So You Fully Understand...
The Tax Deferred
“Nest Egg”
A Tax Deferred Annuity—
Shelter Your Investment
from Current Taxation
PRO-0859 (12/14/06) 1
Annuities
Made Easy
Deferred Annuity—A contract with an
insurance company whereby premiums are paid
by an individual into an accumulation account in
exchange for a competitive yield, tax deferred
growth and a guaranteed lifetime payout option.
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Is Your
Money Safe?
You are Protected by:
1. The Legal Reserve System
Legal reserve refers to the strict financial requirements
that must be met by an insurance company to protect
the money paid in by all policyholders.These reserves
must, at all times, equal the withdrawal value of every
annuity account.
2. The Insurance Company
The full assets of the issuing company stand behind
the annuity values.You should place business only with
the strongest annuity carriers in the industry so that
safety is guaranteed.
3. State Pool
Most states have a further protective device. Should
an insurance company fail, all other companies doing
business in that state take over the annuities of that
carrier. The values are further guaranteed by
contributions made to a pool by all carriers.
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Determining Risk and
the Risk Pyramid
High Risk
- Options
- Futures
Summit
- Collectibles
- Real Estate
- Equity Mutual Funds
- Large/Small Cap Stocks
Middle
- High Income Bonds/Debt
- Annuities
- Government Bonds/Debt
- Money Market/Bank Accounts
Base Low Risk
- CDs, Notes, Bills, Bankers Accept
- Cash and Cash Equivalents
This pyramid can be thought of as an asset allocation tool that investors can use to diversify
their portfolio investments according to the risk profile of each security.The pyramid,
representing the investor’s portfolio, has three distinct tiers:
• Base of the Pyramid—The foundation of the pyramid represents the strongest portion,
which supports everything above it.This area should be comprised of investments that
are low in risk and have foreseeable returns. It is the largest area and composes the
bulk of your assets.
• Middle Portion—This area should be made up of medium-risk investments that offer a
stable return while still allowing for capital appreciation. Although more risky than the
assets creating the base, these investments should still
be relatively safe.
• Summit—Reserved specifically for high-risk investments, this is the smallest area of the
pyramid (portfolio) and should be made up of money you can lose without any serious
repercussions. Furthermore, money in the summit should be fairly disposable so that
you don’t have to sell prematurely in instances where there are capital losses.
Source: Investopedia Staff, (Investopedia.com)
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The Principles of Tax Deferral and
Compounding will Assist You in
Postponing Taxes and Increasing Benefits
$100,000 Premium at 6% Annual Interest
Taxable Investment
after Taxable Growth SPDA*
(28% Tax Bracket) Tax Deferred Growth
10 Years $152,643 $179,085
$156,941 (28%)
SPDA Advantage . . . . . . . . . . . . . . . . . . . . . . . + $4,298
20 Years $232,998 $320,714
$258,914 (28%)
SPDA Advantage . . . . . . . . . . . . . . . . . . . . . . + $25,916
30 Years $355,654 $574,349
$441,531 (28%)
SPDA Advantage . . . . . . . . . . . . . . . . . . . . . . + $85,877
* Interest earnings are subject to income taxes at withdrawal or surrender.
In some cases, a 10% Federal tax penalty may apply.
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Comparison Illustration
Annuities -vs- Taxable Savings
Prepared for: Client
Single Deposit: $50,000 Savings Interest Rate: 3.00%
Marginal Tax Bracket: 28% Annuity Interest Rate: 5.75%
Taxable Investment
Year Interest Tax Due *Balance Annuities
Earned of Account Cash Value
1 $1,500.00 $420.00 $51,080.00 $52,851.00
5 $1,633.86 $457.45 $55,638.37 $65,991.00
10 $1,818.11 $509.07 $61,912.57 $87,140.00
15 $2,023.13 $566.48 $68,894.30 $115,110.00
20 $2,251.27 $630.36 $76,663.33 $152,100.00
* This illustration assumes taxes due are paid from balance of account in year due.
