Newsletter 6-1-17

IUL REPORTS

1)   Pacific Life PDX

Comment  from a member:

“I headed up product development for a top carrier for over 20 years … My first IUL product build came out in 1998 when there were about 14 companies and $50 million of target premium industry-wide.  It’s been interesting to watch this grow!

… Comment on Pac’s PDX product – word on the street is that they are using the high product charges to increase the notional exposure to the index strategies and paying the additional interest via the black box bonus. 

A 12% cap typically costs around 5% over the long term (I’ve seen it as low as 4.25% and as high as 6% since 2002; today it is about 4.45%).  Spend 5% in charges to illustrate 6.9% and like magic your 50 year illustration looks golden.

A customer can create this leverage themselves by taking a collateral loan and putting the proceeds right back into the policy as new premium.  Ignoring the one-time premium load, the policy would now have additional costs in the form of the loan interest and more notional exposure to the index strategy. 

Clearly if one has max funded the policy there is no additional room for new premium but the risk concept still holds.

So I find it ironic that the broker community in general prefers withdrawals to basis then fixed loans because they don’t want the client to be exposed to the additional risk associated with collateral loans.  So what does Pac’s PDX product do?  It effectively created a collateral loan risk profile inside the product that the customer has no choice to opt out and, as you pointed out, the bonus is not guaranteed so they could down the road choose to pocket the loads.”

www.iuldigest.com/?page_id=5860

 

2)   Allianz / Renewal Gains

This Allianz chart is a bit different in that does not show the cap history but instead shows the average amount actually credited to their IUL’s to 32,967 policies from March 2006 to Dec. 2016, as a %.  The avg. gross gain is 6.59%.  This is equivalent to an avg. cap of 10.4% over this 11 year period.  The avg. fixed rate gain is 4.37%.    They say they do not have an actual cap history.

This report shows how 10 of these year compare to all the 10 year periods since 1945.  The 10 year period of 2007-2016 = 6.38%, whereas the 10 year avg. since 1945 = 6.16% (with a 10.4% cap), so this measuring period for Allianz is about average.  This chart also shows the avg. if other cap rates.

http://www.iuldigest.com/?page_id=400

3)   Brett’s Presentation

  I’m asked frequently what I do for a presentation … What I likely do that is different is that I show only the IRR page of the illustration and I do not tell them who the co. is … Also with 5 more minutes of work on each case I increase my income 25% ($25,000+) every year.

http://www.iuldigest.com/?page_id=5946

 

INDUSTRY NEWS

IUL Sales Past 18 Years

  In 1998, Wink began tracking indexed universal life (IUL) sales by insurance carrier each year in our quarterly Wink’s Sales & Market Report. We recently compiled all of the data from 1998 – 2016 to  establish the top 10 indexed universal life carriers for the  “Total Overall Indexed Universal Life Sales.” 

  Global Atlantic Financial Group (Accordia Life) continues as the leader for Total Overall IUL Sales with aggregate sales of over $1.45 billion in target premiums. Included in the top five sellers of IUL over this 18-year period are Pacific Life, Transamerica, National Life Group, and Minnesota Life.

www.looktowink.com/2017/05/total-overall-iul-sales/

 

Majority Of Indexed Annuity Carriers Struggle With 1Q Sales

  Total first quarter indexed annuity sales were just over $12.9 billion; down almost 3.0% when compared to the previous quarter, and down over 14.3% when compared with the same period last year. “The Department of Labor’s Fiduciary Rule is imminent, and taking a toll on indexed annuity sales” exclaimed the president and CEO of  Wink, Inc. “Insurance distributors have been so busy preparing for the Rule that they haven’t been able to focus on marketing products. Sales show it.”

  Noteworthy highlights for indexed annuities in the first quarter included Allianz Life retaining their #1 ranking in indexed annuities, with a market share of 13.1%. American Equity moved into the second-ranked position and rounding-out the top five carriers in the market were Athene USA, Nationwide, and Great American Insurance Group, respectively. Allianz Life’s Allianz 222 Annuity was the #1 selling indexed annuity for the 11th consecutive quarter.

https://insurancenewsnet.com/oarticle/majority-indexed-annuity-carriers-struggle-1q-sales

