So You Fully Understand...
The Tax Deferred “Nest Egg”
A Tax Deferred Annuity— Shelter Your Investment from Current Taxation
PRO-0859 (12/14/06)
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Annuities Made Easy
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.
Deferred Annuity—A contract with an
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Is Your Money Safe?
1. The Legal Reserve System
You are Protected by:
2. The Insurance Company
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.
3. State Pool
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. 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
Summit
- Options - Futures - Collectibles
High Risk
Middle
- Real Estate - Equity Mutual Funds - Large/Small Cap Stocks - High Income Bonds/Debt - Annuities - Government Bonds/Debt - Money Market/Bank Accounts - CDs, Notes, Bills, Bankers Accept - Cash and Cash Equivalents
Base
Low Risk
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.
• 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)
• 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.
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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 (28% Tax Bracket) $152,643 SPDA* Tax Deferred Growth $179,085 $156,941 (28%) $320,714
10 Years
SPDA Advantage . . . . . . . . . . . . . . . . . . . . . . . + $4,298 20 Years $232,998
SPDA Advantage . . . . . . . . . . . . . . . . . . . . . . + $25,916 30 Years $355,654
$258,914 (28%)
$574,349
SPDA Advantage . . . . . . . . . . . . . . . . . . . . . . + $85,877
$441,531 (28%)
* 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 Marginal Tax Bracket: 28%
Savings Interest Rate: 3.00% Annuity Interest Rate: 5.75%
Year 1
20
15
10
5
$2,251.27
$2,023.13
$1,818.11
$1,633.86
$1,500.00
Interest Earned
Taxable Investment
Tax Due $420.00
*Balance of Account
$630.36
$566.48
$509.07
$457.45
$76,663.33
$68,894.30
$61,912.57
$55,638.37
$51,080.00
Annuities Cash Value
$152,100.00
$115,110.00
$87,140.00
$65,991.00
$52,851.00
* 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
4.0 4.5 5.0
Tax Deferred Yields (%)
5.5 6.0 6.5 7.0
7.5
8.0
8.5
9.0
Bracket
15% 28% 31%
Taxable Equivalents (%)*
5.29 6.25 5.88 6.94 6.47 7.63 7.05 8.33 7.64 9.02 8.23 9.72 10.41 8.82 11.11 11.81 12.50 9.11 10.00 10.58
4.71
5.56
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
3.0 3.5 4.0 4.5 5.0
Taxable Yields (%)
5.5 6.0 6.5
7.0
7.5
8.0
8.5
9.0
15% 28% 31%
Bracket
Actual Return after Taxes (%)*
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 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 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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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
Avoidance of Probate: “No Fuss” Annuity Estate Distribution
Insurance
3. Safeguarding Assets 4. Assembling Assets 5. Appraisal
7. Claims... Kinds, Preference, Payment 9. Distribution of Estate Beneficiary 10. Final Accounting Beneficiary 8.Taxes
6. Overview Review of Assets
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
(1) Probate Estate (2) Estimated Executors & Attorneys Each Receive $250.00 1,050.00 1,500.00 2,100.00 2,700.00 3,300.00 3,987.00 4,875.00 6,050.00 7,425.00 8,800.00 10,175.00 11,550.00 14,050.00 16,550.00 19,050.00 21,550.00 24,050.00 26,550.00 36,550.00 46,500.00
Minimum Fee Schedule
(3) Estimated Total Cost & Fees (#2 X 2.5) $625.00 2,625.00 3,750.00 5,250.00 6,750.00 8,250.00 9,967.00 11,687.00 15,125.00 18,562.00 22,000.00 25,437.00 28,875.00 35,125.00 41,375.00 47,625.00 53,875.00 60,125.00 66,375.00 91,375.00 116,375.00
(4) Approximate % of Estate Lost 10% 10% 1/2% 1/2% 1/2% 7/8% 7/8% 7/8% 7/8% 7/8% 7/8% 7/8% 1/4% 1/4% 1/4% 1/4% 1/4% 1/4% 5% 5% 5%
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$5,000.00 25,000.00 40,000.00 60,000.00 80,000.00 100,000.00 125,000.00 150,000.00 200,000.00 250,000.00 300,000.00 350,000.00 400,000.00 500,000.00 600,000.00 700,000.00 800,000.00 900,000.00 1,000,000.00 1,500,000.00 2,000,000.00
7 7 7 6 6 6 6 6 6 6 6 6 6 6 6 6
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
Name
Stan Laurel $
Gross Estate
“Gabby” Hayes W. C. Fields
Marilyn Monroe Humphrey Bogart Dixie Crosby Clark Gable Franklin D. Roosevelt
111,327 884,680 819,715
91,562
Total Settlement Cost
$ 21,963 8,381
$
Net Estate
1,332,571
910,146
329,793 274,234
448,750
554,887 635,912 1,336,132
370,426
89,394
83,181
Percentage Shrinkage
20% 37% 30% 55% 9%
1,940,999 2,806,526
781,953
J. P. Morgan
Alwin C. Ernst, CPA
Harry M.Warner
Gary Cooper
Cecil B. DeMille
12,642,431
8,946,618
4,984,985
4,043,607
William E. Boeing Walt Disney John D. Rockefeller, Sr Frederick Vanderbilt
17,121,482 22,386,158 23,004,851 26,905,182
11,893,691 10,589,748 17,124,988 6,811,943
7,124,112
2,308,444
1,530,454
1,396,064
1,101,038
574,867
550,618
58% 30%
5,518,319
6,638,174
3,454,531
2,647,543
1,705,488
11,796,410 16,192,908 33,992,418 9,780,194
5,227,791
56% 63% 47% 30% 56%
26%
31%
35%
30%
76,838,530
42,846,112
65%
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
• Not Subject to Creditors
Advantages of Annuities...
• Designed to Liquidate your estate
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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%.
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:
Increase the Yield On Your Bank Deposits by 45%
Annuities -vs- Bank CD’s
Comparison
1. 2. 3. 4. 5. 6. 7.
Features
Other key differences between Bank CD’s and Annuities are compared in the table below: Free from principal/market risk and price fluctuations? . . . . . . . Y. . . . . . . . . . . Y Are interest earnings free from current taxation? . . . . . . . . . . . . Y. . . . . . . . . . . N Are interest earnings reinvested automatically with no current income taxation?. . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . N Am I able to make small additional investments?. . . . . . . . . . . . . Y1 . . . . . . . . . . N Tax liability on Social Security income eliminated on deferred accumulation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . N Liquid?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . Y Flexible? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . Y
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Annuities
CD’s
8. Penalty free withdrawal? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y . . . . . . . . . . N 9. Funds not reduced by commissions?. . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . Y 10. Does this investment automatically avoid the expense and delay of probate?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Y. . . . . . . . . . . N
Totals
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11. Guaranteed lifetime income with tax advantages? . . . . . . . . . . . . . Y. . . . . . . . . . . N
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When your Tax-Deferred Annuity is a Flexible Deferred Annuity versus a Single Premium Deferred Annuity; small additional deposits are allowed. 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 • Liquidity • No Probate • Incontestable
• High Yields • No Risks • Flexible • Tax Advantages
• Creditor Proof
• Depression Proof • Lifetime Income
No other product provides all of these important features!
How much would you like to open your account with today?
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