2. not a political presentation
potentially insulate yourself
many experts …
believe it’s time to wake up
3. Current Liabilities and Unfunded Promises of
the United States Government
$61.9 Trillion and growing!
Promised Medicare benefits NOT
covered by taxes and other
Promised Social Security benefits NOT
covered by taxes and other contributions
Other Federal Liabilities
Source: Peter G. Peterson Foundation, 2010 Financial Report of the United States Government
4. 4,200,905 miles $61,900,000,000,000
238,857 miles $3,519,538,502,343
67,866 miles $1,000,000,000,000
Source: Understanding Large Numbers, EHD.ORG
5. on the hook for
to clear off that debt…
Source: Peter G. Peterson Foundation, 2010 Financial Report of the United States Government
6. 77,000,000 boomers
Social Security will add to
our national debt in 2015
pressure comes from past decisions
embedded until polices are
8. Your estimated benefits are based on current law.
Congress has made changes to the law
in the past and can do so at any time.
We’re facing serious financial problems.
Action is needed soonis needed soon
Action to make sure the system is sound
when today’s younger workers are ready for retirement.
The law governing benefit amounts may change because
by 2037, the payroll taxes collected will be enough
to pay only about 78 percent of scheduled benefits.
9. “As far as taxes go, the United States
2.5 have 28% = tax rates
would x to raise income 70%
across the board by about 2.5 times
today’s levels to close the financing
2.5and some politicians complain
gap, x 35% = 87.5%
when there is any talk of tax
- David Walker
Former Comptroller General
US Government Accountability Office
10. Where are Tax Rates
Top U.S. Marginal Tax Rates 1913 - 2009
Past tax rates are not shown to predict future tax rates. Congress holds the right to modify tax rates at any time.
11. Should qualified plans be the
of your retirement plan?
The old belief that you’ll be in a
lower tax bracket in retirement
seems highly unlikely.
Federal taxes are comparably low now.
With the current budget deficits and required spending
it seems highly likely taxes will climb.
12. Tax Savings?
A Hypothetical Example over a 20-year Period
Pre-tax Contribution with After-tax Contribution with
Tax-Deferred Growth Tax-Deferred Growth
Are pre-tax contributions
actually tax savings?
Not To Be Considered Tax Advice. Please Rely On and Speak With A Tax Advisor For More Information.
13. Is Tax Deferred Growth Really a Tax-Savings Event?
8% compounding for 20
Retirement Account: Current Tax Bracket: 25%
$100,000 Tax Savings: $25,000
30% Future Tax Bracket:
35% Future Tax Bracket:
14. In quantitative analysis of investor behavior
Dalbar concluded a typical investor
only captured 37% of a market’s total return.
10% x 37% = 3.7%
While highly profitable to avoid down turns…
very few do this successfully.
... getting out to avoid a loss doesn’t work
Source: DALBAR, Inc., Quantitative Analysis of Investor Behavior —2006
15. Options to consider:
May be contrary to conventional wisdom…
reduce your qualified contributions
Increase contributions to tax-free 1
The Safe Money Retirement Plan
When properly managed and structured.
17. Roth Limitations
limited each year
May still be tied to
the volatile stock market
If you make too much money
you can’t contribute to one
Qualified distributions can’t start
until after age 59½
18. The Safe Money Retirement Plan
Distributions are Taxed like a Roth
Income at any age 1 May be deductible to your
No limits on contributions 1
Grows tax-deferred 1
0% floor in declining Income at retirement
market conditions can be tax-free 1
Self completing… in the event of death an income-tax free
benefit is paid to your beneficiaries
When properly managed and structured.
19. Do you want ...
… to have tax-free income at any age?
… to eliminate stock market risk, and still share
in the market’s upside potential?
When properly managed and structured.
20. The Safe Money Retirement Plan
(Funded with Indexed Universal Life Insurance)
• Selective: Can be established and funded just for the business owner or for key employees
• Affordable and Simple: Eliminates costly, confusing IRS & DOL administrative burdens
• Flexible: Allows virtually unlimited contributions
• Tax Advantaged: Provides tax deferred growth of & tax free access to your money
• Conservative: Eliminates market risk while allowing participation in the selected indexes
upside potential (ie. S&P 500, Dow Jones Industrials, Nasdaq, Russell)
• Liquid: Access without tax penalties at any age through loans and/or withdrawals
• Protected: Assets can be protected from creditors, predators and malpractice
Provides TAX-FREE income when YOU choose…
Not when the IRS says it’s OK!!!