Articles

FORBES:  How To Use Life Insurance/IUL In Your Retirement Planning

One of the main advantages of IULs is that the cash value is protected from drops in the market. An IUL is a cash value policy that has both a death benefit and a savings portion. In an IUL the investments are not placed directly in the market where they would be subject to a loss. Rather, they are put into a strategy that mirrors an index such as the S&P 500, which allows the participant to realize all or most of the gains in the market. These gains are then locked in to protect against potential losses.  In addition, when compared to an IRA or a 401(k), IULs provide more flexibility. Unlike IRAs and 401(k)s, there is no limit on how much money can be added annually …

www.forbes.com/sites/forbesfinancecouncil/2017/05/11/how-to-use-life-insurance-in-your-retirement-planning/#ad9847969cff

 

[He obviously does not understand IUL – but with the new DOL
rules it is in my view a great alternative for Retirement Savings]

Careful Buying Life Insurance as Fiduciary Rule Takes Effect

The regulatory winds are changing, and many investment pros have been changing their business models as a result. That could mean recommending life insurance for your retirement plan. But does it make sense for you?

www.kiplinger.com/article/investing/T034-C032-S014-careful-buying-life-insurance-for-your-retirement.html

Distributions Out of a Cash Value Life Insurance Policy

If the company and product sold doesn’t provide any of the following and is simply the one that illustrates the best, it, without question, falls into the category of why IUL won’t work as an accumulation vehicle …

www.thinkadvisor.com/2017/05/15/distributions-out-of-a-cash-value-life-insurance-p?eNL=5919dad6150ba0d0727b3197&utm_source=TA_LifeHealthDaily&utm_medium=EMC-Email_editorial&utm_campaign=05152017&page_all=1

 

 Allianz: Renewal Gains 

This chart is a bit different in that does not show the cap history but instead shows the average amount actually credited to their IUL’s, to 32,967 policies from March 2006 to Dec. 2016, as a %.  The avg. gross gain is 6.59%.  The avg. fixed rate gain is 4.37%.  If a cap was 15% and the credited gain was only 10% or 0%, this shows what the avg. of the actual credited gain was over this 10.75 year period.  They say they do not have an actual cap history.

www.iuldigest.com/?page_id=400

 What’s So Bad About Debt in Retirement?

Debt is a reality for many of today’s retirees – should they be worried about it?

http://news.morningstar.com/articlenet/article.aspx?id=810328

 

 Your 401(k), 403(b) and IRA: Tax Shelter or Tax Nightmare?

You’ve saved like crazy in your tax-deferred accounts, but all that money isn’t really yours: Some of it belongs to Uncle Sam, and in the future he may be hungry for more … during the last two years of World War II, the highest marginal tax bracket was 94%. Throughout much of the 1960s, it was between 70% and 90%.

Pressure Mounts to Raise Taxes in Future

What was true of the past might be true for the future. Today, the top marginal rate is 39.6%, and if you add the 3.8% percent surtax on investment income, you are at 43.4%.

www.kiplinger.com/article/retirement/T055-C032-S014-your-401-k-403-b-and-ira-tax-shelter-or-nightmare.html?rid=EML-wealth

 

 

Global retirement ‘timebomb’: Why you’ll have to work past 70

Working until at least 70 should become the norm by 2050, the group recommends the World Economic Forum. The average retirement age is currently 65 for men in advanced economies and 63 for women.   Here’s the problem: People are living longer than ever, but the average retirement age has remained static. Pension funds have been unable to keep pace.

It’s a trend that will only accelerate: Babies born today in many advanced economies can expect to live past 100.

WEF described the shortfall in pension funding and a lack of personal retirement savings as a “timebomb.”  The group estimated that just eight countries — the U.S. U.K., Japan, Canada, Australia, India, China and the Netherlands — face a combined shortfall of $400 trillion by 2050.

http://money.cnn.com/2017/05/26/pf/retirement-age-70-pensions/

 

 Retirement life after COLAs disappear

 Lots of federal workers, both active and retired, are really sweating the Trump administration’s plan to eliminate cost-of-living adjustments for current and future retirees under the FERS retirement plan. And they are worried for good reason.  Dropping COLAs in the future would save the government lots of money. And it would quickly eat into future benefits for all FERS retirees. Big time.

Over as little as 10 years, a 72-year old retiree would “lose” — as in not receive — up to 18% in COLA payments if inflation was 3%, and lose up to 26% if inflation during the period averaged 4%.

https://federalnewsradio.com/retirement/2017/05/retirement-life-after-colas-disappear/

 

Here’s what millennials are prioritizing instead of retirement

In defiance of conventional wisdom, millennials are saving. Actually, according to a new Merrill Edge report, young people are “outperforming everyone in saving,” only with different goals in mind.  Seriously different goals.

