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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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Well, today we paid off the last 22 years of our mortgage.  We sold/closed our investment property last week that we bought in 2013.  We did well on it and rolled that money up with some savings and p

My big win was in getting educated on personal finance, getting organized, and making a plan. Details: 1. Learned the value of an HSA and contributed for 2019 and 2020. 2. Got my wife’s

Get fired

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.  

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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).

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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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16 hours ago, Tiger Fan said:

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?

 

No problem, and happy to help answer any question or clear up any misconceptions.  As was pointed about by someone above who's apparently not a fan of WL, it does have quite a few moving parts and he (I assume it was a guy) is very correct. 

As to your two direct questions (it looks like others have questions also, and as I don't know how to "multiquote" I'll answer them with another post - so I'm sorry to be so "posty"):

1 - This might be a bit wordy, and I apologize up front, but maybe it will also give answers to any follow up questions you might have.  When you buy a term policy, the price is based on the risk that you'll die in the term of time of the contract.  If you're 25, male, and in good health, the chance of anything happening to you in the next 20 years is extremely small.  The only real situations of note are the rare fatal car accident.  That's why carries can price it so small.  Because I'm such a fun guy, I carry around "life expectancy tables" in my briefcase (it's on a foldout of a bunch of tax charts and all).  A 25 year old male (as of 2011) has a life expectancy of 52.5 years, and a female has 56.9.  That's why a 20 (or even 30) year term policy is so cheap - they are taking on hardly any risk.  If you did have any serious health issues, they'd just decline you for the policy.  Those life expectancies for the 25 year old population who isn't extremely obese, doesn't have any serious health issues, and isn't a tobacco user (all of those are included in the above numbers) is actually well over 60 years.

Now, when they price a whole life, it's totally different.  Why?  Cause everyone dies.  No one lives forever.  So lets again look at that healthy 25 year old male with a lets call it 65 year life expectancy (to age 90).  The carrier, when pricing a lets call it 250k WL asks themselves - "how much do we need to collect from him every month (or year if paying annually) that we can set aside in a little account, at a guaranteed minimum interest rate, that at age 90 the contract will have grown to 250k?"  Cause remember, everyone gets exactly one claim.  That little account they are setting your premiums in - that's your cash value (though it's stunted a bit in the early years, as the details of my 13 year old policy show). 

Now that the background is out of the way - the policy has to have a minimum return for the cash value to equal at least 250k by age 100 or earlier (cause again, no one lives forever, and they need to build up that reserve for that one claim that's coming).  That's the minimum or "guaranteed" return - for most policies it's about 4% or so, and is typically set (or at least heavily regulated) by the bureau of insurance, not the insurance company.  But insurance companies also make money (especially when people don't die and they do a good job of weeding out the risk).  Stock companies pay this money back to their stock holders and then the balance to their policy holders.  Mutual companies (all insurance companies with "mutual" in their name, and some others that don't directly advertise it like that) don't have stock holders, so the money they make gets paid back to it's policy holders in the form of a dividend.  My policy is from one of these mutual companies.  If you go down about 2/3rds of the way on the link there, you'll see a recent history of dividends from 11 insurance carriers (I'd be happy to share a longer history of any of them, if I can find it if you're interested).  The dividend is on top of the minimum base.  That DOES NOT mean your cash value will grow by that amount (a huge misconception of the product).  That's because the insurance itself still has a cost (you could die in any year, and the carrier has to offset that risk).  So the "delta" you ask about is that dividend, which is based on the carrier that backs it and how well they are doing.  In the last 21 years, one of those carriers listed has had an annual dividend of about 7.5% - not bad.

You also ask about front end loading payments - also complicated, but turns the policy into a MEC (modified endowment contract) which in general, you don't want to do.

2 - Withdrawals can be either "loans" or "surrenders" - each has advantages and disadvantages, but in general you'd actually like them to be loans (surrenders lower the death benefit and can't be paid back or undone).  The rate can either be locked in at the outset of the policy (typically a bit higher in today's world) or adjustable (depends on interest rates), but you can switch between the two during the contract.  My policy that I referenced above currently has an adjustable rate (it adjusts at renewal) of 3.93%.  My newest policy, though, which also has an adjustable rate, is at 5%.  Obviously if I needed a loan, it would be taken from the first policy.

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13 hours ago, ghostguy123 said:

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.

I talked a bit about the guaranteed return above, and how it differs (hopefully) from what your actual return will be.  Again, that guaranteed return is typically small, and will still have insurance costs taken from it, so the effective rate is even smaller.  It's one of the few products, though, that give you any sort of absolute worst case scenario for what it will be worth 10 or 20 years from now.