21. Principal Protection
Indexed UL products also provide downside protection with minimum guarantees, regardless of the index performance.
Starting with $100k in an Indexed Universal Life contract versus $100k in a fund directly invested in the index. In
year one there was a 10% gain and both accounts grew to $110k. In year two there was a 10% loss. The index
fund lost $11k to end the year at $99k. The Index Universal Life policy protects against market down turns by
locking in last year's gains and ends the year at $110k - suffering no loss. In year 3 the gain was 5%. The index
fund ends the third year at $103,950. The Equity Indexed Universal Life policy ends the third year at $115,655. In
just 3 short years the Equity Indexed Life policy in this hypothetical example is up 11% more than the fund
directly invested in the market. That is the power of locking in annual gains and protection against market risk.
22. Eliminating the Down Years
In the last example we saw the power of locking in our gains and protection from stock market risk over a 3 year period. How much
better off would we be in our Equity Indexed Universal Life plan versus a fund invested directly in the market after 10 years? Let's see…
Here is how an Indexed Universal Life policy would have performed from 1999 to 2009 versus a fund that is directly invested in the
S & P 500. The Equity Indexed Life policy illustrated below has a 0% floor and a 15% cap.
As you can see the in the
hypothetical example above, by
protecting our principal and
previous gains from market
downturns we have the potential
to build more cash in our
Indexed Universal Life plan than
a typical IRA that is directly
invested in the market. The fact
the future income will be tax-free
is like icing on the cake!
23. Where do I go from here?
Keep your head in the sand and continue to fund a qualified
retirement plan, paying taxes when IRS requires?
Establish a Safe Money Retirement Plan,
exit the stock market roller coaster today
and enjoy Tax Free Income
when you choose!
24. Thank you for your time and attention
- Brought to you by -
Michael J. Sloan, CRPC
Retirement | Insurance | Benefits
770 Old Roswell Place | Suite A-500
Roswell, GA 30076
Notes de l'éditeur
In this presentation - Recovering Our Retirement Dreams -- we ’re going to examine (CLICK) the external pressures, (CLICK) autopilot spending and management of government entitlement programs that will impact you and your retirement. What we hope to show you is that it may not be the amount you ’re saving for retirement, but where you’re saving it that matters most.
First, I want to be clear that this is (CLICK) not a political presentation. And that regardless of your political beliefs, many experts believe it ’s time for US citizens to wake up, and realize (CLICK) the significant pressures that will impact both tax-deferred qualified plans as well as social security. (CLICK) This presentation will show you ways to potentially insulate yourself from these overwhelming issues.
If you ’ve been watching the news or reading the headlines, you probably know that the Federal Government’s financial condition is much worse than advertised. Who can tell me the total amount of current liabilities and unfunded promises of the US Government? (WAIT FOR RESPONSES ... OR SELECT SOMEONE TO GIVE YOU AN ANSWER) (CLICK) $61.9 trillion dollars. That number is comprised of three significant categories (CLICK) : The first category, (CLICK) $38.2 trillion is comprised of promised Medicare benefits not covered by taxes and other contributions. The second component, (CLICK) $7.7 trillion is comprised of Social Security benefits not covered by taxes and other contributions. And the last component, (CLICK) $16 trillion dollars is comprises of other Federal Liabilities. And the liabilities and promises continue to dig us deeper into debt each year by another $2-3 trillion.
Sometimes we just throw large numbers around but don ’t have any idea of how much money we’re actually talking about. (PULL OUT A DOLLAR BILL) Who can tell me what this is ... right it ’s a one dollar bill. So if we had (CLICK) $1.00 dollar bills and starting on the surface of the Earth, and we were to stack up those dollar bills totaling just 1 trillion dollars, (CLICK) ... how high do you think it would reach? (SOLCIT ANSWERS) It would stretch (CLICK) 67,000 miles into space, in comparison commercial jet planes fly around 30 – 40,000 feet, which is about 7 miles high. To get to the moon (CLICK) it would only add up to over (CLICK) $3.5 trillion. So, if we were to represent our entire unfunded liabilities, can anyone guess how high that stack would reach? (SOLCIT ANSWERS) (CLICK) It would reach over 4 million miles into space – well over one tenth of the way to Mars.
