| Indexed Universal Life Fees VS Mutual Fund
Pick a fee structure. You have to do it if you plan on having any retirement future, so choose wisely.
Take a 33 year old male, me for instance, who wants to stash away $10,000 per year for retirement for the next 30 years. I have many choices out there, but mutual funds seem to be the most common. Weather inside your 401k or where ever, it’s easy and prudent – right?
The average mutual fund fee is 1.5% as reported by The Motley Fool. However, I’m going to use 1% for my scenario to be kind.
Each year, the mutual fund company takes your total balance on deposit and multiplies it by 1% and subtracts it from your balance. (Okay, it happens in increments monthly, but you get the point) As your balance grows, so does that 1% portion that they keep. In the first year, 1% of $10,000 is only $100. However, in the tenth year when your balance has grown to $130,000, they take $1,300. In the thirtieth year when your balance is $1,000,000, they take $10,000. These fees add up.
Over the course of 30 years, a $10,000 annual deposit and a 9% growth rate, you’ve spent $143,340 with just a 1% annual fee. Add in advisor fees and commissions, and that number soars even higher.
On the other hand, there’s a product that is gaining a lot of attention called Indexed Universal Life (IUL). IUL fees are not related to the cash on deposit. Instead, the death benefit. When structured and funded properly, I use the smallest death benefit legally possible to keep these costs low. From there, the policy fees are directly related to that death benefit and your cash is free to grow untouched. Think this structure is more costly than above? Wrong. Using the same scenario as above, your fees amount to less than half of a cheap mutual fund, $53,364.
In addition, if you choose the mutual fund, what benefits do you receive? Nothing, nada, zilch. Take the IUL fees, what benefit do you get in return? Life insurance for your family. They’ll get those fees back when you pass away, and that provides security.
In it for the long haul? Got a family? Reconsider that mutual fund or just diversify part of it with the IUL.
Have a look at the Excel chart below. Two real IUL products and their annual fees VS that same 1% charging mutual fund above, all assuming a $10,000 annual contribution for 30 years.
Questions? Call me. Grant Moulden 714-630-0220