Something else that's also misconstrued a lot of places - while you do have both a cash value as well as a death benefit, in a way you don't have both at the same time.  Here's what I mean by that - my personal policy that I've referenced a few times; basics is a 170k death benefit and 15k of cash value today.  Lets say I took a 10k loan from it today to buy a car or for some other emergency.  Well, my cash would now be lowered by that 10k loan (I'm not surrendering, I'm loaning) to 5k.  With me so far?  Well, if I were to die tomorrow, my death benefit would also be lowered by 10k - to 160k.  That's because there's still an outstanding loan against the policy that would have to be paid back.  The death benefit that would be paid would be "net" of any loan.  If you didn't have any loans at the time of death - no problem, and your beneficiary would get the full amount.  But if you did, those would be satisfied first and then the balance (there would always be a balance, you can't loan more cash than you have, and the DB is always more than cash value) would be paid.

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41 minutes ago, matttyl said:

I talked a bit about the guaranteed return above, and how it differs (hopefully) from what your actual return will be.  Again, that guaranteed return is typically small, and will still have insurance costs taken from it, so the effective rate is even smaller.  It's one of the few products, though, that give you any sort of absolute worst case scenario for what it will be worth 10 or 20 years from now.

 

So given the common 4% rate you referenced above, after costs/commissions are taken out....what's the typical effective rate of a policy?

Also, isn't the term "cash value" misleading...b/c you're not taking the cash out free and clear...you're simply just taking a loan out (albeit you already have the means to pay back the loan upon death).....or am i missing something?

 

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15 hours ago, AAABatteries said:

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 

you definitely can,  after you have a proper retirement trajectory, own a home, and have reserve cash beyond that.

it's just that, that defines almost no one.   If you can be that person, then go for it

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I've mentioned this before, but I just started my kids 529 last year (twin 5yo boys)....Biggest driver for me was finding out that I can purchase a home (under some LLC) and when the boys get to college, have them pay rent to me out of the 529.  Rental rate is defined by room and board at the school - currently at LSU $8000 per year per kid.  So that's $64k I can put towards a house/townhome/apt out of tax free $.

A few caveats here:

(1) You need to watch close how much each 529 fund grows to...b/c you don't want to over fund it.  Doesn't matter much right now, but will need to monitor it as they get closer to college age.

(2) B/c you're working with a somewhat limited time frame (b/w 0-18 years), you really need to monitor the types of investments that you have in your 529.  Currently, I'm in an all large cap index fund b/c i'm 13 years out.  If you want to "set and forget", they do have age based funds similar to retirement funds.....but you don't want to get caught in a down cycle....and it's different from retirement b/c you can't just delay school until the fund picks back up (well you can...but really sub-optimal)

 

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49 minutes ago, Tiger Fan said:

So given the common 4% rate you referenced above, after costs/commissions are taken out....what's the typical effective rate of a policy?

Also, isn't the term "cash value" misleading...b/c you're not taking the cash out free and clear...you're simply just taking a loan out (albeit you already have the means to pay back the loan upon death).....or am i missing something?

The typical effective rate of the policy's guaranteed rate you mean?  Well, it's negative in the early years, and probably isn't even back to even for 15 or so.  It's not positive for a bit, and likely never gets above 2.5% or so.  Looking at my policy now (which may not be fair, as it's already paid a dividend each year of it's 13 years which at this point can't be undone) has had an effective rate (13 years of 1,149 and a cash value just over 15k) of just .37%.  At year 30, the absolute minimum cash the policy will have is 47,756 which is an effective rate of 2.15%.  Year 43 (my age 65) the minimum effective rate after all costs/commissions would be 2.26%. 

But again, that assumes that the carrier never ever pays a dividend at all from now until eternity.  The carriers who's dividends were listed in the link I put in above have never done that.  Assuming the current dividend on my policy holds for the 43 years (you see in the link that the dividend might go up or down a little each year from those carriers) - my cash value will be 181,566 at year 43 (my age 65).  That effective rate is 5.37% - but again, that's based on current assumptions, not absolute minimums.  Also, (and just as important) none of those calculations are on just the "invest the difference" had I bought term for my life insurance coverage needs.  You'd need to do that, and subtract out whatever the cost of "cheap term" would have been.  Doing that, you'd likely see that the minimum effective rate to be around 3.5%ish - and the effective rate assuming current dividends remain relatively constant closer to 6% (maybe even a bit higher). 

