tax diversifiying your retirement income ppt 14400 0409 f
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Learn how to diversify your retirement nest egg with life insurance.TRANSCRIPT
Tax Diversifying Your Retirement Income
This presentation includes a discussion of one or more tax-related topics. This tax-related discussion was prepared to assist in the promotion or marketing of the transactions or matters addressed in this material. It is not intended (and cannot be used by any taxpayer) for the purpose of avoiding any IRA penalties that may be imposed upon the taxpayer. Taxpayers should always seek and rely on the advice of their own independent tax professionals. Please understand that New York Life Insurance Company, its affiliates and subsidiaries, and agents and employees of any thereof, may not provide legal or tax advice to you. 00
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Retirement Isn’t What It Used to Be
Social Security
Pension & Qualified
PlansPersonal Assets
Once:
Retirement typically lasted about 10 years
Social Security, defined benefit pensions and some personal savings covered basic expenses
Now:
Retirement can last longer
Many key sources of income have been reduced
Increased reliance on personal assets
Social Security
Pension & Qualified
Plans
Personal Assets
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Social Security Is Shaky
Social Security was never intended to be the only source of income for retirement
The maximum Social Security Benefit in 2008 for a worker retiring at full retirement age was $2,185 per month1
There are limits on how much you can earn before your Social Security benefits are reduced and/or taxed
1Fast Facts & Figures about Social Security, 2008, SSA Publication No. 13-11785, Released: August 2008; page 2
Without changes, by 2041 the Social Security Trust Fund will be exhausted* and there will be enough money to pay only about 75 cents for each dollar of scheduled benefits.* These estimates are based on the intermediate assumptions from the Social Security Trustees’ Annual Report to the Congress.
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Fewer Pensions, Limits on Qualified Plans
Only 22% of today’s workforce has access to a defined benefit pension plan1
Fewer employer contributions to pension plans; limits on company matching of 401(k) plans1
More reliance on employee contributions
Limitations on contributions
1
‘Trends in Retirement Plan Coverage Over the Last Decade,” Monthly Labor Review, Stephanie Costo, February 2006.
Pensions & Qualified
Plans
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Personal Assets Are Critical
Most people have more questions than answers when it comes to planning for retirement– How much will I need? – How much will I have?– How much do I need to save to cover the shortfall?
For personal savings, the questions are: – Where should I put my money? – How will I be affected by taxes?
Personal Assets
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Tax-Perfect Retirement Planning
The “tax-perfect” retirement plan would include:– Contributions that are tax deductible– Accumulation that is tax deferred– Distributions that are tax free
Such a plan does not exist, but you can have any two of these tax benefits
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Where Do You Think Taxes Are Going?
Tax rates are currently at historically low levels, suggesting they may be higher when you retire
Tax-diversifying your retirement savings might be sensible
The graph above illustrates the high and low marginal tax rates over history. Exemptions, deductions and state and local taxes are not taken into account when illustrating these marginal tax rates. Your actual tax rates may vary from those show on the graph. Remember that historical rates are not a guarantee of future rates.Source: U.S. Department of Treasury, Internal Revenue Service, Statistics of Income, Historical income Tax Returns (2008)
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Is Tax Deferral the Best Strategy?
30 years ago, tax rates were so high and there were so many tax brackets, deferring income generally reduced the tax burden
In the new tax reality, the tax leverage benefits of deferring may not exist
Lower tax rates and fewer tax brackets today call for a smarter strategy
1979-1980 2009
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Your Retirement Savings Tax Options
Tax Treatment
Contributions
Accumulation
Distributions
Tax deductible
Tax deferred
Taxable
After tax
Tax deferred
Tax freeFinancial Vehicles
Traditional IRA
401(k)
Pension plans
Profit-sharing plans
Keogh
Roth IRA
Tax-free municipal bonds
Cash value life insurance
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A Non-Traditional Solution
1 The cash value in a life insurance policy is accessed through policy loans, which accrue interest at the current rate, and cash withdrawals. Loans and withdrawals will decrease the total death benefit and total cash value.
Life Insurance
In addition to protecting your family, cash value life insurancecan provide an ideal way to tax-diversify your retirement savings– Premiums are paid with after-tax dollars– Generates cash value that generally accumulates on a
tax-deferred basis– Allows you access to policy values – before or during
retirement – generally on a tax-free basis1
Upon your death, when many other investments are taxed, your beneficiaries also receive the death benefit income tax free
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Social Security
Pension & Qualified
Plans
Personal Assets
A “Self- Completing” Plan!
If you live…– You enjoy all the “living benefits” of life insurance,
including the potential for supplemental tax-free retirement income
If you become disabled…– With the purchase of the Disability Waiver of
Premium Rider, your premiums are waived, and all the benefits of your policy stay in force1
If you die…– Your family receives the full value
of the policy, less any unpaid loans and loan interest, income tax free
1 Available on whole life policies
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The Benefits of Tax Diversification
Retirement Income of $90,000Without Tax
Diversification
$90,000401(k)/Qualified Plans
100% taxable
$90,000 taxed at 25%1
= $22,500 tax
Tax Diversification Strategy
$90,000
$45,000401(k)/Qualified Plans
100% taxable
$45,000 taxed at 15%1
= $6,750 tax
$45,000. Cash Value Life Ins.
tax free2
$45,000 taxed at 0%2
= $0 tax
1 Marginal federal income tax bracket under current rates. 2 If structured properly.
$67,500 to spend after taxes $83,250 to spend after taxes