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Gin, male, 40 years old this year.As a business owner, Gin has achieved "financial freedom" in the eyes of others.
Gin adheres to the concept of "migrate without immigration". He has been carrying out various global asset allocations. These projects generate income every year and continue to return more positive cash flows. Gin always considers avoiding risks in the financial market and does not put eggs in the same basket.At the same time, I am ready to start thinking about planning a sum of money (Side Fund, U.S. dollars) specifically for family expenditures in retirement and pensions.
Gin'sThe first option is to open an "investment and wealth management account", That is, directly invest in the U.S. dollar market. This is also a scheme known to most people. Based on this core principle, various types of packaged products have emerged on the market for subscription;The second option is to open a "cash value life insurance policy account"It does not directly invest in the US dollar market. With the free flow of information in the Internet world and the popularization of Chinese US dollar financial insurance knowledge, this method is gradually being favored by more and more Chinese.
What are the advantages and disadvantages of these two solutions, and what kind of situations are they suitable for?Can there be an intuitive comparative analysis?Help Gin make decisions?American Life Insurance GuideToday, I will use charts and figures to evaluate the "investment wealth management account" scheme vs. the cash value life insurance policy account scheme. Let's Go.
U.S. dollar investment and wealth management account
Gin considered opening a U.S. dollar investment management account and using a 25-year fixed investment method with a portion of the money from other income every year.The goal is to provide special expenditures for retirement and old-age care from the account between the ages of 65 and 85.
We assume that the account has the following sufficient advantages:
- There are no management fees and costs for the account and transaction process
- The level of investment ability can ensure that the income is locked in the annual income of S&P500
- Account income is not subject to any capital gains tax
The following figure shows the trend and income of the fixed investment wealth management account:
Figure 1. 25-year operation of US dollar investment and wealth management accounts
Column 1It is the amount regularly deposited in the account every year. This method is similar to the US dollar fixed investment fund wealth management products on the market.The amount is $10 per year, and the cumulative investment is 25 years, and the cumulative amount is $250 million.
Column 3Represents the annual rate of return of the investment account for the next 25 years.The rate of return in this column is a prediction of the future.Because it hasn’t happened yet, American Life Insurance Guide has adopted the S&P25 index in the past 1994 years (2018-500).Historical annual rate of return, As the closest prediction to the real situation.
Column 4 andColumn 5Is the pre-tax sum of each yearAfter-tax income.American Life Insurance Guide Network made the most favorable assumption for the account, that is, the income does not have any taxes and fees, so the two are the same.
Column 6It is the total amount of the financial account, which is often one of our focus.
From this chart, we can see that in the 11th year, at the age of 50, the stock index plummeted -38.49%, and the account shrank by more than $80; in the 17th to the 19th year, the loss was nearly $120 million; after the age of 59, the stock index rose sharply. , Pulling up for 5 consecutive years, pulling up the account balance to $740 million.
USD Life Insurance Policy Wealth Management Account
Gin is also considering another plan, usingCash Value Life Insurance Policy AccountThe investment is $10 per year, and the investment is scheduled for 25 years.The goal is to withdraw tax-free special retirement pension income from the account between the ages of 65 and 85.
We assume that the account meets the following conditions:
- Exponential policyACCOUNT
- Reasonable Funding strategy and well-designed policy account structure plan
- 6.2% of the expected annualized average rate of return of the policy (the average annualized rate of return of the policy corresponding to the S&P500 in the same period is 6.2824%)
The following figure shows the operation of the life insurance policy account system:
Figure 2. Operation of IUL insurance policy account
Column 7It is the amount deposited into the policy account every year, from 40 to 64 years old, for a total of 25 years, with an annual deposit of $10.
Column 8It is the case of withdrawing money from the policy account. No money is withdrawn before the age of 65, so it is 0.
Column 9It is the bookkeeping method of the insurance policy account company, which shows the total accumulated amount after deducting the cost each year.
Column 10和Column 11It is the amount of cash value of the policy account in the current year. This value is one of the focuses of our attention.
Column 12It is the total amount of claims provided in the current year for the protection function of the policy.
From this chart, we can see that in the 7th year of the policy account, the cash value balance has evened the invested money.In the 11th, 17th, 18th and 19th years of the stock index plummeting, because the policy account provides a "bottom guarantee" function for risk management, the policy account will not shrink with the market like an investment account.
