Retirement Planning With Cash Value Life Insurance Final

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


Times Are ChangingTimes Are Changing

Longer life expectancies Inflation erosion Social “insecurity” Employer pension plans at risk Tax law uncertainty


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).


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.


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


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.


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.


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!


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.


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


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.


Three PhasesThree Phases

Accumulation Phase

Retirement Cash Flow Phase

Death Benefit


Accumulation PhaseAccumulation Phase

Accumulation Phase


Death Benefit

• Annual life insurance premiums

• Policy cash value grows income tax deferred

• Policy cash value creditor protected (varies by state)


Retirement Retirement Cash Flow PhaseCash Flow Phase

Accumulation 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


Death Benefit PhaseDeath Benefit Phase

Accumulation Phase


Death Benefit

• Income tax-free, lump sum death benefit to heirs

• Death benefit may be structured to pass estate tax free to heirs


Accumulation 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


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)


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


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


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


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


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


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.

Retirement Planning With Cash Value Life Insurance Final

Documents

tax relief act

heirs death benefit

pension protection act

tax questions

tax advisers

defined benefit pension

tax increase prevention

lump sum death benefit