Total taxes paid on savings are $10,369.07
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Tax Deferred Yields
and Taxable Equivalents
Tax Deferred Yields (%)
4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0
Taxable Equivalents (%)*
Bracket
15% 4.71 5.29 5.88 6.47 7.05 7.64 8.23 8.82 9.11 10.00 10.58
28% 5.56 6.25 6.94 7.63 8.33 9.02 9.72 10.41 11.11 11.81 12.50
31% 5.80 6.52 7.25 7.97 8.70 9.42 10.14 10.87 11.59 12.32 13.04
*Approximate
Example: Assume that a husband and wife both work and file a joint
income tax return. If they are in a combined 31% tax bracket,
they must earn 10.87% before tax in order to equal a tax
deferred yield of 7.5%
Note that a tax deferred yield does not exempt the client
from paying taxes in the future.The benefit of tax deferral is
the compounded interest growth on monies that would be
paid in tax each year in a taxable equivalent fund. In addition,
client could be in a lower tax bracket when funds are taken.
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Taxable Yields and
Actual Returns
Taxable Yields (%)
3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0
Actual Return after Taxes (%)*
Bracket
15% 2.55 2.98 3.40 3.83 4.25 4.68 5.10 5.53 5.95 6.38 6.80 7.23 7.65
28% 2.16 2.52 2.88 3.24 3.60 3.96 4.32 4.68 5.04 5.40 5.76 6.12 6.48
31% 2.07 2.42 2.76 3.11 3.45 3.80 4.14 4.49 4.83 5.18 5.52 5.87 6.21
*Approximate
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Insurance
Avoidance of Probate:
“No Fuss” Annuity Estate Distribution
The probate process after a loved one passes away can be cumbersome,
lengthy and frustrating.The probate process can often slow the distribution
of an asset to the ultimate beneficiary because of the complexities, time
restraints and filings that burden the executor. Annuities offer a solution to
this problem.
Annuity Probate Asset
1.The Will
2. Probate
3. Safeguarding Assets
4. Assembling Assets
5. Appraisal
6. Overview Review of Assets
7. Claims... Kinds, Preference, Payment
8.Taxes
9. Distribution of Estate
10. Final Accounting
Beneficiary Beneficiary
Although the value of annuities may be included in the total estate value for
tax purposes, it passes outside of the probate process.This gives the named
beneficiary use of the funds for expenses that are important during the
difficult period after the loss of a loved one.
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Probate Fees
Minimum Fee Schedule
(1) (2) (3) (4)
Probate Estate Estimated Estimated Approximate %
Executors & Total Cost & Fees of Estate Lost
Attorneys (#2 X 2.5)
Each Receive
$5,000.00 $250.00 $625.00 10%
25,000.00 1,050.00 2,625.00 10%
40,000.00 1,500.00 3,750.00 7 1/2%
60,000.00 2,100.00 5,250.00 7 1/2%
80,000.00 2,700.00 6,750.00 7 1/2%
100,000.00 3,300.00 8,250.00 6 7/8%
125,000.00 3,987.00 9,967.00 6 7/8%
150,000.00 4,875.00 11,687.00 6 7/8%
200,000.00 6,050.00 15,125.00 6 7/8%
250,000.00 7,425.00 18,562.00 6 7/8%
300,000.00 8,800.00 22,000.00 6 7/8%
350,000.00 10,175.00 25,437.00 6 7/8%
400,000.00 11,550.00 28,875.00 6 1/4%
500,000.00 14,050.00 35,125.00 6 1/4%
600,000.00 16,550.00 41,375.00 6 1/4%
700,000.00 19,050.00 47,625.00 6 1/4%
800,000.00 21,550.00 53,875.00 6 1/4%
900,000.00 24,050.00 60,125.00 6 1/4%
1,000,000.00 26,550.00 66,375.00 5%
1,500,000.00 36,550.00 91,375.00 5%
2,000,000.00 46,500.00 116,375.00 5%
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The King had an estate
of $10,165,434
After a settlement cost
of $7,374,635
Elvis’ net estate was $2,790,799
73% shrinkage!