The cash value could be misleading, depending on what you're trying to do.  When I say above that at age 65 my policy will have 181k of cash - I mean it.  I can put it on asset statements, I can borrow against it, I can use it to pay the policy's premium if there still is one, I can use it to pay other policy premiums from the same carrier, on and on.  I can also take the full amount out free and clear - but if I did that I'd cancel out the insurance - and that hardly ever, ever happens.  It is, though, the fair comparison if you're doing the "buy term and invest the difference" calculation.  If I wanted at age 65 to take my full 181k of cash and walk away from the policy, I could absolutely do that, I just wouldn't have any life insurance anymore.

ETA - I don't want to mislead.  When I say above that if at age 65 I could take the 181k out free and clear, I do mean it, but it would likely be a taxable event.  Now, we don't know what tax law will be in 2 years, much less 30 years in the future.  But if the tax law then is what it is today, I'll be taxed on the gain of the contract - anything above the basis I'd have in the policy at that time.  My basis will be ~49k, and the cash value will be 181k - so the gain would be ~132k.  So I'd pay income tax on 132k - but would have 181k in cash in hand to do so.  Also, that's really no different than liquidating your 401(k) or IRA, though, so I don't personally view it as a negative.  If I were to borrow against it, though, and the policy still stays in force, that loan would be tax free.

Edited by matttyl
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Here is a good little tidbit that spells out loans on WL policies better than I did, if you're interested (I think they are talking about VULs in the prior paragraph, and continue to a bit, though)....

Policy Loan

There is a way to avoid the income tax on your cash value growth. You are allowed to take money out of your policy through a loan instead of a withdrawal. The IRS doesn't tax loans. As long as you keep your policy active, you never need to pay back the loan. When you die, it will be repaid out of your policy death benefit. This lets you spend your cash value growth without paying taxes. However, borrowing your cash value will decrease the inheritance for your heirs. If you want to pay back to loan and get your original death benefit, you need to pay your loan back with interest.

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15 minutes ago, matttyl said:

Here is a good little tidbit that spells out loans on WL policies better than I did, if you're interested (I think they are talking about VULs in the prior paragraph, and continue to a bit, though)....

Policy Loan

There is a way to avoid the income tax on your cash value growth. You are allowed to take money out of your policy through a loan instead of a withdrawal. The IRS doesn't tax loans. As long as you keep your policy active, you never need to pay back the loan. When you die, it will be repaid out of your policy death benefit. This lets you spend your cash value growth without paying taxes. However, borrowing your cash value will decrease the inheritance for your heirs. If you want to pay back to loan and get your original death benefit, you need to pay your loan back with interest.

Thanks...for both posts....makes sense....will have to look into further.

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Just now, Walking Boot said:

Is there anything wrong with at least opening the 529, just so that the grandparents can throw some birthday money in there? I mean, even if he doesn't fund it himself until all the other stuff is taken care of, any harm in having it available? 

There may be some account minimums, other than that, it's very reasonable.

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10 minutes ago, Dentist said:

There may be some account minimums, other than that, it's very reasonable.

 

:goodposting:

 

For Louisiana, I don't think we had any minimums

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need advice.   Selling our condo and moving to Portland later this month.  Condo went on the market yesterday and it's on fire.  I'm expecting to get offers over the listing price and might actually bank 75K from the sale.   I'll be using this to buy a house in Portland later this year or early in 2017.   I have at least a six month lease on the place we are renting.  What should I do with the proceeds from this sale?   Just put it into savings?  CD?  short term bond?   TIA

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Just now, urbanhack said:

need advice.   Selling our condo and moving to Portland later this month.  Condo went on the market yesterday and it's on fire.  I'm expecting to get offers over the listing price and might actually bank 75K from the sale.   I'll be using this to buy a house in Portland later this year or early in 2017.   I have at least a six month lease on the place we are renting.  What should I do with the proceeds from this sale?   Just put it into savings?  CD?  short term bond?   TIA

I think you can't do anything with them - unless you want to pay taxes on them.  If you have access to them personally, it's a taxable event.  If you're ok with that, no issue with a 6 month CD I could see.

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3 minutes ago, matttyl said:

I think you can't do anything with them - unless you want to pay taxes on them.  If you have access to them personally, it's a taxable event.  If you're ok with that, no issue with a 6 month CD I could see.

Do I have to pay taxes on the profit I made selling my home?

It depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.

If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)

You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven't claimed the exclusion on another home in the last two years.

If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain on Schedule D.

