Author Topic: Whole life policy that pays for my early retirement?  (Read 4832 times)

FuckRx

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Whole life policy that pays for my early retirement?
« on: January 25, 2014, 04:05:45 PM »

So here is what a financial adviser is trying to sell me (yes, I'm sure he will make a fat profit off it):
Purchase a whole life insurance policy from Mass Mutual...
This would cost me $36,000/year for 7 years (2,000/mo goes to investing, 1000/mo to my death benefit)...
In year 8 until I croak I would get a payout of $14,110/yr which is tax free...
The payments are guaranteed according to their contract whatever that is worth as long as the business is viable...
I have no dependents yet or wife or spouse and I'm 35 years old. So the death benefit really wouldn't help me but the payout is making me drool.

A little about me...
I'm in the high income range, grossing a little over 300k...
I max out my 401k...
I max out an IRA which I convert end of the year...
I also put away another $33,500/yr in a Keogh plan which is like a SEP-IRA from my company...

thoughts?

stuckinmn

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Re: Whole life policy that pays for my early retirement?
« Reply #1 on: January 25, 2014, 04:25:04 PM »
I would invest the 36k over 7 years in an index fund, hope that 252k total turns into 300k over that period with returns and dividends and then apply the 4% rule to that for a 12,000 yearly payment over your life.  You get pretty much the same income plus you'll still have the 300k and you don't have to worry the issuer defaults. 

The only possible upside in buying the policy is the tax free nature of the payments but you'll presumably be in a lower bracket in 8 years when RE hits and you'll be taking out qualified dividends and long term capital gains.

sheepstache

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Re: Whole life policy that pays for my early retirement?
« Reply #2 on: January 25, 2014, 04:34:38 PM »
Stuckinn got to it first.  Yeah, $14,110 is what you would get using a SWR of 4% with a principal of $352,750 which it sounds like you should be able to get to easily if you haven't already.  Tax free is nice if you're planning on having a ton of income in retirement but I would check the fine print.  I suppose it's diversification from stocks, but if the market tanks, will this company still be good for it?

Saverocity

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Re: Whole life policy that pays for my early retirement?
« Reply #3 on: January 25, 2014, 07:56:07 PM »
It could be a good deal, whole life has cash value and the death benefit may have use in the future.  What are those two amounts at maturity? Tax free sounds good based on your high income (and assumed savings)

Nords

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Re: Whole life policy that pays for my early retirement?
« Reply #4 on: January 25, 2014, 08:17:32 PM »
(yes, I'm sure he will make a fat profit off it)
I think that's all the analysis you need to draw the appropriate conclusion.

Insurance is a risk-management and estate-planning tool, not an investment.  If you don't have any beneficiaries then you don't even have any risk to manage.

dragoncar

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Re: Whole life policy that pays for my early retirement?
« Reply #5 on: January 26, 2014, 01:32:50 PM »
I would invest the 36k over 7 years in an index fund, hope that 252k total turns into 300k over that period with returns and dividends and then apply the 4% rule to that for a 12,000 yearly payment over your life.  You get pretty much the same income plus you'll still have the 300k and you don't have to worry the issuer defaults. 

The only possible upside in buying the policy is the tax free nature of the payments but you'll presumably be in a lower bracket in 8 years when RE hits and you'll be taking out qualified dividends and long term capital gains.

Plus, the 4% rule is inflation adjusted -- I'm guessing the insurance product is not.

Saverocity

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Re: Whole life policy that pays for my early retirement?
« Reply #6 on: January 26, 2014, 02:49:24 PM »
I would invest the 36k over 7 years in an index fund, hope that 252k total turns into 300k over that period with returns and dividends and then apply the 4% rule to that for a 12,000 yearly payment over your life.  You get pretty much the same income plus you'll still have the 300k and you don't have to worry the issuer defaults. 

The only possible upside in buying the policy is the tax free nature of the payments but you'll presumably be in a lower bracket in 8 years when RE hits and you'll be taking out qualified dividends and long term capital gains.

Plus, the 4% rule is inflation adjusted -- I'm guessing the insurance product is not.

Tax free benefit will be > Inflation (I hope!)

EscapeVelocity2020

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Re: Whole life policy that pays for my early retirement?
« Reply #7 on: January 26, 2014, 03:01:33 PM »
Please fill in the blanks, because annuities currently suck in this low rate environment - is the payout COLA?  Did they guarantee this based on you longevity (any health test, etc.).  Unfortunately, as is alluded to in the earlier replies, if it's too good to be true it usually is...  but I'm still interested to see what the latest mousetrap consists of :)

dragoncar

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Re: Whole life policy that pays for my early retirement?
« Reply #8 on: January 26, 2014, 03:21:10 PM »
I would invest the 36k over 7 years in an index fund, hope that 252k total turns into 300k over that period with returns and dividends and then apply the 4% rule to that for a 12,000 yearly payment over your life.  You get pretty much the same income plus you'll still have the 300k and you don't have to worry the issuer defaults. 

The only possible upside in buying the policy is the tax free nature of the payments but you'll presumably be in a lower bracket in 8 years when RE hits and you'll be taking out qualified dividends and long term capital gains.

Plus, the 4% rule is inflation adjusted -- I'm guessing the insurance product is not.

Tax free benefit will be > Inflation (I hope!)

I'm not sure about this tax free claim.  SOME of the payment will be return of principal, but I've never heard of 100% tax tree whole life.  Plus, current income is irrelevant to tax analysis -- retirement expenses are what we need to know

Cola, it might be worth it.  But IME that is rare

Saverocity

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Re: Whole life policy that pays for my early retirement?
« Reply #9 on: January 26, 2014, 03:22:25 PM »
seems to me that the 4% rule is a goto strategy for this site, where can I read it laid out in a way that convinced you folks that it holds water (including things like inflation adjustment) ?  Thanks in advance.

hoppy08520

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Re: Whole life policy that pays for my early retirement?
« Reply #10 on: January 26, 2014, 03:49:11 PM »
It's a rip off. Here's an explanation of why from a good personal finance website. Unlike your insurance salesman, the author has no incentive to sell you anything. Whom would I trust more?

Debunking The Myths Of Whole Life Insurance


stuckinmn

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Re: Whole life policy that pays for my early retirement?
« Reply #11 on: January 26, 2014, 05:54:23 PM »
seems to me that the 4% rule is a goto strategy for this site, where can I read it laid out in a way that convinced you folks that it holds water (including things like inflation adjustment) ?  Thanks in advance.
http://jlcollinsnh.com/2012/12/07/stocks-part-xiii-withdrawal-rates-how-much-can-i-spend-anyway/

dragoncar

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Re: Whole life policy that pays for my early retirement?
« Reply #12 on: January 26, 2014, 06:15:37 PM »
seems to me that the 4% rule is a goto strategy for this site, where can I read it laid out in a way that convinced you folks that it holds water (including things like inflation adjustment) ?  Thanks in advance.
http://jlcollinsnh.com/2012/12/07/stocks-part-xiii-withdrawal-rates-how-much-can-i-spend-anyway/

Or to stay on this site:
http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/