their working years.  While life insurance is priced based on age, amount, and health - disability coverage adds the extra bit about "occupation class".  That's how likely an injury is to knock you out of your particular occupation.  I work in an office - I can do my job with a broken arm or broken leg - maybe even one of each.  A doctor could break a finger and be out weeks or months.  So even for the same amount of coverage, he would pay more than me.  In general, it's also a bit more difficult to obtain as the carrier is underwriting you both medically, but also financially (they have to verify your income for a few years to insure that the amount of coverage you're trying to obtain is justified). 

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3 minutes ago, wilked said:

I believe long term care insurance has increased dramatically, to the point where you are arguably better off self insuring.  It used to be a good deal.  I haven't researched directly, this is more anecdotal from what I read

You're spot on here.  When I first got in the business over a decade ago, LTC was the hot ticket item.  Lots of carriers getting in to try to get a piece of the pie.  Today there may only be 1/3rd the number of carries - lots have either gone under or just stopped selling.  Those that remain have much higher prices today - and typically weaker contracts.  Up until about 5 years ago you could still get a 10 year or sometimes even a lifetime benefit.  Today the longest benefit period I see around is 6 years, and that is very expensive.

Keep in mind that NO LTC carrier will guarantee their rates.  Not a single one.  They all have the ability to increase the rates later, and many have (what's a 70 year old on a fixed income going to do about a 25% increase?!).  Much like with life insurance, or disability insurance - often the contract is only as strong as the carrier that backs it.  Pick a strong one that's been around for a while if looking for yourself or a family member.  (double A rated or better).

ETA - as for the "self insuring", the vast majority of the population simply can't do it.  The average cost (depending on the level of care required) is around 150-200 per day (5-6k per month), and it's growing faster than inflation (5-8% a year).  That's on top of all of your other expenses (housing, transportation, other insurances, food, yada yada).  Most people don't have that kind of extra monthly income available, and even fewer do for a married couple each requiring it. 

Edited by matttyl
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1 hour ago, matttyl said:

Yeah, if 100% of your portfolio was in bonds at the time.  Who was doing that at the time?  According to this, if you were in US bonds at the time, you were only getting 5.24% (again, if your entire portfolio was in that asset class - so much for diversification if you were) - same as this one.  So I'm not sure how you would have been getting 8-10% net after tax that year when the asset class was only doing 5.2%.

No, I was saying you were getting 8%-10% in your bond portfolio if you were light on credit exposure. If you owned any stocks, you were in bad shape. I was just trying to point out basic asset class diversification was helpful in 2008, although it didn't shield you from net losses. 

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The basic response to those asking about mattyl's example is that the situations he notes predominantly are those where someone buys term, and then buys another term once they are 'old' (45-50s).  Buying back to back term insurance can often be a loser, and in those situations you may have been better off simply buying whole.  But then you didn't think you would need back to back term insurance, I am sure, or you would have bought a longer duration term, so it only makes sense in retrospect.

 

The way that I look at things, you should buy term until you are forecasted to be financially stable and can survive a spouse's death.  That typically means a paid off (or close to it) house and kids largely independent.  Choose a term that gets you there, and round up 5 years to be certain.  That insures against the death.  It doesn't accumulate wealth, but then (much like homeowner's or auto insurance) that is not the point of insurance.

While this 20-30 year term plays out, you better be saving for retirement and have some 'ballast' in there in case a spouse dies in that interim between life insurance and retirement. 

 

The above advice is reflected in every single author I trust, and I have read many.  It is also reflected on the websites I trust (bogleheads being the primary one).  

mattyl, I hope you don't take offense (you don't seem to be).  It could well be that your product makes sense for some people in some cases, but as can be seen my mind is pretty well made up on the subject

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I don't take offense at all.  I'm a broker and do both term and whole life from many different carriers.  Now it's fair to say that when looking at my life insurance block of business as a whole, I sell more term policies than I do whole life - and the term policies tend to be larger (most term carriers have "break points" at each quarter million - so a guy might buy $1m of term and then $200k or so of a whole life).  The majority of my income on that block of business is from the whole life - and that's just a factor of the premiums being larger, so it makes sense.

