Build a Strong Financial Future

Transcription

1 The Principal Financial Group Build a Strong Financial Future LIFE INSURANCE AS AN ASSET

2 Building a strong financial future You work hard to build financial security for you and your family. Are you considering life insurance as part of your overall financial plan? Life insurance is a valuable asset that is sometimes overlooked in the financial planning process. It provides financial support for your family or your business when it s most needed, by providing resources to help: $ Replace your income 1040 Pay estate or income taxes Pay off the mortgage and other debts Meet special needs of heirs 2

3 Death benefit protection and MORE! While the death benefit 1 is the most important reason for life insurance, it has more to offer. Life insurance can also help with these key financial challenges often faced by families: MINIMIZING THE IMPACT OF TAXES Diversify your portfolio to help reduce the risk of taxes decreasing your income and affecting achievement of your financial goals. SAVING ENOUGH FOR RETIREMENT Bolster your nest egg using life insurance to provide taxadvantaged supplemental retirement income. PRESERVING A LEGACY Pass to your next generation the wealth that you ve spent a lifetime building. Adding life insurance to your financial portfolio may help to protect you and your family s future, while also providing an opportunity to meet your retirement income or wealth transfer goals. Your financial professional can help you design life insurance coverage to fit within your budget and meet your individual needs. 3

4 Protecting your wealth A primary objective for many families today is to accumulate wealth to maintain their standard of living in the future. Often, traditional retirement sources such as 401(k) plans and Individual Retirement Accounts (IRAs) serve as the foundation of retirement planning. These types of plans offer many advantages during your working years, however, one drawback is that when you withdraw money in retirement, it is taxed as ordinary income. Without proper planning, taxes could erode your income in retirement and put your anticipated lifestyle at risk. Diversifying your portfolio with assets that have other types of tax characteristics provides you flexibility in retirement to take income from assets in the most tax-efficient manner. Value of life insurance for tax diversification In addition to providing valuable death benefit protection, life insurance can play a key role in developing a well-diversified portfolio. The tax benefits of life insurance can help offset the tax erosion effects of other assets. CASH VALUE LIFE INSURANCE ALLOWS YOU TO: Save money that may grow over time Accumulate cash value tax-deferred, so you don t pay taxes on it as it grows Withdraw money from the policy, if you choose to, and generally receive it income tax-free 2 Including life insurance in your portfolio may help to diversify it, and potentially reduce tax erosion. 4

5 Bridging the retirement income gap Many high-income earners are maximizing their retirement plan contributions to help build a secure financial future. Some wonder, though, if it s enough. Contribution limits to traditional retirement sources can make it difficult to be able to put enough away in tax-deferred savings vehicles. FOR EXAMPLE: Scenario: An annual contribution limit of $18,000 would mean an 18 percent savings rate for someone making $100,000. What if you make twice that amount? Your savings rate shrinks to 9 percent. Would that be enough for your retirement needs? A Solution: Cash value life insurance offers a combination of features that can make it an excellent supplemental retirement income source. You may benefit from features, including: Tax-deferred interest growth Tax-free income 2 No income-based funding limits No penalties for withdrawing money prior to your age 59½ 3 or after age 70½ INCOME REPLACEMENT GAP The following chart 4 details the anticipated percentage of income replaced at retirement from Social Security and qualified plan benefits. 4 This information is from the Principal Financial Group Replacement Ratio Calculator with source information from the Annual Statistical Supplements to the Social Security Bulletin ( It is intended to demonstrate the potential impact of Social Security and 401(k) plan benefits at various income levels. For more information on your individual circumstances, please speak with your financial or tax professional Principal Financial Services, Inc. As current income increases, the percentage of income replaced at retirement decreases creating a retirement income gap. Don t let a gap prevent you from maintaining the lifestyle you ve worked so hard to build. 5

