Post on 22-Mar-2017
WELCOMEWELCOME
Securing Your Clients Financial Securing Your Clients Financial FutureFuture
February 16, 2017February 16, 2017
What Would Your Clients Like to Have?√ Security of Principle?
√ Tax-Deferral?
√ Liquidity?
Security of PrincipleGuaranteed Interest Rate*
Access to funds**
Know the cost of getting your money
*May be penalty for early withdrawal than in contract
**Based on contract limits
05/02/23 6
The principle use of an annuity is the "scientific liquidation of
capital."
1. A sum is deposited and allowed to accumulate.
2. A series of payments is then available to the owner (annuitant) that may be withdrawn over a period of time, for a lifetime, or a combination of the two.
3. Annuity payouts are based on the mortality of the individual, an expected return on the deposit, and the law of large numbers.
As life insurance is designed to protect against dying too soon, annuities are designed to protect against living too long.
ANNUITIES
Tax-DeferralTheir Interest Grows Tax-Deferred, giving
them theValue of Triple Compounding……
Interest on Principle
Interest on Interest
Interest on Tax Savings – the money they would have paid in taxes
Liquidity
Partial withdrawals are available for any reason, typicallyafter the first policy year*
The Cash They Need……..To TravelTo Visit FamilyFor Sudden EmergenciesTo Live Life
*Based on withdrawal privileges of the contract, surrender charges may apply. If client is under 59 ½ , IRS penalty will apply
The Real Rate of ReturnWhat happens without triple compounding?
Many people put their money in a conservativeinstruments such as a CD* or money marketaccount because they aren’t sure what to do.
This money in their CD or Money Market Accountmay be reduced by taxes and inflation and couldactually decrease in value.
*CDs are FDIC insured
The Real Rate of Return*
Deposit Amount $100,000(4.50% Interest Rate) +4,500
33% Taxes -1,485Amount after Tax $103,0153.50% Inflation -3,605
Amount Left $99,410Net Loss $590
*This is a hypothetical example
Taxable Equivalent YieldsInterest rate required on ataxable investment toequal the yield of tax-
deferredinterest in accumulation.
For example, a person in the
35% tax bracket must earn
7.69% taxable to matchthe 5% Tax-Deferred
Yield.
Tax-Deferred Interest
18% Taxable
28% Taxable
35% Taxable
4.5% 5.49% 6.25% 6.92%
5.% 6.10% 6.94% 7.69%
5.5% 6.71% 7.64% 8.46%
6% 7.32% 8.33% 9.23%
6.5% 7.93% 9.03% 10%
7% 8.54% 9.72% 10.77%
7.5% 9.15% 10.42% 11.54%
8% 9.76% 11.11% 12.31%
Annuity earnings will be taxed in the “pay out” or distribution
phase
What is their Risk Tolerance?
What is yourRisk Tolerance?
CD
What is yourRisk Tolerance?
CD
Safety
What is yourRisk Tolerance?
CD
Safety
2/3/4+
%?
What is yourRisk Tolerance?
CD
Safety
2/3/4+
%?
STOCK
What is yourRisk Tolerance?
CD
Safety
2/3/4+
%?
STOCK
Upside
Market
Potential
What is yourRisk Tolerance?
CD
Safety
2/3/4+
%?
STOCK
Upside
Market
Potential
100%
Loss
What is yourRisk Tolerance?
CD
Safety
2/3/4+
%?
STOCK
Upside
Market
Potential
100%
Loss
√
What is yourRisk Tolerance?
CD
Safety
2/3/4+
%?
STOCK
Upside
Market
Potential
100%
Loss
√
What is yourRisk Tolerance?
CD
Safety
2/3/4+
%?
STOCK
Upside
Market
Potential
100%
Loss
√
√
What is yourRisk Tolerance?
CD
Safety
2/3/4+
%?
STOCK
Upside
Market
Potential
100%
Loss
√
√
Annuity
Deferred or Immediate
The Taxing of Social Security
Social Security History
Social Security Became LawIn 1935, President Roosevelt
signed into law the most significant legislation of our
time…The Social Security Act.
Social Security Became lawBy 1940, Social Security began making
benefit payments to beneficiaries.
The U.S. Treasury ruled that benefit payments were gifts and would not be subject to tax.
The first monthly payment was issued on January 31, 1940 to Ida May Fuller of
Brattleboro, Vermont.
Tax Law Was ChangedIn 1983 Congress changed the
law and allowed up to 50% of Social Security Benefits to be
subject to tax!!
In 1993 the law was changed again, now up to 85% may be
taxed!!!
What Causes Social Security to be Taxed?
What Causes Social Security to be Taxed?
The taxation of Social Security is based on the amount of income you received in a calendar
year.
