Tax diversify your retirement income

Are you satisfi ed with the progress you’ve madetoward your retirement?

The Company You Keep®

14618_0212 | SMRU 00457200CV(Exp.02/10/2014)Neither New York Life Insurance Company nor its agents provides tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions.

1

Retirement Isn’t What It Used to Be

Then:• People generally started working around age 20 and retired when they were 65. Because life

expectancy was shorter, the average retirement typically lasted about 10 years.

• That means people often had about 45 years to prepare for 10 years of retirement.

Begin WorkBegin WorkBegin Work RetireRetireRetire Life ExpectancyLife ExpectancyLife Expectancy

AGE 85AGE 65AGE 55AGE 45AGE 35AGE 25 AGE 75

45 years45 years45 years 10 years10 years10 years

Once, retirees didn’t need as much in personal savings for retirement because they could count on Social Security and company pensions.

2


Now:• Many young adults enter the workforce later and want to retire earlier.

• Thanks to medical advances and healthier lifestyles, people are living longer.

• That means people may be retired for as many years as they worked.

• Many key sources of income have been reduced.

Begin WorkBegin WorkBegin Work RetireRetireRetire Life ExpectancyLife ExpectancyLife Expectancy

AGE 85AGE 65AGE 55AGE 45AGE 35AGE 25 AGE 75

30 years30 years30 years 30 years30 years30 years

People must increasingly rely on personal savings and assets.

3

Traditional Sources of Retirement Income

• What would happen if one leg was shorter than the other two?

• The stool — which represents your retirement income — would lack stability.

4


1 Employee Benefit Research Institute (EBRI) Databook on Employee Benefits, Chapter 10: Aggregate Trends in Defined Benefit and Defined Contribution Retirement Plan Sponsorship, Participation and Vesting, updated May 2011.

Social Security is shaky.• Never intended to be the only

source of income for retirement• Maximum payment is low; will it be

enough?• Limits on how much you can earn

before benefits are taxed

Personal savings and assets are more critical than ever.

Fewer companies offer pensions.• Only 30% of employees working for

large and medium-sized businesses have access to a defined-benefit pension plan:

— down from 84% in 19891

• Fewer employer contributions to pension plans; limits on company matching of 401(k) plans

— More reliance on employee contributions

— Limitations on contributions

5

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, people want to know:

— Where should I put my money?

— How will I be affected by taxes?

6

Where Do You Think Tax Rates Are Going?

• Tax rates are currently at historically low levels, suggesting they may be higher when you retire.

• Tax diversifying your retirement savings might make sense.

The graph above illustrates the high and low marginal federal income 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 shown on the graph. Remember that historical rates are not a guarantee of future rates. Tax rates are updated annually and this graph represents information available at time of printing. To view most recent information, visit taxfoundation.org. Specific source URL below.

1926

0%

25%

50%

75%

100%

1930

1934

1938

1942

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2011

Highest Tax Bracket

Tax

Bra

cket

s

Lowest Tax Bracket

Source: www.taxfoundation.org/taxdata/show/151.html (2011)

7

The “Tax Perfect” Retirement Plan

The “tax perfect” retirement plan would include:

ContributionsContributionsContributionsthat are that are that are

tax deductibletax deductibletax deductible

AccumulationAccumulationAccumulationthat isthat isthat is

tax deferredtax deferredtax deferred

DistributionsDistributionsDistributionsthat arethat arethat aretax freetax freetax free

1 2 3

8


1 Municipal bonds may be subject to the alternative minimum tax.

Such a plan does not exist, but you may be able to get 1 & 2 or 2 & 3

1. Contributions Tax deductible AFTER TAX

2. Accumulation Tax deferred Tax deferred

3. Distributions TAXABLE Tax free

Financial Vehicles • Traditional IRA

• 401(k) plan

• Pension plan

• Profit-sharing plan

• Keogh plan

• Roth IRA

• Tax free municipal bond1

• Cash value life insurance

9

A Non-Traditional Solution

In addition to protecting your family, Whole Life insurance:

• Can be paid for with after tax dollars

• Generates cash value that accumulates on a tax deferred basis

• Allows you access to policy values — before or during retirement — generally on a tax free basis1

• Provides a death benefit to your beneficiaries that is generally income tax free, unlike other investments

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. There may be tax implications for policies recognized as modified endowment contracts (MEC) or if you partially surrender your policy that exceeds the cost basis of the policy. Distributions, including loans, from a MEC is taxable to the extent of the gain in the policy and may also be subject to 10% additional tax if the owner is under age 59½ .

