Retirement Planning and the Role of Insurance. ADV 1067 ( ) Rev

Transcription

1 Retirement Planning and the Role of Insurance ADV 1067 ( ) Rev

2 Retirement: The Three-Legged Stool When it comes to retirement, most people traditionally relied on three sources of income: Federal Government Employer Pension and Profit Sharing Plans Personal Savings Due to the increasingly difficult financial position of federal programs and the challenges that employers face in establishing and maintaining pension and profit sharing plans, people are depending more on personal savings for retirement. Federal Government U.S. National Debt: The federal budget deficit for 2014 was $560 billion. Federal debt, not including unfunded future liabilities, is over $18.2 trillion. Total federal debt as a percentage of gross domestic product was less than 20% at the beginning of the 20th Century. It is currently estimated to be more than 100%. Congressional Budget Office, US Government Debt, US Government Spending, debt_chart.html The retirement benefits offered under Social Security are at risk: There are approximately 35 million Americans age 65 and older and this number is expected to double in the next 25 years. The law governing benefit amounts may change because, after 2033, the payroll taxes collected will only be enough to pay about 75% of scheduled benefits. National Institute on Aging, Center on Budget and Policy Priorities, cms/?fa=view&id=3261 2

3 Employer Pension and Profit Sharing Plans Retirement Savings One or two generations ago, it was common for an employee to have access to a type of pension known as a defined benefit plan. In 1978, there were 128,407 of those plans in the US. At year end 2013 there were less than 45,000 - and the numbers are getting fewer and fewer every year. Private Pension Plan Bulletin Historical tables and graphs, Today most employers offer what are known as defined contribution plans. A large portion of your retirement depends on your ability to save. More than 40 million working households do not own any retirement account assets The median retirement account balance is $2,500 for all working-age households 66% of working families fall short of conservative retirement savings targets National Institute on Retirement Security, pdf The percentage of workers whose employers sponsored a retirement plan was only 54% in Access to employer-sponsored retirement plans increased to 62% by 2001, but dropped dramatically after the 2008 recession. By 2013 only 55% of workers age had access to a retirement plan through their employer. The lowest rate since National Institute on Retirement Security, DEFINITIONS Defined benefit plan: These plans paid retiring employees a fixed amount of money every year, often a percentage of salary based on years of employment, for life. Defined contribution plan: In these plans, an employer won t promise you a particular income at retirement. Instead, they will place money into an account and give you the choice in how to invest it. A common example of this type of plan is a 401(k) plan. 3

4 Also keep in mind that... Taxes impact your ability to save Of the many challenges in creating wealth for you and your family, taxes may be the single biggest obstacle. You Earn It They Tax It You Spend It They Tax It You Save It They Tax It You Die They Tax It $ $ $ $ $ $ Current Dollars $5,000 per year savings over a 25 year period at 6% return $290,782 1 Tax Deferred Taxable Vehicle 3 Vehicle 2 1 $249,336 after taxes on earnings 2 Interest income is generally taxable when withdrawn. 3 Interest Income is generally taxable the year it's earned. $232,853 Market downturns can delay or destroy your retirement Plans What if a market downturn occurred at the time of your retirement? 1/1/95 1/1/96 1/1/97 1/1/98 1/1/99 1/1/00 1/1/01 1/1/02 1/1/03 1/1/04 1/1/05 1/1/06 1/1/07 1/1/08 1/1/09 1/1/10 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 And that... For Americans ages 65 to 69: The average income is $37,200 For Americans over age 65 the main sources of income are: Social Security 37% Working 30% Pensions 19% Savings and investments 11% Census Bureau,

5 Retirement Planning and the Role of Insurance Indexed Universal Life Helps you save tax efficiently Income tax-free death benefits 1 Tax deferred growth of cash value First-In, First-Out (FIFO) taxation 1 Policy loans are not subject to income tax 1 Offers downside protection from market declines Growth, linked to changes in an index, that: Earn interest, in part, based on how the index performs and will not decrease due to index volatility Helps protect you and your loved ones Life insurance benefit for your loved ones Self insuring for disability and unemployment through available optional riders. Gives you liquidity options No-lapse guarantee 2 Variable or fixed loan options 2 Partial cash surrenders after the first policy year Premiums paid in excess are not subject to surrender charges 1 Exceptions to this general rule may apply. Ask your tax professional for more information. 2 May increase the likelihood that your account value will be insufficient to cover the monthly mortality costs and expense charges unless additional premium is paid. If additional premium is not paid, your policy may terminate. Some important things to remember about life insurance: If the underlying investments don t perform as expected, the amount available to fund retirement will be less and/or you might have to make larger premium payments for a longer period of time than anticipated. The death benefit of the life insurance policy itself could also be reduced. Variable loans are subject to state availability. Certain restrictions may apply. Optional benefit riders may not be available in all states, and may have an additional charge. Indexed interest rates are subject to a cap. Caps are subject to change at the discretion of Fidelity & Guaranty Life Insurance Company. Surrender charges apply if the product is surrendered during the surrender charge period. 5

6 Policies issued by Fidelity & Guaranty Life Insurance Company, Des Moines, IA. Fidelity & Guaranty Life Insurance Company offers a portfolio of universal life insurance contracts and optional additional features. Before purchasing, consider your financial situation and alternatives available to you. Your Fidelity & Guaranty Life Insurance Company financial professional can help you determine the best alternatives for your goals and needs, or visit us at for more information. Information provided regarding tax or estate planning should not be considered tax or legal advice. Consult your own tax professional or attorney regarding your unique situation. S&P is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by Fidelity & Guaranty Life Insurance Company. Standard & Poor s does not sponsor, endorse, promote, or make any representation regarding the advisability of purchasing the contract. Indexed interest rates are subject to a cap. Caps are subject to change at the discretion of Fidelity & Guaranty Life Insurance Company. Issuance of the life insurance policy depends on answers to health questions in the application. Surrender charges may apply to withdrawals. Withdrawals may be taxable and, when made prior to age 59½, may result in tax penalties. Surrenders, withdrawals and loans will reduce available death benefit. Surrenders and withdrawals beyond basis may be taxable income. Excessive and unpaid loans will reduce policy value and may cause the policy to lapse No bank guarantee. Not FDIC/NCUA/NCUSIF insured. May lose value if surrendered early