Wisdom of putting money into a TFRA/LIRP?

[firemediceric]

Advice on the wisdom of pursuing a TFRA? I had never heard of them until the other day while surfing the internet. I'm sure some algorithm made sure to put the enticing information on my screen.

At https://smartasset.com/retirement/tfra-retirement-account I read that it's "A tax-free retirement account or Section 7702 plan funded through a permanent cash value life insurance policy." "funded with after-tax dollars, similar to the way you’d fund a Roth IRA. Cash value in the policy grows tax-deferred and policy owners can take out tax-free loans from that cash value during their lifetime. The amount of cash value that accrues inside the policy can depend on the underlying investment strategy."

From https://www.insurancegeek.com/retirement/tfra/ I read "They have many advantages compared to a 401K and Traditional IRA. Mostly the fact that you can not lose money and they are not directly invested in the market."

That makes me wonder if it's just an annuity by another name?

A snapshot of what was proposed to me based on my statement of only a $20k annual goal:

[FONT=Lato, Tahoma, Verdana, Segoe, sans-serif]"Thanks for reaching out with interest in a LIRP. I have attached some illustrations to show you how much you need to invest to meet your target retirement income goal of $20,000.[/FONT]

[FONT=Lato, Tahoma, Verdana, Segoe, sans-serif]Scenario 1[/FONT]​

• [FONT=Lato, Tahoma, Verdana, Segoe, sans-serif]Illustrated Income - $24,147[/FONT]
• [FONT=Lato, Tahoma, Verdana, Segoe, sans-serif]Income Start Year - Age 65[/FONT]
• [FONT=Lato, Tahoma, Verdana, Segoe, sans-serif]Initial Planned Premium - $24,000[/FONT]
• [FONT=Lato, Tahoma, Verdana, Segoe, sans-serif]Day One Death Benefit - $267,659[/FONT]

Scenario 2​

• Illustrated Income - $987
• Income Start Year - Age 60
• Initial Planned Premium - $6,000
• Day One Death Benefit - $100,000

 

[pb4uski]

I think it is basically just using the cash surrender vaue of a traditional whole life insurance policy as retirement savings.

I bought a whole life policy from a good company when I graduated college at 21. I've paid $19.09 a month for 45 years and the policy now has a cash value of $37,303. I could probably take policy loans of $1,800/year forever and not exhaust the cash value (but I haven't). If I die my beneficiaries would get $63,079 less any policy loans tax free.

I bought the policy when I was young and foolish and it has worked out ok. Giving no value to the life inurance it has provided our family over the years it has produced an IRR of 4.88% and if I die the IRR would be 6.57% tax-free.

That said, I'd stick with a Roth IRA. If you need life insurance then buy term life insurance. If you want to invest, then buy investments.

 

[Souschef]

That said, I'd stick with a Roth IRA. If you need life insurance then buy term life insurance. If you want to invest, then buy investments.

+100! That is the best advice.

 

[VanWinkle]

Run away from life insurance as an investment. It is insurance!!! It's like giving your car insurance company an extra 300.00 per month and thinking they will invest it for you properly. Expenses are high, results are low.

 

[firemediceric]

From one of the two 69 page attachments emailed to me regarding this product showing what it can do for me.

I made it clear to the agent pitching this to me that I don’t care about life insurance in so much as I have no heirs to leave anything to and no one that needs to be supported once I’m gone. All I care about is living life with financial security in retirement. I can die with zero dollars and all will be fine but I don’t want to be fretting as to whether I have enough to make it through life.

 

[firemediceric]

A breakdown of how it is supposed to benefit me over time.

 

[firemediceric]

Regarding the advice above to concentrate on my Roth IRA, that is fully funded every year to the maximum amount allowed. Likewise I am making the maximum allowed contributions into my 457 plan. Unfortunately it feels like I’m bailing out a sinking boat with a tea cup as I watch value decline almost faster than I can put money in. Same with my meager Schwab taxable portfolio which I have stopped putting money into but rather have cash sitting there ready to invest.

 

[VanWinkle]

This is a bad year for sure, but making a lifetime decision based on the emotions of watching your 457 and taxable account value decline is a bad choice. If you really think this is the best for you, it will still be the best a year from now and you can decide with a clear head. This is a tough time to be an investor, but also the best time to look ahead to returns in the future.

 

[CRLLS]

So what happens when life hits you in the face at age 64 and changes you financial needs/goals? You had premiums adding up to $240,000 over 10 years and have a cash value of only $272,517. You do have an added death benefit of >500,000 but you said you don't care about the life insurance part of it. There is no COLA either making your money less powerful.

IMO, run away.

 

[firemediceric]

Thank you all for the input. With only negative opinions of this product and not a single member posting something favorable about it, I’ll heed your advice.