[su_dropcap style=”flat”]I[/su_dropcap]NCOME GENERATOR IUL or InGen ( like engine ) is new, innovative and it works very efficient due to its unconventional design. This is a simple but powerful example of Modified Index Universal life. We will then compare to a 401K.
Growth With No Stock Market Loss
You are not going to micro manage this plan. So, approximately 95% of the monthly or yearly payments go into investment grade bonds. The remaining 5% goes into options on the S & P 500. All done by a few companies proficient in this niche over 100 years old with financial strength ratings of A+. One particular company will provide growth in your account every year matching the growth in the S & P 500 from zero to 13.5%. If the market is down, the option expires without value. If the market goes up the account gets credited the same amount as the growth in the S & P 500 up to 13.5%.
Just in case you are wondering the average annual returns of one company are for 5 years = 10.8%, 10 years = 8.2%, 20 years = 8.5%, 40 years = 8.1%.
The returns are not out of sight but the wealth you build without market loss can be very comforting in the face of volatility and other asset classes losing value. If you are really paranoid and you think we may have another lost decade, the aforementioned company will make sure you get a minimum 3% interest rate. So if the market tanks and you have a plan like this you will feel pretty good. If the market continues to go up and you have a plan like this, you’ve done pretty good.
Here Is Income, Tax Free Income
After tax dollars enter the plan, grows without tax and exits tax free. When the income comes out of the plan it is actually a loan from the company and your account value is used as collateral. The loan is paid back because there is a coordinated death benefit included in the plan design to pay off the loan and the excess cash will go to the beneficiary tax free also.
Taxes
After tax dollars go into the plan and not on the way out when the account value has become large.
Expenses Decrease Over Time
The average annual expenses for 20 years are about 1%, after 40 years are about 0.3%. The total expenses are available in a company report – complete transparency a little rare in today’s day and age.
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Real World Example For The Number Crunchers
Let’s take two average 45 year old guys. One has a qualified plan like a 401k that gives him a deduction on contributions which more accurately is a deferral, grows without tax and taxed on the way out. The other guy invests in an after tax plan like the InGen plan. Both start saving at age 45 and start income at age 66.
401k guy InGen guy
Contribution/year $ 16,000 $ 12,000
Tax Rate 25 % 25 %
Rate of Return 7 % assumed 7 % assumed
Expenses 2 % assumed actual
Total Contribution $320,000 $240,000
Account Value age 65 $555,508 $498,859
Note: The 401k guy contributed $80,000 more but only has about $57,000 more in account value due to expenses.
Look At Income At Retirement
401k guy InGen guy
Income Starts age 66 age 66
Tax Rate 25 % 0 %
Withdraw/year $ 59,333 pre-tax $ 44,450 no-tax
Rate of Return 7 % assumed 7 % assumed
Account Value age 81 zero *
* The InGen guy take income to age 100 and still has account value.
Taxes Paid or Saved
401k guy InGen guy
Contribution/year $ 16,000 $ 12,000
Tax Deferred/year $ 4,000 to age 65
Tax Paid/year $ 4,000 to age 65
Total Tax Deferred $ 80,000
Total Tax Paid $ 80,000
Tax Paid to Age 81 $237,328
Total Tax Paid $ 80,000
Expenses
401k guy InGen guy
Annual Fee Age 45 $ 342 $ 1,922
Annual Fee Age 55 $ 4,829 $ 1,266
Annual Fee Age 65 $ 11,110 $ 2,562
Annual Fee Age 75 $ 5,460 $ 1,452
At age 81 the 401k is out of money, total fees paid $208,102 At age 81 the InGen has account value and total fees paid $77,189[/message]
If you want to supplement or complement existing plans this is one way to diversify asset classes in your investment portfolio.