I don't want to come across as saying that it's a product for everyone - it's definitely not.  But I do feel it is the right product in many situations.  I also feel it's extremely misunderstood - as evidenced from the article posted yesterday afternoon (much of that comes from people saying "whole life" when they mean "universal life" or worse yet "variable universal life" which was huge in the 80s and 90s and was even less well understood, by anyone).  There are also some crap carriers out there selling crap whole life plans.  A solid WL from a mutual (not stock owned) carrier - when honestly stacked up against a "buy term and invest the difference" situation is at least something that should be looked at when looking at all the options.  You'd have to get 5-6% net after tax on the "invest the difference" - which some people think they can achieve and that's cool.  It all depends on the person and what they'd like to do.

I'd be happy to share the details of my own situation more if you're interested, and why I choose whole life over term for myself and my wife (and no, it wasn't because of the commission).  mid 30s, married, one kid (possibly more in the future), two incomes, yada yada

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Quick question (and sorry if I missed this), but those of you saying max your IRA before your 401k, why is that?  Is it just an expense issue with 401k investment options or is there another reason?  If you have access to cheap index funds in your 401k, does it matter?

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6 minutes ago, Andrew74 said:

Quick question (and sorry if I missed this), but those of you saying max your IRA before your 401k, why is that?  Is it just an expense issue with 401k investment options or is there another reason?  If you have access to cheap index funds in your 401k, does it matter?

More investment options, and more flexibility of moving between them at any time maybe?

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14 hours ago, Andrew74 said:

So said ever Doctor/dentist ever

No question there is too much hubris in the medical community.

But for those dedicated to the research, it's not that hard.  I have read enough literature to most likely have a finance minor.

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2 hours ago, matttyl said:

and investments don't have hundreds of pages of fine print - and investing doesn't have fees?  The money is not illiquid at all (I've already tapped into my own policy twice and it's only 14 years old - couldn't have done that nearly as easily with a 401k or IRA).  I know many very smart people that have it, but I don't know what that's suppose to mean anyway.

Sorry I can't talk right now, I'm trying to buy gold from Rosland Financial. 

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1 hour ago, Andrew74 said:

Quick question (and sorry if I missed this), but those of you saying max your IRA before your 401k, why is that?  Is it just an expense issue with 401k investment options or is there another reason?  If you have access to cheap index funds in your 401k, does it matter?

It has to do with age and future income tax brackets. Also a lot of people don't have the Roth option in their 401k. If you have a lower cost 401k, are young, and have a Roth option I'd max that before maxing the Roth. Compounding baby. 

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2 hours ago, matttyl said:

Yeah, if 100% of your portfolio was in bonds at the time.  Who was doing that at the time?  According to this, if you were in US bonds at the time, you were only getting 5.24% (again, if your entire portfolio was in that asset class - so much for diversification if you were) - same as this one.  So I'm not sure how you would have been getting 8-10% net after tax that year when the asset class was only doing 5.2%.

Nobody.  But I'm not selling at the bottom either.   Hypothetically, a couple has $1,000,000 in assets.  Let's say they use a simple 50/50 mix of bonds and the S&P 500.  500k/500k.  Their stock portion falls 37% in one year, to 315k, the bonds rose 5% to $525k.  The prudent thing to do is rebalance without worrying about the last year.  So you put that $840k into $420k stocks, $420k bonds.  In 2009, the index rose 26.5%.  At the end of 2009, your stocks are worth $531k.  Bonds only rose 3% that year, so that portion of your portfolio is $432k; for a total of $963k. Yes, you lost money still, but that also assumes you haven't put anything into the market in that time frame (bought low).  rebalance again at the end of 2009, so $481.5 in bonds and the same in stock, the market rose 15.1% in 2010, so your stocks are now worth $554k, bonds remain flat at 3% for $496k, now your portfolio is worth $1,050,000.  Not a huge gain over three years (5% total) but not a calamity either.  But of course, this assumes you haven't sold all of your stock and gotten scared off for the next few years.  If you're living off your investments, just make sure you don't only live off your stocks. 