So, $61.9 trillion is the amount of money the US Government would need invested today to pay for our nation ’s major liabilities. How much of this $61.9 trillion do we have saved today? (YOU CAN SOLICIT ANSWERS OR NOT) ZERO, ZIP ... NADA (CLICK) So, as US citizens, we ’re all on the hook for the $61.9 trillion dollar deficit. (CLICK) If we wanted to clear off that debt today ... in one lump sum ... each household in the United States would need to write a check, right ... we ’d all have to pull out our checkbooks and write a check to the US Government. So that the bill was spread evenly across all households, what amount of money would each family need to write on that check? (SOLICIT RESPONSES) Well ... it ’s a pretty big number ... each household would need to write a check for (CLICK) for $545,000. Well we all know that ’s not going to happen, Americans aren’t going to be able to wipe out these unfunded liabilities at once. Instead, we’re going to need to pay down these debts and unfunded liabilities over time, right ... we need a payment plan. The most logical payment plan is through increasing revenues to the US Government... how does the Government increase revenues? (SOLICIT RESPONSES) The Government generally increases revenue through higher taxes!
When you think about one of the biggest generational shifts occurring right now, as the (CLICK) 77 million baby boomers retire, mandatory federal spending for Social Security and Medicare,will grow dramatically. And Social Security, (CLICK) will be adding to our national deficit beginning in 2015. However, a few months ago the CBO (Congressional Budget Office) forecast that due to the current economic conditions, Social Security will run cash deficits for the next four years ... which is different from what the Trustees of the Social Security Trust Fund are saying.Much of the (CLICK) pressure within the Federal budget comes from past decisions to address past priorities. Decisions to enhance existing or to create new entitlement programs means additional financial pressure (CLICK) becomes embedded into the budget until policies are changed.
By a show of hands ... who had a birthday in the last three months (Wait for response ... if no answers ... well then who has a birthday coming up in the next three months) ... well happy birthday to all of you. Those of you who raised your hands ... how many of you remember the birthday greeting the US Government sent you? You know they send you something every year right ... (SOLICIT FEEDBACK ... WHAT ... YOU DIDN ’T GET YOUR MAILING FROM THE GOVERNMENT ...) (CLICK) Three months before your birthday each year, the Social Security Administration sends out the Statement of projected benefits. They want to show you what types of “gifts” they’re going to give you in the future ... when you retire. (ASK AUDIENCE) Please open up your folders and on the right-hand side pull out the sample statement. (WAIT FOR THEM TO GET THEM OUT).
Of those with birthdays (those that raised their hands ... pick one ... and have them read aloud the first two sentences of the disclosure in the first column of the handout ... under the heading “About Social Security’s future ...” as they read (CLICK) That ’s a little scary right ... action is needed soon to make sure the system will be sound. That’s right there on page one ... now the Social Security Administration has been sending these out for years, and raise your hand if that’s the first time you ever saw that on the statement ... (WAIT FOR HANDS) Alright, let ’s just shake that one off and get to the good stuff right ... what everybody looks at when they get this … the numbers. Let’s get inside and turn to page 2 ... (WAIT FOR AUDIENCE TO GET TO PAGE 2) ... let’s see what they’re going to pay “Wanda Worker” when she retires. Okay, who else had a birthday ... (OR JUST PICK SOMEONE) can you tell me, on page 2 at retirement of age 70, how much is Wanda going to receive from the government each month ... (WAIT FOR RESPONSE) ... correct $1967 a month ... (DRAMATIC PAUSE) oh wait, what ’s that asterisk right before the word Retirement (HOLD UP YOUR COPY AND POINT TO THE ASTERISK ... ASK THE SAME INDIVIDUAL TO READ THE DISCLOSURE ...) (AS THEY READ) ... “Your estimated ... ( CLICK) Wow ... frightening huh? Please open up your folders and pull out the sheet called “Seminar Worksheet” (OPEN YOUR FOLDER SHOW THEM WHAT IT LOOKS LIKE). Does everyone have this handy ... Great Let ’s look at the example provide at age 62. Let’s simplify the math. If you look at the sample statement of projected benefits you see that at age 62 the projected benefit is $1088, we rounded that down to $1000 to simplify the math. So if the trust fund is predicting that they will only be able to pay 78% of scheduled benefits (another way of saying that is 78 cents for each dollar owed), we can see that our re-forecast income is actually $780. Now, as couples let ’s see if you can work through another example. I know you don’t have a calculator handy ... so let’s do some rounding again ... let’s assume that this individual retires at 70, and instead of $1967 per month ... they actually get $2000 per month ... what amount would this retiree actually get (WAIT FOR RESPONSES) ... right ... $1,560/month ... that’s a big difference ... About $6,000 per year different. The point of this little hands-on exercise is to show to you the promise of Social Security rests in the hands of Congress and the Government ’s ability to modify the program whenever they see fit. So next time you get your statement from the Government, give it a good look, okay, or better yet, give me a call and we can go through it together. One last note, when you get a minute read through that “Note About Taxes and Social Security.” When I meet face-to-face with most of my clients, we usually discuss this important point because most people don’t realize that if they have income in retirement, that their Social Security benefits may be taxes. Now, most people will have some form of income in retirement because most people use traditional retirement accounts, which force you to have income in retirement. However, I show my clients how to have retirement income that does not force up to 85% of their Social Security benefit to be subject to taxes.
