So you want to set up a Sacred Account? Well there are a few things you will want to consider before getting started! But don’t worry, I’m going to break them down in a very simple fashion for you.
First, you want to realize that the Sacred Account is a strategy. Meaning it is a long term play. It isn’t something you “try”. It’s something you own and use. If this were a house, we are owning with a Sacred Account. Not renting. Your mindset should be a 5 year mindset at the minimum when setting up a Sacred Account. With this mindset we will move forward into the specifics of the account.
Contributions. It is important to determine your contribution strategy first. How will you contribute? Are you going to do monthly payments? Do you have a lump sum you want to disperse into the Sacred Account? Do you want the ability to move your contributions up and down with some flexibility?
If you’re doing monthly contributions, the MOST you can put into one policy is 25% of your gross income. The is important because if you plan on doing more than this, you need to have several policies and maybe structure the ownership of some of them under corporations rather than your own personal income.
If you’re doing a lump sum, you’ll need to be aware that you will need to add further contributions for at least 2–3 years afterwards of about 10% of whatever your lump sum was. For example, if I was to open a Sacred Account with $100,000 then I’d need to follow that up with $10,000 per year for at least 2–3 years after that.
Now, if you want some flexibility, you’ll also need to know that ahead of time. This would give you the ability to increase or decrease your contribution on demand. There are certain Sacred Accounts that do not allow you to change your contribution very easily once you start. There are others who will. If you want that flexibility you’ll need to have an account with a company who will give you that benefit. The trade off however, is usually going to mean a lower dividend rate. But sometimes that is worth it.
Time Horizon. Your Sacred Account requires a long term time horizon, but that doesn’t mean it requires long term contributions. You can fund an account for as little as 2–3 years! Granted, this account is not going to grow much as a longer term contribution for the simple reason that you are not buying dividend producing shares for as long.
Some people will even do a 5–10 year fund as well. This could be for a specific target. Or just the income produced by a an investment they’ll have for 5–10 years. This will grow more than a 2–3 funded account because you bought more shares over a longer period of time.
Most of my clients will fund for 20 years or until age 65. They are operating with the true concept that a Sacred Account is a better place to save money than a bank or a 401k. So as long as they are going to save money in life, they want it to go in the Sacred Account. The benefit here is that you can always stop early. But if you setup a 2–3 year fund or a 5–10 year fund, once it is funded, you cannot add more.
Loan Strategy. This is definitely one of the most important factors in setting up a Sacred Account. What will your loan strategy be? If you are looking for very high liquidity, meaning you can borrow more money, sooner then you can do that. The trade of is going to be a lower growth rate. In order to have more money available it means you have more in cash value and less in base shares, which are dividend producing. Even though the dividend rate is 6% for example, your actual growth rate may only be 3–5% because you own less shares and have less dividends. But you have more cash and that is a good thing if that is what you want. A factor to consider here is that when you borrow, you will probably pay more in interest than you receive in dividends.
You can also look for higher dividends, but less liquidity. This means you own more shares and therefore get more dividends. But your cash value is lower due to that. Your income will be higher, but you won’t be able to pull as much money out. This structure does put you in a position that when you borrow, you will probably earn more in dividends than you’ll pay in interest.
Lastly, you can meet in the middle. You have relatively good liquidity and relatively good growth. This would also mean that when you borrow, your dividend rate and interest rate on your loan will be about flush.
Company Selection. There are 3 main companies I work with on these accounts. I own a Sacred Account with each of them.
Guardian. They are good for those who want flexibility in contributions. They are also good for those who want a higher dividend rate than loan rate. Finally, they are great for 401k owned life insurance. They do not have the highest dividend rate and they do not have very high liquidity in comparison to other options.
Mass Mutual. Mass has the highest dividend. They are good for someone who wants really high liquidity on cash value and the best dividend rate. They are not flexible with contributions. Their dividend rate will probably not outpace their loan rate for the first few years of the account.
New York Life. They are a tweener between Mass and Guardian. They have the next highest dividend rate. They don’t have the highest early liquidity on cash value and they are also not flexible with contributions. To be honest, even though I have a policy with them we don’t use them a ton with clients because they are not the best at any one thing and aren’t very accommodating. But, they can still come in handy!
Own Your Potential,
CEO & Founder of Wealth DynamX
Jerry Fetta helps his clients gain more financial knowledge, make more money, keep more of it, and multiply what they keep.