All Encompassing Investment and Financial Planning Thread for the Surly 99.5%

[CleverNickname 1308]

8 hours ago, 4thgenhorn said:

Approx what # are you budgeting for when you are >60 year old?  Reason I ask is my kids have busted my budget, so no idea what’s a realistic number for when I’m older and empty nester. $10k?  $15k?  20k?  Adjust for inflation or just assume a somewhat lower 7% market return?

ultimately I think you not only have to spreadsheet to plan for savings, but you need to do a good budget breakdown. That way it is easier to have alt numbers that don't include $3k for travel baseball and whatever obscenity two twwn drivers cost.

[Trey3216 15345]

21 hours ago, Wally Fairway said:

Remember the end of the day for your 401k is not the day you retire. I am hopeful to live 25 - 30 years post retirement, that seems like plenty of time for that money to multiply.

No doubt.  And that' not what I'm saying.  But the mechanics of it in the accumulation phase and the distribution phase are quite different. 

[Trey3216 15345]

22 hours ago, Nice Guy Eddie said:

I'm not following. Say someone has $1m (or 2 or 3) in a 401k or IRA. They withdraw 3% per year and increase it roughly by inflation rates each subsequent years. In a down year, you're saying that someone should borrow from their whole life plan (is that permanent?) to replenish the account balance?

I thought the point of the low withdrawal rate (3-4%) was to handle the downturns without long term problems except in very unlucky situations of multi-year downturns especially in the beginning years. Or are you saying that someone with the whole life backup, could bump up to >5% withdrawal?

When I see the high premiums for whole life, it doesn't make sense to me. AFLAC is showing a rough estimate of $450/month for a 30 year old to get $500K in coverage. Put the $450 into the market and you would have over ~$1M at 65. Instead you have a whole life policy only worth $500K. 

 

Sorry, I had a huge reply to this yesterday typed out and ready to send and the damn computer froze and closed down my internet wormhole.  Alas, I'll try to respond exactly as I started yesterday...

 

-To answer the bold portion, I'm saying you should utilize cash from a whole life policy en lieu of withdrawing from the qualified plan in a down market year (specifically, a down market year early in retirement)  The idea being, if you have 3 years worth of cash piled in that policy to create 3 buffer years, the odds tilt greatly into  your favor for never running out of money.  Not to mention the fact that you're not going to pay ordinary income tax on that transaction.

 

-Low withdrawal rates do help handle downturns...depending upon the sequence of returns, which is a risk in and of itself.    

-And yes, you could functionally increase your withdrawal rate, giving you a higher income in retirement based on a paydown schedule rather than an interest only/low rate withdrawal schedule.   Reason being....Your life insurance is basically Asset Replacement Insurance at that juncture.   You know you're going to die at some point.  It's a mathematical fact.  Why not take more retirement income and when you die, your Death  Benefit of a permanent life policy will replenish the assets you spent for your spouse, or your heirs?   

 

-The premium situation, as you view it, is the biggest hallmark of information vacuum.  You need to look at what year the cash value of the policy begins to grow more than the annual premium.  For someone age 45 or so, it's usually year 6-8.  After that, the amount of premium you contribute annually vs annual cash value growth is decreasing in perpetuity.  Meaning, you've functionally paid the entirety of the insurance cost load in those first years.   Now, compare that to continually buying new term policies for the same benefit over the next 3 decades, or 4 decades, and the total premiums on the term insurance are not going to be that much cheaper than the combined premium for those first 6-8 years of the whole life policy....and you have no cash to show for it.  THe opportunity cost of term insurance is all the lost dollars you would have gained by putting that cash to work elsewhere.  

 

-your AFLAC example is off.  For one, a whole life policy is likely going to increase in benefit.  I ran one on a Male, 30 year old, standard non-tobacco.

I did $6000 annual premium to make it $500/mo to see.

You get an initial DB of $485-500k.   

By age 65, it's a DB of $885k with almost $500k of cash value.   At 75 it's a DB over $1mm with $685k in cash value.   So yeah, it's not as great as the $1mm by 65 putting it in the market...but it's not supposed to be.  It's also not going to get taxed like the stuff in the market, management fees like the stuff in the market, subject to ordinary income tax on distribution like the market stuff if it is in a traditional IRA or 401k, and not subject to the whims of market risk like the market asset is.

 

 

-All this to say, I'm not advocating anyone to only do one or do the other.  I'm advocating for people to do a little bit of both.  Why?  Because utilizing Whole Life as part of a strategy works.  It's not the only strategy.  But neither is only having money in the market.  

 

I didn't even mention using it as another way to put cash to work for kid's education above what you can contribute to the more commonly used methods.  What happens when you're contributing to those things and you die?  You don't contribute anymore.   

