Supplemental Income Using Life Insurance Presenter: Bruce Guillemette, MSM, CLU, ChFC, FLMI Vice President, AXA Distributors Advanced Markets

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1 Supplemental Income Using Life Insurance Presenter: Bruce Guillemette, MSM, CLU, ChFC, FLMI Vice President, AXA Distributors Advanced Markets

2 What We ll Cover Why Supplemental Income Inflation Tax Uncertainty Retirement Gap Calculator Asset Characteristics The Importance of Life Insurance How Supplemental Income Works Effects of Overfunding Supplemental Income Based Approaches

3 Why Supplemental Income Evaluating your client s goals How much is required for retirement Active lifestyles in retirement Impact of longer life expectancies Inflation Tax Uncertainty

4 Impact of Longer Lives Client needing $75,000 in retirement Retiring at 65; Inflation averaging 3%, Assets growing at a net 6% Living to Age Need to Start With $ 661,348 $ 927,275 $1,157,642 $1,375,206 $1,530,081

5 Impact of Inflation Costs increase over time Salaries vs. Fixed Income Consumer price index Twenty year = 74.06%* *This is based on a 20 year moving average from based on the consumer price index. This will vary from time period to time period.

6 Increasing Dependence on Savings 85% of American workers in the private sector (i.e., nongovernment jobs) were covered by a defined benefit pension plan in 1975, compared to 16% in (source: National Institute on Retirement Security) According to many studies, the Social Security trust fund will be able to cover its retirement and disability obligations for the next 30 years or so, after which there will be a shortfall of about 22 percent. The Senate Special Committee on Aging figures funds will fall short in 2037 (source:

7 Tax uncertainty

8 Tax Uncertainty 9

9 The Retirement Income Gap How are these tax issues handled? Life insurance and other assets may provide a solution We ll discuss the options How do you handle the retirement shortfalls? We ll show the client s most susceptible gaps We ll show how to calculate the gaps and show what the gaps are

10 AXA s new Retirement Gap Calculator

11 Retirement Gap Over Time

12 Retirement Gap Sample Output Assumes personal savings of $2,799,682- ROR 5%- 35% TB, Net ROR= 3.25% Assumes 401(K) balance $1,348,394 - ROR 6% 20 years of income, pension $3000 per month plus 3% COLA

13 Range of Asset Choices Range of clients choices IRAs & 401ks Savings & Investments Equities Tax Exempts Annuities Life insurance

14 Asset Characteristics Grid Alternatives Please be advised this chart is based on our general understanding of federal tax rules for U.S. Individuals and is not intended as legal or tax advice. Your clients should consult their own tax advisor. Also your clients should consult with their advisor regarding the individual characteristics of any product or investment purchase. All thee products and investments have different characteristics and levels of risk. Neither AXA Equitable nor AXA Distributors does not provide tax and legal advice. Clients should consult with tax and legal professionals on these matters. 1 Only appropriate if there is a death benefit need. 2 Does Not include ROTH IRAs

15 The Importance of Life Insurance The need for life insurance Personal and family needs Death benefit protection Cash accumulation

How Supplemental Income Works During your working years when you have a life insurance need During Your Retirement Years When you have a reduced life insurance need You contribute dollars to a life

policy proceeds will be paid to your beneficiaries You can take withdrawals and loans Your to help Text supplement your retirement Loans and Withdrawals reduce the policy's cash value and death

16 How Supplemental Income Works During your working years when you have a life insurance need During Your Retirement Years When you have a reduced life insurance need You contribute dollars to a life insurance contract as premiums The Insurance company will take out certain expenses for its operations and state premium taxes Your remaining contributions build cash value Upon your death, the policy proceeds will be paid to your beneficiaries You can take withdrawals and loans Your to help Text supplement your retirement Loans and Withdrawals reduce the policy's cash value and death benefit and increase the chance that the policy may lapse. If the policy lapses, terminates, is surrendered or becomes a modified endowment, the loan balance at such time would generally be viewed as distributed and taxable under the general rules for distributions of policy cash values.