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Estates of Famous People
Total
Gross Settlement Net Percentage
Name Estate Cost Estate Shrinkage
Stan Laurel $ 91,562 $ 8,381 $ 83,181 9%
“Gabby” Hayes 111,327 21,963 89,394 20%
Marilyn Monroe 819,715 448,750 370,426 55%
W. C. Fields 884,680 329,793 554,887 37%
Humphrey Bogart 910,146 274,234 635,912 30%
Dixie Crosby 1,332,571 781,953 550,618 58%
Franklin D. Roosevelt 1,940,999 574,867 1,336,132 30%
Clark Gable 2,806,526 1,101,038 1,705,488 30%
Cecil B. DeMille 4,043,607 1,396,064 2,647,543 35%
Gary Cooper 4,984,985 1,530,454 3,454,531 31%
Harry M.Warner 8,946,618 2,308,444 6,638,174 26%
Alwin C. Ernst, CPA 12,642,431 7,124,112 5,518,319 56%
J. P. Morgan 17,121,482 11,893,691 5,227,791 63%
William E. Boeing 22,386,158 10,589,748 11,796,410 47%
Walt Disney 23,004,851 6,811,943 16,192,908 30%
John D. Rockefeller, Sr 26,905,182 17,124,988 9,780,194 65%
Frederick Vanderbilt 76,838,530 42,846,112 33,992,418 56%
Figures are based on studies conducted by the Estate Research Institute.
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Where Does the
Money Come From?
• Bank
• Money Market
• Mutual Funds
• Stocks
• IRAs
• Other Annuities
Advantages of Annuities...
• Not Subject to Creditors
• Designed to Liquidate your estate
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Comparison
Annuities -vs- Bank CD’s
Increase the Yield On Your Bank Deposits by 45%
Those in a 31% tax bracket can increase the growth on their bank deposits by 45% with
tax-deferred annuities. Here is how it works:
If your bank account earns $1000 in annual interest income, shortly after year’s end,
you’ll receive a 1099 for $1000 to report on your tax return. This means you’ll owe
Uncle Sam $310.That $310 equals 31% of what you earned, but it equals 45% of the
amount you get to keep.
By transferring your savings to an annuity, you eliminate the 1099 and get to keep that
$310 in interest to compound tax-deferred. It’s like borrowing from Uncle Sam at 0%.
Other key differences between Bank CD’s and Annuities are compared in the table below:
Features Annuities CD’s
1. Free from principal/market risk and price fluctuations? . . . . . . . Y. . . . . . . . . . . Y
2. Are interest earnings free from current taxation? . . . . . . . . . . . . Y. . . . . . . . . . . N
3. Are interest earnings reinvested automatically
with no current income taxation?. . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . N
4. Am I able to make small additional investments?. . . . . . . . . . . . . Y1 . . . . . . . . . . N
5. Tax liability on Social Security income eliminated
on deferred accumulation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . N
6. Liquid?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . Y
7. Flexible? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . Y
8. Penalty free withdrawal? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y . . . . . . . . . . N
2
9. Funds not reduced by commissions?. . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . Y
10. Does this investment automatically avoid the expense
and delay of probate?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . N
11. Guaranteed lifetime income with tax advantages? . . . . . . . . . . . . . Y. . . . . . . . . . . N
Totals 11 4
1
When your Tax-Deferred Annuity is a Flexible Deferred Annuity versus a Single Premium Deferred Annuity;
small additional deposits are allowed.
2
Up to 10% of annuity value each year Source: www.annuityadvantage.com
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Now You Can See Why
an Annunity is a Very
Important Product
for Seniors...
• Safety • No Probate
• Liquidity • Incontestable
• High Yields • Creditor Proof
• No Risks • Depression Proof
• Tax Advantages • Lifetime Income
• Flexible
No other product provides all of
these important features!
How much would you like to
open your account with today?
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