Whole Life Vs High Yield Savings Part 2

Whole life versus a high yield savings account, specifically with Capital One 360 Performance Savings Account. If you haven't watched part one yet, please go back and watch that for I will be pulling from those same details and bringing up things that you might get a little lost. Now to do a simple little recap in this video, what we're going to be doing with your very own personal finance geek of the 21st century, Denzel Rodriguez, here is we're going to be looking at the performance, the overall performance of a whole life insurance contract that has a living benefit called cash value. We're going to look at the 10 year performance of that and we're going to compare that to the historical performance of Capital One's 360 performance savings account over the last 10 years starting from 2015 to 2025. As I record this video in part one was comparing exactly that, using 20,000 a year as our savings plan. In this part, we're now going to make it a little more apples to apples comparison where we're going to show what it would look like if this person were to save 20,000 a year in a whole life insurance contract that comes with a death benefit and saving 20,000 in a high yield savings and reducing the 20,000 down to $19,100, taking the $900 difference and purchasing a convertible term life insurance contract and seeing how that performs. So with that, let's dive right into the whiteboard here. Same numbers as in part one situation of the person, 28 years old, male, we're working with $20,000 per year to save and preserve. On the whole life side, you get a death benefit of 777,000. Over 10 years it grows to 1.3 million over 1.3 million in death benefit, the total cash value grows to about $231,587. Over on the high yield savings account, I'm using a 22% tax rate and that 22% tax is coming out of the performance of the 20,000. In this case it's going to be 19,100. So year one in 2015, I would have earned 1.9% on my high yield savings at Capital One. So my account grows to 19,383 and 6 cents after you, minus 22%. And as we go on year over year, earn 3.7, 3.7 goes down, goes up, goes down, goes up, goes down, goes up, goes down, goes up, goes down all the way to 2025. By the end of 2025 and the end of this whole life insurance contract, we end up net after tax with $241,309.45. If you were just saving the 20,000 net after tax, you would have ended up with around $252,000. Okay? And that's no death benefit. So lose about $11,000 in performance and you get about a million dollar death benefit costs you about $900 a year on a 28 year old male convertible term. So you get the benefit that whole life is bringing to the table. Right? So if we compare death benefit to death benefit, say 1 million on this side, 1.3 million on this side, you say okay, well whole life has a higher performance on the death benefit by $334,635. Okay? So exactly that number there. On the cash performance side, we look at 241,309, 45 minus 231,587. We have a $9,722.45 increase in terms of liquidity on this side. Now one important fact I also want to share with most whole life insurance companies that are used for, in this case, what we're familiar with on this YouTube channel, unless this is your very first time watching my channel, something called the infinite banking strategy or becoming your own banker, or take away those marketing terms and just saying, using a mutually held life insurance company that has over 100 plus years of performance, paying out dividends with strong guarantees, properly designed, properly structured, all that good stuff you're going to have from day one of funding your life insurance policy and all throughout, you're going to typically have about 90% liquidity, the available cash value. So for example, if there's 231,587, you take that number and times it by 90% and that's actually what we can borrow. So if we use that and we say okay, 231,587 times 90%, I more so have about 208,428 and 30 cents that I could borrow. So take the 241,309 that you earned just putting in the savings account, minus 208,428 30 cents. Now there's a $32,881 gap. So we got 32,081 15 GAAP on cash and then you have a 334, 4635 gap on death benefit. So when deciding so this, hopefully this in this series, me taking my personal opinions, my Values and beliefs out of the equation and just presenting the facts to you of what could potentially happen. Now none of these numbers are, are going to be perfect. So the, the accuracy of the whole life. The only deviation you would have is that the cash value doesn't perform as well as what I'm displaying here. Highly unlikely due to it being able to pay a consistent guarantee every single year. Plus dividends have always been paid from this specific company. I'm using MassMutual for over 120 years. On the high yield saving side, all you need is about one or two quote unquote non performing years. Like if you got one more year in a 10 year span of 0.3% or 0.4%, you do one or two of those in a 10 year timeline. Now your number is going to start looking like this number. But still on the whole life side, keep in mind of how much of that 231 do you actually have liquid and so you take 10% off on average on top. Sometimes you can actually borrow up to 95% in some cases with some companies. So I'm being conservative using the 10% factor. So you probably would still have more money in a high yield savings account cash, but you would have less death benefit protection. Right? Because you lost by about 334,000. Now you probably could skew the numbers a little bit in this case and you're like okay, what would it look like If I dedicated $100 and got 1.3 million? Right. Or 1.34 like exactly the one point where it ends up after 10 years. Okay. And your numbers would probably probably be neck and neck and they would probably be quite equal. So the margin of error is really close between the two. So this comes down to values and beliefs. Do you believe that you'll earn this kind of performance in a high yield savings account compared to a guaranteed performance inside of a whole life plus the non guaranteed factor plus plus the living benefits that comes with the death benefit and the tax free feature of the death benefit proceeds to your family and also the tax free use via policy loans and tax free withdrawals up to the cost basis inside of a life insurance contract. And the money grows tax deferred. So you don't have that tax implication. Do you believe? See here's another thing. I'm using a 22% tax rate. What if your tax rate is 28%? What if it's 37% on Google? If you look at the average ordinary income tax on interest income, it's anywhere from 10 to 37% right now. So depending on what state you're in, understand that there's, you can argue there's more unpredictable variables on a high yield performance. So you want to evaluate do I believe I'll get these things and it'll outperform this or do I believe that my whole life performance, although it's showing that it's underperforming, what if it over promises, I'm sorry, what if it under promises and over delivers, you end up earning a higher rate of return inside of the contract which also results in a higher death benefit. The other thing you want to consider here is what happens after year 10? Am I just going to magically stop saving $20,000 a year and just let it keep growing? In part three, what we're going to look at is the next 10 years of saving 19,000 120,000. What I'll go ahead and do to make this a little bit easier, I'm going to make separate videos. So in the next video, part three, I'm going to show you continuing on 20,000 into a whole life insurance contract. But we're going to look at the next 10 years. We look at a full 20 year period and on the high yield savings side, if you're okay with it in the comments, let me know. I'm going to use a average rate of return which actually puts capital one high yield savings at a huge advantage. Okay, so I'm going to use an average rate of return of 3.13% based on this 10 year trajectory here, this 10 year performance, I'll use the 3.13%. Or let me know in the comments if you want me to basically just repeat and use the same exact numbers for the next 10 years, let me know in the comments. But in the video that I do, I'll use 3.13. I might even do both just to show potential differences and let's see over a 20 year period how these things start to perform over time. Let's keep in mind that for those of you that are watching, if you're developing the skill of saving and your intent is to save as a principle, as a way of life, that means we never stop saving. We save because it's a principle. Now it's just a matter of where do you save that money and how do you use those savings dollars? What is it ultimately preparing us for? Are we saving for a future expense? Are we saving for unexpected expenses? Are we saving to have an emergency fund? Are we saving to balance our investments? So by by you having a comfort, a lump sum of money over here that's safely growing over time. Does that allow you, as an individual, as an investor, as a business owner, as a household, husband and wife, does that allow you to make better investment decisions over here or take on more risk? Because if that fails, well, we've got our 20 here. That essentially is helping the entire portfolio perform and reducing stress. So, with that being said, my name is Denzel Rodriguez, personal finance geek, 21st century. If you'd like me to run a case study for you, you need coaching and accountability and support. You can actually click the links below, get ahold of myself, and maybe even partner with some of my team members on your personal financial freedom journey. With that being said, have a wonderful day. God bless. Stay tuned for Part three.