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4 minutes ago, matttyl said:

I think you can't do anything with them - unless you want to pay taxes on them.  If you have access to them personally, it's a taxable event.  If you're ok with that, no issue with a 6 month CD I could see.

No, you don't pay taxes on the sale of your personal property (up to like 500K profit).  The money is yours free and clear.

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4 hours ago, Dentist said:

you definitely can,  after you have a proper retirement trajectory, own a home, and have reserve cash beyond that.

it's just that, that defines almost no one.   If you can be that person, then go for it

call me crazy / stupid / whatever. but we've been putting money into our kids accounts before buying a home.  Different circumstances than your "normal" family who lives in one place for 10-50 years.  But even now with a mortgage, we'll put money into their Coverdell accounts before paying off the house. Convince me otherwise.

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22 minutes ago, FUBAR said:

call me crazy / stupid / whatever. but we've been putting money into our kids accounts before buying a home.  Different circumstances than your "normal" family who lives in one place for 10-50 years.  But even now with a mortgage, we'll put money into their Coverdell accounts before paying off the house. Convince me otherwise.

Is it possible to take out a loan for retirement where you live if you're short?

How about college,  can you take out loans for that?

How confident are you that your kids will support you if you were destitute in retirement?

 

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38 minutes ago, FUBAR said:

call me crazy / stupid / whatever. but we've been putting money into our kids accounts before buying a home.  Different circumstances than your "normal" family who lives in one place for 10-50 years.  But even now with a mortgage, we'll put money into their Coverdell accounts before paying off the house. Convince me otherwise.

Too many unknowns: Assuming it's you or your wife's work that cause the different circumstances...if so: How often do you move around?  Does your company compensate you for closing costs when you move?  Would hate to get caught in a down market when you absolutely have to sell a house to move for a job.

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56 minutes ago, Dentist said:

Is it possible to take out a loan for retirement where you live if you're short?

How about college,  can you take out loans for that?

How confident are you that your kids will support you if you were destitute in retirement?

 

:rolleyes: to the first two "questions".  To the 3rd, very but we're not counting on that.  I never said we weren't saving for retirement, we just haven't bought a house.

FWIW, we have the equivalent of 7 years expenses saved in our retirement accounts and a pension (between $3k-$5k per month plus inflation).  Plus I'll get another job in the next couple of years. We're only 39, so not fully retiring any time soon.

41 minutes ago, Tiger Fan said:

Too many unknowns: Assuming it's you or your wife's work that cause the different circumstances...if so: How often do you move around?  Does your company compensate you for closing costs when you move?  Would hate to get caught in a down market when you absolutely have to sell a house to move for a job.

For the past 17 years it's been my work moving us, but that will change in the next few years.  Job doesn't compensate for closing costs.  Like I wrote before in here, we are buying our house now because we expect to stop moving and stay here for a while.

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Speaking of insurance, I met with my insurance guy to just go over all my policies and make sure I had things in order.

I had thought my home insurance was a little high, come to find out my house (which I paid $118,000 for and is maybe now worth $130,000 after some upgrades) has a total loss coverage (not even counting personal property) amount of around $250,000.  I was asking the guy WHY, and apparently based on the square footage that is the estimated cost to rebuild the house.  I was like whaaaaaaaaaaaaaaaaaaaaaaaaaaaat?????

Made me wanna burn my house down. 

 

 

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2 hours ago, ghostguy123 said:

Speaking of insurance, I met with my insurance guy to just go over all my policies and make sure I had things in order.

I had thought my home insurance was a little high, come to find out my house (which I paid $118,000 for and is maybe now worth $130,000 after some upgrades) has a total loss coverage (not even counting personal property) amount of around $250,000.  I was asking the guy WHY, and apparently based on the square footage that is the estimated cost to rebuild the house.  I was like whaaaaaaaaaaaaaaaaaaaaaaaaaaaat?????

Made me wanna burn my house down. 

 

 

When was the house built?   15 years ago when we bought a house built in 1900, we had the same issue.  It happens. 

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Alright financial wizards help me out with this one. What is the best way to prepare for a child's retirement? I can set up a Roth for my kids but I can't contribute until they have an actual job with taxable income. Savings and CD's suck. What vehicle can I use to throw $10 a week into an account for my 10 y/o so if he winds up with his mother's financial IQ he won't have to eat Alpo when he turns 60?

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11 hours ago, FUBAR said:

When was the house built?   15 years ago when we bought a house built in 1900, we had the same issue.  It happens. 

