My wife and I are both emergency physicians who max out our available retirement plans including backdoor Roth IRAs and are already putting as much into 529s as we would like. My advisor, a CFA, recently showed me an illustration for a 10-pay whole life policy illustration. In researching it I found lots on your site about whole life, but nothing specifically on 10-pay or 20-pay policies and would like to know your thoughts on them specifically. This illustration shows that I would make 10 payments of $20,000 and then at age 70 would have guaranteed cash value of $437,000 and a guaranteed death benefit of $800,000. The projected cash value is $1 Million with a $1.8 Million death benefit. Our actual life insurance needs are already covered with term policies. This is money I expect to leave to the children, but like the idea of being able to access it if necessary. What do you think? Does making a policy “10-pay” change your usual recommendation against whole life insurance for most doctors?
What is 10 Pay Life Insurance?
The returns of whole life insurance can be improved slightly in several different ways. Paying annually, maximizing “paid-up additions,” and paying the policy up in as little time as possible without becoming an MEC by using a 7-pay, 10-pay, or 20-pay (meaning you only pay premiums for 7-20 years instead of your whole life) are all ways to improve the expected return. So yes, buying a 10 pay policy not only avoids life long payments but also improves the internal rate of return of the policy. You simply get to even a little faster. But it is still a whole life policy.
I usually recommend against whole life as an investment or “another retirement account” primarily due to low returns. Since you don't have any need for permanent insurance, you really should be evaluating it as an investment. This is money you want to leave to the kids, but would like to have it available to you “just in case.” So an alternative in this case would be something like very tax-efficient stock index funds in a taxable account. Your kids would get the step-up in basis at death, so the only real tax cost would be the drag from distributions. If we assume you are 35 and will invest $20,000 per year for 10 years and then let it ride for 25 more until age 70, all at an overall return of 8% reduced by 23.8% taxes on the 2% yield, your money would grow to about $1,866,000, tax-free, at age 70.
Let's compare that to the insurance contract. At age 70, the insurance contract is guaranteed to have a cash value of $437,000 (2.59% annualized return) and projected to have a cash value of $1 Million (5.38% annualized return.) Although it wouldn't surprise me if you actually achieved that 5.38% return, I would plan on something about midway between those, about 4%, or $665,000 at age 70. That's about 1/3 of what you would have in the taxable account. If you decided to raid the stash, you could borrow tax-free from the policy but would have to pay taxes if you wanted to spend from your investment. But even after taxes, you would be way ahead with the traditional investment. The death benefit and asset protection features are nice, but certainly wouldn't be worth over a million bucks in opportunity cost to me.
Should You Buy 10 Pay Life Insurance?
I like the fact that the return is a little higher with a 10 pay policy (perhaps 0.5-0.75% higher than a traditional policy), and I like the fact that you don't have to make payments for the rest of your life. But you've still got all the other downsides of investing in a life insurance contract. As I frequently tell people, this isn't the dumbest thing to do with your money, but be realistic about what it is really going to do for you. Good luck with your decision.
[Update: Like most who really examine whole life insurance as an investment carefully, this reader decided to pass on the policy.]What do you think? Do you have a 7-pay, 10-pay, or 20-pay whole life policy? Why or why not? Are you happy with your purchase? Comment below!
CFA selling whole life insurance? That’s new. However, to be honest, we are not comparing apples to apples here – a comparison to a stock investment is not entirely accurate because a Whole Life policy cash is supposed to be low risk vs. 100% in stocks. I would instead compare the Whole Life policy to an equivalent portfolio that is 100% in bonds. We can use Aggregate Bond Index as one possible index, which has historical returns of ~6.5% though it is still a bit risky vs. Whole Life because the principal is not guaranteed.
Alternatively, we can either create a portfolio inside an IRA using, say, corporate bonds or Treasury bonds (including TIPs), or in an after-tax brokerage using individual municipal bonds (my current favorite because of high taxes paid by doctors). I think that Whole Life policies are sold as both investments and also as ‘safe’ investments. In order to get you the IRR of 5%, historically the only way that was possible was when the bond returns were even higher, by at least 1%-2%. Going forward, we can not assume past historical returns for bonds – we simply don’t know them, so the CFA’s projections are at the very least, disingenuous. Would the $1M return be guaranteed? Or would it be listed under the ‘wishful thinking’ column? I can’t even know the next years’ return on a municipal bond portfolio, how can someone know the return 20+ years out? The only reasonable assumption is to project today’s low return 20+ years forward, but that number will still be as much as 2% lower per year than anything you can get with individual bonds.
Last time I checked, borrowing from a Whole Life policy costs you 8% or so (and the interest goes to the company, not to you), and that the idea behind having a safe money portfolio is the ability to convert it into a cash flow at retirement. Whatever is left can be passed on to the children (thankfully, estate tax thresholds are high). I just fail to see the value of Whole Life to achieve any of these goals better than what can be done with, say, a municipal bond portfolio or a Roth IRA with individual bonds. Yes, it is hard work managing individual bond portfolios – it is much easier (and more profitable) selling Whole Life.
I’ve written a lot about this subject in my article about whole life not being an attractive asset class.
https://www.whitecoatinvestor.com/whole-life-insurance-is-not-an-attractive-asset-class/
While I agree that whole life is a low risk/low return instrument like bonds, I disagree that that is the only comparison that is appropriate. When the question becomes not what has similar risk/returns over the long run, but instead what you would invest money you don’t need for 30-50 years in, then you can see why someone might want to compare a whole life policy to something like stocks. There are other reasons why whole life isn’t an appropriate bonds substitute including difficulty rebalancing, liquidity issues, and the terrible short term returns in the product. (If I want out of my bonds in 5 years, I’ll more or less get my money back. Not so with whole life.)
I think borrowing costs are lower than 8% these days. I’ve seen 4-6% more recently. But the point is you can access your money tax-free but not interest-free.
On the last paragraph you indicated that the insurance company charges 8% to borrow the money from the contract and that the interest is paid to the insurance company. This is partially true in some cases, but the ones I own from mutual companies charge an interest rate connected to the prevalent investment grade interest rates, which is currently 5% on one policy and slightly less than this on another. But since these policies have been purchased from a variety of mutual insurance companies the policies are structured to continue to credit dividends and interest to my cash value, including the cash value that has in essence been loaned out to me tax free, which means even if I never paid back the loan and just paid the interest on my loan the cash value would continue to grow at the same rate as if I had never taken a loan on the policy. I would consider reviewing your source of information, as it seems to have led you to making conclusions that are not based on reality.