I also didn't mention the fact that if you develop a chronic or terminal disease (think dementia or cancer), you can access the death benefit in a whole life policy while you're still alive to help pay for the costs of those situations rather than eating into your family's nest egg.  

 

 

[Nice Guy Eddie 13509]

15 hours ago, 4thgenhorn said:

Approx what # are you budgeting for when you are >60 year old?  Reason I ask is my kids have busted my budget, so no idea what’s a realistic number for when I’m older and empty nester. $10k?  $15k?  20k?  Adjust for inflation or just assume a somewhat lower 7% market return?

Great question. I struggle with how much I will need. Honesty I don't see how I will spend less in retirement except that I might "spend" less in investing activities. I work off an assumption that I will need my current take-home minus what I normally shove into my brokerage account, which isn't a consistent number. Health insurance costs will be higher in retirement. I may even initially need 10-15% more than my current take home because I no longer have a 40 hour job. I assume my fun spending will decrease over the decades.

Have you calculated what you need or want to spend?

Edited September 5 by Nice Guy Eddie

[4thgenhorn 38]

7 hours ago, Nice Guy Eddie said:

Great question. I struggle with how much I will need. Honesty I don't see how I will spend less in retirement except that I might "spend" less in investing activities. I work off an assumption that I will need my current take-home minus what I normally shove into my brokerage account, which isn't a consistent number. Health insurance costs will be higher in retirement. I may even initially need 10-15% more than my current take home because I no longer have a 40 hour job. I assume my fun spending will decrease over the decades.

Have you calculated what you need or want to spend?

I’ve not done the worksheet. Assuming no debts, for 10k a month, you need $4M, assuming 3% withdrawal and no SS. Is that vacations at Port A and a used Toyota+health insurance?  $6M gets you $15k a month, is that NY vacation, Tesla and health insurance?  $8M gets you $20k a month; is that one month international trip per quarter plus health insurance?  
 

Just curious what lifestyles people are striving toward. 

[Parliament 14247]

10 hours ago, 4thgenhorn said:

ust curious what lifestyles people are striving toward. 

Lifetime subsciption to the $3.50 for me is all I need.

[Nice Guy Eddie 13509]

22 hours ago, Trey3216 said:

Sorry, I had a huge reply to this yesterday typed out and ready to send and the damn computer froze and closed down my internet wormhole.  Alas, I'll try to respond exactly as I started yesterday...

 

-To answer the bold portion, I'm saying you should utilize cash from a whole life policy en lieu of withdrawing from the qualified plan in a down market year (specifically, a down market year early in retirement)  The idea being, if you have 3 years worth of cash piled in that policy to create 3 buffer years, the odds tilt greatly into  your favor for never running out of money.  Not to mention the fact that you're not going to pay ordinary income tax on that transaction.

 

-Low withdrawal rates do help handle downturns...depending upon the sequence of returns, which is a risk in and of itself.    

-And yes, you could functionally increase your withdrawal rate, giving you a higher income in retirement based on a paydown schedule rather than an interest only/low rate withdrawal schedule.   Reason being....Your life insurance is basically Asset Replacement Insurance at that juncture.   You know you're going to die at some point.  It's a mathematical fact.  Why not take more retirement income and when you die, your Death  Benefit of a permanent life policy will replenish the assets you spent for your spouse, or your heirs?   

 

-The premium situation, as you view it, is the biggest hallmark of information vacuum.  You need to look at what year the cash value of the policy begins to grow more than the annual premium.  For someone age 45 or so, it's usually year 6-8.  After that, the amount of premium you contribute annually vs annual cash value growth is decreasing in perpetuity.  Meaning, you've functionally paid the entirety of the insurance cost load in those first years.   Now, compare that to continually buying new term policies for the same benefit over the next 3 decades, or 4 decades, and the total premiums on the term insurance are not going to be that much cheaper than the combined premium for those first 6-8 years of the whole life policy....and you have no cash to show for it.  THe opportunity cost of term insurance is all the lost dollars you would have gained by putting that cash to work elsewhere.  

 

-your AFLAC example is off.  For one, a whole life policy is likely going to increase in benefit.  I ran one on a Male, 30 year old, standard non-tobacco.

I did $6000 annual premium to make it $500/mo to see.

You get an initial DB of $485-500k.   

By age 65, it's a DB of $885k with almost $500k of cash value.   At 75 it's a DB over $1mm with $685k in cash value.   So yeah, it's not as great as the $1mm by 65 putting it in the market...but it's not supposed to be.  It's also not going to get taxed like the stuff in the market, management fees like the stuff in the market, subject to ordinary income tax on distribution like the market stuff if it is in a traditional IRA or 401k, and not subject to the whims of market risk like the market asset is.