10

The Benefi ts of Tax Diversifi cation

Hypothetical example for illustrative purposes only1 Assumed marginal federal income tax bracket under current rates.2 If structured properly. Policy loans and partial policy value surrenders will reduce the death benefi t of the policy and may cause the life insurance policy to lapse. Distributions exceeding cost basis will result in taxation.

3 The cash value in a life insurance policy is accessed through policy loans, which accrue interest at the current rate, and cash withdrawals and loans will decrease the total death benefi t and total cash value. Policy values are based on non-guaranteed factors, such as dividends and interest rates, which are subject to change. Therefore, the supplemental retirement income is not guaranteed.

Without Tax Diversifi cationWithout Tax Diversifi cationWithout Tax Diversifi cation

$100,000$100,000$100,000401(k) / Qualifi ed Plans401(k) / Qualifi ed Plans401(k) / Qualifi ed Plans

100% taxable100% taxable100% taxable

$100,000 taxed at 25%$100,000 taxed at 25%$100,000 taxed at 25%111

= $25,000 tax= $25,000 tax= $25,000 tax

$75,000 to spend after taxes$75,000 to spend after taxes$75,000 to spend after taxes

Tax Diversifi cation StrategyTax Diversifi cation StrategyTax Diversifi cation Strategy

$50,000$50,000$50,000401(k) / Qualifi ed Plans401(k) / Qualifi ed Plans401(k) / Qualifi ed Plans

$50,000$50,000$50,000333

Cash Value Life InsuranceCash Value Life InsuranceCash Value Life Insurance

100% taxable100% taxable100% taxable tax freetax freetax free222

$50,000 taxed at 15%$50,000 taxed at 15%$50,000 taxed at 15%111 $50,000 taxed at 0%$50,000 taxed at 0%$50,000 taxed at 0%222

= $7,500 tax= $7,500 tax= $7,500 tax = $0 tax= $0 tax= $0 tax

$92,500 to spend after taxes$92,500 to spend after taxes$92,500 to spend after taxes

Retirement Income of $100,000Retirement Income of $100,000Retirement Income of $100,000

$92,500 to spend after taxes$92,500 to spend after taxes$92,500 to spend after taxes$92,500 to spend after taxes$92,500 to spend after taxes$92,500 to spend after taxes$92,500 to spend after taxes$92,500 to spend after taxes$92,500 to spend after taxes

11

Which of Your Financial Products Provide These Benefits?

Enhance the value of your Whole Life policy with additional options:5

The Option to Purchase Paid-Up Additions (OPP) rider allows you to pay additional money into your policy to increase your death benefit and cash value. The more you fund it, the faster your cash value grows.

If you become totally disabled, the Disability Waiver of Premium rider6 can ensure your policy remains in force, and that your cash value continues to accumulate.

1 Accessing cash value via policy loans, which is generally tax free, accrues interest and reduces cash value and death benefit.

2 All guarantees are based on the claims-paying ability of the issuer, New York Life Insurance Company.

3 Dividends which provide opportunity for cash value growth, is not guaranteed.

4 Varies by state.5 Within certain limits and conditions in jurisdictions where approved. Please consult your New York Life agent for complete information.

6 There is no additional charge for the Waiver of Premium rider on all newly issued Standard or better Whole Life policies with face amounts $99,999 or less, for issue ages under 60.

Guaranteed Death

Benefit2

Tax Deferred Cash Value

Growth

Guaranteed Cash Value

Growth

Tax Free Access to

Cash Values1

Income Tax Free

Death Benefit

Protected from

Creditors4

Premium Guaranteed

Never to Increase

Additional Growth Through

Dividends3

Whole Life

12

“Bank” on the Living Benefits of Whole Life

Use the loan option on your cash value whole life policy as a flexible source of funds. What might you need money for?

