Retirement Planning with Cash Value Life Insurance

Transcription

1 Retirement Planning with Cash Value Life Insurance Supplement Your Savings Presented by: Gary Cromartie The Ohio National Life Insurance Company Ohio National Life Assurance Corporation Ohio National Equities, Inc. Member FINRA/SIPC D-6318_1-012

2 Please Be Advised: All specific legal and tax questions should be referred to your legal and tax advisers 2

3 Times Are Changing Longer life expectancies Inflation erosion Social insecurity Employer pension plans at risk Tax law uncertainty 3

4 Longer Life Expectancy Sixty is the New Fifty Year Life Expectancy at Birth Life expectancy has increased nearly ten years since 1950! Source: National Center For Health Statistics, Department of Health and Human Services ( ). 4

5 Inflation Erosion Year Inflation Rate Purchasing Power of One Dollar* 1967 (Base Year) - $ % 80 cents % 37 cents % 29 cents % 21 cents % 16 cents % 15 cents 2011 est. 3.4% 14 cents 5 Over the last 40 years, the annual inflation rate in the U.S. has averaged 4.74%. *Source: United States Bureau of Labor Statistics, Consumer Price Index, ( ) Purchasing Power amounts are rounded to the nearest cent.

6 Social Insecurity The current Trustees Report again reflects what we have long known to be true -- we need changes to ensure the long-term solvency of Social Security and to restore younger workers' confidence in the program, Without changes, in 2036, the Social Security Trust Fund will be able to pay only about 77 cents for each dollar of scheduled benefits. Text and statistic taken from the Social Security Board of Trustees 2011 annual report 6

7 Employer Pension Plans at Risk Since 2000, the Pension Benefit Guarantee Corporation has received a record number of extraordinarily large claims for failing pensions* In 2011, the PBGC reported a $23 billion deficit, the largest in its 37 year history.** *Source: Pension Insurance Data Book 2006, Pension Benefit Guarantee Corporation (PBGC). The PBGC insures about 2/3 of the private sector defined benefit pension plans. 7 ** Source: PBGC news release

8 The Trend Continues Between 1990 and 2009, more than half of all defined benefit pension plans were terminated. Source: U.S. Department of Labor Employee Benefits Security Administration. Historical Tables. December,

9 Tax Law Uncertainty Tax Reform Act of 1986 Omnibus Budget Reconciliation Act of 1987 Omnibus Budget Reconciliation Act of 1989 Omnibus Budget Reconciliation Act of 1990 Omnibus Budget Reconciliation Act of 1993 Small Business Job Protection Act of 1996 Tax Relief Act of 1997 Economic Growth and Tax Relief Reconciliation Act of 2001 Job Creation and Worker Assistance Act of 2002 Jobs and Growth Tax Relief Reconciliation Act of 2003 American Jobs Creation Act of 2004 Tax Increase Prevention and Reconciliation Act of 2005 Pension Protection Act of 2006 Tax Relief and Health Care Act of 2006 Tax Increase Prevention Act of 2007 Housing Assistance Tax Act of 2008 American Recovery and Reinvestment Act of 2009 The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 This is just a partial listing of federal tax legislation since 1986! 9

10 The Good Old Days For many individuals, Social Security and company provided pension plans supplied enough income for a comfortable retirement. 10

11 The New Reality: Pay Yourself First Social security and pensions: will provide a much smaller portion of each retirement dollar Personal savings: will provide a larger portion of each retirement dollar Relying primarily on government programs and employer-sponsored pension plans could leave you short of income during your retirement years 11

12 Supplementing Savings with Cash Value Life Insurance Simple Tax-deferred growth Income tax-free retirement cash flow* Access to cash without government penalties** 12 Protection from creditors (varies by state) Income tax-free death benefit *Cash flow is tax free as long as policy withdrawals and loans are properly structured. **Under current tax laws.

13 Three Phases Accumulation Phase Retirement Cash Flow Phase Death Benefit 13

14 Accumulation Phase Accumulation Phase Retirement Cash Flow Phase Death Benefit Annual life insurance premiums Policy cash value grows income tax deferred Policy cash value creditor protected (varies by state) 14

15 Retirement Cash Flow Phase Accumulation Phase Retirement Cash Flow Phase Death Benefit Cash value accessed to provide tax-free retirement income Cash value also available for other needs such as education funding or family and charitable gifting programs 15

16 Death Benefit Phase Accumulation Phase Retirement Cash Flow Phase Death Benefit Income tax-free, lump sum death benefit to heirs Death benefit may be structured to pass estate tax free to heirs 16

17 Powerful Benefits Accumulation Phase Retirement Cash Flow Phase Death Benefit Annual life insurance premiums Policy cash value grows income tax deferred Policy cash value is creditor protected (varies by state) Cash value is accessed to provide tax-free retirement cash flow Cash value is also available for other needs such as education funding or family and charitable gifting programs Income tax-free, lump sum death benefit to heirs Death benefit may be structured to pass estate tax free to heirs 17

18 Case Study: Gary & Susan Profile Married, both age 50 Have life insurance coverage on Gary ($250,000) Retirement savings consist of a 401(k) ($150,000) and a rollover IRA ($120,000) 18

19 Gary & Susan s Goals Retire at age 65 Additional retirement cash flow Tax savings Death benefit protection 19

20 Solution: Cash Value Life Insurance Permanent life insurance policy on Gary (or Susan) Annual premiums of $20,000 for 15 years Death benefit is minimized to maximize cash value Income tax-free retirement cash flow for 10 years starting at age 65 20

21 Retirement Supplement Benefits Accumulation Retirement Income Death Benefit $20,000 annual insurance premium Annual policy cash flow of $40,474 for 10 years Death benefit of $375,845 at age 85 Tax-deferred policy cash value and death benefit for family protection Tax-free retirement cash flow starting at age 65 Income tax-free death benefit paid to heirs 21

22 Summary: Cost & Benefits Cost $20,000 annual premium $300,000 total premiums to age 65 Benefits Pre-retirement death benefit $875,755 at age 65 Retirement cash flow benefit starting at age 65 $40,474 annual tax-free cash flow for 10 years* $404,740 total tax-free cash flow for Gary and Susan Post-retirement death benefit $375,845 at age 85 22

23 Protect Your Savings Waiver of Premium for Total Disability Rider protects your cash values in the event of disability In the event of the insured s disability for six months, premiums will be waived and cash values will continue to accumulate. 23

24 Retirement Planning with Cash Value Life Insurance Supplement Your Savings D-6318_1-012