17 How Overfunding Works Smaller Premium Payment Larger Premium Payment Process Mapping Policy Charges and Expenses Tax Deferred and Investment Portion Policy Charges and Expenses Tax Deferred and Investment Portion Premium Payments Premium Payments

18 The Effect of Overfunding After paying enough premiums to cover policy charges, additional premium payments are available for tax-deferred cash value accumulation. For policies with a Level Death Benefit Option (Option A), increased cash values lower the Net Amount at Risk for which mortality charges are assessed. Risk that the policy may lapse or will require additional unexpected premiums in the future is reduced. Greater cash value accumulation may result in a higher Death Benefit in some cases.

19 Supplemental Income Based Approaches

20 Supplemental Income Planning Approaches Private Reserve Roth IRA Alternative/Complement Dialing Your Tax Bracket Smooth Sailing on Uncertain Waters

21 Private Reserve-Helping Support Life s Goals Cash Value Life Insurance Doing Double Duty Permanent Death Benefit Protection Private Source of Income for Key Life Style Events Retirement, but also Tuition Down Payments Weddings, etc. Loans and withdrawals will reduce the face amount and cash value of the life insurance contract and increase the change the policy may lapse.

22 How it Works Policy designed to be funded to Retirement Client has option to take loans vs. withdrawals Client can pay the loans back Paying it back will replenish the policy Becomes a Your Client s built in Private Reserve Client pays themselves back

IUL = Flexible Source of Cash Value Tom Healthy, 35 years old, newly married, likes the idea of using life insurance as a source of retirement surplus.

23 IUL = Flexible Source of Cash Value Tom Healthy, 35 years old, newly married, likes the idea of using life insurance as a source of retirement surplus. Has a need for life insurance Wants to save more per year than a Roth IRA allows Currently investing in a taxqualified plan above the company matched contribution Makes over $150,000 annually

Private Reserve How it May Work The policy premium and death benefit amounts used for this case are intended only to help demonstrate the planning concept discussed and not to promote the sale of a

24 Private Reserve How it May Work The policy premium and death benefit amounts used for this case are intended only to help demonstrate the planning concept discussed and not to promote the sale of a specific product. The rates are broadly representative of rates that would apply for a policy of this type and size for Insureds of good health in the ages mentioned. To determine how this approach would work for you, individual illustrations should be prepared or requested for your review. If different rates were used, there might be significantly different results.

25 Private Reserve Flexibility & Efficiency of Life Insurance Shows flexibility of life insurance as a private source of potential cash plus death benefit Shows flexibility of Bright Life Grow Shows efficiency by avoiding or minimizing interest paid to banks and finance companies for these major items Shows the potential value of permanent cashvalue life insurance

26 Who Can Benefit from Private Reserve Strategy? Professionals Who want to supplement their existing retirement plans & create a future potentially tax-free source of income. Other Individuals Who want potentially a flexible source of cash for life s major purchases. Business Owners Relatively hassle-free and potentially efficient source of dollars for themselves. Reason for the business to look at permanent CV Life insurance

27 Other Considerations If the client does not keep paying the premium on a life insurance policy, they will lose substantial money in early years. To be effective, the client needs to hold the policy until death. A life insurance policy generally takes years to build up a substantial cash value. Tax free distributions will reduce the cash value and face amount of the policy. The client may need to pay higher premiums in later years to keep the policy for lapsing.

28 Other Considerations Cont. Clients must qualify medically and financially for the life insurance Generally, there are many additional charges associated with a life insurance policy including but not limited to a front end load, monthly administrative charge, monthly segment charge, cost of insurance charge, additional benefit rider costs, and surrender charges.

