GIVE YOUR CLIENT S RETIREMENT PLAN SOME REAL LEVERAGE.

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1 GIVE YOUR CLIENT S RETIREMENT PLAN SOME REAL LEVERAGE. Personal Retirement Account (a retirement savings strategy using life insurance)

2 Here s the story. Janet is 40 and a partner in a large law firm. Her annual income is $150,000 and she makes the maximum allowable RRSP contribution every year. Janet wants to retire fully when she s 65, but is concerned about the following issues: - In each of the first 10 years of her retirement, Janet needs to receive an amount equal to 70 per cent of her pre-retirement income. - To maintain the retirement lifestyle she wants, Janet must supplement her RRSP and other income sources with $20,000 in after-tax income in each of those years. - When her children were younger, Janet recognized the need for income replacement insurance. As her children are now growing up, her focus has shifted to estate planning. Janet knows her estate will have considerable expenses, including income taxes, probate fees, and other costs. She also understands that leaving a sizeable legacy to charity could significantly reduce her final tax bill. Like many investors, Janet is constrained in reaching her financial goals by the limits of traditional taxdeferred saving options: - The current $13,500 RRSP contribution limit is reached at an earned income of $75,000. % Income Replaced - The Defined Benefit Retirement Pension Plan limit may be reached with an earned income of $86,111 for plans with a maximum two per cent benefit formula. Plus, participation in such plans reduces RRSP contribution room As income increases, the percentage of pre-retirement income that can be funded through registered plans decreases $100 $125 $150 Income (000's) $175 $200 1.

3 And the challenge. While Janet could look to other options to meet her retirement capital needs such as investing in nonregistered securities, mutual funds, or segregated funds these possibilities are less than ideal. Consider these drawbacks: - The return on taxable investments is reduced by the tax payable on the income earned. - In addition to requiring careful selection and ongoing management, growth equity funds and stock investing often involve frequent portfolio turnover to manage risk, forcing deferred capital gains to be realized. As a result, these options offer limited tax-deferral opportunities and may not be suitable for risk-averse investors. TAXABLE INVESTMENTS ANNUAL INVESTMENT EARNINGS (taxable) ANNUAL WITHDRAWALS (tax payable on deferred gains) - Tax shelters such as real estate, film, oil and gas ventures, and limited partnerships are high-risk investments that also require careful selection and ongoing management. All of which begs the question: Isn t there a better way? 2.

4 The solution. One strategy that could help Janet is the Personal Retirement Account (PRA). By combining the insurance and investment components of a single Sun Universal Life policy, a PRA can help Janet meet the need for both supplemental retirement income and estate liquidity, in a tax effective way. Here s how. Funds are invested and accumulate within a Sun Universal Life policy on a tax-deferred basis. These savings can be withdrawn to provide retirement income at a later date. Or, the policy can be used as collateral for a loan to supplement retirement income. In either case, the policy s tax-free death benefit includes all unused accumulated funds and the proceeds can be used to pay taxes and final expenses, such as outstanding loans, leave bequests to charity, or simply maximize the heirs inheritance. Accumulation Period AFTER TAX DEPOSITS $5,000 PER YEAR FROM AGE INSURANCE $250,000 TAX-DEFERRED SAVINGS DEATH BENEFIT 3.

5 The Personal Retirement Account. During Retirement Income through withdrawals from PRA INSURANCE TAX-DEFERRED SAVINGS DEATH BENEFIT ANNUAL WITHDRAWALS (taxable) Income through leveraging INSURANCE TAX-DEFERRED SAVINGS DEATH BENEFIT ASSIGNED AS COLLATERAL ANNUAL LOANS (may be tax-free) 4.