> “this reader decided to pass on the policy.”
Did this reader terminate the relationship with the CFA as well? The ‘A’ in CFA stands for Analyst. How come a blogging doctor with no C-anything is able to analyze it better than a CFA who studied and went through three rigorous exams in three years?
I see two ways of interpreting your comment, one complimentary and one degrading. That’s a very good question why the CFA can’t analyze it better than some yeahoo on the internet though. I agree with Konstantin that it is kind of weird to see someone with a CFA selling life insurance though.
The suggestion that this reader should terminate the relationship with the CFA should make it clear which way it goes. 🙂
I’ve seen a recent variation of this type of plan. In the scenario that I saw, you make 7 payments of $50,000, then when you turn 65 you “borrow” from the plan at 0.25% and take out $80k x 15 yrs for retirement living. This allows you to pull out the money without it being taxed at that time. Then when you die, the death benefit and/or cash value(?) go toward paying back the loan as well as the accrued taxes. It is being advertised as a “roth on steroids”. I am not a fan of whole-life insurance. Generally speaking, my feelings are that if a retirement vehicle is being “sold” it benefits the seller more than the buyer. Does anyone have any insight/experience with this type of modified whole-life insurance plan?
First, whole life is not a Roth IRA. Not by a long shot for a number of reasons as discussed here:
https://www.whitecoatinvestor.com/8-reasons-whole-life-insurance-is-not-like-a-roth-ira/
It certainly isn’t a Roth IRA on steroids. More like a Roth IRA on chemo.
Second, the devil is in the details. If I can put $50,000 a year into a policy for 7 years, and then immediately take out $80,000 a year for 15 years, well, that’s a great investment, especially if it is guaranteed. However, if I have to put $50K in for 7 years now, and then wait 40 years before I can take out $80,000 a year, well that’s a terrible return and a bad investment, even if it is guaranteed.
You’re correct about your understanding of what happens when you die. The death benefit first pays back the loans, then the remainder goes to the heirs. You get the cash value or the death benefit, not both.
Whole life is generally a product that is sold, not bought, and that’s the reason the commissions on it have to be so high.
WCI,
First off, I agree with your feelings on Whole Life. I don’t like it and can’t wrap my head around investing with it. However, I think it would be helpful to mention to this ER doc and his ER doc wife who appear to be maxing out tax deferred accounts that in some states Whole Life is protected from creditors/lawsuits. In my mind this is the only good reason to consider Whole Life as it is a “low risk” investment tool and can’t be taken away in the case of a big lawsuit as these 2 ER docs are likely to face at least once in there lifetime. What do you think?
Thanks,
Read the past few “acep now” issues. Also it is a state dependent limit. Some states protect whole life up to a certain amount, some all.
As wci has said before, the Irrevocable trust is the sure fire way to protect private assets from creditors.
I agree that asset protection for whole life CAN be attractive in some states. The likelihood of needing it due to a malpractice suit, however, is exceedingly low. Being sued successfully beyond your malpractice limits is so rare it’s newsworthy.
I am one of those who was talked into and sold a limited pay whole life policy upon exiting residency for my wife and I. It is a 20 pay policy and I have paid 2 annual premiums. My third is due for both policies and I am not making the payment. I told the individual that sold me the policies that I was going to cancel both and he is insisting that he feels I would regret cancelling the policies. Currently, I max a 401K, backdoor Roth for my wife and I, have an HSA account, have a taxable account for additional funds. I put away 25%-30% of my salary towards retirement ( I count the 20 pay in this figure). His arguements are withdrawing income from equity and bond based retirement accounts during periods of negative returns (historically 3-4 years out of 10) can have a significant, adverse effect on their future value. This may ultimately impact the amount of income that will be available during retirement as well as the amount that will pass to heirs. It’s therefore prudent to include a conservative, stable element in a retirement income strategy that will provide the flexibility to effectively manage retirement income during changing economic conditions.
Limited Pay permanent life insurance policies are not correlated to the equity market, have guarantees, favourable asset protection and cash values can be withdrawn on a tax-free basis for education, retirement income and other cash needs during your lifetimes.
Careful design is necessary to maximize these policies. Unlike traditional whole life, a Limited Pay policy compresses the time period needed to own the policy in full which reduces the aggregate cost by up to 60% and significantly increases the internal rate of return (IRR). Choosing to have annual dividends purchase paid up additions and adding additional funds using the additional life insurance rider further enhances the value of this particular asset.
Thoughts?
He is playing all the strings on the violin that salesmen use to sell to physicians. Read wci’s myth buster post.
With the amount of money that you are putting away for savings and retirement (+- 529), it may not be horrible to have the policy, so long as you understand the consequences to the myths he is telling you about.
My annual premium for both policies is $28K (total in 56K). Current cash value for both that I can get back is about 14K if I cancel my policies. Not sure what to do. Help would be greatly appreciated.
I wrote this post for people like you wrestling with this issue:
https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/
Since you’re saving 30% of your income, you can afford to get low returns on a significant portion of your savings, which is what you’ll get with whole life. I don’t find it a particularly attractive asset class, but you might. I suggest you read these posts prior to making your decision:
https://www.whitecoatinvestor.com/whole-life-insurance-is-not-an-attractive-asset-class/
https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
I don’t find the salesman’s argument very convincing. If stocks are down, withdraw from bonds. If you keep your bonds high credit quality and low duration, you won’t lose much and can always withdraw from your bonds in a combined bear market. Keep in mind what a bad year in bonds looks like- Vanguard’s Total Bond Fund has had 2 losing years in the last 15. In one it lost 0.76% and in the other (last year) it lost 2.26%. Not exactly terrifying and hardly something that would scare you into thinking you were “selling low.” Just another sales tactic. That doesn’t mean you don’t want the policy, but that’s not a good reason to keep it.
The rest of his arguments are best described as half truths. You can’t withdraw the money tax free. You can borrow it tax-free (but not interest free.) Yes, there are guarantees, but they’re not worth much (calculate the return on the guaranteed scale numbers on an in-force illustration.) Yes, using a limited pay policy increases the IRR, but probably only by about 0.5% a year. Significant? Yes. Impressive. No. Etc etc etc.
One subject I never see discussed is using the “one time premium reduction” option that is often provided by the insurer. I embarked on a 20-pay policy and have had some buyer’s remorse about it (though I have not made a decision to abandon it yet), but don’t want to just “throw away” the money I have already put in by letting it lapse, since most of the fees have already been paid and lost, so at this point I am simply throwing away the growth on what is left.