1978.  If THIS house costs THAT much to rebuild, then anyone building a house in this area is a total moron.

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12 minutes ago, Statcruncher said:

Alright financial wizards help me out with this one. What is the best way to prepare for a child's retirement? I can set up a Roth for my kids but I can't contribute until they have an actual job with taxable income. Savings and CD's suck. What vehicle can I use to throw $10 a week into an account for my 10 y/o so if he winds up with his mother's financial IQ he won't have to eat Alpo when he turns 60?

Inheritance?

 

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14 hours ago, ghostguy123 said:

Speaking of insurance, I met with my insurance guy to just go over all my policies and make sure I had things in order.

I had thought my home insurance was a little high, come to find out my house (which I paid $118,000 for and is maybe now worth $130,000 after some upgrades) has a total loss coverage (not even counting personal property) amount of around $250,000.  I was asking the guy WHY, and apparently based on the square footage that is the estimated cost to rebuild the house.  I was like whaaaaaaaaaaaaaaaaaaaaaaaaaaaat?????

Made me wanna burn my house down. 

 

 

This happens on almost all of my rental properties because they are big old houses.  Its because your policy is based on replacement cost (and you will have to rebuild it to get the full amount if it burns down).  If you want a much cheaper policy ask your ins guy to base it on acv (actual cash value).

My agent always runs them first on replacement cost to so we can have a good laugh ($280,000 coverage on a house we paid 15K for), then quotes it based on a more reasonable acv (usu around 80-100K).

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1 hour ago, Statcruncher said:

I'd rather they have something they are vested in and can contribute to rather than having them hoping I die soon.

If either you or your partner are not maxing out your Roth contributions, invest your kid's money in there. You can get at the principal anytime. Then once they are working age, move the money into their personal Roth year by year. I've looked into Government EE bonds, old-school style, and they are horrible. Btw if your Roths are maxed out then just open up an online brokerage account for each kid. Bummer is that they'll have to pay taxes on the gain but its still overly kind of you.

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On 4/1/2016 at 0:08 PM, matttyl said:

Sorry, was thinking of my buddy who sold a piece of land recently (which wasn't a primary residence).  My bad, carry on.

The "can't have access to the cash" rule you mentioned is in regard to 1031 exchanges, aka "like-kind" exchanges.  That would apply to investment property or income-producing property but wouldn't apply to a personal residence.  In a standard real estate 1031 exchange, commonly called a "Starker exchange" named after a court case, the taxpayer sells the property, the buyer pays a qualified intermediary who holds the funds.  The taxpayer acquires a new property, and directs the qualified intermediary to disburse the funds to acquire the new property.  There are a whole host of rules and regulations and such, but the gist is that if the taxpayer never accesses the proceeds, the gain on the initial sale is tax-deferred.

Edited by Steve Tasker
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On 4/1/2016 at 11:56 AM, urbanhack said:

need advice.   Selling our condo and moving to Portland later this month.  Condo went on the market yesterday and it's on fire.  I'm expecting to get offers over the listing price and might actually bank 75K from the sale.   I'll be using this to buy a house in Portland later this year or early in 2017.   I have at least a six month lease on the place we are renting.  What should I do with the proceeds from this sale?   Just put it into savings?  CD?  short term bond?   TIA

Just put it here:  https://www.capitalone.com/bank/expectmore/

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On 4/2/2016 at 9:02 AM, Statcruncher said:

Alright financial wizards help me out with this one. What is the best way to prepare for a child's retirement? I can set up a Roth for my kids but I can't contribute until they have an actual job with taxable income. Savings and CD's suck. What vehicle can I use to throw $10 a week into an account for my 10 y/o so if he winds up with his mother's financial IQ he won't have to eat Alpo when he turns 60?

Track the $10/week and throw it into a S&P 500 mirroring mutual fund twice a year (minimizing fees and somewhat dollar cost averaging)...when they get a actual job, deposit that into a roth :shrug:

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On 4/2/2016 at 10:17 AM, Statcruncher said:

I'd rather they have something they are vested in and can contribute to rather than having them hoping I die soon.

Well, if they are bad with money they will just blow through whatever account you set up for them, and then they would be hoping you die soon anyway. 

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How would you estimate the appreciation of a home over the course of the next 7 years?  Is there a general standard % for long-term appreciation?  This is in an area that is quite stable, so while I realize that there can be many variables, I would feel comfortable using some historical norm for my purposes, just to get an estimate.  I have data for 872 properties in the directly adjacent area.  Should/can I use the average increase for those properties (maybe taking out certain sales that might have occurred within certain times in the fairly recent past?  like only use anything that sold 10 years ago or more?).  Or would some generic historical norm work?

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