Retirement Planning With Cash Value Life Insurance Final
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1 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Please Be Advised:Please Be Advised:
All specific legal and tax questions should be referred to your legal and tax advisers
2 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Times Are ChangingTimes Are Changing
Longer life expectancies Inflation erosion Social “insecurity” Employer pension plans at risk Tax law uncertainty
3 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Longer Life ExpectancyLonger Life Expectancy
“Sixty is the New Fifty”Year 195
01960
1970
1980
1990
2000
2004
Life Expectancy at Birth
68.2 69.7 70.8 73.7 75.4 76.9 77.8
Life expectancy has increased nearly ten years since 1950!
Source: National Center For Health Statistics, Department of Health and Human Services (2004).
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Inflation ErosionInflation Erosion
Year Inflation RatePurchasing Power
of One Dollar*1967 (Base Year)
- $1.00
1972 3.3% 80 cents1976 6.5% 55 cents1982 6.7% 37 cents1987 4.4% 29 cents1992 2.9% 24 cents1997 1.5% 21 cents2002 2.4% 19 cents2007 4.1% 16 cents
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, (2008). Purchasing Power amounts are rounded to the nearest cent.
5 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Social “Insecurity”Social “Insecurity”“In 2017 we will begin paying more
in benefits than we collect in taxes. 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. We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations”
Text taken directly from the front page of a 2008 Social Security Statement
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Employer Pension Employer Pension Plans at RiskPlans at Risk
Since 2000, the Pension Benefit Guarantee Corporation has received a “record number of extraordinarily large claims” for failing pensions. In 2000, $900 million in claims paid In 2006, $4 billion in claims paid
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.
# of claims increased byover 400%!
The number of insured pension plans has decreased by 75% since 1985.
7 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
The Trend ContinuesThe Trend Continues
Nearly one third of all U.S. companies closed, froze or
terminated their defined benefit pension plans by the end of 2007.
Nearly one third of all U.S. companies closed, froze or
terminated their defined benefit pension plans by the end of 2007.
Source: Estimate contained in the Pension Insurance Data Book 2006, Pension Benefit Guarantee Corporation. The PBGC insures about 2/3 of the private sector defined benefit pension plans.
8 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Tax Law UncertaintyTax 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
This is just a partial listing of the major federal tax legislation since 1986!
9 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
The Good Old DaysThe Good Old Days
For many individuals, Social Security and company
provided pension plans supplied enough income for a
comfortable retirement.
For many individuals, Social Security and company
provided pension plans supplied enough income for a
comfortable retirement.
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The New Reality: The New Reality: Pay Yourself FirstPay 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 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Supplementing Savings withSupplementing Savings withCash Value Life InsuranceCash Value Life Insurance Simple Tax-deferred growth Income tax-free retirement
cash flow* Access to cash without
government penalties** 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.
12 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Three PhasesThree Phases
Accumulation Phase
Retirement Cash Flow Phase
Death Benefit
13 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Accumulation PhaseAccumulation 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)
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Retirement Retirement Cash Flow PhaseCash 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
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Death Benefit PhaseDeath 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
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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
• 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
• Annual life insurance premiums
• Policy cash value grows income tax deferred
• Policy cash value is creditor protected (varies by state)
Powerful BenefitsPowerful Benefits
17 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Case Study: Case Study: Gary & SusanGary & Susan
Profile Married,
both age 45 Have life insurance
coverage on Gary ($250,000)
Retirement savings consist of a 401(k) ($150,000) and a rollover IRA ($120,000)
18 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Gary & Susan’s GoalsGary & Susan’s Goals Want to retire at age
65 They need additional
retirement cash flow They are interested in
tax savings They need additional
death benefit protection
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Solution: Solution: Cash Value Life InsuranceCash Value Life Insurance
Permanent life insurance policy on Gary (or Susan)
Annual premiums of $10,000 for 20 years
Death benefit is minimized to create more cash value
Income tax-free retirement cash flow for 15 years starting at age 65
20 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Retirement Retirement Supplement BenefitsSupplement Benefits
$10,000 annual insurance premium
Annual policy cash flow of $29,733
for 15 years
Death benefit of$63,172 at age 85
Tax-deferred policy cash value and death
benefit for family protection
Income tax-free death benefit paid
to heirs
Tax-freeretirement cash flow
starting at age 65
Accumulation Retirement Income Death Benefit
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Summary: Summary: Cost & BenefitsCost & BenefitsCost $10,000 annual premium
$200,000 total premiums to age 65
Benefits Pre-retirement death benefit
$566,954 at age 65
Retirement cash flow benefit starting at age 65 $29,733 annual tax-free cash flow for 15 years* $445,995 total tax-free cash flow for Gary and Susan
Post-retirement death benefit $63,172 at age 85
22 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Personalized Illustration Personalized Illustration
Year Age
Annual Premiu
m
Total Premium
s
Annual Retiremen
t Cash Flow
Total Income
ReceivedIncome
TaxDeath Benefit
1 46 $10,000
$10,000 0 0 $246,673
5 50 $10,000
$50,000 0 0 $290,305
10 55 $10,000
$100,000 0 0 $358,200
20 65 $10,000
$200,000 0 0 $566,954
21 66 0 $200,000 $29,733 $29,733 0 $536,329
25 70 0 $200,000 $29,733 $148,665 0 $404,362
30 75 0 $200,000 $29,733 $297,330 0 $215,873
35 80 0 $200,000 $29,733 $445,995 0 $55,946
Example depicts Virtus Value II – Preferred Loan for a male age 45, preferred nonsmoker, with 20 annual premiums of $10,000 and 15 annual policy loans starting in year 21. Policy carries to maturity (age 121) under current interest and cost of insurance charges. The interest rate depicted is 5.3% in years 1-10 and 5.8% in years 11 and later. The interest rate is subject to change. Income taxes may result if the policy is surrendered or lapses prior to maturity
23 D-6318_1-09 Copyright 2009, The Ohio National Life Insurance Company
Protect Your SavingsProtect 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.
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