USD Investment Wealth Management Account VS Life Insurance Policy Wealth Management Account
From the beginning of the first day, when Gin reached the end of 64 years old, the balance of the US dollar investment and wealth management account reached$7,421,851, The life insurance policy account is the cash account amount at this time$5,869,773And protection claims$8,428,032The combination.
One side is 740 million, and the other is 580 million ➕ 840 million guarantee claims. Gin is also hesitant to just look at the numbers. How can I choose?
Figure 3. Comparison of USD Investment Wealth Management Account and Cash Value Life Insurance Policy Account
The red box part shows that after the age of 65, these two programs will be provided to Gin every year $629,553 Of tax-free income (we assume the ideal situation where the income of the investment wealth management account is completely tax-free).
At the same time, since Gin has retired, from the perspective of risk management (such as resolutely avoiding the situation where the account is almost cut in the 11th year after retirement), the investment and wealth management account is no longer invested in the high-risk market, and turned into a lifetime. An ideal investment product with a yield of 4.5%.
But as the age increased, Gin found that by the age of 81, the money in the investment financial account plan had been completely exhausted and no income could be provided.At this time, the life insurance policy account cash value (column 11) still has a balance of $139 million, and at the same time, it also provides a claim of $236 million at this advanced age.As shown in the red box in the figure below.
When Gin was 85 years old, the US dollar investment and wealth management account had dried up for 4 years, failing to reach the planned goal.The cash value of the life insurance policy account at this time is $83, and the beneficiary is left with a claim of $220 million, which has completed the design goal of providing tax-free income from 65 to 85 years old.As shown in the purple box in the figure below.
Figure 4. Comparison of the use of funds between the two programs
So far, Gin has invested a total of US$250 million,
- From the USD investment and wealth management account plan, a total of USD 1013 million was withdrawn, and the leverage ratio was 1: 4.05.
- From the cash value life insurance policy account plan, a total of $1322 million was withdrawn, with a leverage ratio of 1:5.28. At the same time, a tax exemption of $221 million was left for future generations.Inheritance of wealth.
Evaluation summary
So far, can we say,Is the cash value index life insurance account plan better than the tax-free investment and wealth management account plan? American Life Insurance GuideThe net cannot give an answer, just as it is difficult for us to answer the question "Which is better, chopsticks or knives and forks?"Because these two schemes are two completely different products, they are completely incomparable.
As shown in Figure 3, if you want to achieve the goal of quickly accumulating cash returns through a 10-year financial plan, lock the S&P500 zero-cost and zero-tax investment financial account plan with a score of $2,040,055 than $1,216,453, showing that the goal is reached faster Ability.
However, due to the unpredictable future risks, in the 11th year, the investment and wealth management account plan had to bear the risk of the account value shrinking by nearly half.
Therefore, what this article hopes to express is from the standpoint of risk management,Cash value index life insuranceThe account plan is a better risk management plan.In the market, participants do not have to worry about the impact of the falling year on the value of the account.
In principle, we are not willing to risk every penny.If a program can provide the same income, or even more income, and the ability to provide this income more persistently, in addition, it also has less market risk, why don't we choose it?
(>>>Recommended reading:[Evaluation]How to use a family insurance trust to achieve an annual retirement income of $30 and wealth inheritance planning? (on)）
What kind of dollar asset allocation group is this strategy suitable for?
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Extended reading:
01. [Column] Is a life insurance policy an asset?
02. [Column] What are the ante-mortem benefits of a life insurance policy?How to choose and evaluate?
03. What is a living trust?The cost and function of setting up a lifetime trust
Disclaimer:
*The content of this article is to explain to the public an existing market strategy for the purpose of learning and education.The graphs, values, and assumptions used are not guaranteed and may be changed at any time.The actual results may be more favorable or unfavorable than the situation described in the text.
*This article does not constitute the investment advice of the American Life Insurance Guide and the author, and support for related strategies, nor does it constitute the guarantee of the American Life Insurance Guide and the author on the subsequent tax consequences.
*The content of this article is not intended as tax or legal advice.Please consult your lawyer or accountant before taking action on any information contained in this article.