Does it make any sense to use this option reduce the premium to the absolute minimum so that you do not lapse on the policy but are not stuck paying as much each year either? I also know there are options to sell the policy to others which might also be better than just lapsing on it and eating the loss. Is this just throwing more good money after bad? Is it better to just rip the tape off, hair and all, as quickly as possible or does this consideration make some sense?
What to do when you get buyer’s remorse is much more complicated than whether or not to buy it in the first place. Have you read this post?:
https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/
If you’re going to keep it, either do everything you can to improve the return (pay annually, buy paid up additions etc) or do everything you can to minimize how much you have to pay into it (such as the premium reduction you’re talking about.) There are lots of options, and it really comes down to why you’re having buyer’s remorse and what else you’ll do with the money if you’re not paying it into this policy.
Almost all companies will let you take a paid up policy where whatever cash value is there is used to effectively buy a paid up contract for whatever the cash value will buy. In other words, a lower death benefit for which all the premiums are paid. You get life insurance, you have access to the cash value, and since sooner or later you will die, someone will get the reduced face amount. It might be much better option for you unless you have a better use for the cash value and don’t really want or need a death benefit. Call the company.
That’s a great option if what you value is the life insurance.
Kyle, I think your advisor/ agent is correct in his reasoning, and I’d keep the policy. The problem with this whole thread and the original answer to the question up top is that you can’t compare stock and bond investments with whole life on the basis of ROI alone for several reasons:
1) The death benefit is a real asset that increases the value of the estate, allowing you to free up other money (such as some of that term insurance, which will only become more costly) and even allow the policyholder to consume more of the value of other assets for themselves (from taxable retirement accounts to home equity) and still leave assets for heirs.
Note that the death benefit (in WCI’s response) was not factored into the ROI of the assets the heirs get to keep – only the cash value (at half the current earnings in this low-rate environment) was compared to projected results of better-case scenario market returns.
2) While a whole life policy will continue to deliver tax-free dividends, you’d have to move your taxable account into something much more safe approaching retirement, and your returns (minus the taxes) would be hard-pressed to do as well as a whole life policy in its later years. Anyone who leaves their money in the market to keep getting (hopefully) 8% returns after retirement is either a fool or has nerves of steel.
3) It’s ridiculous to assume what’s going to happen with taxes or a rather unstable market over the next 25 years anyways. What’s not ridiculous is trying to predict how a whole life policy might perform, as it’s a much more stable asset class. Yet the pro-stock crowd will use the average returns of the market over time, but only a fraction of average life insurance dividends. It’s a double standard that skews the comparison horribly. Average returns of whole life dividends are easily above 5%, but it is correct that internal rates of return are running more like 4.5% now, less for those over 50.
4) If you and the poser of the original question above already have maxed out 401(k)s and IRAs, I’m presuming you already have most of your retirement in the market. To put MORE in the market instead of diversifying outside of the market is a questionable decision, in my mind, especially when the market looks to be positioned for another correction. There is a reason why you can’t walk into a bank and use your stocks and bonds as collateral for a loan like you can a whole life policy. It’s about stability.
5) People complain about high commissions with insurance, but they forget that guarantees and projections are after costs, which drop dramatically after first year. Good luck getting that taxable account managed safely and delivering up to 5% after taxes and fees.
No one wants to be “taken” but when you properly understand that insurance commissions are designed to be front-loaded while equity fees (which seem tiny in comparison) will be taken year after year on the growing asset base, you get a different picture of who makes off like a bandit at the end of the day. I know advisors with “assets under management” who can’t afford to switch to selling whole life instead, even though they have come to believe it’s better for the client than selling mutual funds.
6) There are many advantages to being able to freely borrow against the cash value, as it makes a perfect emergency fund, financing fund, sleep-at-night-when-stocks-are-sliding fund, and opportunity fund. (I know people that have done very well in investment real estate by leveraging their cash value combined with a mortgage – “other people’s money” for incredible returns.) An asset that can help you build or create other cash-flowing assets is a valuable asset indeed.
7) Many whole life policies can effectively replace or supplement long-term care and disability insurance, as death benefits in many states can be accelerated in certain situations. (Again, the insurance benefits of whole life insurance get ignored in these kinds of comparisons, not unlike those insane arguments that compare renting vs buying a home without considering that you end up with an asset with the more expensive strategy and nothing with the other.)
Bottom line is, whole life insurance is NOT the most efficient “investment” when you only consider ROI – but it’s a better place to store cash than any other financial instrument out there, where it can be protected from the prying eyes of the IRS, tax hikes, lawsuits, the next Wall Street scandal, even massive bank failures. (There is a reason why banks have invested many billions in permanent life insurance, but few people are aware of this… See the research of Barry James Dyke.)
No, I don’t sell life insurance. Yes, I’m buying it, after 3 years of research. (I’m a financial coach and writer.) And yes, thousands of financial planners can be wrong. Our thinking, media, culture, government, and our financial planning institutions are so influenced by Wall St that it’s nearly impossible to think objectively. But putting money into a system designed to skim and tax your assets with NO guaranteed gains or safety (only guaranteed fees and future taxes) is risky business. Does it pay off? Sometimes it does. But when it doesn’t, you’re going to wish that you had tucked more away in your life insurance policy.
I respect NVMDs wisdom about surgeries and the need for objective advice and am sorry that he experienced himself feeling “pushed” into whole life. And I “get” that whole life isn’t a fit for everyone, particularly if you are hard to insure and/or have no heirs (and no causes you’re passionate about supporting with a legacy.) But the truth is that advisors who understand whole life (and can afford it, not everyone can) buy LOTS of it themselves. They recommend it for their parents, their siblings, their kids and their best friends.
Additionally, all ethical advisors who sell whole life will NEVER recommend a client to ditch their existing whole life policy, even if that means losing potential commission, because they truly do believe it’s such an important part (not all) of a truly balanced, diversified, and stable personal economy. (Policies become more efficient over time, in terms of cash value, thus advisors should tell you to keep it unless it’s indexed UL crap.) So I think sometimes the zest for it has more to do with evangelizing the unconverted than trying to earn a commission, though pushy doesn’t work well, regardless of motivation.
If you do keep the policy (or if anyone else has or gets a whole life policy) – you must maximize your paid-up additions to get a decent rate of return without waiting 15 years. And if you need more death benefit, don’t blend, just buy term to supplement… it’s cheaper and more efficient to “blend” it yourself.