 

2008 -37.0%
2009 26.5%
2010 15.1%
2011 2.1%
2012 16.0%
2013 32.4%
2014 11.74%
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1 hour ago, FUBAR said:
   
   
   
   
   
   
   

Thanks for putting in the time for a response, but I think we're saying different things.  My point before was 2008 was a bad year if you were going to retire.  Sure you could have been diversified to have offset some losses and sure you could have re-balanced going forward.  My point was, "what if you were going to retire at the end of 2008"?  The $1m in your example fell to $840 - and you wanted to pull $80k of income to live off of that first year of retirement in 2009 (you were planning an 8% withdrawal rate from that $1m).  Now you're at $760k (assuming you pull it all out Jan 1st, which makes the following math a bit easier).  You've got 380k in stocks (grows to 481k) and 380k in bonds (grows to 391) - giving you 872k total at start of 2010. 

What if in 2008 instead of $1 all in stocks and bonds you had $800k there, and $200k in the cash value of life insurance (whole life - likely from investing less in bond/money market type assets during accumulation and not buying term coverage).  At the end of the year of that year (400k in stocks, 400k in bonds) you'd have 672k (252 in stocks, 420 in bonds) due to the losses you cited.  The 200k in cash value life likely grew a bit due to it's dividend (lets call it 5%, not huge but if you'd have the policy for a bit maybe a bit low) to $210k.  All in you're now at $882k (42k more than your example, due to additional diversification).  So now you retire.  Instead of pulling your first year's retirement out of the stocks and bonds that took a big hit, you take it from your life policy - 80k.  Cash there is now $130k.  The 672k (336 stocks, 336 bonds) grows to 771k using your 2009 RORs.  Now you're just over $900 after the first year of retirement (roughly 30k more than above).  And I'm putting no value at all on the fact that if either died, the survivor would obtain a tax free lump sum.

Fast forward another year.  The guy without insurance starts year with 872k-80k = 792k, (396 stocks, 396 bonds).  Grows to 864k at end of 2010.  Pulls 80k to start 2011, down to 784k (392 each - using your 2.1% for stocks in '11, and 5% for bonds) - and ends 2011 with 812k, after 3 years of retirement.

Guy with insurance goes into 2010 with 771k in accounts, and 130k in life policy cash.  Pulls 40k from each.  Accounts down to 731k, cash value down to 90k.  Policy has another 10k dividend paid, just like the prior year - accounts grow to 797k.  Guy ends 2010 with 897k (33k better than guy above).  Pulls 80k to start 2011, again 40k from each.  Account down to 757k, life policy cash down to 60k.  Account grows to 784k, life policy grows by another 10k dividend to 70k.  He's at 854k after 3 years of retirement (roughly 42k better than without insurance). 

To be fair in this comparison, the guy with insurance would view the cash value in the life policy as part of his "bonds" and would have his other account somewhere close to 60% equity and 40% bonds (making the entire portfolio closer to 50/50), but I didn't feel like doing that much math - though it would have made his 2009 and 2010 equity rebounds even better.

Edited by matttyl
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3 hours ago, wilked said:

The basic response to those asking about mattyl's example is that the situations he notes predominantly are those where someone buys term, and then buys another term once they are 'old' (45-50s).  Buying back to back term insurance can often be a loser, and in those situations you may have been better off simply buying whole.  But then you didn't think you would need back to back term insurance, I am sure, or you would have bought a longer duration term, so it only makes sense in retrospect.

 

The way that I look at things, you should buy term until you are forecasted to be financially stable and can survive a spouse's death.  That typically means a paid off (or close to it) house and kids largely independent.  Choose a term that gets you there, and round up 5 years to be certain.  That insures against the death.  It doesn't accumulate wealth, but then (much like homeowner's or auto insurance) that is not the point of insurance.

While this 20-30 year term plays out, you better be saving for retirement and have some 'ballast' in there in case a spouse dies in that interim between life insurance and retirement. 

 

The above advice is reflected in every single author I trust, and I have read many.  It is also reflected on the websites I trust (bogleheads being the primary one).  

mattyl, I hope you don't take offense (you don't seem to be).  It could well be that your product makes sense for some people in some cases, but as can be seen my mind is pretty well made up on the subject

Cool, so question for mattyl.  What is the cash value of the WL policy after the first 20 years?  I have the "invest the difference" term policy at 74,500 at year 20.