6 Meeting your clients needs. Consider why the Personal Retirement Account using Sun Universal Life is the right solution for clients like Janet: - Janet creates over $20,000 of annual retirement income during her first 10 years of retirement through tax-deferred accumulation and income from annual loans. This amount is higher than would be possible using fixed income investments, and only a little lower than would be possible using a balanced portfolio. - If Janet dies prior to retirement, her estate receives between $250,000 and $450,000 on a tax-free basis. These proceeds can be used to preserve her estate by paying the capital gains or other taxes and estate expenses owing at death, or to make a charitable bequest. - Janet s estate will continue to be entitled to over $250,000 if she dies between the ages of 65 and 85. With leveraging based on an assumed age of death at 83, the estate value only dips below $250,000 after age 85. Annual Income Age 65 to 74 Estate Value Bonds Balanced Universal Life Withdrawals Universal Life Leverage 25, ,000 Annual Income ($) 20,000 15,000 10,000 Premium ($) 400, , ,000 5, ,000 0 Bonds Balanced UL Withdrawals UL Leverage AGE A large number of assumptions were used in preparing the cases shown in this booklet. Performance will be higher or lower than shown here. No one should implement the above strategy without first reviewing a proposal for insurance and a Personal Retirement Account illustration disclosing all of the assumptions and risks. Samples of the documents used to produce the above cases will be provided on request. 5.

7 Helping you help your clients. Your clients may already know what their retirement goals are. However, they rely on you to help them select a financial strategy to reach those goals, by considering both the rewards and the risks of a number of alternatives. It s up to you to provide a complete picture of their chosen strategy. That s where we can help. Sun Life Financial has developed a comprehensive library of tools to make your job easier. You can help your clients understand their options, offer them the added value that sets you apart, and provide superior service. For instance, to help you sell and service the Personal Retirement Account, we can provide you with the following support materials: - Advisor s Guide to Leveraging Life Insurance Educate your clients and their other advisors about the mechanics, benefits, and risks associated with various personal and corporate leverage strategies with this professional full-colour printed guide. - Leveraging Life Insurance This comprehensive reference paper on various leveraging strategies for both personally and corporately-owned life insurance provides you with all the technical information you need to respond to client questions and concerns. - Sales Concept Software Illustrate the benefits of the PRA strategy with figures and graphs using Sun Life Financial s exclusive PRA concept software, incorporated into our own version of Addcalc. This unique software not only proves the advantage of the PRA strategy by comparing it to taxable investments, it also offers you the ability to protect yourself by demonstrating the financial consequences of failing to meet the assumptions. - PowerPoint Presentations Enhance your sales efforts with our customized and powerful PowerPoint presentations on a wide variety of topics, including the PRA strategy. These tools make it easier for you to promote, implement, and demonstrate the value of this powerful strategy. Please refer to the back page for information on accessing these and other sales support tools from Sun Life Financial. 6.

8 The backup you need. With Sun Life Financial, you get the best behind-the-scenes support around. Whether you are operating from within a Sun Life Financial Centre or with one of our distribution partners, your own Marketing Consultant or insurance specialist will be your first line of support. But if you need additional assistance, we re there to help. Visit us around the clock to check out our range of tools and support services, including all of the content of our Planning Tools CD, plus news, interest rates and a catalogue of marketing material. A secure area of this site provides advisors with their own client information and details of both in-force and pending business with Sun Life Financial. Planning Tools CD This comprehensive CD includes our Financial Advisor Bulletins, a wide assortment of reference articles and case studies, client PowerPoint presentations on an array of financial topics, needs analysis software, and full product guides. The Sun Life Financial Sales Desk For telephone consultation or advice, call us toll-free from 8:30 a.m. to 4:30 p.m. (EST) at SUN/ , option 4. Your call will be answered in person by an expert who understands your needs and can answer your specific questions about our products, software, and sales support tools. Regional Distribution Offices Your own Marketing Consultant or insurance specialist can call the Regional Distribution Office near you to arrange for face-to-face case assistance or consultation on advanced tax and estate planning issues. For a Personal Retirement Account kit, including the sample cases used in this brochure and printed materials, contact your local Sun Life Financial distributor, visit the Advisor Centre on our Web site at or call our Sales Desk at SUN/ , option 4. * Insurance products are issued by Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies, or by an issuer with which it has a networking relationship (05/01) Printed in Canada Visit our Web site at: Sun Life Financial. All rights reserved.