the certainty (and uncertainty) of taxes
TRANSCRIPT
©2019 Lincoln National CorporationLCN-2414999-020719
Insurance products issued by:The Lincoln National Life Insurance CompanyLincoln Life & Annuity Company of New York
Not a deposit
Not FDIC-insured May go down in value
Not insured by any federal government agencyNot guaranteed by any bank or savings association
The Certainty (and Uncertainty) of TaxesHelp protect your lifetime income stream from tax risk
LINCOLN INCOME SOLUTIONS
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Three key concepts
• Taxes never sleep…even in retirement
• The importance of planning
• Protecting your retirement income with tax-smart strategies
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Taxes never sleep…
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…But we sometimes forget about them
Source: Nancy Anderson, “The Biggest Expenses in
Retirement and How to Prepare for Them,” Forbes, 2015.
The biggest expenses in retirement
Housing and related expenses46.89%
Miscellaneous12.19%
Medical care12.10%
Transportation13.82%
Food and beverage13.82%
But what about
TAXES??
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Don’t underestimate taxes in retirement
• Will you maintain your income (and lifestyle)?
• How are your various retirement assets taxed?
• What will your taxes do in the future?• What will the market do in the future?
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Source: LIMRA Secure Retirement Institute, 2018.
“My taxes will be lower in retirement”— MYTH!
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Here’s where we are today
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Taxes: A closer look
Tax provisionIf taxable income is over
2018 top tax rateSINGLE JOINT
Income tax Over $500,000
Over $600,000 37.00%
Medicare payroll tax: Additional tax on earned income $200,000 $250,000 2.90%
Capital gains: Long-term capital gains and qualified dividends $418,400 $470,700 20.00%
Unearned Income Medicare Contribution Tax (UIMCT): Applies to realized investment income and gains $200,000 $250,000 3.80%
Itemized deductions limitation $261,500 $313,800
Source: IRS.gov., December 2018.
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Taxes never sleep… and they are highly unpredictable
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Planning to get ahead of tax changes
1984Estate tax = 55%
1986Income tax
1990Income tax
1993Income tax
1997Estate and gift tax
2001Income tax
2003Dividends and capital gains
2010Affordable Care Act
2017New changes to tax law
2012Top tax bracket
2013Capital gains increase; Affordable Care Act surcharge; itemized deduction and personal exemption phaseouts
2014Tax extenders bill; itemized deduction and personal exemption phaseouts
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Taxes never sleep… and they are highly unpredictable
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Down markets can provide the ability to harvest tax losses
Up markets can result in unexpected short-term and long-term capital gains
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Taxes never sleep… and they can be a puzzle
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Source: LIMRA Secure Retirement Institute, 2018.
• Pensions, IRAs, 401(k)s—fully taxable
• Dividends—long-term capital gains
• Social Security—complex calculation based on other assets
• Roth IRAs—no taxes
Pensions, IRAs, 401(k)s
Dividends
Social Security
Roth IRAs
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Taxes never sleep… and there can be surprises
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Potential hidden tax bombs
Source: Liz Weston, Nerdwallet, “Beware of Hidden
Taxes in Retirement,” June 14, 2018.
Social Security State income taxes RMDs forced at 70 ½
Selling a house State inheritance taxes
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Taxes never sleep… and they can discourage rebalancing
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Source: Morningstar®
Based on market prices. A tax-adjusted
total return that is based on a few
assumptions:
1. The investor sells the holding at the
end of the time period and pays
capital gains taxes on any appreciation
in price.
2. Distributions are taxed at the
highest federal tax-rate prevailing
(39.6%) and then reinvested.
3. State and local taxes are excluded.
4. Only the capital gains are adjusted
for tax-exempt funds, because the
income from these funds is
nontaxable.
An asset class is a group of securities
that exhibits similar characteristics,
behaves similarly in the marketplace
and is subject to the same law.
Tax impact by asset classAnnualized 5-year returns
(percentage) ending
September 30, 2017.
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The importance of tax planning
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*IRI, “Boomer Expectations for Retirement,” 2018.**National Association of Plan Advisors, “Many Retirees Wish They Had Better Prepared for Taxes in Retirement,” 11/6/2018, www.napanet.org.
of Boomers are confident their savings will last through retirement*
of recent retirees don’t know that RMDs are forced at age 70 ½**
of Boomers postponed retirement in 2017*
of Boomers had discussed tax planning with an advisor*
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The importance of tax planning
Planning for taxes in retirement can add up to six additional years of retirement income or thousands to your estate value.
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Cook, Meyer and Reichenstein, "Tax-Efficient Withdrawal Strategies,“ CFA Institute publication, Volume 71, No. 2 (2015).
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What tax deferral can do for you
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Stocks, bonds and T-bills, 1926 – 2016
Past performance is no guarantee of future results.
Hypothetical value of $1 invested at the beginning of
1926 with taxes paid monthly. Income is taxed at the
appropriate federal income tax rate as it occurs. It is
calculated using the historical marginal and capital
gains tax rates for a single taxpayer earning the
equivalent of $110,000 in 2010 dollars every year.
When realized, capital gains are calculated assuming
the appropriate capital gains rates. The holding
period for capital gains tax calculation is assumed to
be five years for stocks, while dividends were taxed
when earned and reinvested. Government bonds
were held until replaced in the index with capital
gains realized at the time of sale and reinvested. No
state income taxes are included. In this illustration,
stocks are represented by the Standard & Poor’s 90
Index from 1926 through February 1957, and the
S&P 500 Index thereafter. Bonds are represented by
the 20-year U.S. government bond index, and
Treasury bills are represented by the 30-day U.S.