Well to reinforce the point, here ’s a quote from David Walker, (CLICK) former Comptroller General of the US ... essentially the nation’s top accountant. ( read quote ) (CLICK) Do you know what rate we would be at if we increased on the 28% tax bracket by 2.5 times ... (CLICK) how about 70% (CLICK) And at the top tax bracket of 35% ... we ’d see tax rates as high as 87.5% So, do you know if we have ever seen tax rates that high?
Yes, we have seen tax rates in the 80 - 90% range. After the great depression ... (CLICK) as we started to institute new government entitlement programs ... we saw a significant spike in the marginal US tax rates … eventually our top tax bracket came down to more modest levels, but in looking at this chart, in the present we are in one of the lowest marginal tax rates in history … will this trend continue …
Okay, taxes are probably going up. And, if you read page one of Social Security Statement, it says that Social Security was never intended to be your only source of income when you retire. Most of us understand that, and have taken additional steps to prepare for retirement by saving on our own, probably by using traditional retirement strategies like 401(k)s, IRAs ... what are typically called “qualified plans”. So, should (CLICK) qualified plans should be the foundation of your retirement plan? (DON ’T WAIT FOR RESPONSE) We would say no (CLICK) because Federal taxes are comparably low now, and with the current budget deficits and required spending, it seems highly likely that taxes will climb. And since qualified plans are 100 percent taxed at the time you take the money out, (CLICK) the old belief that you ’ll be in a lower tax bracket in retirement also seems highly unlikely. With the amount of debt we owe, no one can GUARANTEE that tax rates will be lower in the future, so we suggest considering other avenues before going into the qualified plan.
Let ’s review this example to help illustrate our point about pre-tax contributions, like those in qualified plans. In this example let ’s consider two separate options, both offering tax-deferred growth ... But with one option the contributions go in pre-tax, and in the other contributions go in after tax. This is a common chart. When you look at it, you immediately think that the one with the pre-tax contribution would be better because it produces a higher line at the end of the example. But, (CLICK) Are pre-tax contributions actually tax-savings? (DON ’T WAIT FOR RESPONSES) No, (CLICK) it ’s simply pushing those taxes off into the future ... where we really don’t know what future tax rates are going to be. Based on what you’ve learned so far in this presentation, do you think taxes will be lower or higher in the future?
Most people think we'll see higher taxes in the future, and many experts are predicting, a five to 10% increase in future taxes to help pay for all the obligations we already owe and the outstanding budget deficits. Please pull out your Seminar Worksheet again ... and let ’s look at the bottom portion, the one that says “After Tax Retirement Income” Let ’s start with a traditional retirement account, like your 401(k) or your IRA ... and let’s assume you have a (CLICK) $100,000 account balance today ... that’s a pretty nice balance WRITE DOWN $100,000 in the Box Labeled “Current Retirement Balance” Okay, and for our example (CLICK) the current tax bracket is 25%, right now you would have deferred taxes of what (WAIT FOR ANSWERS OR SOLICIT RESPONSES) $25,000, correct WRITE DOWN $25,000 in box labeled “Initial Tax Savings” Okay, (CLICK) if over a 20-year period of 8% compounding ... the entire $100,000 would grow to $466,096. Wow the power of compounding is amazing. WRITE DOWN $466,096 in the box labeled “8% Compounding for 20-year Balance. Now, (CLICK) the portion of this entire account balance that would represent just the tax savings grows to $116,524 ... that ’s a pretty good thing, right? Write down $116,524 in the box labeled “20-year Tax Savings”. But what I plan to show you now is that you need to be thinking of those perceived tax savings in a different way ... it ’s more like taking a loan. Remember, tax qualified plans just push your taxes out into the future, but they need to be paid. However, when most people take a loan, they know all the terms associated with that loan at the beginning, right. When you signed all those papers for your mortgage, the loan terms were all laid out for you, even if it was a 30-year duration ... all the parameters were fully disclosed. However, with qualified retirement accounts you still “owe” money to the government. Right, these plans don’t eliminate taxes, they just defer them. Now, the biggest concern you might have is that you don’t know what interest rate you’re going to pay on the loan, because we just don’t know where taxes are going to be in 20 years, right? So if in the future, we ’re in a 30% tax