Bank Loan Policy LoanApproval process No approval processPossible denial Cannot be turned downLoan amount limited by bank determination Loan amount limited to cash valueInterest rate based on credit rating Competitive interest rate regardless of credit ratingMust be paid back in specific time frame No fixed payment plan

Need credit/affects credit No credit check/won’t show up on credit report

Best of all, you can have the money with just a simple phone call!

If you had to borrow money for any of these needs, where would you get it?

Equities 60%

Fixed Income

20%

Life Insurance Cash Value

20%

13

Plus, Whole Life Can Improve Your Portfolio

According to an independent study by third-party Ibbotson & Associates, a diversified portfolio that includes cash value life insurance as part of the fixed income asset class has a higher expected return and lower risk/volatility (standard deviation).

Human Capital = The present value of your future earnings

Some of the smartest minds agree:

• Use life insurance to hedge against the loss of what may be your largest asset, your human capital.

• The cash value of life insurance has characteristics of fixed income assets.

• Portfolios that include life insurance cash value have higher estimated expected returns than those without.

14

Important Considerations

• The concept of insurance cash value in a portfolio is based in part on the study “Estimating Expected Returns and Standard Deviation of New York Life Insurance Company General Account for Investors,” Ibbotson Associates, 2009.

• The expected return and standard deviation for insurance products used in the study are estimated based on a model portfolio constructed to approximate the gross asset class returns within the underlying investment portfolio associated with New York Life whole life insurance policies.

• For this analysis, gross returns are used ignoring expenses and mortality costs, which will vary based upon age, underwriting risk classification, and the number of years the policy is held. The analysis assumes the policyowner will hold the policy for 30 years, and it reflects probable long-term performance. In early years, where significant cash value has not yet accumulated, internal rates of return on cash value will be lower.

• There can be no assurances that any financial strategy will be successful. Your clients’ actual results will vary based upon their individual situations and the actual performances of any products or investments they ultimately decide to purchase.

• Clients should review a complete illustration for the policy they are considering before making an insurance purchase decision. This analysis does not suggest the actual outcome of any specific New York Life product or imply that a personal investment into New York Life’s general account is possible.

15

I can help you …

• Protect your family’s standard of living — and their future retirement — if something happens to you while you are growing your retirement funds.

• Provide a source of potentially income tax free supplemental retirement income.

16

Why New York Life Is The Company You Keep

1 Source: New York Life ratings for financial strength: AA+ from Standards & Poor’s, A++ from A.M. Best, AAA from Fitch and Aaa from Moody’s as of (08/08/11).2 Source: 2010 Customer Loyalty Engagement First Place Winner, Brandweek Customer Loyalty Awards, www.brandkeys.com/awards/.In Oregon, New York Life Whole Life/Custom Whole Life policy form number is 208-50.27. The rider form numbers are as follows: Disability Waiver of Premium: 208-225; Option to Purchase Paid-Up Additions: 208-330.

Source: Individual third-party ratings reports. Ratings pertain to both New York Life Insurance Company and New York Life Insurance & Annuity Corporation as of 08/08/11.

• Founded in 1845, New York Life Insurance Company has remained a mutual company serving only our policyholders.

• Received the highest financial strength ratings currently awarded to any life insurer by the four major ratings agencies1

• Named #1 in Customer Loyalty in the insurance industry2

A++Superior

A.M. Best Fitch Moody’s Standard & Poor’s

AaaExceptional

AAAExceptionally

Strong

AA+Very

Strong

N1


This is because “back in the day,” when many of our grandparents entered retirement, for instance, they often started to work earlier in their adult life and, since life expectancy was earlier, time spent in retirement was shorter than time spent working.

That translated into needing less income over a shorter period of time.

Plus, the traditional sources of retirement income — Social Security and company benefit pensions — covered the majority of their retirement income needs, meaning people were less dependent on personal savings for a comfortable retirement.

