{"id":623589,"date":"2026-10-07T19:04:14","date_gmt":"2026-10-07T19:04:14","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/623589\/"},"modified":"2026-10-07T19:04:14","modified_gmt":"2026-10-07T19:04:14","slug":"iul-retirement-income-projections-may-mislead-clients","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/623589\/","title":{"rendered":"IUL Retirement Income Projections May Mislead Clients"},"content":{"rendered":"

I\u2019ve reviewed many attractive retirement income projections built on indexed universal life. Recently, one showed an indefinite retirement stream of better than 9% of the cash value at the beginning of retirement. That\u2019s pretty attractive \u2026 considering the policy credits less than 7%, and the rule of thumb for income distributions is often meaningfully less.<\/p>\n

Two Reasons for Discrepancy<\/p>\n

There are two main reasons for this. They\u2019re both based on underlying assumptions most policy owners likely don\u2019t understand when they\u2019re looking at the modeling presented to them.<\/p>\n

The first is based on a difference between the real world and the hypothetical insurance projection. In the real world, things are dynamic. Markets go up and down, interest rates go up and down, and little can be expected to stay the same over time. However, life insurance projections assume precisely the opposite; everything is static.<\/p>\n

Related:Death Isn\u2019t an Exit Strategy in Life Insurance Premium Financing<\/a><\/p>\n

Projections assume a crediting that\u2019s exactly the same, year in and year out, indefinitely. Is that the world you live in? If you assume your retirement portfolio is going to return 8% every year on a level basis, you can pull more out annually than if you assumed it would rise and fall with market forces, couldn\u2019t you? That 4% or 5% recommended by the advisor reflects the chances of the market being down in the early years of distributions. If that wasn\u2019t assumed, you could take out much more.<\/p>\n

The real world is apples and oranges relative to a life insurance projection.<\/p>\n

The second reason is so simple that I have a hard time believing I don\u2019t hear more about it in the market. The IUL illustration run at maximum allowable rates, as most are, is using the S&P 500 price return as the benchmark, a 100% securities-based basket. How many retirees are staying 100% in equities during retirement?<\/p>\n

Let\u2019s say a given retiree is comfortable with a 60\/40 equities\/bonds portfolio. This is closer to 8% than the 10%+ number that the Actuarial Guideline 49 (AG49)regs result in, and it\u2019s incorporated into the insurance ledgers. If we\u2019re going to be apples-to-apples, the IUL crediting has to be reduced as well. A reasonable number might be 5.25%. That\u2019s certainly going to affect the projected income capacity of the IUL policy, isn\u2019t it? If the retiree were more conservative than that with a traditional portfolio, then the IUL crediting needs to be reduced more.<\/p>\n

I have no doubt there will be pushback from some regarding the \u201cnon-realistic\u201d nature of the AG49 regs, but the math backs everything up.<\/p>\n

Bonus Issue<\/p>\n

Beyond these two reasons, there\u2019s also the unfortunate realization that too many IUL-based income projections bleed the net cash value down to a razor\u2019s edge to eke out every dollar on income, and this results in a rather risk-prone plan that doesn\u2019t take policy and market variables into account, increasing the chances of policy failure. If policy owners truly understood the consequences of policy lapse if projections don\u2019t pan out and everything isn\u2019t managed meticulously, they\u2019d likely not get on board in the first place.<\/p>\n

As opposed to a traditional investment portfolio that might run out of money, which is bad enough, a failing life insurance policy where retirement income has been by way of loans for decades, they may face devastating ordinary income tax consequences on hundreds of thousands, or millions, of dollars of phantom gain generated by the failing policy.<\/p>\n

The Point<\/p>\n

What\u2019s the axiom we\u2019ve all heard throughout our lives? If it\u2019s too good to be true. \u2026 Whether it\u2019s in your best interest or not isn\u2019t my point today. It\u2019s that a prospective policy owner looking at life insurance as a retirement income vehicle understands the underlying assumptions of the model, insists on apples-to-apples comparisons and internalizes the pros and cons of each strategy.<\/p>\n","protected":false},"excerpt":{"rendered":"I\u2019ve reviewed many attractive retirement income projections built on indexed universal life. Recently, one showed an indefinite retirement…\n","protected":false},"author":2,"featured_media":623590,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[138,246,111,139,69,244,245],"class_list":["post-623589","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-finance","tag-new-zealand","tag-newzealand","tag-nz","tag-personal-finance","tag-personalfinance"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/623589","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=623589"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/623589\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/623590"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=623589"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=623589"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=623589"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}