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18 hours ago, AAABatteries said:

Ok, everything makes sense so far (and I should be able to do some or all of this) - however, which of those steps (401k, Roth and HSA) can be used to help junior pay for college?  Or do I tell him to pound sand like my folks did and get a loan?  Or tell him to pray really hard that Bernie wins and maybe he can get some financial assistance from Chet?

pound sand.

with 4 kids and you don't even own a home or have a roth ira setup, you honestly don't have a chance at putting any meaningful dent in their college expenses without sacrificing your own retirement and well being.

The best thing you can do as a parent financially IMO is ensure that you won't need any of their money later on as an aging adult...  so that means a healthy retirement fund.

The second best thing is paying for all or part of their education so that they aren't strapped with student loan debt.

Most people don't get that right... and since so few people can even fund their own retirement, they certainly can't do 529's

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Big kudos to mattyl for keeping his cool in this thread and discussing everything in a mature manner. I know many others who might sell similar products would come in with an attitude of "I'm right, you're wrong, bite me".

:thumbsup:

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8 minutes ago, Dentist said:

pound sand.

with 4 kids and you don't even own a home or have a roth ira setup, you honestly don't have a chance at putting any meaningful dent in their college expenses without sacrificing your own retirement and well being.

The best thing you can do as a parent financially IMO is ensure that you won't need any of their money later on as an aging adult...  so that means a healthy retirement fund.

The second best thing is paying for all or part of their education so that they aren't strapped with student loan debt.

Most people don't get that right... and since so few people can even fund their own retirement, they certainly can't do 529's

And there is nothing saying you can't help them out after the fact.  If they are in college or even recently graduated and you have put yourself in a position to help, then help them pay their loans off.  Might even help them be a more responsible student if they think they are paying for it themselves.

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26 minutes ago, Random said:

Cool, so question for mattyl.  What is the cash value of the WL policy after the first 20 years?  I have the "invest the difference" term policy at 74,500 at year 20.

Run the situation by me again, I don't understand the question. 

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13 hours ago, ex-ghost said:

It is, but inflation is not factored in, I believe.

Speaking of inflation I was playing around with my retirement spreadsheet and by far the most sensitive knob is inflation assumption.  It has a massive effect on returns down the road - a .5% difference makes many hundreds of thousands of dollars difference over a 30 year span.  And it is one of those things that a person has no control over.

 

5 hours ago, matttyl said:

I tried to make it simple enough.  It's not a simple product, though.  Then again, neither is tax code. 

Truer words never spoken.

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On 3/30/2016 at 10:00 AM, Random said:

And if you invest the difference (2150 for the first 20 yrs and 1050 for the next 20 yrs @ 5%) you will have 234,000.  Possibly tax free if this goes in your Roth each year.

On 3/30/2016 at 9:19 AM, matttyl said:

Obviously it all depends on the situation and the individual.  I bolded the above as it's one (likely the main) use of life insurance, but there are others - debt elimination, creation of liquid wealth when it may be needed most, estate tax payoff if needed, leaving a legacy to a school/church/non-profit, special needs dependents, retirement/pension maximization (my latest two cases were concerning this), and others.

Here are just some thoughts - if you're 30 and you buy a 20 year term, you're covered to 50.  Lets just say it's a 500k policy, you can get those really cheap if you're health.  I ran a quick quote and a 30 year old male can get that 20 year term for $405 a year (obviously you can pay that monthly).  After 20 years you've put away 8,100 in premiums - but now you're 50 and you said you needed coverage to age 70.  Well, go buy another policy and hope you're still healthy enough at 50 to get a good rate (many are no longer).  Even if you are, it's going to be 1,300-2,000 a year for a new 20 year term.  Lets call it 1,500. Should you make it to age 70, that's another 30,000 in premiums - for a total of 38,100 in total premiums over the last 40 years and you're still with us at 70 - so you have no coverage going forward, and no equity (cash) accumulated.