Good thread, great forum/ website! (even if my POV is a bit different)
Here’s the hilarious thing about all this. Every supporter of cash value life insurance has their own pet policy/approach and then states all the other ones are crap. The Indexed UL guys say whole life is crap. The whole life guys say VUL is crap. The VUL guys say IUL is crap. Some guys say blend. Some guys say don’t. If I just took what the majority of insurance agents said about each of these products, I wouldn’t buy ANY OF THEM. If these supposed experts can’t agree on what a good product is and what a bad one is, perhaps they’re all bad, no?
At any rate, while my analyses of returns DO ignore the insurance aspects, they also ignore the fact that I only use the insurance rates for the very healthiest people. One of the reasons I don’t invest in permanent life insurance is that I don’t qualify for those rates (too many bad habits like climbing). My returns would be absolutely TERRIBLE instead of just low like those in the examples I use.
I’ve discussed many of your points in my series on Myths of whole life insurance:
https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
The only whole-life policy I could imagine purchasing would be a 1 pay — the only payment that any doctor can be sure of making is the one that the money is in the bank to pay for right now. (And even then, I would think that an annuity would be a better place to put it if you needed some sort of guarantee). I recently got pressured by someone I thought was a financial adviser to buy whole life, and I asked him, “can you guarantee me that I will be making just as much 10-15 years from now as I do today?” With the stroke of a Medicare pen, any of us could find ourselves with dramatically lowered income virtually overnight.
That’s why putting $20,000/year into bond funds aren’t a better of a comparison than stock funds — you don’t lose the bulk of a bond fund’s value if one year you can’t invest $20,000.
That same “adviser” actually gave me a book that purported to be about retirement and tax strategies — it was a long infomercial for whole life that actually claimed that doctors shouldn’t maximize what they put into tax-deferred accounts and should put that money into whole life instead. Seriously. Ticked me off royally.
What is the name of the book?
The problem with “one pay policies” is that they’re a MEC. That’s fine if the money is to be left behind, but not if you want to live on it in retirement.
https://www.whitecoatinvestor.com/modified-endowment-contract-a-term-you-shouldnt-have-to-know/
“Tax-Free Retirement.” Look it up on Amazon and read the 1 and 2 star comments to get a flavor of what people who don’t sell insurance have to say about it, many of whom had been given it by an insurance agent, too. It apparently is a privately published book where most of the copies are purchased by insurance agents to give to prospective clients. He even gives the game away at one point in the book where, after thinking you are probably sold on whole life if you are still reading the book at that point, to “talk to the insurance agent who gave you this book.” So it was clearly written to be an insurance sales brochure masquerading as a book.
Agreed that one pays arent something that is right for most people. I wouldnt do it. My point was merely to say that I think it is foolish to commit to astronomical premiums, even if they only last 7 to 10 years. It is just a terrible idea as a physician to assume that our compensation is going to remain constant.
From my perspective, there is no way to give an intelligent answer to the question posed until you know more information. Yes, I could write lots of words about this solution or that solution, but until I know more about the person asking the question, I cannot answer with any confidence that what I’m talking about is in the questioners best interest. It’s not that the answers are “wrong” but that without more information, it’s just a guess whether they are the “right” answers.
If you read carefully, you’ll see there was no recommendation given above, just some information to help the person make his own decision.
If you think more information can be given, feel free to state what would affect your decision to recommend for or against buying a 10 pay whole life policy. That’s what the comments section is for. But it seems silly to publish a blog post that lists a question and then says, “I can’t tell you anything because you didn’t give enough information for me to evaluate it completely.” You can provide general information and people can integrate that into their own personal situation and make a decision. If they want professional help from someone who will look at every angle of their finances and produce a recommendation, they’re free to do so. However, people who are willing to do that don’t generally frequent personal finance and investing blogs, and with good reason, why should they? They ought to get something for the hundreds or thousands they’re spending for advice.
I accept your criticism of my answer in that there was no recommendation, therefore the answers provided were legitimate. At least that’s what I think you meant. How would you feel about a five pay policy, where a lender matched your premium dollar for dollar over those five years? And then in year six through ten, paid in what you were paying earlier, plus your share? It’s a non recourse loan, paid back with death proceeds, where there is positive arbitrage and leverage. Oh, wait! That requires more information, such as where does he work, is he in private practice, how old is he, what else has he done that worked, does he already have his LTC coverage, is he happy with his investment advisor or does he think he/she is a jerk, does he have children to whom he wants to leave his assets, how is his health, is he in love with the IRS or is he willing to push the envelope a bit, does tax free supplemental retirement income mean anything to him, etc. etc., is asset protection an important issue to him? I can go on and on but until I have more information, the several life insurance solutions I could offer, including a ten pay contract, are illusory.
There’s always a way to make it more complex, isn’t there?
Yes, there is. But if you are a fiduciary, with a legal, moral and ethical obligation to do only what is in the clients best interest, it’s often necessary. Back to the original question, I have no problem with a 10 pay whole life as an investment device if the circumstances suggest its the best way to solve the clients needs. It’s all about the client, not just what I can get him to buy.
The truth of the matter is that the right thing for the client is probably no cash value life insurance policy at all, not choosing which one to buy.
I disagree. Cash value life insurance can be a very effective tool. But if you are simply trying to compare it to an investment program, you have to understand you are comparing apples to oranges. What is the time horizon for taking advantage of the accumulated funds? Is it 3 years from now, or 23 years from now? Have you paid for it with after tax dollars or with before tax dollars? What tax bracket are you in today? Can you pay for it with borrowed funds and gain leverage and arbritrage, or must it be paid for with your money? Again, more information is needed to ascertain whether or not it meets a clients needs.
Sure, it CAN be an effective tool, but the situation where it is a good idea is far more rare than those who benefit from selling it would like to admit. For every use of whole life insurance, there is a better way to do it. And borrowing money in order to invest in something that will provide returns of 3-5% (after decades) seems less than ideal. Sure, get more information from the client. Then anyone who is unbiased will see it isn’t a good idea, most of the time.
We can probably go round and round on this till the cows come home. As you say, “most of the time”, its not a good idea. I’m OK with that. How about a 9 pay life policy, or an 11 pay life policy? It’s all the same, as is a 1 pay or level term to 110. It’s what works best for you, mindful that most of the time you’ve got to earn more than just the after tax cost of the premium. Done the wrong way, you can find yourself underwater in 10-15 years, with the death benefit less than less than the accumulated value of the earnings required to buy it. I’ll end with this thought: “When is the best time to buy life insureance?” The answer: “About three months before you die. Now, when do you want me to come by and take your application?”