Treasury bill. Government bonds and Treasury bills
are guaranteed by the full faith and credit of the U.S.
government as to the timely payment of principal
and interest, while stocks and municipal bonds are
not guaranteed. Stocks have been more volatile than
the other asset classes. Municipal bonds may be
subject to the alternative minimum tax (AMT) and
state or local taxes, and federal taxes would apply to
any capital gains distributions. This is for illustrative
purposes only and not indicative of any investment.
An investment cannot be made directly in an index.
Assumes reinvestment of income and no transaction
costs. ©2017 Morningstar. All rights reserved.
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What tax deferral can do for you
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Keep more of what you earn
1Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59 ½, may be subject to an additional 10% federal tax.
This examples is hypothetical and for illustrative purposes only. The hypothetical rates of return shown in this example are not guaranteed and should not be viewed as indicative of the past or future performance of any particular investment. This example is based on a hypothetical situation assuming taxable and tax-deferred growth of $100,000, a 6% annual rate of return, and a 35% tax rate over a 20-year period. Changes in tax rates and tax treatment of investment earnings may impact the hypothetical example. Lower maximum tax rates of capital gains and dividends would make the investment return for the taxable investment more favorable, thereby reducing the difference in performance between the accounts shown. Investors should consider their individual investment time horizon and income tax brackets, both current and anticipated, when making an investment decision, as these may further impact the results of the comparison.
AssumptionsInvestment: $100,000
Annual gross rate of return: 6%
Tax bracket: 35%1
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The importance of tax planning
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How taxes could affect your journey to retirement
1The 10% penalty is applicable for withdrawals from qualified plans and IRA accounts before age 59½. 2”Income Taxes on Social Security Benefits,” https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html.3 Medicare.gov, https://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html.
Before age 59½ After age 59½ At age 62 At age 65 At age 70½
You pay ordinary income tax and a 10% penalty.1
Your tax-deferred assets become
taxable once you start to withdraw them.
85% of your Social Security benefits are
taxed if you have too much modified
adjusted gross income (MAGI).2
Your Medicare Part B costs are
$134/month or more.3
You must take required minimum distributions from qualified plans and this adds to your
tax exposure.
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The importance of tax planning
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Your tax strategy should manage the tax impact on many fronts
Federal income tax
Federal and state estate taxes
Alternative minimum tax (AMT)
Capital gains and dividends
Medicare net investment tax
State and local income tax
Early withdrawal tax
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Protecting your retirementincome with tax-smart strategies
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For use with the general public. LCN-2414999-020719
Tax-smart strategies to help protect retirement income
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Annuities for tax-deferred investment
THE ADVANTAGES:
No current taxation
Tax-free exchanges
Zero cost to rebalance
Tax-deferred growth opportunities
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What is a variable annuity?
Variable annuityA long-term investment product that offers tax-deferred growth, a lifetime income
stream, access to leading investment managers, options for guaranteed growth and
income (available for an additional charge), and death benefit protection.
To decide if a variable annuity is right for you, consider that its value will fluctuate; it is
subject to investment risk and possible loss of principal; and there are costs associated
such as mortality and expense, administrative and advisory fees. All guarantees,
including those for optional features, are subject to the claims-paying ability of the
issuer. Limitations and conditions apply.
The power of tax deferralDuring the accumulation phase, earnings in the annuity subaccounts grow tax-deferred.
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For more information on protectingyour wealth from taxes, please call
or meet with your advisor.
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Important disclosures
Not a deposit Not FDIC-insured May go down in value
Not insured by any federal government agencyNot guaranteed by any bank or savings association
Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.
Affiliates are separately responsible for their own financial and contractual obligations.
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Lincoln Financial Group® affiliates, their distributors, and their respective employees, representatives and/or insurance agents do not provide tax, accounting or legal advice.
Please consult an independent advisor as to any tax, accounting or legal statements made herein.
Variable annuities are long-term investment products designed for retirement purposes and are subject to market fluctuation, investment risk, and possible loss of principal.
Variable annuities contain both investment and insurance components and have fees and charges, including mortality and expense, administrative, and advisory fees. Optional
features are available for an additional charge. The annuity’s value fluctuates with the market value of the underlying investment options, and all assets accumulate tax-
deferred. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59½, may be subject to an additional 10% federal tax. Withdrawals will reduce
the death benefit and cash surrender value.
Investors are advised to consider the investment objectives, risks, and charges and expenses of the variable annuity and its underlying investment options carefully before investing. The applicable variable annuity prospectuses contain this and other important information about the variable annuity and its underlying investment options. Please call 888-868-2583 for free prospectuses. Read them carefully before investing or sending money. Products and features are subject to state availability.
Lincoln variable annuities are issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker-dealer.
The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so.
All contract and rider guarantees, including those for optional benefits, fixed subaccount crediting rates, or annuity payout rates, are subject to the claims-paying ability of the issuing insurance company. They are not backed by the broker-dealer or insurance agency from which this annuity is purchased, or any affiliates of those entities other than
the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer.
Contracts sold in New York are issued by Lincoln Life & Annuity Company of New York, Syracuse, NY, and distributed by Lincoln Financial Distributors, Inc., a broker-dealer.
There is no additional tax-deferral benefit for an annuity contract purchased in an IRA or other tax-qualified plan.