Now lets say you have a twin brother who way back at age 30 bought a whole life policy for 500k.  It was more expensive from the start, around 2,550 a year.  Yeah, that sucks as it's ~2,000 more a year for the first 20 years, and ~1,000 more a year for the following 20.  That's a total of 60k more in total premiums over that 40 years, which isn't chump change.  You also have ~290k of cash in the policy.  Yup, at that point you have put in 102k in premiums, and you have nearly 3x that in cash value (which you can access tax free) - and you've had coverage for the last 40 years, and you'll have coverage at age 71, 72....all the way up till you die.  The cash value is totally liquid as well, and you can use it to pay the premiums should you have a cash flow issue.  Life insurance can do quite a few things, especially if it's permanent, and building cash.

I thought you made a solid case for WL>TL in the above scenario.  Wilked countered that if you didn't "repurchase" the 2nd TL policy, that the first TL>WL.  

Edited by Random
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On 3/30/2016 at 11:53 AM, MattFancy said:

He's basically coming up with a Financial Plan for us to follow every year. IRAs, investments, insurance, retirement, education planning, etc.

This was a few pages back in the "fee for a financial planner" discussion.

That's deserving of a one-time fee for laying out the plan, although it's really not much you can't come up with yourself. But definitely not any sort of annual fee for what amounts to rebalancing your portfolio. 

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17 minutes ago, eoMMan said:

Big kudos to mattyl for keeping his cool in this thread and discussing everything in a mature manner. I know many others who might sell similar products would come in with an attitude of "I'm right, you're wrong, bite me".

:thumbsup:

I try to keep my cool in any situation.  What's me getting pissed off at some online thread going to do?  I understand that it's a somewhat complex product, but I honestly feel if properly understood it can be an extremely viable tool for quite a few people.  I also get that there are some carriers out there that sell sub-par products.  I'm fine if you want to bash the product, as I said it's not for everyone - I'd just like it to be better understood.  It's often very misunderstood, and often horribly mischaracterized.  It's not a cure all.  It's not a one stop shop.

Here's an example - first policy I sold in the business.  It was to myself, I was 22.  I set it up based on premium, $100 a month (though I later changed it to annual for a bit of savings, 1,149 a year).  It bought me 164k or so of coverage (enough to offset the mortgage of my condo if anything happened to me, but also for future needs - hadn't even met my wife at the time).  Anyway, we're 13 years in the policy at this point.  So that's about 15k in total premiums, and I have just over that in cash value today.  Yeah, not a great ROR.  Assuming term would have been $20 a month, though - the additional 12k in premiums have grown by about 3.3% (again, not great at all, and now I'm pissed that I bought it!).  This coming year my premium will be 1,149 - the cash will grow by right at $2k, and my death benefit will grow by just over $1k (It's at 172k right now).

Fast forward to my age 65, though - year 43 of the contract.  I'll have right at $182k of cash value (which is a 5.37% ROR on my entire premium, not just the ROR of the "invest the difference"), and $316k of a death benefit.  If we're to assume that for $230 a year I could have obtained a 43 year term policy (which don't exist, not the point) of the same amount - picked that premium as it's exactly 1/5th of the WL premium, as it's been quoted often that WL is 5x as expensive as term.  If that's our basis for the $919 a year "invest the difference" - the side account would need to to 6.2% net after tax to give me the same $182k after 43 years.  (Not really a fair comparison as the term would remain at only $164k of coverage for the 43 years, and I'm again giving no value to having over $300k of life insurance on myself at age 65).  Now sure you can generate 6.2% on a side account, but where are you going to do that in a safe place that's fully liquid (I've borrowed into my policy twice already, without penalty, in it's 13 years - put a roof new roof on a house I sold, and the last little bit needed to fully pay for a used car without need of financing) and that gives you a death benefit that doesn't expire?

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12 minutes ago, Random said:

I thought you made a solid case for WL>TL in the above scenario.  Wilked countered that if you didn't "repurchase" the 2nd TL policy, that the first TL>WL.  