The best time to buy life insurance is when you have a risk (generally loss of a bread-winner) you need to insure against. When that risk no longer exists, it’s generally best not to still be buying/owning life insurance. Very few need permanent life insurance, and once they understand how it works, few want it given the alternatives.
What I am understanding you to say is that for any given construction of whole life, it is not a good idea for any given person. What you seem to be saying in more indirect terms is that for most people, there is some way to construct a permanent life insurance policy in which it IS a good idea.
My experience with financial advisors who sell whole life at all is that it is always pushed. And if you explain why you don’t think it is a good situation for you and ask to move on, they will come back with another way to present it that they think will overcome your objections. And if you explain why THAT one isn’t a good idea either and that you really aren’t interested, they will present another, or attempt to convince you that something about your logic or presuppositions is wrong. By the end of the experience, the frustrated salesman is so put out that it is hard to have a working relationship on anything else — and any possibility of my trusting him to be straight on anything else is severely damaged.
This observation is based on perhaps 6-8 different consultations I had during two critical junctures in my life when I felt I wanted some expert advice.
Here is what I would ask you: How often do you tell physicians that whole life is not a good idea at all, in any form, especially when comparing it to the opportunity cost of not having money to invest in other things? When non-insurance salesmen are involved, it is a very high percentage of the time that doctors are advised not to do it.
I am a surgeon, and I am paid for doing surgeries. In a shallow sense, it is to my financial advantage to talk every patient I see into some form of surgery or another. That is an extreme example, and there are more subtle forms of it, of course. There are unfortunately surgeons with that kind of mercenary attitude, and they turn my stomach. I meet their patients when they come to me with complications that the other doctor clearly didn’t prepare them for.
If there is a reason to avoid a surgery, I discourage it, and if there is a choice between two treatments — one of which is my surgery, and another of which is, say, radiation, I attempt to portray both choices as honestly as I can, and encourage them to get an opinion from someone who does the other treatment, saying that I can’t do full justice to explaining the other options. I ALWAYS give the patient the arguments against doing the surgery in question (this is at the heart of informed consent). Do I “lose” patients that way? Of course. But I can sleep at night.
I can’t speak for all physicians, but for me as someone who nearly every day is faced with advising patients between options, one of which will earn me more money, and others of which will not, whether an adviser pushes whole life, and how hard they push, has almost become a litmus test of whether I can trust that adviser. I have become quite convinced that in my situation, any form of permanent life insurance is, in the very best presentation and scenario, a 50-50 proposition. And yet, I have yet to have it presented in that fashion by an “adviser” who is really a dressed up insurance salesman. And I am always completely upfront with all of my existing assets, goals, investments, risk tolerance, etc. In other words, they have all the same information that I do, and yet the answer is always a recommendation to buy some form of permanent life insurance. They amazingly do it even when I let them know in advance that I am strongly prejudiced against any form of whole life and really don’t want to talk about it.
When I am dealing with an insurance salesman or a car salesman, I know that in spite of “wanting long-term customer satisfaction, blah, blah…”, a huge part of the motivating factors of the person I am dealing with is whether he/she will get a commission, and how big it will be.
We doctors tend to assume that a financial adviser is going to be doing the same thing that we do (excepting again those unethical types) — and when we discover that we are not, it is an embittering experience, even in cases, like mine, where I have never taken the bait.
For the record, I do believe that insurance is very valuable. I spend a lot of money on it every month, I have a term life insurance policy that is nearly double what most insurance company calculators say that I need, and I signed up for a term that would easily take me past the point where my mortgage is paid, kids are through any conceivable school, and time has been allowed to build up an investment nest egg to replace it after the term expires. It is a key part of my long term financial strategy.
If the policy is through a mutual company I would not suggest cancelling it. The problem is that you are considering it a bad investment instead of what it is, a high powered tax free savings account. You made decide to buy a practice or a farm or some other investment, and all of your money is tied up in qualified retirement plans. Having access to cash is crucial to building a true fortune.
When held until death (necessary for tax reasons, usually) a whole life policy can be an excellent investment for one’s surplus non-equity funds. The classic 10 Pay Life, as with other whole life policies, is, however, heavy with commissions and related sales costs. With “blending” one can produce the equivalent of 10 Pay Life (or virtually any other payment stream) at minimized commissions. Rules about blending differ from insurer to insurer. See http://glenndaily.com/documents/blending.pdf
Welcome to the blog Mr. Hunt. Your reputation precedes you and thank you for your excellent work.
The issue with blending is that you have to have a need for term insurance for it to work out well. Plus, you’re stuck with the issue that the company whose policies you’re blending probably doesn’t offer both the best term insurance and the best whole life insurance, so by necessity, you’re paying too much for one or the other. Obviously, commissions are lower on paid up additions than on the base whole life policy, but that’s a well-known way to slightly improve returns on whole life insurance, just like paying annually instead of monthly. The problem is you’re starting from such a low base return-wise, that even significant improvements don’t get it into the attractive range given the other downsides.
As written in many other parts of this site, I disagree with your interpretation of “excellent” with regards to whole life as an investment. It’s only excellent if you highly value the benefits of whole life (ability to borrow tax-free but not interest-free, asset protection, death benefit etc.) and don’t mind the very significant downsides (primarily low returns, underwriting, and the lifelong commitment required to get even those low returns.) Whole life insurance is a TERRIBLE investment for me personally because I’m very expensive to insure, I have plenty of other tax-advantaged/asset protected accounts to invest in instead, and I am quite tolerant of market risks. It’s pretty tough to get excited about an investment/insurance product which can only guarantee 2% returns if held for decades. Even the projected returns on cash value on most of the policies I’ve seen lately are in the 4-5% range after 4 or 5 decades. Seems silly to commit to a product for the rest of my life when I don’t need the insurance and that’s all it is going to do for me investment-wise.
It is also noteworthy, as you’re well aware, that the vast majority of whole life insurance policy sales to physicians do not take advantage of the various ways to maximize returns. Thus the reason I was staring at a 33% cumulative loss after 7 years in the policy I was sold by a “friend.” They’re instead designed to maximize commissions. Complexity, unfortunately, does not favor the investor.
Kate – you are wasting your time. While I agree with virutally everything you said, the host of this conversation is unwilling to agree there are times when whole life, in any form, is a legitimate solution to a problem. I’ve been at this for almost 40 years and I’ve had many a sophisticated attorney approach me for solutions to his clients problems. Sometimes it calls for life insurance; sometimes it doesn’t. As for equity indexed life, you really need to look at the state of the art contracts; they will replace UL just as UL replaced WholeLife back in the early 80’s.