6 Preserving your legacy After a lifetime of working, planning and saving, you may desire to leave some of your financial assets behind to your heirs and/or your favorite charity. Often, money intended for transfer is invested in assets exposed to market risk and market fluctuations can impact the amount left for beneficiaries. What if there was an alternative strategy that could help you protect assets you intend to transfer, and even potentially, increase the amount that s passed to your heirs? One strategy is to leverage a small portion of your assets to obtain life insurance. Life insurance can add a stabilizing element to your portfolio by providing a death benefit that s: Not linked to market performance Of a known amount Income tax-free to beneficiaries USING LIFE INSURANCE TO HELP PRESERVE A LEGACY George is 55 years old and has done a good job of saving and has $1 million in assets that he doesn t need for living expenses. He intends to help his children by transferring this money to them when he s gone. George has seen the ups and downs of the stock market, and is concerned about having his assets that are earmarked for transfer exposed to market volatility. His financial professional discusses with him a strategy to include life insurance in his portfolio. The graph below shows the effects to his portfolio, with and without life insurance. Millions $ VALUE OF PORTFOLIO STRATEGY STRATEGY Age STRATEGY 1 WITHOUT LIFE INSURANCE George invests his assets in the current manner. The graph line represents the value of his portfolio over time. 1 STRATEGY 2 WITH LIFE INSURANCE George withdraws a small percentage of his assets, and uses the money to purchase a life insurance policy. 2 The graph line shows the value of the portfolio over time. 3 1 Assumes an annual 5% growth rate, with earnings re-invested. Fees and expenses are not included. 2 Life Insurance Assumptions: Principal Indexed Universal Life Flex SM, $1 million face amount, male, age 55, preferred non-tobacco, $14,460 annual premium, including policy fees and expenses, 5% illustrated rate. 3 His assets growing at an annual 5% rate of return with earnings re-invested, less $14,460 for his life insurance premium plus the $1 million death benefit of his life insurance policy. Using life insurance as a complement to other assets held within a portfolio may provide a higher legacy value than a portfolio without life insurance, while also reducing volatility and risk. This hypothetical example assumes assets used to purchase the life insurance policy were not held in a tax-deferred investment such as a qualified retirement plan or individual retirement account. Assumptions are subject to change and actual results may be more or less favorable. This strategy may not be appropriate for all investors. Death benefit and policy guarantees are backed by the claims-paying ability of the issuing insurance company. 6

7 Protect. Bridge. Preserve. Consider the advantages of life insurance as part of your financial plan to help create a stronger, more flexible portfolio for the future. Protect your income from tax erosion Bridge your retirement income savings gap Preserve the assets you ve worked so hard to build Speak with your financial professional about taking the next step to financial security for you and your family. The Principal Difference For more than 135 years, the Principal Financial Group has been investing clients hard-earned dollars to help them achieve financial success and provide protection for their businesses and loved ones. Let us help you meet your financial goals today. 7

8 Learn more. Contact a representative of The Principal. 1 In exchange for the death benefit, life insurance products charge fees such as mortality and expense risk charges and surrender fees. 2 Surrender charges and other policy charges may apply to distributions taken from the policy. Policy loans and withdrawals may decrease the amount of death benefit and cash accumulation value. If the policy is a modified endowment contract (MEC), policy distributions in excess of the policy s principal may be subject to current income taxes. 3 For life insurance policies classified as modified endowment contracts (MEC), loans and withdrawals may be subject to income tax and also to a federal tax penalty if taken before age 59½. 4 This information is from the Principal Financial Group Replacement Ratio Calculator with source information from the Annual Statistical Supplements to the Social Security Bulletin ( It is intended to demonstrate the potential impact of Social Security and 401(k) plan benefits at various income levels. For more information on your individual circumstances, please speak with your financial or tax professional. Guarantees are based on the claims-paying ability of the issuing insurance company. Non-variable life insurance is not classified as an investment product in the financial industry and doesn t fall under the regulation of the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA). Therefore, when considering the purchase of a life insurance product, buyers should carefully evaluate the issuing insurance company including its values, financial strength, stability in meeting its obligations and record of service. WE LL GIVE YOU AN EDGE Principal National Life Insurance Company and Principal Life Insurance Company, Des Moines, Iowa , Your Principal National or Principal Life financial representative can discuss the Principal Indexed Universal Life Flex policy with you and how it can meet your specific needs. Insurance products from the Principal Financial Group (The Principal ) are issued by Principal National Life Insurance Co. (except in NY) and Principal Life Insurance Co., Des Moines, IA The subject matter in this communication is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Not FDIC or NCUA insured May lose value Not a deposit No bank or credit union guarantee Not insured by any Federal government agency BB /2015 t y2