Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
How much do I sacrifice?
Old 01-23-2004, 08:16 AM   #1
Confused about dryer sheets
 
Join Date: Jan 2004
Posts: 2
How much do I sacrifice?

Firstly, I am Chris, 32, single...

I am NOT rich. However, I would like to put away as much as I can to be able to live comfortably in the future.

Currently, I am looking into something that I don't understand, but sounds good! Anyone with advice is more than welcome to email me and we can talk more.

So, has anyone ever heard of using a variable life contract to cover mutual funds as a retirement strategy? Apparently, this allows for all money earned to be tax free. All money earned doesn't even need to be declared. The life insurance covers this problem... So, the benefit, is that even if I had a million in the funds, I would not have to pay on what is made or change my tax brackets.....

Any suggestions, please advise.... I want to be like all you and retire early too.

~Chris
__________________

__________________
~Chris
Chris is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: How much do I sacrifice?
Old 01-23-2004, 08:50 AM   #2
Recycles dryer sheets
 
Join Date: Jan 2004
Posts: 159
Re: How much do I sacrifice?

First: Chris, welcome to the forum!

Most people on this forum (including me) would probably tell you that if you want to retire early, it is generally best to avoid using "variable life contracts to cover mutual funds as a retirement strategy".

You're probably being sold this approach by a life insurance salesman, although the person may prefer another title implying they are a personal financial advisor or something similar. They may have a lot of cool initials after their name, like CLU, Series 6/7 certified, and so forth. He probably called you instead of vice versa, and probably introduced himself as a friend or business associate of one of your friends (from whom he got your name as a referral).

This person is making this idea look good to you because if you buy the product, a large chunk of the first year or two of premiums, an amount probably in the low four figures, will go into their pocket as a commission. Even the chance of selling you is enough to get some of these salesmen to buy you a couple of free lunches as you discuss the idea.

So have we heard of this approach? Yeah. It's not a new or particularly clever idea, has been discussed and debated in lots of different forums on the web and in financial magazines. While what the guy told you is probably accurate, he's probably limited himself to telling you all the "pros", left out the "cons", and either hasn't told you about or has disparaged other investment approaches that may suit your needs better.

A couple of random comments on what you listed:

1. Yes, the money earned is tax free. However, withdrawals are taxed unless you structure them as "loans" (which is what the advisor will suggest), which is a big hassle and may prevent you from accomplishing what you want to do (take the money out for retirement). Also, a larger than usual amount of your earnings will be deducted for mortality and expenses, the underlying mutual fund fees, and probably others -- the advisor will likely minimize the implications of this, but if you run the math on it you'll see it is a very very big deal. Other investments which also allow "tax free earnings" include 401(k)s, 403(b)s, Roth and traditional IRA's, Educational Savings Accounts, 529 accounts, and buying and holding dividend free stocks in a taxable account. These other investments also don't have some of the aforementioned drawbacks. Buying Vanguard index funds or low-dividend stocks in a taxable account is also nearly tax free and doesn't suffer any of the drawbacks mentioned.

2. Yes, the money earned doesn't even need to be declared. Same goes for all of the other tax free earnings options listed above as well. (The taxable account options would have earnings that would have to be reported every year.)

3. As a 32 year old single "NOT rich" person it's pretty likely that you don't need life insurance at the moment. Therefore, any money you spend on the life insurance component would effectively be wasted.

So for full disclosure, I am 34 (but married with three kids) and on track to retire by age 50 as a multimillionaire. I have received pitches for the same kind of product but don't own any. My wife and I do have a 401(k), 4 IRAs, 3 ESA's, 3 UTMA's, 1 529 plan, two ESPPs, a taxable investment account and a pension. Most of my investments are in Vanguard index funds or individual stocks.

For a good book which I believe might touch on this issue, you might read "The Millionaire Next Door". If it doesn't touch on this issue directly, it might indirectly in terms of philosophies on how to become wealthy...it's not usually in using clever sleight of hand financial tricks but is in patient, deliberate, reasonable, straightforward investments that pay off over a lifetime.

Good luck with your decision.

malakito.
__________________

__________________
malakito is offline   Reply With Quote
Re: How much do I sacrifice?
Old 01-23-2004, 10:44 AM   #3
Recycles dryer sheets
 
Join Date: Nov 2002
Posts: 373
Re: How much do I sacrifice?

Quote:

Currently, I am looking into something that I don't understand, but sounds good!
Chris,

First, let me support malakito's comments, they are right on. I would also suggest that you read the details on cancellation also - They can be quite severe.

Second, the part of your post I quoted above, should be a very red flag for you. I suspect it is at least a caution flag to you, since you are looking for more info, but in my experience, anytime you find yourself saying something like that, consider it a BIG, RED flag.

Look around, read this BB, do research, etc., until you do understand the pro's and con's before entering into a deal like this.

Good Luck,
Wayne
__________________
wzd is offline   Reply With Quote
Re: How much do I sacrifice?
Old 01-23-2004, 05:05 PM   #4
 
Posts: n/a
Re: How much do I sacrifice?

Years ago I bought a variable annuity based on an insurance saleman's recommendation, and put my IRA money in it which was completely redundant. I didn't
do my homework. He said it was a good idea and I did it. Turned out okay though as my ex. ended up with that
particular asset so it is no longer my problem. The
irony is that many people are financially devastated
by divorce. I was financially liberated. It was tough
but I wouldn't have been able to ER without going through it, so the pain was necessary in my case.

John Galt
__________________
  Reply With Quote
Re: How much do I sacrifice?
Old 01-23-2004, 05:46 PM   #5
 
Posts: n/a
Re: How much do I sacrifice?

Quote:
The
irony is that many people are financially devastated
by divorce.
My Divorce cost me $250,000 ! - But it was worth every penny of it!
__________________
  Reply With Quote
Re: How much do I sacrifice?
Old 01-24-2004, 01:08 PM   #6
 
Posts: n/a
Re: How much do I sacrifice?

Hello cut-throat! Re. "worth every penny", ditto here!
Interesting that even with the expense, stress,
family fallout, etc., it still seems like it was an easy decision. This is true
even though I am a notorious second-guesser.

John Galt
__________________
  Reply With Quote
Re: How much do I sacrifice?
Old 01-25-2004, 10:13 AM   #7
 
Posts: n/a
Re: How much do I sacrifice?

Nothing wrong with a variable annuity if it's used correctly. Sometimes it's the best product available. In your case, however, it may not make sense since you may not need the life insurance. Also, you never told us how much you plan on saving for retirement. If you will only be able to put $3000 a year away, then you will probably be much better off in a Roth IRA than a variable annuity. If you're working for a company with a matching 401(k) plan, max that out first, then put the remainder in a Roth IRA. After that I would put as much as you can on a monthly basis in a growth fund.
-Retire Early, Retire Often!!!
__________________
  Reply With Quote
Re: How much do I sacrifice?
Old 01-25-2004, 03:25 PM   #8
Recycles dryer sheets
 
Join Date: Nov 2002
Posts: 373
Re: How much do I sacrifice?

Quote:
Nothing wrong with a variable annuity if it's used correctly.
In general, no. But one needs to compare costs also, as some are very highly loaded. If you decide to go with one, check out several.

Wayne
__________________

__________________
wzd is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Do you think that the folks that followed Hitler were truly unique human beings? Cut-Throat Other topics 92 05-28-2006 09:57 PM
U.S. Government Rigging The Equity Markets? Donner FIRE and Money 57 09-15-2005 04:01 PM

 

 
All times are GMT -6. The time now is 02:36 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.