Those times are so rare that if those were the only times permanent life insurance were sold, 90% of life insurance salesmen would be out of business.
Tony, you castigate WCI for being “unwilling to agree there are times when whole life… is a legitimate solution to a problem.”
First off, that isn’t true. Most of the time, he simply points out that in a given situation (real or hypothetical) being discussed, there is a non-whole life solution that is at least as good and most of the time, better. That is not the same as saying that whole life isn’t “a” legitimate solution. Just that a combination of term life and an investment portfolio that is low in cost and high in equities is almost always superior.
Secondly, I can’t help but note that you completely ignored my direct question of how often you tell a physician sitting in front of you that whole life is not a good idea for them, just as we physicians routinely tell our patients that a given treatment from which we would make more money is wrong for them.
It seems pretty clear from your other passionate posts that you haven’t met a client who doesn’t, in your view, need whole life in some form. Forgive me if that produces severe skepticism in me.
So even if WCI was saying that there is never a place for whole life (which again I don’t think he does say), what makes you any different from him? You are just a 100%er in the other direction.
And as to your “sophisticated attorneys” approaching you for whole life for their clients, how many of them get a cut on your commission? My tax and estate planning attorney was the top guy in the state that nearly all of the high income earners in our part of the state (including other attorneys) in every line of business used to help with financial planning, and never once has he ever mentioned whole life to me or my wife.
To ask a less peckish question, how many of those sophisticated attorneys with difficult to solve problems for their clients are representing clients like the average physician reader of this blog? Most readers will not be in on of the few theoretical situations in which whole life might be superior to a more traditional approach to investing for retirement and insuring themselves.
Dear NVMD – I just reread your comment where you suggested I was castigating WCI. I had forgotten about your question about whether I had ever told a physician in front of me that whole life was not a good idea for him. For the record this has happened often. But you need to understand the context which put me in front of the MD in the first place. I’m typically there because a colleague or other advisor has referred me to him or her. My first goal is to ask lots of questions, to get them to talk with me and help me better understand why they agreed to talk with me in the first place. Ultimately, I want them to think of me as a trusted advisor, someone they can rely on to help them achieve their financial goals. Some of that only comes from lots of questions because they have never before come to terms with why money is important to them. For some it’s not very; for others it drives the train. If they decide I’m not that person, that’s OK. I learned long ago that every “no” answer simply gets me closer to the next “yes.” And along with way, I stay busy and get paid for it. Is it a perfect world? Is it always fair? No, but it’s the only one I know and I have a cadre of clients and friends who think I’ve done good work on their behalf. Some of them have term insurance sold to them by me or someone else, some of them have permanent insurance sold to them by me or someone else, some of them have no insurance. If you don’t approve, I really don’t give a damn.
Yes, Tony, I am figuring that out! Our host has some pretty strong opinions and seems to lack empathy for the many legit uses for WL as well as those for whom it may provide solutions to their particular concerns.
As an entrepreneur and real estate investor, I’m way more concerned about liquidity and ability to borrow against savings than trying to chance the market for higher ROI. And as a mom I have different wishes and priorities than someone with no heirs, so the death benefit has real value to me, whether or not I’m the one spending it. And after spending 4 years caregiving my nearly-broke father, I sure wish he hadn’t cancelled his whole life policy years ago, it would have given him SO much more flexibility. He has some limited investments, but of they didn’t last past his first extended hospital stay.
Kate – all of us have unique circumstances that lead us toward what we think are conclusions. I was criticized when I first entered this WCI site because I wanted to ask questions to determine what was in the client’s best interest. The assumption was I’d blurt out a solution and turn on my salesman’s charm and BS to try and force a sale. Not the way I work, but some do and it seems our host was put in that awkward position some years ago and he/she has a profound bias against anything one of us offers. But I’m hopeful that a reasoned approach will cause a re-think. Anyway, I got an email with comments attributable to you about universal life and its successor, index universal life. There’s good stuff out there and there’s not so good stuff. Again, unless and until you devote the time and energy to become an expert, you have to learn to rely on the people skills you do have to evaluate who among those talking to you can be trusted.
There are many legit uses for whole life, but there is almost always a better way to deal with that financial issue.
Dear NVMD – OK, sorry, I didn’t intend to Castigate, but as I’ve followed this to now, my impression has been that you have no use for whole life under any circumstances. I now accept that you might not have that position. All the same, I earlier posed a set of circumstances where the use of BEFOre-TAX dollars might be used, along with a non-recourse loan that leverages your dollars 3 to 1, such that at a later date, a tax free stream of income happens if you live and a tax free distribution to your family happens if you don’t. It got no response. Before that I was “castigated” for trying to make it complicated by insisting I needed more information to give an intelligent and reasoned response to the original question about 10 pay whole life. Even your comment about peckish questions and “sophisticated attorneys” carries with it an element of derision about my 40 years of experience and helping others find solutions to their problems. No one gets a cut of my commission since whenever it happens, I earned it. BTW, what is your frame of reference when you talk about commission? If I heavily front load a permanent life insurance policy because that adds value to the clients outcome, did you know it dramatically reduces my commission %? How much is enough? We all carry a bias of some sort around with us, usually formed by what has worked for us in the past and what has not worked. I simply encourage you to acknowledge that some of us are legitimate practictioners of the financial arts. You are doing your audience a disservice if you heap derision on those of us who understand both investment and insurance and can effectively blend the two for the benefit of our clients.
Dr.White coat Investor, Would you advice whole life policy/Indexed universal policy to parents with a disabled child or would you recommend term even to them?
They need a plan to care for that child. If that can be done with regular investments, fine, but many of those people have a permanent need for life insurance. Those folks should buy a permanent policy, probably a no-lapse guaranteed universal life policy.
please answer soon.
Sorry, was in Europe.
Assumption #1: Life insurance is NOT principally an investment, but a tax favored solution for other existential threats of a financial nature. Assumption #2: Your disabled child does not have mortality issues associated with his/her disability. Assumption #3: You have a solid current source of income that allows you to properly prepare for your life, absent the burden of a disabled child. Assumption #4: You have not yet addressed the existential threat posed by your premature death, which means you need to insure your life to protect your family against YOUR loss as an income source. Answer: Most likely a 30 year level term life contract with a company likely to have a competitive permanent option to upgrade to if in the next 30 years you develop mortality issues yourself and need to continue coverage into year 31 and beyond.