Provisional Income –How it Works - Single
For a single person Social Security can become taxable
after your income plus (+) ½ of the amount received from
Social Security exceeds $25,000:
Up to 50% of Social Security Benefits can be taxed!
If the amount exceeds $34,000:
Up to 85% of Social Security Benefits can be taxed
Provisional Income –How it Works - Married
For Married or head of household Social Security canbecome taxable after your income plus (+) ½ of
theamount received from Social Security exceeds
$32,000:
Up to 50% of Social Security Benefits can be taxed!
If the amount exceeds $44,000:
Up to 85% of Social Security Benefits can be taxed
If you are single, Social Security is taxed when your threshold income exceeds $25,000
Over $34,000 Up to 85% of Social Security
is taxed$34,000
to $25,000
Up to 50% of Social Security
is taxed
$25,000 and
Under
No tax on Social Security
Income
(Threshold)
If you are married, Social Security is taxed when your threshold income exceeds $32,000
Over $44,000 Up to 85% of Social Security
is taxed$44,000
to $32,000
Up to 50% of Social Security
is taxed
$32,000 and
Under
No Tax on Social Security
Income
(Threshold)
Provisional Income
What is Provisional Income
1099 Income from
Savings & Investments
Provisional Income Contributes to
Taxing Social Security
What is Provisional Income?
Income from these accounts may be the reason you pay more taxes including the tax on your Social Security!
½ Social
Security
Corporate
Bonds
Tax Free
Bonds
DividendsCapital
Gains
Mortgage
Certificates
US
Treasury
Money
Market
Certificate
Of
Deposits
IRA
Distributions
Threshold
Income
There May be a Better WayIt’s not so important about the
amount of interest you earn on your money……..
but how your money earns its interest!
There May be a Better Way
Is the interest on your Certificates of Deposits, Money Market accounts or other plans affecting the taxation of your Social Security Benefits?
Are you paying income taxes on interest or money earned but do not currently need?
Reduce Provisional Income
When income is deferred instead of taxed it reduces provisional income and may lower amounts below the
allowed thresholds.
Section 72Section 72 of the Internal Revenue Codeallows “income credited on a deferred
annuity contract is not currently includable
as income.”
Based on Section 72, income credited inside an annuity will not create a tax on Social Security!
Combo Leads
The benefit of combination leads is that they allow you to easily customize your message to your preferred product types
Mix and Match to find the perfect prospect for your business
These are ideal lead pieces for the perpetual cross-seller
Annuities, LTC and Combo Leads
JM6: Combo Sample
National Average: 1.43%
Annuities, LTC and Combo Leads
BP-CP10: Annuity Sample
National Average = 1.24%
Annuities, LTC and Combo Leads
Sam Q. ProspectSam is retired and living comfortably.
He receives a Pension and Social Security.
His savings are in CD’s, Mortgage Certificates,
Money Market Accounts.
He doesn’t need the interest so he reinvests the
interest back into his certificates
Sam Q. Prospect
* Estimated Income Tax
*$6,828Total Federal Income Taxes
$47,400Total Income Received
$4,400Money Market
$12,400CD’s, Mortgage Certificates
$11,400Social Security
$19,200Pension
Sam’s Social Security Threshold
…Triggered a tax on Sam’s Social Security!!
<$16,800>Over Threshold
$25,000Threshold limit
$41,700Threshold Income
$4,400Money Market
$12,400CD’s, Mortgage Certificates
$5,700½ Social Security
$19,200Pension
Sam’s Tax on Social Security
Social Security $11,400
Social Security (subject to tax)
$9,690
Tax on Social Security $2,665*
*Estimated based on tax table
An Annuity would have stopped the tax on Sam’s Social Security Income
Total Threshold Income
$41,700 $41,700
*Annuity (Deferred interest)
<$16,800> $0
Threshold income $24,900 $41,700Threshold limit
(single)$25,000 $25,000
Over or Below Threshold
Below Over
Social Security taxed $0 $9,690Tax on Social
Security$0 $2,665
Federal tax due $1,598 $6,828*Assumes the interest paid by the Annuity is the same as paid by the Certificates of Deposit and Money Market Accounts.
*With Annuity *Without Annuity
An Annuity is the only interest producing asset that will not create a tax on Social Security
Annuity – Deferred √Certificates of Deposits √Money Market Account √Bonds including Tax Free √Dividends – Mutual Fund √Gains-Mutual Fund √
Yes No
Net Retirement income would have increased!Why pay tax on interest you don’t use?