And then you don't have any life insurance after age 50.  And maybe you're ok with that, everyone's situation is different.  Of course you could have your 2nd child at 40 like my dad did, and you'd be taking a risk of not having coverage when you still need it.  You could marry a younger woman that wants you to have coverage until she turns 65.  You could buy a second home and the bank requires some coverage on you for a non-primary residence.  Lots of things can happen.  I'm going with the choice today that gives me the most options going forward.

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57 minutes ago, Dentist said:

pound sand.

with 4 kids and you don't even own a home or have a roth ira setup, you honestly don't have a chance at putting any meaningful dent in their college expenses without sacrificing your own retirement and well being.

The best thing you can do as a parent financially IMO is ensure that you won't need any of their money later on as an aging adult...  so that means a healthy retirement fund.

The second best thing is paying for all or part of their education so that they aren't strapped with student loan debt.

Most people don't get that right... and since so few people can even fund their own retirement, they certainly can't do 529's

it also means getting long term care insurance.

Disagree with paying for all of their education.  Too many of my friends had their parents pay their way and they didn't seem to appreciate their college education as much as my friends who paid their own way.  Our plan is to pay part of their college, we expect to match what they pay through their own jobs or scholarships and if they need to take a loan, we won't match the loan.  We have 529s for all 4 of our kids which we expect to have ~$30k available when they hit college.  Plus one year each of the 9/11 GI Bill. 

 

9 minutes ago, matttyl said:

I try to keep my cool in any situation.  What's me getting pissed off at some online thread going to do?  I understand that it's a somewhat complex product, but I honestly feel if properly understood it can be an extremely viable tool for quite a few people.  I also get that there are some carriers out there that sell sub-par products.  I'm fine if you want to bash the product, as I said it's not for everyone - I'd just like it to be better understood.  It's often very misunderstood, and often horribly mischaracterized.  It's not a cure all.  It's not a one stop shop.

Here's an example - first policy I sold in the business.  It was to myself, I was 22.  I set it up based on premium, $100 a month (though I later changed it to annual for a bit of savings, 1,149 a year).  It bought me 164k or so of coverage (enough to offset the mortgage of my condo if anything happened to me, but also for future needs - hadn't even met my wife at the time).  Anyway, we're 13 years in the policy at this point.  So that's about 15k in total premiums, and I have just over that in cash value today.  Yeah, not a great ROR.  Assuming term would have been $20 a month, though - the additional 12k in premiums have grown by about 3.3% (again, not great at all, and now I'm pissed that I bought it!).  This coming year my premium will be 1,149 - the cash will grow by right at $2k, and my death benefit will grow by just over $1k (It's at 172k right now).

Fast forward to my age 65, though - year 43 of the contract.  I'll have right at $182k of cash value (which is a 5.37% ROR on my entire premium, not just the ROR of the "invest the difference"), and $316k of a death benefit.  If we're to assume that for $230 a year I could have obtained a 43 year term policy (which don't exist, not the point) of the same amount - picked that premium as it's exactly 1/5th of the WL premium, as it's been quoted often that WL is 5x as expensive as term.  If that's our basis for the $919 a year "invest the difference" - the side account would need to to 6.2% net after tax to give me the same $182k after 43 years.  (Not really a fair comparison as the term would remain at only $164k of coverage for the 43 years, and I'm again giving no value to having over $300k of life insurance on myself at age 65).  Now sure you can generate 6.2% on a side account, but where are you going to do that in a safe place that's fully liquid (I've borrowed into my policy twice already, without penalty, in it's 13 years - put a roof new roof on a house I sold, and the last little bit needed to fully pay for a used car without need of financing) and that gives you a death benefit that doesn't expire?

:thumbup:   You're making a lot of logical sense.  Our difference of opinion seems to be a matter of accepting risk and the need for insurance at our old ages.  that and as you wrote, too many sheisters selling whole life which gives everyone a bad name.

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1 hour ago, Dentist said:

pound sand.

with 4 kids and you don't even own a home or have a roth ira setup, you honestly don't have a chance at putting any meaningful dent in their college expenses without sacrificing your own retirement and well being.

The best thing you can do as a parent financially IMO is ensure that you won't need any of their money later on as an aging adult...  so that means a healthy retirement fund.

The second best thing is paying for all or part of their education so that they aren't strapped with student loan debt.