When I convert to permanent life after 30 years, they will charge an arm and a leg. I would rather do a lumpsum pay of 75k for 1 Million Indexed universal life and forget about it.
The issue with anything indexed is that no amount of cash value is guaranteed, you must be VERY careful that the policy does not “implode” if the market performs poorly. After examining a friend’s husband’s policy (in which they have paid the minimums for many years and are still paying) and seeing the policy is expected to be worth ZERO by about the time he hits 80 (no death benefit OR cash value, because the rising insurance costs are draining the cash value) well, I wouldn’t touch an IUL policy with a 100-foot pole. More at this URL: http://partners4prosperity.com/universal-life-vs-whole-life-insurance
The problem w IUL is that insurance and the market don’t mix together well, and the companies have a whole lot of protections for themselves and few guarantees for policyholders. My understanding is that UL policies are changing, putting in more protections for policyholders, which functionally means that they are acting more like WL policies.
Kate – you can’t simply lump all universal life or indexed universal life together. It all boils down to math and the assumptions used when collecting information. It’s easy for someone to think they are comparing apples with apples when in fact they are comparing apples with oranges. And it’s not helpful when someone is doing their best to keep you confused.
There often is a guaranteed minimum cash value. You’re right that IUL is very similar to WL.
Agreed, the cost of a permanent life insurance policy on your life will cost a lot more 30 years from now. Term insurance is cheep since it’s actuarilly known that you probably won’t die. So they get to keep your money. With permanent life insurance its far more likely that when you die, they will have to cut a check to someone. Keep in mind this is all math related. Since the insurance company can’t simply print money when someone dies, they have to build reserves over time. 30 years from now, you are 30 years closer to being dead. And there is a little matter called compounding. A fixed amount of premium, growing at interest, will be a much bigger pile 30 years from now compared to the pile 3 years from now. The question you have to ask yourself is whether the trade off between what it costs you is worth the benefit. If the answer is no, then you move off into the sunset without life insurance. If it is, you then explore your options to determine how much life insurance can be had for a given amount of money after-tax. I have ways to show you how it can be bought with before-tax money, but conditions have to be right to allow you to qualify.
Why don’t you send me a guest post on the circumstances where life insurance can be bought with pre-tax money. I think readers would find it interesting.
Question: What will the typical actual death benefit be in, say, 35 yrs on a $1 million policy that one pays a single lump sum $75k premium for?
If waited long enough, DB could be a few million dollars(based on the cash value)
Aah. Logic again rears its ugly head. I personally own a univeraal life contract, with a solid company, which was converted from a 10 year level term contract. When I converted, I’d developed a health issue which was restrictive, but the term had been issued Super Preferred Non-Smoker. The contract doesn’t build my cash value; it looks and smells very much like a level term to age 110. There is no way in hell I can invest the premium over the next how ever many years to generate the after tax lump sum that will eventually arrive. If you are motivated to question life insurance as an investment, you won’t find many good answers. If you are motivated to deal with existenstial threats of a financial nature, permanent life insurance can be a fantastic answer. The size of the ultimate pile of money 35 years from now depends on too many variables for me to give you an intelligent answer or even a guess at this point. Just know it will be a big pile and unless they change the rules, it won’t be taxable.
Tony, believe it or not, the question was not a hostile one. If I had a disabled child who would need my financial support after I died, I would probably consider a policy of this sort. What was in my head was actually whether a $1 million policy would be big enough to provide support to a child who would live a normal life span.
My need for life insurance will end well before my term policy expires, so this situation doesnt apply to me.
To generate returns beyond what could ever be generated in the market (jyst to hit a million by 35 years requires a return higher than would be reasonable to count on from a conservative stock portfolio) requires that the company counts on a lot of people dropping their whole life policies before they die, correct? There is no term to expire naturally expire, which is how term insurance covers their payouts and makes a profit besides.
Sorry about the typos. On my handheld. Also, why are the rules different for whole life than for term when it comes to a child beneficiary? Wouldn’t at least the first million be taxable for a child?
I’m not sure where you got the idea that life insurance proceeds are taxable. They aren’t.
I did not take it as a hostile comment. I now think our prior history happened because I forgot the name of the entire effort is “…Investor.” And I agree that 95% (?) of the time, life insurance should not be considered an investment in the traditional sense. To arrive at an answer to the question I think you are asking is to first determine, in 2014 dollars, the amount of money needed to sustain a standard of living suitable, in your judgement, for the child. Then make some basic assumptions about annual cost of living adjustments, and some point in the future when this pile of money has to show up. That in turn suggests a time frame for how long it has to last. The industry wants to tell us that a 4% withdrawal rate is necessary to assure the beneficiary doesn’t run out of money. Fear is being used to sell this idea since it means a pile that in my professional judegement that is larger than necessary. Working backwards, taking into account a reasonable life expectancy for your child following your death, you come up with a number based on what you expect to equal the purchasing power of a dollar in the future year in question. If you now use 6% as a reasonable ROI, you arrive at how much life insurance you need. Then you shop for what you think will get you there and evaluate your options. I understand this is far from definitve, but it’s a starting point.
No, our history happened because of my personal experiences with insurance salesmen masquerading as financial advisors who, even though an objective observer could see whole life wasn’t the right thing for my particular situation, wouldn’t take no for an answer and kept trying to shove it down my throat. I wasn’t talking to them because I needed life insurance, I was talking to them because their firm had been engaged to manage 401K programs in which I was enrolled, and because I was open to using them for non-tax-deferred investing purposes as well.
The fact that they wouldn’t listen to me and were willing to alienate and completely lose me as a client on the off-chance that a last-ditch effort to sell a whole life policy might pay off? Well, that told me that whole life was mainly a big cash-cow for them, and turned me into a major whole-life skeptic…
You seem like a reasonable guy that if I came to you with a scenario that needed a death benefit, you would probably steer me to a better product than I could find on my own.
I am still curious about why whole life is tax-free to a child beneficiary while term is not.
Dear NVMD – along the way I began to assume that something like what you described might have happened. And after hearing your story, I fully understand your state of mind re insurance agents. All I can say is that it happens from time to time, as I suspect it does in the medical community. Probably more in insurance, but a global comdemnation may do you more harm than good if you automatically discount anything and everything said by the rest of us. As for your question about the tax consequences of term life vs whole life for children. Where did you get this? To my knowledge, there is no alternate tax treatment for death proceeds. Life insurance premiums are normally not tax deductible ( that’s not to say before tax dollars can’t be used to buy life insurance in some exceptional circumstances ) Because premiums are paid for with after-tax dollars, the proceeds are tax free. At least that’s how its always described and how it has been known to me for almost 40 years. Under state and federal law, life insurence proceeds are not considered taxable income. Period.
