Along with all the exciting possibilities of the New Year, the start of 2014 offers us the opportunity to reflect upon the past and set goals for the future. While we often concentrate on the major, big picture factors, which might have impacted our success or not-so-successful results of the past year, sometimes it’s the smallest change that makes the most dramatic difference.
For example, if you were in a plane, traveling from Los Angeles to New York and the plane began its ascent with its nose off course, by just one degree, it would ultimately end its flight over 150 miles off course. What aggravates this error is that it would have taken one small adjustment, at the start of the flight, to get on course and still arrive in New York. But, over time, this one degree causes the plane to arrive in upstate Albany or Dover, Delaware, instead of NYC. Inconvenient, frustrating and unnecessary for everyone.
So what does all this have to do with the Infinite Banking Concept? Well…everything.
All market-based investments or qualified plans come with some type of fee structure referred to as a “management fee.” This is an ongoing cost, to the client, including management fees, administrative costs and marketing expenses. These combined fees, usually perceived as a small cost, usually range between 1 – 5%.
And here lies the key distinguishing difference between market-based investments and Infinite Banking: your cost to contribute to the plan and the impact this cost will have on your retirement.
Just like the plane example above, in the beginning, it might seem like a small, say 2%, fee will have little impact on your overall results. But remember, as the balance of your market-based investment grows, so does the total dollar amount of your management fees.
Let’s take a look: if you invested $15,000 per year for 30 years, in an account that earned a 6% annually-compounded rate of return, the management fee you would pay, in the first year, would only be $318.
However, as your balance grew from continued contributions and the 6% rate of return, the total dollar amount of the 2% management fee would also grow. In the last year of this example the 2% management fee, which only cost $318 in year one, ends up costing you $17,482. But that’s only the fee in the last year. Compounded over the full 30 years, you would have paid a total of $222,164.00, in management fees.
If your annual statement shows that the market yielded a 6% return, you would think that you are earning 6% right? But with a management fee of 2%, the actual return is really only 3.88%. In dollars and sense, without the management fee your account would have grown to $1,257,025; with the management fee, the compounding growth of your account ends up being only $856,602.
This 2% management fee actually represents a 32% difference in account value at the end of 30 years. And it doesn’t matter if the market is up, down or flat – you will still pay a management fee.
How does this compare to a Permanent Life Insurance policy? Actually, there’s no comparison. Our Infinite Banking Concept is just the opposite of the above example. We believe that as your account grows in value, your paid fees should diminish. This allows the entire concept of compound interest to work its magic. For you, not the management company. So again, with insurance, the majority of your total fees are accounted for in the first few years of your policy and then taper off, drastically, as your policy grows.
Additionally, Infinite Banking Concept Permanent Life Insurance Policies tend to have lower fees than any other kind of insurance available. To learn more details, contact us here at Paradigm Life today.
Just remember that in life, and especially in financial planning, sometimes the slightest adjustment can have the most dramatic impact, over time. Starting with year, 2014, make the adjustment that gives you the greatest return, through all the years.
Ryan Lee