Pension-$19,200 + $11,400 SS
Tax paid from Pension and SS
Net Retirement income after
taxPct% increase in
retirementincome
*With Annuity *Without Annuity
$30,600 $30,600
1,598 6,828
$29,002 $23,772
18% 0%
*Assumes the Annuity interest rate to be the same as the taxable interest accounts with no withdrawals taken from the annuity. Taxable interest assumed to be reinvested back into savings.
JESSE SLOME
$1,598
$3,480
$6,828
Summary of Tax Savings
0% 50% 100%
$2,665
$6230
Reduced tax amounts based on a percentage of taxable income ($16,800) illustrated as deferred income
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Total Federal Tax
Tax on Social Security
Gary and LisaGary and Lisa are retired and travel quite a bit.
Gary and Lisa receive a Pension and a distribution from an IRA.
They also receive 1099 income and Social Security.
They don’t need the 1099 income so they reinvest the interest.
Gary and Lisa
Pension/IRA Distribution
$24,450
1099 Income $20,000
Social Security $15,000
Total Income $59,450
Gary and Lisa Tax on Social Security
Social Security $15,000
Social Security (85% subject to tax)
$12,750
Tax on Social Security
$1,913*
*Estimated based on tax table @ 15%
Gary and Lisa Tax on Remaining Income
Pension/IRA Income $24,450
1099 Income $20,000
Tax on Remaining
Income$3,073*
*Estimated based on tax table @ 15%
Gary and Lisa Potential Tax Liability
Social Security $15,000
85% subject to tax $12,750
Tax on Social Security $1,913*
Pension/IRA Income $24,450
1099 Income $20,000
Tax on Remaining Income $3,073*
Total Tax Potential $4,986
*Estimated based on tax table @ 15%
Total Threshold Income
$59,450 $59,450
*Annuity (Deferred interest)
<$20,000> $0
Threshold income $39,450 $59,450Threshold limit
(married)$44,000 $44,000
Over or Below Threshold
Below Over
Social Security taxed(assuming qualified deductions)
$0 $12,750
Tax on Social Security
$0 $1,913*
Federal tax due $555.00* $3,073*
*With Annuity *Without AnnuityThere May be a Better Way
Total Tax Potential $555.00* $4,986*Assumes earnings from an annuity are not withdrawn and left to accumulate. Assumes standard deductions
There May be a Better WayTotal Threshold Income $59,450 $59,450
*Annuity (Deferred interest)
<$20,000> $0
Threshold income $39,450 $59,450Threshold limit
(married) $44,000 $44,000
Over or Below Threshold Below Over
Social Security taxed $0 $12,750
Tax on Social Security $0Federal tax due $555.00* $3,073*
By repositioning Gary and Lisa’s 1099 assets (that created taxable income) into a Deferred Annuity, the tax of $1,913 on their Social
Security was eliminated!Potential total tax savings…$4,431
*Without Annuity*With Annuity
Total Tax Potential $555.00 $4,986
1099 Asset
Created
Income
$1,913
*Assumes earnings from an annuity are not withdrawn and left to accumulate. Assumes standard deductions
There May be a Better WayGary and Lisa did not withdraw the $20,000 taxable interest they
earned from their 1099 assets, rather they had the earnings rollback into the assets.
They were forced into taking money from their *monthly retirementchecks to pay the tax on this 1099 income that they did not access.
NET RETIREMENT INCOME*Retirement income is Pension and Social Security combined
*$39,450
*$39,450
$38,895$34,464
With a Deferred Annuity
Without a Deferred Annuity
There May be a Better Way
Interested earned within a Deferred Annuity (and not withdrawn)
may stop or reduce the income tax on Social Security and could
increase Net Retirement Income!NET RETIREMENT INCOME
*Retirement income is Pension and Social Security combined
With a Deferred Annuity
*$39,450
$38,895*$39,450
$34,464
Without a Deferred Annuity
Questions to uncover their Questions to uncover their needs!needs!
05/02/23 70
Effective Questioning Did you have to pay taxes on your Social Security last year?
Did you have to pay Federal Taxes on your Social Security last year?
What percent of your Social Security was taxed.
Is the interest that caused you to go over the Social Security threshold, resulting in this tax, something you need to live on?
What benefits would you see in comparing rates of interest on income without receiving a 1099 that is reportable to the IRS?
Would not having to report this interest on your 1040 have helped reduce or eliminate the taxes you paid on your Social Security?
Of the money you have left, how much do you not want to risk in the market so you can feel more comfortable trying to get upside gain on the rest of your money?
Annuity Values Accumulate Tax Deferred
Your money grows faster with an Annuity because
you earn interest on dollars that would otherwise
be paid as taxes.
The principle earns interest, the interest compounds, and the money saved in taxes earns interest.
With this tax-deferred status, you can accumulate more money over a shorter period of time and consequently earn a greater return.
Example:Example:
Example cont.Example cont.