N2


But times have changed.

These days, young adults are often entering the work force later and want to retire earlier. With health advancements, we are living longer — and as a result, we have to spread out our retirement income for more years. People may even be retired for as many or more years than they worked!

In addition, many key sources of income have been reduced — meaning that people must increasingly rely on personal savings and assets.

N3


Let’s take a look at traditional sources of retirement income. There’s …

1. Social Security

2. Defined Benefit Pension

3. Personal Savings

N4


1. Social Security as a source of retirement income is shaky at best.

• It was never intended to be the only source of income for retirement — but always as a supplement to fill in the gaps.

• Maximum payment is low; will it be enough?

• There are limits on how much you can earn before benefits are taxed.

2. There are fewer company pensions.

• Only 30% of employees working for large and medium-sized businesses have access to a defined benefit pension plan

— This is down from 84% in 1989.

• There are fewer employer contributions to pension plans, and there are limits on company matching of 401(k) plans. This means there’s …

— More reliance on employee contributions, and

— Limitations on contributions. So built-in limitations across the board.

3. So this all suggests that personal assets are more critical than ever.

N5

Personal Assets Are Critical

Let’s talk about Personal Assets, as they are now more critical to one’s retirement lifestyle. But …

Most people have more questions than answers when it comes to planning for retirement. In terms of overall assets …

• How much will I need?

• How much will I have?

• How much do I need to save to cover the shortfall?

And drilling down to personal savings, the questions are:

• Where should I put my money?

• How will I be affected by taxes?

N6

Where Do You Think Tax Rates Are Going?

Taxes are a big consideration. Where you think tax rates are heading may affect your decisions.

Tax rates are at historically low levels.

30 years ago, tax rates were so high and there were so many tax brackets that someone back then who was in a higher tax bracket could generally reduce their tax burden, while planning for a lower tax bracket potentially in retirement.

In the current reality, the tax leveraging benefits of deferring today may be diminished if you think tax rates may go up in the future.

So, tax diversifying retirement income may make sense.

N7


If we were to create a “tax perfect” retirement plan, it would include:

1. Contributions that are tax deductible

2. Accumulation that is tax deferred

3. Distributions that are tax free

N8


However, such a plan does not exist. But you may be able to get either 1 & 2 or 2 & 3.

Many people increasingly like the idea of paying taxes NOW on savings for retirement, knowing that they won’t have to pay taxes on the growth OR the distribution of that savings! The most common financial vehicles that do that are a ROTH IRA, tax free municipal bonds, and cash value life insurance.

Does it surprise you to see cash value life insurance in this list? Let’s explore why.

N9

A Non-Traditional Solution

We always think of life insurance as “death insurance” — cash to your family when you die. But with Cash Value Whole Life Insurance, in addition to providing that protection for your family...

• The premiums are paid with after tax dollars.

• The policy generates cash value, that is not taxed as it grows.

• And you can access those policy cash values — before or during retirement — generally on a tax free basis, if structured properly — and I will help you do that. There may be tax implications for policies recognized as modified endowment contracts (MEC) or if you partially surrender your policy that exceeds the cost basis of the policy. Distributions, including loans, from a MEC are taxable to the extent of the gain in the policy and may also be subject to 10% additional tax if the owner is under age 59½.

• AND — Upon your death, when many other investments are taxed, your beneficiaries receive the death benefit generally income tax free.

N10

The Benefits of Tax Diversification

The old cliché “don’t put all your eggs in one basket” rings true with taking retirement income.

Just take a look at this example of taking $100,000 in income — all from a pension plan, such as a 401(k) or IRA. Under today’s tax bracket, if there were no additional income, that would put this person in a 25% tax bracket resulting in a $25,000 tax — leaving $75,000 to spend after taxes.

However, if (for instance) we took $50,000 from a totally taxable qualified pension plan and $50,000 from a tax free bucket of money, there would be no tax on that part — and a LOWERED bracket and tax on the half we do have to pay taxes on — leaving $92,500 to spend!

