Okay, so if I understand this study correctly, there isn't a problem with the investment per the study, the problem is with the investor. This does not change with the investment vehicle though, so it still goes back to your original point, get your financial house in order, and invest with a plan for the future.
4 steps to wealth building (feel free to use this)
- Make a decent living (seems pretty obvious). You don't have to make a lot of money, but enough to put food on the table.
- Spend less than you earn. We're all bad about this step.
- Work with a financial professional to develop and stick with a plan to invest the difference.
- As your wealth builds, work with an insurance professional to ensure you are properly protecting your growing wealth.
Dan
It really doesn't matter how much you make as too where you end up. My steps to wealth, feel free too use them!
1. Make your own damn job, if its picking up trash or selling produce as a hotshot delivery service or what ever you can do. I use to like Bruce Williams (I think that was his name) on radio, use to preach this heavily. "There is no reason, for anyone that has any ability to work and has or can get the use of a pickup truck, not to make less than 50 grand a year."
2. Now that you control your employment you need to control your investments, may that be property, insurance, or take your pick. I would advise to stay away from single family units as in houses, it hard to make 4% renting out homes on a steady basis, of course depending upon where you are at that may or may not be easy. Hell, one can buy used autos and sell them if you really having a hard time figuring out a good investment.
3. Now that you can make your own money, invest and turn your own money, as in turning over your inventory, what ever that may be one is on their way to achieving financial independence. Yet, once this starts to materialize it is a smart play to be able to have investments you can borrow from (at an affordable interest rate) and start turning cash, that is where the money is, just ask George Soros.
You and I are on different tracks on this one. I understand where your coming from, I just think most people aren't that disciplined. Having someone help them out is usually a good idea.
The problem is, what works for one person, may not work for another. So, to me, for the masses, having the help of a true financial planner is a good thing, though there are individuals who would do much better on their own. These few individuals usually won't talk to a financial planner anyway.
Now, the problem is, all of the people out there who pretend to be a financial planner, without really being one. This muddies up the water a lot.
For many, buying WL via pre-authorized monthly check is the only "savings" discipline they have. It sure beats "buy term and spend the difference." It also protects families while they pay off the credit cards.
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I thought this WAS a real job!
LGilmore, life insurance dividends are not taxed because the IRS considers them a return of overpaid premium rather that a true dividend. They could become taxable if the return from the policy exceeded the total premiums paid.
You and I are on different tracks on this one. I understand where your coming from, I just think most people aren't that disciplined. Having someone help them out is usually a good idea.
The problem is, what works for one person, may not work for another. So, to me, for the masses, having the help of a true financial planner is a good thing, though there are individuals who would do much better on their own. These few individuals usually won't talk to a financial planner anyway.
Now, the problem is, all of the people out there who pretend to be a financial planner, without really being one. This muddies up the water a lot.
Dan
Well you find me all those FP'ers working with the middle class? I'm thinking you might be looking for awhile. Financial Planners by difinition can really only make it by catering to the upper classes and that will always be their weakness.
If it has nothing to do with Securities then Financial Planners have to prove themselves by the advice they give, and let's face it, most (of course I'm not including you in this just speaking in generalities) can not survive in that arena. I can not imagine a FP'er giving advice on how too make money in realstate or selling various products.
LGilmore, life insurance dividends are not taxed because the IRS considers them a return of overpaid premium rather that a true dividend. They could become taxable if the return from the policy exceeded the total premiums paid.
Exactly, and that's also why the WL dividend is in no way comparable to bond interest or other investment income yield. Totally unlike a bond, high dividend yield + high company financial rating does not make a WL policy a good value without considering how much you paid for the thing.
So let me get something straight here, are some saying that the dividend that one recieves from a Par WL Policy is nothing more then a return of overpaid premiums?
"They could become taxable if the return from the policy exceeded the total premiums paid."
And that would happen when??? Can you cite an example that's occurred? I am talking dividends, not the garantee part. two different beasties. dividends are according to irs code a return of overpaid prems. I'll except the irs version.. thanks.
First off, the Premium of a Life contract is their main business so the vast majority of profits from say a MT or a MM would naturally come from premiums on their Insurance Product. As in return of overpaid premiums by all and including profits from Lapse Policies, and of course other investments by the Mutual would be included in dividends. Yet one could say the vast majority of dividends to come from "overpaid premiums" just like any dividend GM sets is likely profits made from automobiles or one would assume since that is their main business.
Oh well, you can go here it is an interesting read, or maybe not!
"They could become taxable if the return from the policy exceeded the total premiums paid."
And that would happen when??? Can you cite an example that's occurred? I am talking dividends, not the garantee part. two different beasties. dividends are according to irs code a return of overpaid prems. I'll except the irs version.. thanks.