 

 

-All this to say, I'm not advocating anyone to only do one or do the other.  I'm advocating for people to do a little bit of both.  Why?  Because utilizing Whole Life as part of a strategy works.  It's not the only strategy.  But neither is only having money in the market.  

 

I didn't even mention using it as another way to put cash to work for kid's education above what you can contribute to the more commonly used methods.  What happens when you're contributing to those things and you die?  You don't contribute anymore.   

I also didn't mention the fact that if you develop a chronic or terminal disease (think dementia or cancer), you can access the death benefit in a whole life policy while you're still alive to help pay for the costs of those situations rather than eating into your family's nest egg.  

 

 

Thanks for the deeper explanation. I’m not fully following the need but perhaps it’s just not for me. 

[Trey3216 15345]

1 minute ago, Nice Guy Eddie said:

Thanks for the deeper explanation. I’m not fully following the need but perhaps it’s just not for me. 

It really comes down to whether or not someone is willing to commit to getting about 95% of their maximum financial potential with close to 100% certainty or if you're willing to risk 25%+ of that certainty in order to get that extra 5% of your pile.  

Some folks are good either way.  Like I said, it's a strategy...a long game...but it's not zero sum.  

[Nice Guy Eddie 13509]

4 hours ago, Trey3216 said:

It really comes down to whether or not someone is willing to commit to getting about 95% of their maximum financial potential with close to 100% certainty or if you're willing to risk 25%+ of that certainty in order to get that extra 5% of your pile.  

Some folks are good either way.  Like I said, it's a strategy...a long game...but it's not zero sum.  

Sorry. You can’t just say that people are risking more if they fail to participate in whole life. That’s is 100% inaccurate. Not even a whole life salesman would make that claim.

[Dbeasy 15042]

Whenever something gets complex to understand, there’s a good chance it’s a way for the provider to make more money in fees and the investor to make less money in returns.  Not always, but often. 

[Nice Guy Eddie 13509]

20 hours ago, Dbeasy said:

Whenever something gets complex to understand, there’s a good chance it’s a way for the provider to make more money in fees and the investor to make less money in returns.  Not always, but often. 

Good rule of thumb that if you don’t understand, stay away. And this requires that you’re honest with yourself. I don’t mind saying that I must be too stupid to understand so I’ll pass. And complex products are not necessary for a large percentage of investors.

[Hefeweizen 5310]

2 hours ago, Nice Guy Eddie said:

Good rule of thumb that if you don’t understand, stay away. And this requires that you’re honest with yourself. I don’t mind saying that I must be too stupid to understand so I’ll pass. And complex products are not necessary for a large percentage of investors.

So true.  It’s one of the few lessons I’ve heeded with investments in my life (excluding playing with stocks for fun).  Invest in what you understand, or better yet, what you know.  

[Reagan1k 3024]

On 9/6/2024 at 1:49 PM, Nice Guy Eddie said:

Sorry. You can’t just say that people are risking more if they fail to participate in whole life. That’s is 100% inaccurate. Not even a whole life salesman would make that claim.

I won’t speak to comments made above because I don’t know the point that is attempting to be made.  I don’t have a dog in this fight but I know a few things about how the product works as an asset.

1) A lot of it is crap. 2) most of the time it isn’t the best solution for a given problem. 3) Comparing it to an equity investment or the performance therein is irresponsible bc they are different asset classes 4) A properly funded policy from a mutual company using accelerated paid up additions MIGHT be a solution to a certain set of problems or priorities.

In a vacuum it isn’t an inherently bad product, but a lot of the marketing is BS.  So is a lot of the anti-marketing against it comparing it to equity investing and buying terms.  It is a different type of tool for a different job.  (Hammer vs. Saw) 

[Muny_Tex 293]

 

As the White Coat Investor astutely states, Whole Life is designed to be sold not bought.

Also, not to be an asshole, but long before I was financially literate my instinct always told me to avoid Whole Life policies mainly based on the caliber + credentials (e.g. lack thereof) of the people who were most active in selling it.  Again, sorry to impugn people's career paths but you don't generally see a lot of top-tier business school graduates and/or high-flying finance types slanging whole life policies.  If it's such a good deal, why does it commonly require so much mental gymnastics + calculator hypotheticals to justify purchasing?

 

Edited September 8 by Muny_Tex

[Reagan1k 3024]

16 hours ago, Muny_Tex said:

 

As the White Coat Investor astutely states, Whole Life is designed to be sold not bought.

