A Smarter Way To Save
In our previous section where we discussed the importance of Saving Powerfully (the third foundational element of our Financial Empowerment Model), in order to work towards financial security.
In this section we will go further to share with you an innovative method of saving that will prove to be a smarter and better way to save to the future.
This method will be most appropriate for mid to long-term
… savers looking for better earnings potential compared to banking products but don’t want the risk of losing money in the stock market.
Additionally, these savers also want to take advantage of all tax benefits available to them.
We invite to to read further and discover a refreshingly smarter way to save that will ensure your money will be working hard for you.
Banks vs Wall Street
The two major common saving choices most Americans are aware of also happens to be extreme opposite of one another in regards to risk vs rewards.
On one end, Bank products are relatively safe but doesn’t offer much in growth.
On the other end, Wall Street products can offer good growth potential but it can also be too risky for most.
A Happy Middle
The good news is that there is a middle ground solution that you may not have heard of yet.
20 years ago, the life insurance industry invented a savings method that was designed to offer consumers protection against the stock market volatility.
From this, Fixed Indexed Annuity (FIA) and Indexed Universal Life (IUL) was born.
Since then, these “hybrid” Insured Indexed Savings plans has gained tremendous popularity, especially after the market crash of 2008.
This savings method truly offers the best of both worlds, allowing one to capitalize on some of the market gains while having protection of your savings when the market is down.
Carriers are able to offer this downside protection by limiting the upside gains when the market is up. More details on this to follow.
How It Works
The simplified diagram compares what happens to one saving in a Insured Indexed Savings vehicle such as an IUL or FIA (green) vs one saving directly in the S&P500 Index (red).
Notice that when the market is down, the insured indexed saver does not lose any money due to the guarantee from the insurance company.
An IUL Case Example: 2008 – 2014
This chart compares an IUL saver (green) versus a direct S&P 500 saver (red) using actual S&P 500 data from 2008 to 2014.
Note here that both savers had $100,000 at the start.
Also note that the IUL saver is offered by the insurance company a guaranteed a floor rate of 0% and an assumed cap rate of 13.5% for all of the stated years.
What this means is that at any point to point year, if …
… the S&P 500 is negative, the IUL saver will not lose money in any of those years.
On the other hand, when the S&P 500 is up on any point to point years, the saver will earn up to a maximum of 13.5%.
At the end of 2014, the IUL saver earned $43K more than the direct S&P 500 saver while enjoying peace of mind of the guaranteed safety. Now that’s Powerful!
Check out our Case Studies to see how an IUL can be applied to you.
Note-1: IULs are permanent life insurance products with riders that may cover other occurrences (i.e. critical & chronic illness and others). The built-in “savings account” are NOT directly invested in the stock market and they provide certain guarantees and tax advantages. The illustration above is specific to the time period and assumed minimum and cap rate stated. We are not generalizing that this method will always outperform one who invest directly in the S&P 500. IUL products and features are be subject to availability and qualification. Consult with one of our qualified representatives to determine if this type of savings plan is right for you.