Here is a generic illustration on a 25 year old female preferred:
Now this is bare bones, with some better understanding and creative ideas upfront this policy could of paid better.
Term would of cost around $400 annually for this person base on Preferred for a twenty year policy, well it spreads from around 360-450 annually according to Term4sale.com. So in twenty years she would of paid out 8 grand saving her around 20 grand to invest. Or about a grand a year, now lets go see how much she would of generated if she invested in lets say a Mutual Fund or Money Market, now she is not a guru of financial matters so she does what the average american does and picks mutual funds and recieves the average according to the Dalbar Study and makes 3.5% on her money, but she is smarter, in fact about three times smarter so we'll give her 9%. She takes home $51,354.54, counting on her staying in the 15% tax bracket.
Now this is really giving her the benefit of the doubt and a 9% after tax return which would equate to about 11%, so I think I'm being more then fair here. Now she is only 45, does her need for Life Insurance stop at 45? No it doesn't, in fact she will likely need it for life or at least another 20 to 30 years, so exactly how much is another 20 or 30 years of term going to cost her if she can even qualify for preferred or qualify at all at age 45? Now in this WL Illustration, if you look closely at the 20th year, you would see that the policy will pay for itself and continue to build up in CV!
People, there is no comparison. WL is a great vehicle.
Thanks James, but still when does this become a taxable event as someone posted?
They could overfund and create a MEC, but owning a policy that has a cash value greater than contributions does not create a taxable event. You don't get a tax notice from the IRS in year 15....
The idea behind a whole life is to keep it inforce for your whole life be that tomorrow or 50 years from now...
If you are going to use a whole life policy like a level term policy, well then, you should have bought a level term.
Term insurance insures a probability. Whole life insures a certainty. There's the difference in a few words.. Which does the customer want?
Thanks James, but still when does this become a taxable event as someone posted?
They could overfund and create a MEC, but owning a policy that has a cash value greater than contributions does not create a taxable event. You don't get a tax notice from the IRS in year 15....
The idea behind a whole life is to keep it inforce for your whole life be that tomorrow or 50 years from now...
If you are going to use a whole life policy like a level term policy, well then, you should have bought a level term.
Term insurance insures a probability. Whole life insures a certainty. There's the difference in a few words.. Which does the customer want?
A tax event will only happen if you surrender your policy or take out more in cash from the policy than you put into it. Now this does happen, making the suggestions that a WL Policy can not generate more then you actually put into it really suspicious.
Probability or Certainity? Depends upon the person, no real answer there, the better you understand WL or UL the more you can sell. Most Agents really don't have a very good grasp of either as this thread has shown.
Now I'm thinking I really screwed the above Term Vs WL scenario, I was short on time dismorning as I am now, will go back and revisit it tonight. I'm thinking my Term quote is way to high?
Yes, you are correct, I forgot to change the DB. Okay, so let us redo the figures. $165 for twenty years equals $3,300, difference in premium is $1,283 annually.
So at 3.5% as Dalbar Studies shows, she'll have $34,531.
If at 5.0% she would recieve $39,556.
If at 8.0% she would recieve $52,689.
If at 10.0% she would recieve $64,465.
Now this is from the Motley Fool Financail Calculators, at 15% tax bracket and didn't use inflation adjustment. Now if one lives in a State that has a State Individual Tax, of course you would see a lesser amount.
So let me take the 8%, I doubt if I ask many what interest rate they could earn on their own (in a fairly safe or conservative account) many would suggest higher than that going out to twenty years. So BTID would yield $52,689 Vs the WL Policy at $44,791, a difference of $7,898. Yet she is only 45 and needs at least twenty more years at the minimum, likely 30 years if not for the rest of her life. Exactly what would that cost her at 45? Let us say she is in fair shape and can still get Preffered Rate for 20 years, the cost would be $2,735.00 from Ohio National, the cheapest out there now according to Term4sale.com. So for twenty years additionally the cost would be $54,700 or an additional cost of Insurance would quickly eat up her interest from the savings accountn She has $52,689, which at 8% annual interest she would realize about $3,161.00 but she still has to pay tax on that, so let us figure 10% or $2,845 after tax, which would leave her $110 to reinvest. $110 dollars a year for twenty years at 8%, she would make a whopping $4,313, at 15% tax bracket. She can add that too her $52.689 equaling $57,002.
So she is now 65, she has savings of $57,000 by using the BTID, yet how much would of been in the WL account if she stop paying at the age of 45 or if she keeps paying till 65? Does she still need a DB for final expense or other various reasons? Remember if her DB needs go down after 65, she can start taking money out, never pay a penny back till the DB is reduced to what she needs and never have to worry about taxation or effects to her Social Security Reduction.
Ps, the WL Contract will be supercharged after twenty years since the COI is lesser and the Dividend builtup has already happen.
Re: Why does WL have such a poor ROI
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