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Tricia C.

Fix Indexed Universal Life Insurance

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So someone from Public Employee Retirement Assistance (PERA) https://publicemployeeretirementassistance.com/  contacted me and said that they were going to educate me on 403b options offered by my employer (Prince George's County Public Schools). 

The initial email invite read: 

Quote

 

 "Each year, as an employee of Prince George County Public Schools you are eligible to schedule a phone call, teleconference, or in-person meeting off campus with a representative for         answers to your specific state, federal and individual retirement benefit questions.

At your consultation, you will be provided with information that will tell you what your expected income will be from MSRPS when you retire, and how much longer you will have to work. That, along with advice on the best ways to utilize your 403(b) options with your MSRPS and/or Social Security benefits."


 

What I thought would be a non-biased discussion turned out to be a little of a sell on a fixed index universal life insurance policy with National Life Group. She called it a "growth annuity" that could help diversify my existing investments (403b, Roth, CDs, savings). She suggested that I shift some of my contributions from my Roth (for starters) into the IUL she seemed to be soft-selling.  That's when the red flags started popping up for me. She made it sound appealing though that you get most of the benefits of a bull market and no risk to cash contributions during bear markets. She also talked about there being tax advantages to this type of investment: namely that money borrowed on this policy are tax free, and that you did not have to repay the loans (just that they would reduce the death benefit.) Lastly, she indicated that this was a good way to have a fixed income component that I could not outlive, and that this was a way to help cover long-term care costs (although didn't really get into the specifics on this point.) 

My questions are as follows:

  1. As a typical sales pitch went, there was a much greater focus on the benefits of this type of investment and very little information on the downside of this type of investment. What is the downside to investing in a fixed index universal life insurance policy?
  2. Is this type of diversification even needed beyond what I'm already doing?
  3. How else can I ensure that any future long-term care needs are met? 

I really value the knowledge I have gained from this forum, and hope you can help me understand more about this type of investment (i.e. under what circumstances would an IUL make sense,) and any other light you care to shed on this subject.

Thanks,

Tricia


 

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Years ago I received a postcard in my school work mail box and it said basically that "the school board had just approved a new 403b saving vehicle and I was eligible to participate in it. It was a cleverr use of wording to create the impression that their product was endorsed by the school district and that I should call immediately. It was BS. Just an insurance annuity salesman trying to trick teachers into investing in a product that person offered.

Look, I don't exactly know what this fixed indexed annuity university life policy is all about.. Probably even if I studied the details it would be hard to understand what I was getting into. Complexity and lack of transparency is the name of the game of these products because simply put, they are bad products and they know it and you can do without them.

My advice is stay far away. All you need is an index fund portfolio . Vanguard , Fidelity, Aspire (self directing into Fidelity or Vanguard Index funds) are the way to go for retirement savings.  (If you teach your defined pension plan is an annuity).Save every month as much as you can in these low cost index funds and you will be fine, A 3 fund low cost  index portfolio or a target fund is all you really need  for diversification.

Also one more bit of advice, keep your insurance purchases totally separate from your investment purchases. Any company That combines investment options with insurance products is a no go in my opinion. Investments should be easy enough for  5th grader to understand. If it's more complicated than that its probably a rip-off. I'm not sure what kind of insurance you think you need beyond health insurance but be careful that you don't buy something you absolutely don't need. If you think you need long care insurance do your research on your own free from a salesperson's  influence.

If I may add, I am doing my father in law's taxes as he is in his eighties and last year an accountant charged him $2500.00 to do his taxes. I did them using turbotax for about $100.00. His financial advisor who is associated with a banking institution that has recently been cited for ripping people off and was fined, had this 83 year old man in 48 mutual funds. All repetitive and high fee and a 100% aggressive stock portfolio.And the advisor did a lot of buying and selling in his portfolio without his knowledge. His taxes are a mess and overly complicated thanks to an "advisor"

Run away from these people. I know I didn't answer your questions directly and to the point but I hope I still made myself clear and answered your questions. I'm sick of these people. 

You must keep your antennas up and learn all you can on your own or somebody somewhere will take advantage of you. As another example, some guy tried to sell my dad when he was alive two cemetery plots for him. He(same guy same company) had already sold him a plot less than a year ago before approaching him again.  I'm glad I was able to step in. I also am sick what some do to our senior citizens.

Tony

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FINRA, the Financial Industry Regulatory Authority, has issued a warning on equity index annuities, which I think is what you are being offered. They are very complicated, and hard to understand. They pay a very high commission to the insurance reps that sell them. They are misleading in claiming to protect against a stock market downturn. They do not provide the full upside of the market. These annuities have the worst reputation on 403bwise of all the various types of annuities. Please stay with the investments you are using (403b, Roth IRA, CDs). Hopefully the 403b is a custodial account and not an annuity. I agree with Tony—don’t combine your investments and insurance products.

https://www.finra.org/sites/default/files/InvestorDocument/p125847.pdf

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This product being sold to you is so bad that I’m not going to spend my energy addressing it.

