IUL as a Roth Alternative

IUL as a Roth Alternative–Webinar Feb. 25th

                Join us Thursday, February 25 at 1 p.m. Est. for a WEBINAR where we will break down the math of using IUL vs. Roth 401(k) plans and help attendees learn how to properly illustrate the comparison between the two.


                We are sure many of you have been watching the markets absolutely tank thus far in 2016. We know many Americans have watched with horror how the values in their 401ks/IRAs have taken a hit.

Those advisors who have used Indexed Universal Life (IUL) insurance as a wealth-building tool have done well by their clients and have helped them avoid not only the recent turbulent times, but also those to come.

Math Doesn’t Lie

Market pullbacks are the perfect time to have a discussion about using IUL as a tax-favorable wealth-building tool. Why? The math doesn’t lie.

Unfortunately, many planners and money managers (and by extension, their clients) don’t understand the math around market pullbacks and rebounds. It all centers around the difference between the geometric mean and the arithmetic mean. The arithmetic mean is easy to understand. It is what most are accustomed to when thinking about averages. You add up numbers and then divide them by the amount of numbers you added up. You come up with one number that represents that average of those added. Helpful if you were trying to determine your grade in school. Not helpful if you are trying to figure out your average rate of return on your portfolio.

Once you introduce money into the equation the arithmetic mean doesn’t work. Let’s explore that.

Plus 10% year 1, followed by a 20% loss in year 2, and then followed by a 30% return in year 3. 20% /3 = 6.667%, right?

If you had a $500k account that means you would end up with $606,820 after 3 years with 6.67% growth. But is that how it really works??

$500,000 * 1.1 (10% return) = $550,000

$550,000 * .8 (20% loss) = $440,000

$440,000 * 1.3 (30% return) = $572,000

Over 3 years that is a 4.59% return. And THAT is the geometric mean…

If you could boil down the geometric mean to a single idea that every client should understand, it would be this: losing your money hurts you far more that gaining money helps you.

People love the idea of unlimited upside. Maybe it reminds them of playing the lottery. There is a chance they could absolutely strike it rich! But they don’t understand the basic principle we outlined above. What if you could absolutely eliminate losses? There would be a cost, or course. What if that cost took the form of limiting your upside to say 50% of the market performance? Our example above would look like this:

$500,000 * 1.05 (5% return) = $525,000

$550,000 * 1 (you eliminate the loss) = $525,000

$525,000 * 1.15 (15% return) = $603,750

By simply eliminating your losses in exchange for HALF the market upside your 3-year return soars to 6.49%.

A two percentage point increase over just a 3-year span for taking LESS RISK!

When properly explained, clients flock to this concept. You just need to know how to talk about it. So what do you call this concept?

IUL as a Roth Alternative

Again, the math doesn’t lie. When you look at the historic returns of the stock market, assume those returns are in a Roth IRA or Roth 401(k) and compare the after-tax income that can be taken from the Roth vs. what could be removed tax-free from an IUL, the IUL wins.

There is no mathematical debate about this if you use “real world” numbers.

There can be a debate as to whether a client wants to forego funding a Roth IRA or 401(k) to fund an IUL, but that debate can only take place after the advisor and the client understand the math.

That’s what we will be discussing on our webinar.

                Annual Reset! don’t forget the concept of an annual rest (annual policy gains being credited to the IUL and then ‘locked in’ never to be lost due to a market downturn). The annual reset is both simple and powerful. It’s what makes IUL unique in the market and why many clients choose to use them for tax-favorable/risk-resistant wealth-building tools.

An IUL is not an end all be all product. It isn’t for everyone. But for many clients, allocating X amount of dollars to an IUL will be a prudent thing to do.

The goal with our webinar will be to help advisors understand the math of comparing IUL to Roth IRAs/401(k)s so they can have a full disclosure discussion with clients about the best tools to use when planning for retirement.