Sorry, you are of course right about income tax. What I was thinking of was estate taxes. I was told (perhaps incorrectly) at some point back when I was first buying my term insurance that when your children rather than your spouse are the beneficiaries of your life insurance policy (such as if you are single or if your spouse dies first or if you both die in the same car crash), it is counted as a part of your estate.
So a multi-million dollar life insurance payout can easily push the estate of a physician who has been a dedicated saver and invester into the range where the 40% estate tax rate kicks in (not to mention that there is no guarantee that a future Congress and President won’t dramatically drop the estate tax exemption back to where it was a decade or so ago).
If this is true, I assume it applies equally to term and whole-life policies — and if it isn’t true and life insurance doesn’t count as part of one’s estate, I am suddenly very happy!
The estate tax applies to the person who dies. If you have a husband and wife ( now it can be wife and wife or husband and husband!) there is an unlimited exemption if it passes to the spouse. This used to not be the case, but is now. Presumably at the death of the second spouse, the estate will have grown and so the IRS gets more money. Since each person gets a $5M plus exemption, then there is a combined $10M exemption, adjusted for inflation. Sometimes planners cause some assets to flow into what is known as a bypass trust at the first death, so the spouse gets to use the money during their lifetime, but the asset bypasses the estate of the spouse.
The fundamental understanding you need to understand is that the estate tax is a “voluntary” tax. Your estate only pays a tax if you couldn’t be bothered to plan properly so that NO estate tax would be due, whether you hava a spouse or not. But there are people who would rather their kids pay the IRS millions of dollars rather than spend $100K on planning to avoid the tax. Stupid.
But it matters not whether the life insurance is term or permanent. I’ll avoid the phrase “whole life” since it applies to only one kind of permanent contract, though 50 years ago it applied to any permanent contract, before universal life and other kinds of permanent contract were invented.
The real issue for people in your circumstances is, if there is a need for life insurance to solve an economic problem, is what is the best way to pay for it. That’s where people with my skill set can be useful because for many of you, it may make the difference between being under water when the death benefit happens instead of being ahead of the game. Ideally, you paid much less in after-tax dollars than you get back in income tax-free dollars, even if you can’t spend them because you’re dead. Make sense?
Estate taxes aren’t always avoidable, but I agree that many times you face the decision of giving money to heirs early or to charities OR paying estate taxes.
And the estate tax exemption was way, way lower when I first bought my term life policy. It’s obviously not nearly as big a concern now as it was back then.
For those of you who might have owned life insurance to minimize estate taxes, I encourage you to read this article from a respected estate tax attorney. http://goo.gl/XbYjz4
The article, while not bad, is more about irrevocable trusts than just buying a life insurance policy. I’ve written about the subject here:
https://www.whitecoatinvestor.com/you-dont-have-to-buy-life-insurance-with-your-irrevocable-trust/
Tony, you’re dramatically underestimating how often this happens to doctors. It is rare that I run into a doctor who HAS NOT had this experience with an insurance salesman.
Re overestimating life agents “sell” bad stuff to doctors. I’ll accept your assertion it happens all the time. But I don’t think I’m guilty but maybe I am. And I doubt if the other agents in the circles I frequent are any more guilty than I may be. If someone wants term coverage, I’m happy to provide it. But I’ve never pushed anyone to buy whole life. My goal years ago and is today to provide sufficient information for a prospective client to make an informed decision. This has worked out fine for me over the years. Referrals from a client of 30 years are nice to have.
I agree with the methodology. I suppose the ideal would be to have a trustee that could manage the trust funded by the life insurance at your death for the benefit of a disabled child. It could be very simple, of course, if the life insurance proceeds are used to purchase an inflation-indexed SPIA. Look at income needs and SPIA rates and it should be quite easy to see how much life insurance you would need for the disabled child.
4% withdrawal rate? I dont buy that idea, the DB amount is invested and only the returns are to be used to live on. Thats how the child will never run out of money.
Who said anything about a 4% withdrawal rate? The prevailing argument in the industry is that if you invest the money and withdraw at 4%, you will never run out of money. No one talks about an increasing cost of living and then dying with the same pile of money you started with. Why is that important unless there is someone else who needs the money or there is a recipient who needs the money? If I’m now 85 and I have no children, or anyone else I really want to have the money, why die with $1M in the bank? Either I needed less insurance proceeds or I needed to spend more along the way. In my opinion, 4% is a too conservative ROI, but it’s promoted by the insurance companies to make you buy more insurance.
You have oversimplified the concept of the 4% retirement rate. The Trinity study showed that a 50/50 portfolio has a low chance of running out of money in 30 years at a 4% withdrawal rate. If you want a “never run out of money” scenario, the rate is lower using historical data and perhaps even lower given current yields.
Hello WCI – I trust your trip to Europe was pleasant. Yesterday I came within 15 seconds of putting any email from WCI into my spam bucket. I may still since for the last several days two people on the 10 pay life thread have become so annoying as to make this whole effort to bring some clarity to the investment vs life insurance issue a total waste of my time. For the record, i’m at a stage of my life where a sale or not a sale has absolutely no bearing on my standard of living. Since I found close to a dozen comments from you this morning, I’ll attempt to respond to each one with as little overlap as possible. To answer your comment about the 4% never run out of money question. There are so many variables in a 30 year time horizon as to make a realistic prediction impossible. No need to start itemizing them here. From a personal perspective, and it is just that, a personal perspective, I have a friend of 50 years who trades currencies. Over the past 40 years the least calendar year ROI he has generated has been a plus 25%. So far this year he’s up over 100%. For 99% of the public this suggests something both incredibly risky and perhaps illegal. I have no idea how he does it, but I don’t need to know; all I need is to trust him and make sure that if he has a heart attack, his trades immediately get cancelled and converted to cash. The other issue regarding the 4% withdrawal issue is that of timing. Depending on when you start the withdrawal process, you may find yourself out of money in 15 years or you may find yourself at age 90 with more money than God, knowing you could have spent three months in the south of France every year had you only known, but now it’s too late. 4% is a good starting point, but that’s all it is.
To any and all readers of this thread. Here is an article I found today from early in 2013. It may help some of you. http://goo.gl/EASXoU