29 Supplemental Income Based Approaches Private Reserve Roth IRA Alternative/Complement Dialing Your Tax Bracket Smooth Sailing on Uncertain Waters

30 The Roth Alternative /Complement MAJOR ATTRIBUTES Of A ROTH IRA Tax free accumulations and Tax free distributions No requirement for RMDs Contributions are not tax deductible Income Limitations Contributions are limited $5,500

31 The Roth Alternative /Complement Who May Benefit from the ROTH Alternative / Complement? Clients and Prospects who: Need or are seeking additional life insurance protection Have additional funds to allocate towards savings Have maxed out their contributions to company 401(k) plans Do not qualify to contribute to a ROTH IRA or have contributed to their ROTH IRA and are looking for a complement to it Seeking a potentially tax free way to accumulate funds for retirement needs May be seeking a way to reduce current taxable income*

32 The Roth Alternative /Complement Life Insurance offers similar advantages Tax free accumulations and Tax free distributions No requirement for RMDs PLUS No legal limit on contributions Contributions not limited by income Contributions do not rely on earned income No tax penalty for early withdrawals* *The policy must not be a modified endowment contract (MEC). In the event the policy is an MEC, a 10% tax penalty will apply on distributions prior to age 59 ½.

The Roth Alternative /Complement Client age 45 with income in excess of $200,000 Has $10,000 targeted for retirement supplement Maxed out on contributions to

33 The Roth Alternative /Complement Client age 45 with income in excess of $200,000 Has $10,000 targeted for retirement supplement Maxed out on contributions to company plan Concern with impact of investment earnings on income taxes Roth is not an available option for them - But Permanent Cash Value Life Insurance is.

34 The Roth Alternative / Complement What Permanent Cash Value Life Insurance Offer as an Alternative / Complement Age Cumulative Contributions Cumulative Withdrawals Cash value Death Benefit 45 $10,000 $0 $0 $410, $100,000 $0 $112,586 $410, $200,000 $0 $367,100 $710, $0 $30,332 $361,034 $681, $0 $303,320 $283,262 $475, $0 $606,640 $59,426 $186,065 The policy premium and death benefit amounts used for this case are intended only to help demonstrate the planning concept discussed and not to promote the sale of a specific product. The rates are broadly representative of rates that would apply for a policy of this type and size for Insureds of good health in the ages mentioned. To determine how this approach would work for you, individual illustrations should be prepared or requested for your review. If different rates were used, there will be significantly different results.

35 The Roth Alternative /Complement 900, ,000 $740, , , , ,000 $380, , ,000 $200, ,000 0 Cum Premiums 20 Years Cash Value at Age 65 Death Age 65 What has been accomplished? Contributions were $10,000 per year for 20 years At retirement, the client may take distributions of $32,000 for 20 years for a total of $640,000 At age 85, the client will have $200,000 in remaining death benefit protection The policy premium and death benefit amounts used for this case are intended only to help demonstrate the planning concept discussed and not to promote the sale of a specific product. The rates are broadly representative of rates that would apply for a policy of this type and size for Insureds of good health in the ages mentioned. To determine how this approach would work for you, individual illustrations should be prepared or requested for your review. If different rates were used, there will be significantly different results.

36 Supplemental Income Based Approaches Private Reserve Roth IRA Alternative Dialing Your Tax Bracket Smooth Sailing on Uncertain Waters

37 Dialing Your Tax Bracket With proper planning, cash values taken from the life insurance policy as withdrawals and loans can be received income tax free In retirement when you may need less death benefit you can take withdrawals and loans as needed Dialing your tax bracket Take income from required sources Social Security, Pensions to fill lower tax brackets In years when you need more money, use life insurance cash values but avoid triggering higher tax brackets *You must pay the minimum premium to maintain the life insurance and there is an upper cap on how much can be contributed and still allow the contract to fall within the definition of life insurance under Tax Code Section These number represent tax brackets for These changes were made to reflect annual cost of living adjustments. Policy loans and withdrawals will reduce the cash value and face amount of the policy and increase the chance a policy may lapse. Clients may have to pay higher premiums.