bracket (CLICK) the amount we would owe in taxes would be (CLICK) $139,829 WRITE THAT NUMBER IN THE BOX LABELED “Cost of Tax Deferred Growth if Taxes Increase 5%” How much would you end up paying Uncle Sam for the “benefit” of using a qualified plan ... well we’d subtract $116,524 from $139,829, so we’d be paying (CLICK) $23,305 in additional taxes ... that’s a loan rate of 8.99%. WRITE DOWN negative $23,305 in the box labeled True Cost. If taxes go up to 35% in the future (CLICK) the amount we would owe in taxes would be (CLICK) $163,134 WRITE DOWN $163,134 in the box labeled "Cost of Tax-Deferred Growth if Taxes Increase 10% ”. Our true cost is that we would have paid the US Government is (CLICK) $46,610 for the privilege of using a 401(k) or IRA ... that’s a loan rate of 9.83%. WRITE DOWN $46,610 in the last box. Let me ask you, when you signed up for your 401(k) ... which future tax rate box did you check, 30 or 35%? (DON'T WAIT FOR RESPONSES)
When it comes to preparing and saving for retirement, many people believe they need to drop money into the stock market. However, (CLICK) in quantitative analysis of investor behavior, Dalbar concluded that the typical investor only captured about 37% of a market ’s total return. That means if the market (CLICK) generated a 12% return, the average investor only earned 4.4% The study stated that, “While it is highly profitable to avoid market down turns very few investors do this successfully. Unless you can predict when down turns will occur and for how long, the strategy of getting out to avoid a loss does not work.”
There are many (CLICK) options you can consider to help put you in control of your retirement and insulate yourself from the looming tax traps that lie ahead in traditional retirement strategies. First, (CLICK) contrary to popular thinking, you should consider reducing your qualified plan contributions, because if you use qualified plans such as 401ks, or IRAs, as we have shown, you could be setting yourself up for catastrophic taxes upon withdrawing the money. Instead, you should consider (CLICK) increasing contributions to tax-free retirement income options, such as The Roth IRAs and The Family Retirement Plan.
By a show of hands, who here has heard about the Roth? (WAIT FOR RESPONSES) Well, the Roth IRA allows individuals to save for retirement. But, unlike a traditional 401(k), (CLICK) Roth contributions: Go in after tax Grow tax-deferred, and Withdrawals for retirement are tax-free Tax-free retirement income makes a lot of sense because as we ’ve already shown, one of the biggest drawbacks of the traditional 401(k) is that in retirement your 100% of your withdrawals are taxed as ordinary income.
While the Roth does look good on initially on paper, it does come with (CLICK) some significant limitations: First, (CLICK) your annual contributions are limited each year. In 2010, that limit is $5,000 per year, if you are under age 50, and $6,000 per year if over age 50. Second, (CLICK) most Roth IRA accounts are still tied to the volatile and unpredictable stock market. Third, (CLICK) if you make too much money, the US Government says you can ’t contribute to one. In 2010, contributing to a Roth IRA is currently restricted to those with an adjusted income limit (AGI) of $120,000 (individuals) and $176,000 (couples), and as an individual if you make more than $105,000 the contribution amount is phased out (or reduced). And most importantly, (CLICK) you can ’t take qualified distributions until after age 59.5, which means some limited liquidity.
A logical alternative to a Roth IRA is what we the Premier Bonus Plan The PBP (CLICK) is tax deductible , earning grow tax-deferred and income at retirement is tax-free. And when properly funded and structured, the PBP allows: (CLICK) Income may be taken at any time, you don ’t need to wait until after 59.5 to get at your money. (CLICK) There are no contribution limits, so you can put in as much as you want. (CLICK) There is no risk of losing money due to market volatility. And should you die prematurely, (CLICK) your loved ones receive additional proceeds, above and beyond what you contributed.
As we wrap up, here are some things for you to consider when it comes to planning and saving for your retirement: Do you want ... (CLICK) To have tax-free income at any age ... especially in retirement (CLICK) To take back your retirement ... from the volatility of the stock market, and (CLICK) To start funding your retirement with after-tax contributions that grow tax deferred? If you answered yes to any of those questions, we should meet to discuss your situation and potential planning steps. In your handouts ... please take a moment to fill them out completely and let us know if your time spent here was valuable. Hopefully we ’ve shown you that it may not be what you’re saving for retirement, but where you’re saving it that really matters. Thank you!