It’s clear that in this example, by employing a tax diversification strategy and moving a portion of your money into a cash value life insurance policy, you can potentially lower your taxes while giving you more to spend — to increase your standard of living!

It is important to remember that, although policy loans and partial policy value surrenders are generally not taxable for federal income purposes, they do reduce your policy’s death benefit and may cause your life insurance policy to lapse. Your tax professional and I can help you design an appropriate income supplement strategy to help you meet your income needs in retirement.

N11

Which of Your Financial Products Provide These Benefits?Which of your financial products provide these benefits?

• The death benefit is guaranteed as long as you pay your premium.

• Your premium is guaranteed to stay level for the life of the policy, which means the premium is guaranteed never to increase, regardless of your health, the economic environment, your age or inflation. You can lock in the price.

• Your policy has guaranteed cash value that is guaranteed to grow.

• As an owner of a policy in a mutual company, your policy can have additional cash value growth through dividends. While not guaranteed, once these dividends are PAID, they ARE guaranteed!

• And the cash value that’s accruing in your policy doesn’t cause income tax as it grows.

• Protection from creditors (varies by state)

• Tax free access to cash value, and

• When you die, there is a death benefit that is generally income tax free.

Cash value life insurance, what we call Whole Life, has all these benefits and is a versatile product.

N12

“Bank” on the Living Benefits of Whole Life

The cash value in the whole life policy can be a flexible source of funds for DESIRES — not just NEEDS!

For instance:

• Financial emergency

• Education fund to help a child go to college

• To buy a car

• To not only PROTECT your mortgage (with the death benefit) but potentially to be able to pay the mortgage off early (mortgage acceleration)

AND if you access the cash values via a loan — and pay back the loan — then your whole life policy can be a source of income — tax free retirement income.

What might you need money for?

If you had to borrow from the bank for that need, you would have to apply and could be turned down, while you can borrow using your whole life policy as collateral. YOU set the repayment plan — and if you choose not to repay it, then the loan plus interest is deducted from the death benefit at death or the cash value if you surrender it.

N13

Plus, Whole Life Can Improve Your Portfolio

Some of the smartest minds agree:

• Use life insurance to hedge against the loss of what may be your largest asset, your human capital.

• The cash value of life insurance has characteristics of fixed income assets.

• Portfolios that include life insurance cash value have higher expected returns than those without.

N14

Important Considerations

• The concept of insurance cash value in a portfolio is based in part on the study “Estimating Expected Returns and Standard Deviation of New York Life Insurance Company General Account for Investors,” Ibbotson Associates, 2009.

• The expected return and standard deviation for insurance products used in the study are estimated based on a model portfolio constructed to approximate the gross asset class returns within the underlying investment portfolio associated with New York Life whole life insurance policies.

• For this analysis, gross returns are used ignoring expenses and mortality costs, which will vary based upon age, underwriting risk classification, and the number of years the policy is held. The analysis assumes the policyowner will hold the policy for 30 years, and it reflects probable long-term performance. In early years, where significant cash value has not yet accumulated, internal rates of return on cash value will be lower.

• There can be no assurances that any financial strategy will be successful. Your clients’ actual results will vary based upon their individual situations and the actual performances of any products or investments they ultimately decide to purchase.

• Clients should review a complete illustration for the policy they are considering before making an insurance purchase decision. This analysis does not suggest the actual outcome of any specific New York Life product or imply that a personal investment into New York Life’s general account is possible.

N15

I can help you …

• At the end of the day, I’m offering you a chance to protect your family’s standard of living — today and in retirement — if something happens to you while you’re still building that nest egg.

• At the same time, you’ll be creating a source of potentially income tax free supplemental retirement income.

N16

Why New York Life Is The Company You Keep

And it does make a difference which company you buy from!

• With New York Life, you’re dealing with a company that’s safe and secure. New York Life has the highest ratings for financial strength currently awarded to any life insurer by the four major ratings agencies.

• Our online customer service is top-rated and offers ease and flexibility.

• And we’re #1 in customer loyalty.

Tax diversify your retirement income

Economy & Finance

Transcript of Tax diversify your retirement income