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3 Reasons for Having an EIUL be a part of your RETIREMENT STRATEGY April 29, 2011

Posted by shaferfinancial in Finance.
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There are three big questions that no financial planner can answer for you. These are what I call the “Holy Trinity” of retirement problems. Because no-one can really answer these questions, they are rarely talked about in polite company. Here they are:

How much income will I have to live on?
How long will I live?
What are the tax rates going to be?

Wealthy people who were living on their wealth were once called coupon-clippers because they got their regular income from owning bonds that paid a fixed interest rate. Those days are mostly gone, because corporate bonds are callable and if you are living off of interest from treasuries or certificate of deposits then you are starving today. Most people have been sold on the idea of mutual fund ownership as a way to retirement income. But this is possibly the worst idea imaginable because mutual funds have high variability. That means they go down, as well as up in value [sometimes 50%!]. How can you plan an income stream using a product that has such high ups and downs? You really can’t [note all the arguments over how much of your mutual fund value to use each year of retirement].

Reason #1 to own an EIUL…..
It doesn’t have the variability of mutual funds and the cash value never goes negative.

Most people save for retirement unevenly, little if any until age 35-40 then acutely after age 50 when that retirement is staring down at you. The truth is 20% of 40 year old men will die before retirement [13% of 40 year old women]. On the other end 16% of those men will be alive at age 90 with 26% of those women alive and kicking at age 90. Fully a third of 40 year olds will have the problem of dying early or living an extremely long life.

Reason #2 to own an EIUL….
If you die early [before you have completed your retirement plan] the life insurance proceeds will finish your retirement plan for your spouse and family and if you live a long life not having to pay taxes on your income will stretch your retirement income out as long as possible.

Common practice is to defer taxes to your retirement years. But no one knows what the tax rate will be in those years. With the government running huge deficits, there is a high likelihood that taxes will be a bigger factor in the future. But the bottom line is no one knows.

Reason #3 to own an EIUL
Taking out income, TAX FREE, is not only a way to pump up your in-the-pocket retirement income, but a way to eliminate a huge uncertainty [risk] in your retirement planning.

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Comments»

1. Kyle - May 27, 2011

Hi Dave,

Just checked out your new website and found it to be pretty solid; well done! Now I have a basic understanding of how the insurance company credits your cash value account. Basically, its the fixed interest vehicles in which insurance companies invest that allow the insurance companies to guarantee a minimum (0-3%) return, correct? Are these all safe fixed interest investments? Is it possible a scenario could exist where these fixed investments DON’T pan out, leaving the insurance companies in a financial bind where they feel they cannot even offer their “guaranteed” minimum? I realize insurance companies are highly regulated and typically very strong financially, but please entertain me. I wouldn’t be surprised if I’m not the only one striving for a little more in-depth knowledge on the subject. Thanks!

shaferfinancial - May 27, 2011

Kyle, good to hear from you again. To answer your question, they invest in treasuries and AAA rated corporate bonds [bonds from the major corporations of the world]. As to how safe these are, we just went through a major economic event, that was probably as bad as any since the great depression and they came out fine. There are no absolutes ever, but as long as the US government is paying its debts and the major corporations are paying their debts the guarantee should be good. Frankly, if the financial environment is that bad as to have to pay just the guarantee we are all in trouble with our savings!

2. FINANCIALCLIFF.COM - July 8, 2012

Reblogged this on financialcliff and commented:
Here is are three reasons that you should add an EIUL to your portfolio.


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