agree with "tool"... pay off the student debt, then credit card debt and
become as much debt free as possible before considering any extra
retirement saving plans... fer y'all's return on investment, ROI, would
be much higher once y'all debt free... the interest charges on the
student loan and credit card would easily eat up any investment gain
y'all could possibly earn presently... and although the credit card debt
could be eliminated within a bankruptcy filing, the student loan debt
can follow ya to ya grave...goodness with all of these lower rates, i
should hope y'all have been negotiating lower interest rates on ya
debt... debt is a killer, it raises blood pressure and induces heart
attacks; get rid of the debt, do it now, today!... and... what's the
number one thing, particularly "young marrieds" argue 'bout?... money /
and how debt load prevents having fun, thus why, unfortunately most
young marrieds end up in divorce court, of which, sorry to say young
man, the guy usually gets screwed with having to pay the debt anyways...
sooo, pay off the debt and do it today!...

Butch (a.k.a. gradyhowes[at]earthlink.net), you asked:

<< <I> Recently, it was recommended to me to invest in a VUL <b> as part of my
retirement planning.</b> </I> >
Good. Using a VUL as "part" of one's retirement planning is a viable option
for many people - just not for "most" people.

<< <I> The thinking here is to have the tax free loan from the VUL for 50 1/2 to
70 1/2. And my 401k for 70 1/2 and on to allow it to grow an additional 11
years since it will be taxed.</I> >
Well, whether it's your VUL or 401(k) that you use first, either one will grow
over that period. I'm of the opinion though that typically, if one is going
to use a VUL in this way it should be the last to be used for any supplementary
income stream. Just one of the main reasons is that the VUL's death benefit
better tax advantages for distributing the cash in the account(s) than the
401(k) or IRA(s). So . . . . IF, you decide to continue with this, you may
want to adjust your planning . . .???

<< <I> My background: 34, not married but in serious relationship, marriage
close, no kids, I have school loans and credit card debt. Want to buy a house
within the next year and a half. No other debt or financial
responsibilities.</I> >
Good and important information to know, but you've left out information about
any current assets you may have (e.g. amount in your Emergency Fund; your
current and potential income; current investments; etc.). I and others can
only <b> assume</b> there is none of this and make comments accordingly.

<< <I> I would pay in $300 a month for the VUL. Considering that would be close
to the max for a Roth contribution over the year, <b> why not use the Roth
instead,</b> plus the benefit of borrowing against it for a downpaymnet on
first time home purchase(if needed).</I> >
That's an excellent thought! Actually, a Roth + term for that amount of moncy
tends to do a little better on all accounts than a VUL. So, as long as you can
qualify for a Roth, that's the way I would tend to lean most heavily towards.

But as far as using the Roth IRA for home purchase use . . .I tend to
discourage that as one should make every effort to leave one's retirement
funding completely alone until it's time to retire. I find that a separate
account/source works better for people when putting together enough for a down
payment on a home.

<< <I> I'm guessing it comes down to whether I need the insurance benefit of the
VUL in addition to the tax free loan at 59 1/2? Any cost differences between
the VUL and Roth for management of the account? </I> >
If you're not HIGHLY over funding the VUL, the VUL can NOT compete very well
with a Roth + Term Insurance (particularly for the annual amounts you're
looking at). Since you didn't give any specific numbers (e.g. Face Amount of
the policy; Target Premium amount of the policy; other policy riders; etc), we
can't really tell to what extent your policy might work in relation to the
Roth. If your not over funding the contract, then I'd say it's a no-brainer .
.. . forget the VUL. . . . period, end of discussion. Because, the costs
associated with the insurance AND the costs associated with the investments are
just too high in that configuration.

<< <I> And is there some hidden cost for <b> loaning the money to myself</b> at
59 1/2 in terms of an interest rate charged by the insurance company?</I> >
First of all, let me correct your perception. You DON'T loan money to
yourself. With a life policy like this that has cash value, <b> you use that
cash value as collateral</b> to take a loan through insurance company. If you
had money in CD's or a savings account with a bank, you could do the same kind
of thing. If you can understand this, then how the loan interest is charge and
the earnings on the cash value is still earned can be easier to understand.

To answer the question, no, there's nothing "hidden" . . . . . but not for ALL
policies have net interest costs, but most do. You'll have to ask your agent
to point this out specifically and explain the details of this specific policy
for you.

In general, when you make a policy loan against your cash value and the amount
it $10,000 and you are charged a loan rate, let's say it's 8%. They will take
that amount of $10,000 out of your investment account(s) (which one's can
depend on you) and place it into a fixed rate account that may earn something
like 6%. So you're money is still earning something. The difference between
what you earn and what you are charged is referred to as the "net interest
cost." There are some contracts that actually have 0% net interest cost . . .
.. meaning the amount earned is the same as the amount charged.

