Last year we set up a private retirement plan to exempt retained earnings for 2 business partners in the development industry where their business is growing at 20% net profit margin. We gave options to each partner on how to leverage their Plan to maintain cash flow business growth. The 1st Partner was stubborn and didn’t want to spend extra time or energy. Partner 2 was open and sought guidance and advice. Here are the results over one year Jan-Jan:
Partner 1: 20% Trust growth less 10% paid in taxes = 10% net after-tax return. But he didn’t have to spend any extra time on planning.
Partner 2: 20% Trust growth less 7% paid in taxes (3% saved), plus 24.84% tax free interest credits less 3.95% in total interest and carrying costs = 33.89% net after-tax return on dollar. The additional values of the 23.89% improved return are both secured against future downside market risk, interest rate volatility risk, as well as exempt from creditor risk (lawsuits). He worked harder, smarter and made much more money.
The Question: so what do you think the future value is after 5 years of compounding this increased cash flow?
The Answer: MASSIVE. This will convert into a major increase in annual benefits and enhanced lifestyle at retirement.
Changing the Tune: Partner #1 was pretty upset he missed the boat so we’re now adjusting his Plan. Partner #2 laughed out loud.
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