Also, not to be an asshole, but long before I was financially literate my instinct always told me to avoid Whole Life policies mainly based on the caliber + credentials (e.g. lack thereof) of the people who were most active in selling it.  Again, sorry to impugn people's career paths but you don't generally see a lot of top-tier business school graduates and/or high-flying finance types slanging whole life policies.  If it's such a good deal, why does it commonly require so much mental gymnastics + calculator hypotheticals to justify purchasing?

 

That’s a well written article and points out some of the situations where it might be appropriate and the larger number of cases where not.  It’s just a specialty tool.

“I hope this shows some of the situations where a whole life policy can make sense. Note that none of these are medical students or residents. None are young attendings with student loans and practice loans. In each case, the purchaser understands how the policy works and the trade-offs they are giving up in exchange for the benefits they want.”

[CleverNickname 1308]

if whole life is so great, why are agents generally opposed to the DOL fiduciary standard rule, and why do state regs only apply suitability standards to annuity sales amd not cash value life policies? 

[Trey3216 15345]

On 9/7/2024 at 2:55 PM, Reagan1k said:

I won’t speak to comments made above because I don’t know the point that is attempting to be made.  I don’t have a dog in this fight but I know a few things about how the product works as an asset.

1) A lot of it is crap. 2) most of the time it isn’t the best solution for a given problem. 3) Comparing it to an equity investment or the performance therein is irresponsible bc they are different asset classes 4) A properly funded policy from a mutual company using accelerated paid up additions MIGHT be a solution to a certain set of problems or priorities.

In a vacuum it isn’t an inherently bad product, but a lot of the marketing is BS.  So is a lot of the anti-marketing against it comparing it to equity investing and buying terms.  It is a different type of tool for a different job.  (Hammer vs. Saw) 

I wasn't comparing it to an equity investment in any way.  And the only ones I work with are properly funded from a mutual company using accelerated paid up additions.  My entire point, in terms of your example, is that it is often good to have both a hammer and a saw in a tool bag rather than just a set of different sized hammers or different functioning saws.  

[Trey3216 15345]

On 9/8/2024 at 12:34 AM, Muny_Tex said:

 

As the White Coat Investor astutely states, Whole Life is designed to be sold not bought.

Also, not to be an asshole, but long before I was financially literate my instinct always told me to avoid Whole Life policies mainly based on the caliber + credentials (e.g. lack thereof) of the people who were most active in selling it.  Again, sorry to impugn people's career paths but you don't generally see a lot of top-tier business school graduates and/or high-flying finance types slanging whole life policies.  If it's such a good deal, why does it commonly require so much mental gymnastics + calculator hypotheticals to justify purchasing?

 

Not impugned by any stretch.  And not trying to create mental gymnastics.  It's not my primary business tool, it's a tool in a bag to add to the other tools for a balanced long term strategy.  

-Dramatically cheaper term-  Absolutely... It's great to have in the bag, it's not great when it runs out and your forget to buy additional or can no longer be underwritten for coverage due to a medical issue and you still need coverage.

-Retirement accounts will certainly have better long term returns...they will also incur compound taxes (those not in ROTH) at unknown future rates and there's always the chance that you don't get there.  Having a backup plan for your family if you don't make it there is part of a plan

 

Like I said, I'm not saying it's for everyone.  I'm not saying it's the only thing or the best thing.  It's damn sure not the most complicated thing.  It's the original form of life insurance at the most basic level.  Having some of it in your bag of tools is not going to make or break you, and at the end of the day you're going to end up in just about the same spot you would to begin with.  

 

And yes, there are a bunch of charlatans in the industry, just like there are a bunch of charlatans in any industry.   But everyone on here talking about running all their Monte Carlo simulations and hypothetical return scenarios are doing the same thing.  You just gotta hope you pic the right scenarios.  I'm not in the hope business.  I'm in the strategy business.  

[UT_OB1 2217]

3 hours ago, Trey3216 said:

I wasn't comparing it to an equity investment in any way.  And the only ones I work with are properly funded from a mutual company using accelerated paid up additions.  My entire point, in terms of your example, is that it is often good to have both a hammer and a saw in a tool bag rather than just a set of different sized hammers or different functioning saws.  

All saws are hammers if you’re brave enough…or a maintenance tech. 

[Reagan1k 3024]

2 hours ago, Trey3216 said:

I wasn't comparing it to an equity investment in any way.  And the only ones I work with are properly funded from a mutual company using accelerated paid up additions.  My entire point, in terms of your example, is that it is often good to have both a hammer and a saw in a tool bag rather than just a set of different sized hammers or different functioning saws.  

I completely agree and can see you don't consider it an equity alternative. 

I have multiple buy-sell arrangements (both personal and professional) that are funded with it and there is not another asset or strategy that comes close to affording me the protections and returns at the same time.