Most people don't get that right... and since so few people can even fund their own retirement, they certainly can't do 529's

I'd argue that the second best thing is teaching them and encouraging them to go somewhere with a healthy scholarship. Everyone can get a scholarship somewhere. To use Texas as an example, maybe they can get into UT and pay in-state...well they could go to Texas Tech on a decent scholarship instead. If you're going to be successful from the one school you'll be successful from the other.

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51 minutes ago, FUBAR said:

:thumbup:   You're making a lot of logical sense.  Our difference of opinion seems to be a matter of accepting risk and the need for insurance at our old ages.  that and as you wrote, too many sheisters selling whole life which gives everyone a bad name.

Oh, I accept risk...and quite a bit of it - with my other monies.  In the words of today's college student, this I view as my "safe space".  It's liquid (I could likely have up to ~95% of my ~15k cash value in hand by Monday), and keeps chugging right along regardless of what any other market is doing, or not doing.  At this point it's also serving as a big chunk of my "6 month emergency fund".

As for the need for insurance at our old ages, I feel it opens up other assets.  I've met quite a lot of older folks in my profession.  They all seem to still want to have some coverage for some reason in their older age.  Their kids or grandkids still aren't fully independent - they'd like to leave something to a church or school - they still have debt that would need to be taken care of - funerals aren't cheap....on and on.  I think the biggest thing it does is it allows you the freedom to view your other assets differently. 

Again take me for example.  I'm 4 years older than my wife, and women tend to live ~3 or 4 years longer than men (actually more-so in my family tree).  At retirement, I hope my wife and I have a big 'ole pile of money to live off of.  Take trips, still have newer cars, maybe a second house, whatever.  But I also realize that she's likely to outlive me by a total of ~8 years (on average).  Having the policy allows us to view our big 'ole pile as "our money", cause much or all of it will be replenished at my death for her remaining years.  We don't have to think that we still have to save a big chunk of it for the years she'll outlive me.  She's got a policy too, in case the inverse happens.  Now you're likely asking yourself - well what if both of you live a long ### time and you spend all of you big 'ole pile?  Well, first off - haven't I had one hell of a retirement, and been able to do so with the love of my life?  How much is that worth?  After that, you want to see the cash value growth rate of a whole life policy for a pair of 80some year olds with ~50 year old whole life insurance policies?!  It's huge (due to the cash value of a life policy needing to equal it's death benefit at age 100).  We can just live off the dividend those things will be spinning off.  The policy of mine that I mentioned above @ age 85 if I don't touch it - 600k of cash (growing by ~30k a year), and 700k+ of a death benefit, with a 22k annual dividend that I could just take in cash (and keep in mind it's a very small policy of $100 a month premium).

Edited by matttyl
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Matttyl,

Appreciate all of the explanation w/o the hostility.  Due to my financial situation, there’s a good chance that eventually WL might be a good option for me as far as diversification at some point in the near future.   That being said, a few clarifications if you don’t mind.

 

·         Can you explain the difference b/w the “guaranteed returns” and the “actual returns”?  What’s the delta b/w the two based upon?  Obviously that is where the “risk” lies…..and why does that delta decrease with time and/or with increased frontloaded payments.

·         Are all withdrawals from the cash policy in fact “loans”?  If so, is that rate locked throughout the course of the policy?

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Stupid library didn't have the Finance for Dummies - picked up a couple of other general finance books just to skim.  Plan to spend some time on that site mentioned a few times.

Back to the 529 - I only threw it out there as an idea.  All four of my kids have been told they will need to get scholarship/ grants.  They can do it - just thought if it made sense throw some money for them in a 529 

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As a financial idiot, I think the Bogleheads did a really good job talking about keeping it simple, and why.  It covered the basics but also laid out why the basics are really all you need to do "well" with your retirement investments. 

Back to whole life insurance.  I guess the part I am not understanding is that it has a guaranteed return?  So the premiums you put in are growing, you are able to withdraw from them, AND it covers you in the event of a death??  The way it is described my Mattyl made it sound too good to be true (nice salesmanship), but I have to imagine there are 500 other things I am not aware of that make it much less of a tool than how I understand it to be.

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