Roth IRA Alternative/Complement/401k Supplement Many retirement vehicles limit contributions IRAs & Roth IRAs - $5,500 401ks - $17,500 Additional amounts for individuals over 50 Limits on

38 Roth IRA Alternative/Complement/401k Supplement Many retirement vehicles limit contributions IRAs & Roth IRAs - $5, ks - $17,500 Additional amounts for individuals over 50 Limits on contributions to employer sponsored plans Life Insurance offers an additional approach to place funds Can avoid limits imposed by other savings options 401ks or 401k supplement You can dial how much you want to put into the life insurance policy* *You must pay the minimum to maintain the life insurance and there is an upper cap on how much can be contributed and still allow the contract to fall within the definition of life insurance under Tax Code Section 7702

39 Managing Your Tax Bracket Tax Diversification: Dialing the Income Tax Bracket Lower Tax Brackets Social Security, IRA, Pension Distributions and other Taxable Income Higher Tax Bracket Taxable Income or Life Insurance Cash Values, Roth IRAs and Municipal Bond Interest Total Without Life Insurance Planning With Life Insurance Planning First $18,150 Next $55,650 Next $26,200 $100,000 Tax Rate 10% 15% 25% Taxes Due $1,815 $8,348 $6,550 $16,713 Tax Rate 10% 15% 0% Taxes Due $1,815 $8,348 $0 $9,983 40% Savings of $6,730! Based on a 45-year-old male, preferred underwriting status, an AXA Bright Life Grow Indexed Universal Life contract with a death benefit of $500,000 and an annual premium of $8,465 would generate 20 years of income of $26,200 starting at age 66. Assumes tax calculations made in 2014, filing jointly. The $26,200 of income from the policy is based on the BrightLife Grow at default of 6.64%

40 Supplemental Income Based Approaches Private Reserve Roth IRA Alternative Dialing Your Tax Bracket Smooth Sailing on Uncertain Waters

41 Smooth Sailing on Uncertain Waters Timing is Everything in Retirement The Sequence of Returns makes a difference: Mid 1960 s Retirement assets eroded Early 1970 s Retirement assets eroded Early 1980 s Retirement assets would grow Early 1990 s Retirement assets would grow Early 2000 s Retirement assets eroded Cash Value Life Insurance Can Add Security Potential source of cash, plus Death Benefit Flexibility when to draw on it Sister approach to Dialing Your Tax Bracket

42 Retiring in a Down Market Retirement Account with 1% Inflation Beginning of Post Hypothetical End of Year Annual Withdrawal S & P 500 Year Age Balance Withdrawal Balance Return* Balance 65 $1,000,000 ($70,000) $930, % $793, ,662 70, , % 531, ,594 71, , % 631, ,377 72, , % 692, ,582 72, , % 575, ,366 73, , % 534, ,713 74, , % 545, ,306 75, , % 623, ,090 75, , % 520, ,363 76, , % 539, ,445 77, , % 566, ,376 78, , % 518, ,895 78, , % 579, ,635 79, , % 593, ,312 80, , % 539, ,773 81, , % 534, ,663 82, , % 596, ,006 82, , % 497, ,147 83, , % 539, ,385 84, , % 489, ,475 85, , % 444,791 The results presented here are hypothetical and your results for your client will be different. These are based on the S & P returns from Past performance is not a guarantee of future results. Retiring in Down Market $1,000,000 at start 7% withdrawal 56% erosion over 20 years Balance in 20 years - $444,791

43 Market Sequence Makes All the Difference You can t predict how the market will perform before a client retires. Market from would have depleted assets. Market from would have seen assets grow Arguably one of the markets best decades followed by one of the worst decades. Because the market was strong in the early years, a weak decade that followed already had a cushion. Using the Smooth Sailing Approach helps a client protect their family during their working years and offers options in the retirement years. Tom s Retirement Assets Mirroring the S & P 500 Return from Starting Balance at Age 65 Annual Retirement Fund Withdrawals Year One 1% Inflation Tom s Retirement Fund Balance at Age 85 $1,000,000 $70,000 $444,791 Tom s Retirement Assets Mirroring the S & P 500 Return from Life Insurance & Smooth Sailing Approach Helped Here Starting Balance at Age 65 Annual Retirement Fund Withdrawals Year One 1% Inflation Tom s Retirement Fund Balance at Age 85 $1,000,000 $70,000 $2,195,599 Life Insurance Not Needed Here But Offers a Safety Net if Client Retires is a Down Market Period