If you have a net interest cost of 2% or 1% or whatever, and are using policy
loans for a tax-free income stream, this interest can accrue making a larger
debt against the policy's death benefit. This is also another reason why its
preferable to use a VUL in latter times of retirement rather than starting out
with it as you first suggested. If one is planning to use a VUL for a
supplementary income source, these are important issues as you compare
policies.

This is the general way in which policy loans work. The specifics should be
review by you and your agent/planner/advisor.

Well, I hope you find these thoughts helpful.

Good luck.

Butch wrote:
- quote -

Butch-
The first question to ask is whether saving for retirement, or obtaining
life insurance, is the goal. VUL is a life insurance policy, and absent
that need, it's not even in the running.

Assuming you want/need life insurance (sounds like you do) then the
question is whether to pair up retirement savings with the policy, or to
buy much-cheaper term insurance and put the extra dollars elsewhere.
Given your quick sketch it sounds like you need the dollars to go
elsewhere: pay down debt, save for house, save for whatever, fund Roth.

On the Roth...VUL is something to consider only after you've exhausted
literally every other option for your retirement dollars. A Roth is far
superior as a retirement savings vehicle - it's truly tax free rather
than relying on the loan trick (which by the way signs you up to
literally a lifetime of policy costs). The investment options are nearly
unlimited with a Roth, so you can minimize the costs of your
investments, which is key in a 40+ year account. The VUL will constantly
nip the account value over all those years. Emphasize ALL of those
years, it's more of a commitment than your pending marriage (joke,
joke...!).

The down payment is really a separate financial goal. If you know you'll
be buying a home, consider just opening & funding a separate savings
account for that purpose, after you've paid down your credit card debt.
This avoids the temptation to raid your retirement savings to buy a
house that might be more than you'd saved for. Yes you can do it, but on
balance, it's better to leave Roth dollars untouched as long as
possible. Among all your forms of savings & investment, the Roth dollars
are the only ones that will remain tax free for good, as long as you
leave them there.

-Tad

T T wrote:
- quote -

This is a NO BRAINER..... Of course you should FIRST and
foremost, look toward ELIMINATING ANY credit card or
student loan debt...........


Second, you should have a NON-QUALIFIED savings
program, wherein the contributions are made with
your "after tax dollars", to be used to pay for the wedding
and the new home.


- quote -

Right on point. The expenses of ANY VUL, are very high
when compared to other forms of Permanent Life Ins.

It would appear to me, based on the info supplied, that a
substantial 10 Yr. Term contract would be sufficient to
not only protect you and your marital obligations, but even
more important, protect your future "Insurability".
Cal Lester CLU

The trouble with work is ... it's so daily !
This signature file is generated by Pick-a-Tag !
Written by jeroen[at]vanbaarsel.net

Have you considered first using that $300 a month to save for the
downpayment on a house and/or paydown your student debt and credit card debt
faster?

Otherwise, a VUL can be a very expensive way to save for retirement. They
build in Mortality and other insurance company expenses along with the
commission to the broker in the expenses, which can range from .65% for a
no-load VUL to around 2.5% for full commissioned products. Then, each fund
within the VUL has it's own expenses also. If you were to instead use the
Roth an invest in some low-cost mutual funds, it is more likely you would
come out ahead in the end.

In the future you can always pick up some term insurance or other types if
necessary.


"Butch" <gradyhowes[at]earthlink.net> wrote in message
news:6fa92e66.0308212214.275d1bfc[at]posting.google.com...
- quote -

Recently, it was recommended to me to invest in a VUL as part of my
retirement planning. The thinking here is to have the tax free loan
from the VUL for 50 1/2 to 70 1/2. And my 401k for 70 1/2 and on to
allow it to grow an additional 11 years since it will be taxed.

My background: 34, not married but in serious relationship, marriage
close, no kids, I have school loans and credit card debt. Want to buy
a house within the next year and a half. No other debt or financial
responsibilities.

I would pay in $300 a month for the VUL. Considering that would be
close to the max for a Roth contribution over the year, why not use
the Roth instead, plus the benefit of borrowing against it for a
downpaymnet on first time home purchase(if needed).

I'm guessing it comes down to whether I need the insurance benefit of
the VUL in addition to the tax free loan at 59 1/2? Any cost
differences between the VUL and Roth for management of the account?
And is there some hidden cost for loaning the money to myself at 59
1/2 in terms of an interest rate charged by the insurance company?

Thanks. Butch.