It isn’t clear what investment accounts you currently have or if you have a spouse who also has access to employer based plans.

So in the absence of information I’ll tell you this:

1. Omni is your school district’s third party administrator (TPA). They’re responsible for administering the school’s 403b and 457b. You can view the list of vendors your school has approved here.

2. I documented the foundational knowledge you need in my Investing 101 page here. As others have said, you need total market index funds that essentially allow you to own a sliver of every publicly traded company in the world. If you can’t clearly explain it then don’t buy it.

3. You can contribute $6,000/year to an IRA that you open directly with somebody like Vanguard or Fidelity. This will be your cheapest option.

4. You can contribute $19,500 through your employer’s 403b. Security Benefit’s NEA DirectInvest is your best option (it’s an elite plan) and barely more expensive than the IRA. I documented that plan here.

5. You can contribute $19,500 through your employer’s 457b. Aspire is your best option (it’s more expensive than your 403b option, but still absolutely worth using). I documented that plan here.

6. If you have even more money to invest then post and we will chat about taxable accounts.

7. If you want to have a more detailed discussion about types of accounts (taxable, 403b, 457b, HSA, IRA, etc) or tax treatment of certain accounts (Roth vs Traditional) then post and we’ll get into it. 

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🌟You guys are rock stars🌟 Thanks so much!!  So grateful for all the helpful advice and information.  

And to Ed,  I did switch over to Security Benefit NEA Direct Invest last year for my 403b with your advice, and have my investments under the Vanguard funds you described in your article.  (I may have a follow up question to that about allocations, but will post it separately under a different 'topic')

 

 

 

 

 

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10 hours ago, Tricia C. said:

🌟You guys are rock stars🌟 Thanks so much!!  So grateful for all the helpful advice and information.  

And to Ed,  I did switch over to Security Benefit NEA Direct Invest last year for my 403b with your advice, and have my investments under the Vanguard funds you described in your article.  (I may have a follow up question to that about allocations, but will post it separately under a different 'topic')

 

 

 

Good for you  Tricia !! Direct Invest,  that's a great option too so you are doing the right thing. The key now is to maximize your savings. Make it a top priorityand things will work out well for you. Don't know your age but if you are of a certain age you can accelerate your  403 savings beyond the limitations. Its called the catch-up provision. You can also invest in a 457 to the max independently of the 403b.And don't let the current economy scare you . Stay the course. Keep saving!!!

I made many mistakes but the good thing is, even if you make mistakes and get fooled early on ,if you adjust your course like you did you will make up for any lost time invested in those BOZO insurance annuity high fee products.

Tony

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Thanks, Tony!  

Both my husband and I are turning 45 this year. At what age can you qualify for the 403b catch-up provisions? 
My next question (which I will try to articulate in a separate post) is how to adjust our portfolio of mutual fund choices to meet our age group. I know as we get older, more of our choices need to turn to more conservative funds.

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2 hours ago, Tricia C. said:

At what age can you qualify for the 403b catch-up provisions?

A person over 50 can contribute an extra $1,000 to an IRA and an extra $6,500 to employer based plans (401k, 403b, 457b, etc).

2 hours ago, Tricia C. said:

I know as we get older, more of our choices need to turn to more conservative funds.

This is a rule of thumb that I don’t find any value in. The argument for going more conservative as you approach retirement is an emotional one. If you were stock heavy and had enough money to retire when the market crashed then you’d have to work longer and nobody wants that.

Well what is enough money to retire? It isn’t a magical fixed number; it is dependent on how aggressive your portfolio is. You can retire with less money using a stock heavy portfolio than you can using a bond heavy portfolio because stocks will provide larger returns.

So sure if a stock heavy portfolio crashes as you approach retirement, you will have to work longer than if it didn’t crash. However, would you have to work longer than you would if you had a lower performing bond heavy portfolio that required you to save more money to retire?

If so how much longer would you have to work? Is it worth it to give up the probable outcome that the stock heavy portfolio will let you retire earlier in order to protect against the improbable outcome that it might require you to work a bit longer? Remember, crashes are way less frequent than rallies, after all we invest in the market because on average it goes up.

In my view bonds are only useful to prevent behavioral errors. If you know that losing half your portfolio would cause you massive psychological stress such that you sell low and buy high then you need bonds in your portfolio. Therefore, I don’t see any logical/mathematical reason bonds should increase with age. I could be swayed if somebody made a quantitative argument, but I’m yet to hear one. 

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