Comparing Growth of Annuities, Indexed Universal Life (IULs), and Whole Life Policies After Rolling Over a $100,000 IRA, 401(k), Pension, or TSP Fund Over Ten Years for a 55-Year-Old Woman and a 55-Year-Old Man

When rolling over, say, a $100,000 retirement account, such as an IRA, 401(k), pension, or Thrift Savings Plan (TSP), into an annuity, Indexed Universal Life (IUL) policy, or whole life insurance policy, there are critical differences in how each of these products might grow over the next decade. The performance of these financial products varies based on market conditions, policy fees, and how the products are structured. Additionally, the eventual monthly income they provide after ten years of accumulation is one of the key reasons individuals choose between these options.

In this article, we will explore how these three options would perform for both a 55-year-old woman and a 55-year-old man, evaluating which product would have grown more in value over the past ten years and which would provide the most monthly income in retirement. We will also name specific carriers and products to give you a clear picture of how each product could work.

Understanding the Financial Products:

Before diving into growth projections and income potential, it’s crucial to understand how each of these financial products operates:

1. Annuities: These are contracts with insurance companies where an individual pays a lump sum or makes periodic payments, and in return, the insurer promises either immediate or future income. Annuities can be fixed, indexed, or variable, each offering varying levels of risk and reward.

2. Indexed Universal Life (IUL) Insurance: IUL policies are a type of permanent life insurance offering both a death benefit and cash value growth. The cash value growth is linked to the performance of a market index, such as the S&P 500, but with capped gains and a floor to prevent losses during down markets.

3. Whole Life Insurance: This is another form of permanent life insurance with guaranteed cash value growth. Whole life policies grow based on a guaranteed interest rate and may also pay dividends, depending on the carrier. They are generally safer but offer lower growth potential than market-linked products like IULs and variable annuities.

Evaluating Growth Potential Over Ten Years

To evaluate how these products would have grown in the past ten years, we will look at typical returns and the impact of insurance costs, fees, and other factors.

1. Annuities

Fixed Annuities offer a guaranteed interest rate, which is typically low but safe. Over the last ten years, a fixed annuity with an average interest rate of 2-3% would have grown the $100,000 investment to approximately $121,899 (2% annual growth) or $134,392 (3% annual growth). This growth is consistent for both a 55-year-old woman and a man since annuities are not affected by gender differences in life expectancy at this stage of accumulation.

Variable Annuities, on the other hand, invest in market-linked subaccounts and can achieve higher returns depending on market performance. Given that the stock market has experienced significant growth over the last ten years (despite some volatility), an average annual return of 6-7% is plausible. A 6% annual return would have grown the $100,000 to approximately $179,085 after ten years. However, variable annuities also come with higher fees and risks, including potential losses during market downturns.

Indexed Annuities are tied to the performance of a market index (such as the S&P 500), with a cap on returns and protection against losses. Assuming an average return of 4-6% annually, the $100,000 could have grown to approximately $148,024 (4% annual return) or $179,085 (6% annual return), similar to variable annuities but with less risk.

Carrier and Product Example: One of the top options in the annuities market is Allianz with its Allianz 222 Fixed Indexed Annuity. This product offers growth potential tied to market performance, with a cap on gains and protection against losses, making it a good fit for individuals who want conservative growth without risking their principal.

2. Indexed Universal Life Insurance (IULs)

IULs provide the potential for market-linked growth with downside protection, making them a middle-ground option between whole life insurance and variable annuities. Over the past ten years, with the S&P 500 averaging about 10% annually, an IUL with a cap of 10-12% could have provided a return of approximately 6-8% annually, depending on the policy’s specific cap and floor.

Assuming a 7% annual return, the $100,000 would have grown to approximately $196,715 over ten years. However, it’s important to remember that IULs have fees related to the cost of insurance, which could reduce the overall cash value growth. For a 55-year-old woman, the costs may be slightly lower due to longer life expectancy, resulting in slightly higher cash value accumulation compared to a 55-year-old man. Even so, the difference would be minimal.

Carrier and Product Example: The Nationwide IUL Accumulator II is a well-known product in the IUL space, offering competitive caps on growth and downside protection. This product would have allowed the $100,000 to grow consistently over the last ten years, assuming market conditions remained favorable.

3. Whole Life Insurance

Whole life insurance offers guaranteed growth, typically between 2-4%, along with potential dividends depending on the carrier. Over ten years, a whole life policy with a 3% guaranteed growth rate would have grown the $100,000 to approximately $134,392. If the carrier offered dividends, this could increase the growth slightly to around $146,879, assuming dividends added an extra 1% annually.

Whole life insurance costs are typically higher due to the guaranteed death benefit, but the growth is stable and predictable. Women, who generally live longer than men, might see slightly better cash value accumulation because their life insurance costs are lower. However, the overall difference would still be relatively small over a ten-year period.

Carrier and Product Example: MassMutual Whole Life 10 Pay is one of the top whole life policies available. It offers guaranteed cash value growth and the potential for dividends, making it a solid choice for those seeking long-term security and stability.

Monthly Income After Ten Years

Now, let’s evaluate the monthly income each product could provide after ten years, based on the $100,000 initial investment and how much it has grown.

1. Annuities

Fixed Annuities: After ten years of accumulation, a fixed annuity could be annuitized to provide guaranteed income for life. Assuming a conservative payout rate of 5%, the $134,392 (3% annual growth) could provide approximately $560 per month for life. Both men and women would receive similar payments, though men may receive slightly higher monthly payouts due to shorter life expectancy, but for a shorter period of time.

Variable Annuities: Given the potential higher growth of a variable annuity, which might have grown to $179,085, the monthly income could be higher. At a 5% payout rate, this would provide approximately $746 per month. However, the payments could fluctuate depending on market performance if the annuity is not fixed.

Indexed Annuities: Assuming an indexed annuity grew to $179,085 over ten years, the monthly payout could be similar to that of a variable annuity, around $746 per month, but with less risk of fluctuation due to market volatility. Like with fixed annuities, men might receive slightly higher payments but for a shorter time.

2. Indexed Universal Life Insurance (IULs)

With IULs, cash value can be accessed through policy loans or withdrawals. After ten years of growth, if the $100,000 had grown to $196,715, the policyholder could take out structured loans against the cash value. Using a conservative 5% loan rate, this could provide monthly payments of approximately $820, assuming the policy is structured for income distribution. The IUL’s death benefit would reduce over time as loans are taken, and women may benefit from slightly higher cash value, allowing for slightly larger loans.

3. Whole Life Insurance

Whole life policies can provide income through policy loans as well, though the growth is slower compared to IULs or annuities. If the $100,000 had grown to $146,879 (including dividends), policy loans could provide around $615 per month at a 5% loan rate. Women, with potentially slightly higher cash value, could draw slightly more per month, though the difference would be small.

Which Product Provides the Most Monthly Income After Ten Years?

Variable Annuities or Indexed Annuities would provide the highest monthly income after ten years, especially if the market performed well, offering up to $746 per month.
IULs could offer slightly less income, around $820 per month, but with the added benefit of continued life insurance coverage and flexibility in accessing cash.
Whole Life Insurance offers the least income potential but provides long-term stability and guaranteed cash value.

Conclusion

Over a ten-year period, variable annuities or indexed annuities would likely have provided the most growth and the highest monthly income, offering the potential for payments around $746 per month. IULs, while slightly less aggressive in growth than variable annuities, offer a solid balance between growth and life insurance.

If you want to discuss your options or run some illustrations for you, feel free to schedule a call.

Please know that any insurance policy is not an investment, and, accordingly, should not be purchased as an investment.