Written By — David Shafer
You are 32 years old, a man in good health, and newly married. You have a good job, make good, not great, money, and want to start out in life on solid financial footing. You are responsible financially and, along with your wife, have saved 6 months worth of expenses. What is the next step? You have been putting money into an 401K, but recently have started to question that decision as you have a long way to go to you can access this money without penalties and you see the big ups and downs the market has provided.
You see your parents worrying about the big losses in their retirement funds over the last decade and you want to consider something different!
Perhaps an EIUL?????
You can start your EIUL with $300 month. Not a lot, but you are planning on starting a family and want to make a conservative commitment. Your life insurance planner has suggested that you inflationize the policy by increasing the premium 4% each year. You see the numbers and think that is a no brainer as 10 years down the road the premium has only gone up to $427 month. The life insurance has been minimized, to maximize the return of your money and option B has been chosen to minimize the early expenses. Your initial insurance amount is $238,000. Your LI salesman has chosen to illustrate your policy with a conservative estimate 8.5%, which is .75% less than what the policy would have returned over the last 20 year period. He also showed you what you could take out each year of retirement until you are 100 years old, an age that you are not likely to attain. He also added a rider, which would pay the premium if you are disabled before age 60, for all the time you remain disabled. This would provide you with a decent retirement even if you were to suffer a permanent disability during your prime working years. You pay premiums for 30 years until age 62.
Here are some possible results:
You die at age 50 and your heirs get $404,000 tax free. Your return on your money is 14.48%.
You are disabled at age 52. The policy premium is paid for the remaining 10 years. You can no longer work. Your life expectancy has been severely curtailed because of the disability so you start to immediately take out $26,000 a year, which will last you until you are 70 years old. Or, you have enough income producing real estate to produce an immediate income that takes care of your needs until age 62. At age 63 you start to take out income of $72,000, which will last you to age 74.
You die at age 65 and your heirs get $894,263. Your return on your money is 8.14%.
You retire at age 67 and start taking income. You can take $66,000 a year, tax free, that will last until you are 100 years old. Your heirs get $90,000 at your death. You have received over $2,120,000 tax free over the distribution period. The total cost is 1% as you get a return of 7.5%. You figure you did pretty good paying 1% instead of 40%, what the total tax cost would have been if you invested in a 401K!
You retire at age 67 and start taking income. You doubt you will live a long life as you have some heath issues and your family rarely lives into their late 80s. You figure you might live to your life expectancy of 85 years old. So you take out $85,000 year, which will last you until you are 85 years old. As luck would have it you were absolutely right on your year of death and your heirs get $218,000. Your internal rate of return was 7.6% so your cost was .9% for the life of the policy. You received a total of $1,570,192 in tax free income.
BawldGuy Here: What I’d love ya to take away here is the realization that the EIUL, using relatively small monthly premiums, can generate superb tax free retirement income to either immediately augment your real estate cash flow, or kick in later at your option. So, when we talk, remember this post by David Shafer when I bring up EIULs as a part of your personal Purposeful Plan. Have a good one.
Related posts:
- Over 50? Smile — You Can Still Generate Retirement Income Through Real Estate
- Road To Recovery — Part II — Establishing Tax Free Retirement Income
- Why EIUL? Real Estate Investment Strategy
- Structuring An EIUL Correctly
- Understanding What’s Important About Retirement Income — Besides Actually Having It
About David Shafer
What if –
same guy… but a little further down the road in terms of building a family… feels he and his wife need a little more face value for the next several years while the cash value builds. How does the cost of the additional insurance compare to a separate term life policy?
The Minnesota Life EIUL I suggest allows the addition of term life to the policy. So we add a term policy for the time period needed. This also allows us to switch the term to a permanent addition to the face value in the future if something were to happen to the insurability of the client. We could then manage the premium amount to account for the additional face value. The advantage of doing this is you have guarantee insurability for the total face value of both the permanent and term insurance and you can add to the face value of your EIUL product, which most term insurance companies don’t allow you to do because they either don’t have an EIUL or force you into an inferior permanent product.