“Millennials are the first generation to plan long-term for financial freedom instead of retirement.” 63%  of millennials are saving to live their “desired lifestyle,” as opposed to 45% of both baby boomers and Gen Xers.  55% of boomers and Gen Xers are saving to leave the workforce, whereas millennials are far more lukewarm: Only 37% of young people have that goal in mind.

www.cnbc.com/2017/05/23/heres-what-millennials-are-prioritizing-instead-of-retirement.html

Not saving for retirement tops Americans’ greatest regrets

 Nearly three-quarters of Americans have financial regrets, according to a recent report by Bankrate.com. The No. 1 regret? Not saving for retirement sooner, followed by not stashing enough in an emergency fund and taking on too much credit card debt.

www.cnbc.com/2017/05/23/not-saving-for-retirement-tops-americans-greatest-regrets.html

 

 This smart retirement strategy is gaining popularity

The combination of working longer and waiting to start Social Security benefits is a reasonable way for older workers to address the modern realities of longer life spans and meager retirement savings.  And more of them are taking this path. The latest evidence comes from Fidelity’s Social Security IQ survey, which surveyed workers age 55 to 61 regarding their knowledge about Social Security benefits. The 2017 survey shows that a little more than one in four (28%) 61-year-olds plan to start Social Security income at age 62, down dramatically from 2008, when 45% said they would claim Social Security benefits then.

Many studies demonstrate the significant improvement in your retirement security by delaying the start of Social Security benefits, with the potential to boost your lifetime payout by $100,000 and, if you’re married, the potential to increase the survivor’s benefit to your spouse … a married couple who delay retiring from age 65 to age 70 can increase their retirement income by 41%.

The average age most people plan to begin collecting Social Security benefits is 67, with 7% saying they’ll “take it to the max” by waiting until 70.  (Also) the percentage of people 65 and older who still work has also been climbing. According to a report from the Pew Research Center, it hit 18.8%in 2016, up from 12.8% in 2000.

www.cbsnews.com/news/this-smart-retirement-strategy-is-gaining-popularity/

 

How much can I expect to earn on my retirement savings?

So what level of future returns might be considered reasonable? Well, one way to get an idea is to take a look at what large investment firms are anticipating. For example, every quarter BlackRock publishes capital market assumptions about a wide range of asset classes. In its most recent forecast, BlackRock expects long-term (10 years plus) annualized gains of 5.9% for U.S. and 3.1% for U.S. bonds. Vanguard also recently published a 2017 economic and market outlook in which the fund giant had a median forecast for the next 10 years of 6.6% for stocks and 3.1% for bonds.

http://money.cnn.com/2017/05/10/retirement/retirement-savings-return/

 

Is dollar-cost averaging the cure for market jitters?

  So, given that you can’t know what the market is about to do, the question is whether dollar-cost averaging is an effective way to deal with this uncertainty.  One way to answer that question is to see how investors would have done in the past by pursuing a dollar-cost averaging strategy vs. investing all at once. A recent Vanguard study explored that very issue, comparing how an investor with a large sum of cash would have done by investing that money immediately into a portfolio of stocks and bonds vs. moving the money gradually into the same stocks-bonds mix.

So, for example, when Vanguard researchers looked at how someone investing a lump sum of cash all at once into a portfolio of 60% stocks-40% bonds vs. moving the cash into that 60-40 blend over a period of 12 months, they found that investing the lump immediately beat dollar-cost averaging about two-thirds of the time in the 1,069 rolling 12-month periods from 1926 through 2015.

When the researchers repeated the analysis over both six-month and 36-month periods over the same 90 years, the result was the same: investing the cash all at once came out ahead about two-thirds of the time in the case of six-month periods and 92% of the time over 36-month spans. What’s more, the outcome was pretty much the same whether one moved from cash into a more conservative 50-50 mix of stocks and bonds or, for that matter, a portfolio of 100% stocks or 100% bonds.

http://money.cnn.com/2017/05/03/retirement/dollar-cost-averaging/index.html?iid=EL

 

 Warren Buffett says index funds make the best retirement sense ‘practically all the time’

“Consistently buy an S&P 500 low-cost index fund,” Warren Buffett told CNBC’s On The Money in an interview recently. “I think it’s the thing that makes the most sense practically all of the time.”  And he suggests staying the course, despite market fluctuations. “Keep buying it through thick and thin, and especially through thin,” the chairman and CEO of Berkshire Hathaway said with a laugh.

www.cnbc.com/2017/05/12/warren-buffett-says-index-funds-make-the-best-retirement-sense-practically-all-the-time.html

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