44 Power of Not Selling into a Loss Retirement Account with 1% Inflation Beginning of Post Hypothetical End of Year Annual Withdrawal S & P 500 Year Age Balance Withdrawal Balance Return* Balance 65 $1,000,000 ($70,000) $930, % $793, , , % 583, , , % 800, ,671 (72,121) 728, % 902, ,237 (72,842) 829, % 770, , , % 820, ,522 (74,306) 746, % 883, ,818 (75,049) 808, % 1,071, ,071,618 (75,800) 995, % 946, , , % 1,150, ,150,865 (77,324) 1,073, % 1,315, ,315,732 (78,097) 1,237, % 1,315, ,315,235 (78,878) 1,236, % 1,628, ,628,654 (79,667) 1,548, % 1,838, ,838,183 (80,463) 1,757, % 1,850, ,850,000 (81,268) 1,768, % 2,062, ,062,519 (82,081) 1,980, % 2,608, ,608,039 (82,901) 2,525, % 2,446, ,446,606 2,446, % 3,192, ,192,087 (84,568) 3,107, % 3,344, ,344,312 (85,413) 3,258, % 3,587,396 Removing Just 5 Down Years $1,000,000 at start 7% withdrawal 358% growth to $3,587,396 The results presented here are hypothetical and your results for your clients will be different. These are based on the S & P returns from Past performance is not a guarantee of future results.

45 Supplemental Retirement Income Indexed Universal Life 45 Year old male preferred no tobacco $6,967 Premium for 20 years at default rate of 6.64% which of course is not guaranteed Strategically timed policy withdrawals $50,000 out of policy at 28% tax bracket = $70,000 taxable income The policy premium and death benefit amounts used for this case are intended only to help demonstrate the planning concept discussed and not to promote the sale of a specific product. The rates are broadly representative of rates that would apply for a policy of this type and size for Insureds of good health in the ages mentioned. To determine how this approach would work for you, individual illustrations should be prepared or requested for your review. If different rates were used, there might be significantly different results. Life Insurance Policy End of Death Withdrawal Year Age Premiums Benefit Loan Cash Value 65 $6, ,000 $0 232, $0 450,000 (50,000) 195, $0 400,000 (50,000) 155, $0 400, , $0 400, , $0 349,787 (50,000) 133, $0 349, , $0 349, , $0 349, , $0 292,790 (55,000) 105, $0 291, , $0 290, , $0 288, , $0 287, , $0 285, , $0 284, , $0 282, , $0 281, , $0 218,349 (60,000) 84, $0 215,503 85, $0 212,600 85,565

46 Questions?

47 Disclosure All guarantees are based on the claims-paying ability of AXA Equitable Life Insurance Company or MONY Life Insurance Company of America and do not apply to the investment portfolios. Life products are issued by AXA Equitable Life Insurance Company or MONY Life Insurance Company of America, an Arizona Stock Corporation, with its main administrative office in Jersey City, NY and distributed by an affiliate of AXA Network, LLC and AXA Distributors, LLC, both are located at 1290 Avenue of the Americas, New York, NY "AXA" is a brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA Equitable Life Insurance Company(NY,NY), MONY Life Insurance Company of America(AZ stock company, administrative office: Jersey City, NJ), AXA Advisors, LLC, and AXA Distributors, LLC. AXA S.A. is a French holding company for a group of international insurance and financial services companies, including AXA Equitable Financial Services, LLC. This brand name change does not change the legal name of any of the AXA Equitable Financial Services, LLC companies. The obligations of AXA Equitable Life Insurance Company and MONY Life Insurance Company of America are backed solely by their claims paying ability.

Tax-Efficient Retirement Withdrawal Strategies

Tax-Efficient Retirement Withdrawal Strategies MODERATOR Joseph Votava, Seneca Financial Advisors PANELISTS Waldean Wall, Allianz Life David Kahal, AXA What We ll Cover 1. Tax Rates/Brackets 2. Various