Flexible indexed universal life insurance and fixed index annuities

[M]

Hello! I sat through a retirement training at work and the financial advisor was offering free financial plans so I figured I hear out his ideas. He’s selling these 2 products that I’m researching. What are your thoughts on using flexible indexed universal life insurance (his product is Legacy Accel) instead of keeping our 2-3 years of cash living expenses in cash (when we retire at ages 48 and 50 we aren’t planning to have anymore earned income so want a nice buffer)? He’s saying this product will yield at least 2.5% guaranteed, is liquid, and passes to beneficiary. The fixed index annuities (he’s selling Nationwide New Heights) would be used instead of keeping the funds in the TSP so we’d have a guaranteed income at whatever later age we selected (I.e. 65 so as not to interfere with ACA subsidies) and it would come with a death payment unlike the TSPs partner Met Life annuity. This is being suggested to help provide guaranteed income (along with pensions and SS) typical of other deferred annuities. Are there any considerations or red flags you have with these products? We have no heirs.

[gocurrycracker]

Universal life insurance is good for one person only, the sales person

[M]

Oh darn, it sounds like such a good deal! Of course- I can tell they are salesmen and am skeptical. But in all seriousness, if I make 2.5% guaranteed, which is more than any high yield savings account, what am I missing?! I had a strong feeling it was a scam but I can’t pinpoint why. Can you tell me the secret?

What are your thoughts on the annuity? In some ways I’m drawn to it because I know how thrifty we can be. Even though I’m fairly certain we have enough in investments, I think we will be tempted to continue to scrimp and save for the unknown. Vs with pension, SS and an annuity, we would not be making a killing, but it would be a known that we’d feel free to spend. I was just thinking enough to cover expenses beyond what the pension and SS would be expected to over and then leave the rest invested.  Can you share your thoughts  on this thinking and on the particular type of annuity that’s best?

Thank you for your idea and welcome back to the US!

[gocurrycracker]

Read through what WCI has written here (and related articles):
https://www.whitecoatinvestor.com/5-reasons-not-to-buy-indexed-universal-life-insurance/

[Toofuzzy]

1) Anything you eventually withdraw  above your deposits will be taxed at your ordinary income tax rate.

If you just invest in a taxable account, any capital gains will be taxed at only ZERO to 20% depending on income. Qualified dividends will be taxed at capital gains rate also.

I realize you said for what sounded like liquid funds  but you can either invest in some high dividend stocks / ETFs  or hold some cash / short term bond funds in your retirement account.