Live Better, LeaveMore. Preparing for the transition into retirement and beyond

Transcription

1 LIFE insurance Live Better, LeaveMore Preparing for the transition into retirement and beyond

2 Life. your way Strive to live your dreams. Discover the flexibility of life insurance protect, accumulate and transfer wealth now and in the future. Be free to live life, your way.

3 Wasn t Retirement When You Were Finally Going to Live the Good Life? Are you confident you will leave the legacy you desire to loved ones? Have you worked with your financial professional to identify the best approach to meet your legacy and?retirement income goals? It is common to imagine a retirement that will be primarily devoted to your personal enjoyment as a reward for many years of hard work and disciplined savings. It should be a time to focus on all the little things you didn t have the opportunity to do while working or raising a family. The onset of retirement, however, also happens to be when many people begin considering what assets will be left behind for loved ones or charity. This can leave many retirees feeling conflicted between living the retirement they envisioned and creating a legacy. Perhaps you recognize this conflict now in your own life. Do you deal with this dilemma by scrutinizing every financial decision? Too often, retirees believe that it is necessary to sacrifice amenities, such as travel and hobbies, in their efforts to maximize the amount of wealth left to their beneficiaries. Unfortunately, in the absence of planning, these personal sacrifices could inadvertently result in less efficient wealth transfer or create larger tax burdens for beneficiaries. Wealth transfer taxes, if applicable, may significantly diminish an estate before it is received by the beneficiaries. LIVE BETTER, LEAVE MORE TM from MetLife is a strategy that aims to help clarify your wishes for retirement and legacy so that you may take steps to effectively achieve these goals with the assets you have accumulated thus far. It is founded on the idea that once your legacy goals have been prepared for, the emotional conflict which often exists can be decreased or perhaps even eliminated allowing you to live better today. You have the potential to leave a legacy without feeling deprived. Please note: This document is intended to provide introductory information on the subject matter. MetLife does not provide tax and legal advice. You should consult with independent financial, tax and/or legal professionals before making financial investment or planning decisions. 1

4 Traditionally, legacy planning has begun with examining an individual s portfolio with regard to what assets will be needed to generate lifetime income and provide a cushion for emergencies. Only after those two amounts are satisfied is anything remaining considered for a legacy. Unfortunately, with literally thousands of calculators available to analyze an existing portfolio feeling confident you have saved enough for your own lifetime may seem nearly impossible. This uneasiness can create a stalemate with regards to actively preparing for either potential income streams or inheritances. Too often, the result is a mistaken belief that the only way to save for legacy goals is through personal sacrifice. Consider the Benefits of Paying Your Future Goals First To accumulate assets, many financial professionals and successful retirees suggest paying your future first. In other words, determine how much you might need to save for the future, evaluate the possibility of living comfortably on what remains and then strike a balance between the two goals. The result is a particular confidence that arises from creating significant savings with minimal sacrifice. Wouldn t the same approach seem to make sense now as you attempt to balance your retirement income and future wealth transfer goals? Working with your financial professional, you can identify and set aside your desired legacy in an effort to ensure your wealth transfer priorities are addressed. Your financial professional can then help estimate the likelihood that remaining assets will be able to generate sufficient lifetime income, and may even identify additional income potential within the portfolio. If you think this approach could help clarify your goals, reduce anxiety and provide you the freedom to better enjoy your savings in retirement you should talk to your financial professional about Live Better, Leave More. 2

5 Evaluate the Alternatives Nearly as important as defining your goals in the Live Better, Leave More strategy, is ensuring or improving the efficiency of your portfolio s underlying assets. The transition from accumulating assets to actually using them is no small feat. Be open to considering some adjustments to your current approach. For example, if you currently reinvest dividends on stocks, bonds or mutual funds, simply turning off that option could be one easy way to create more spendable income. Your financial, legal and tax professionals may suggest similar alternatives for your consideration that apply to your particular situation. As with any financial decision, be certain to evaluate and understand the taxes and other charges associated with changes in strategy or investment product. Your tax and legal advisors should play an important role in this process and may also have valuable advice for your specific situation. Your financial professional may also suggest life insurance to help fund the legacy portion of your vision. Life insurance is a popular financial product for wealth transfer because, when owned and structured properly, it features: An income tax free death benefit. An estate tax free death benefit, if the policy is owned and structured properly. The possibility to leverage a limited number of premium payments into a sizeable death benefit, in the event death is premature. Death benefit guarantees on some products, subject to the financial strength of the issuing company. The potential to access a permanent product s policy cash value through withdrawals or policy loans, income tax free. A note about life insurance distributions: Loans and withdrawals will decrease the cash value and death benefit. If the policy does not perform as expected it may be necessary to reduce or stop distributions, and/or premium payments may need to be resumed to avoid a policy lapse. There may be tax consequences if the policy lapses or is surrendered prior to the death of the insured. Distributions are generally treated first as tax free recovery of basis and then as taxable income, assuming the policy is not a Modified Endowment Contract (MEC). However, different rules apply in the first fifteen policy years, when distributions accompanied by benefit reductions may be taxable prior to basis recovery. Non-MEC loans are generally not subject to tax but may be taxable when the policy lapses, is surrendered, exchanged or otherwise terminated. In the case of a MEC, loans and withdrawals are taxable to the extent of policy gain and an additional 10% tax may apply if taken prior to age 59½. Always confirm the status of a particular loan or withdrawal with a qualified tax advisor. Cash value accumulation may not be guaranteed depending on the type of product selected. Investments in variable life insurance are subject to market risk, including loss of principal. 3

6 Case Study: Mike & Sarah Meeting with our financial professional and being introduced to the Live Better, Leave More concept really changed our outlook on the future. By quantifying our wishes through a series of open and honest conversations, we found we were able to live the retirement we wanted and still provide a legacy for our children and grandchildren. Now that we have set aside a legacy, we feel free to use the remainder of our assets for our own enjoyment, such as travel and hobbies without feeling guilty. the Concern Mike and Sarah are ages 62 and 60, respectively. Their portfolio is comprised of four primary assets: Income $75,000 from pensions and Social Security Traditional IRA $500,000 with estimated annual growth of 6% annually home $375,000 Municipal bond portfolio $500,000 with 4% annual income that is currently being reinvested into the portfolio The couple s primary goal is to provide each of their three children with an inheritance of $500,000. They anticipate pension and Social Security being their major sources of retirement income, and intend to keep the IRA as an emergency fund or to help their income keep pace with inflation. Their current thinking is that the municipal bond portfolio will be left for the children s inheritance. Assuming they live an additional twenty-five years, the bond portfolio continues to generate the same income and all income continues to be reinvested into the portfolio the value could potentially grow to $1,332,918. Is there a way they can meet their goal without sacrificing any of their current income or IRA assets? 4

7 the Solution After meeting with their financial and tax professionals and evaluating many options, they decide to slowly liquidate the bond portfolio and use a portion of the proceeds to purchase a Legacy Advantage Survivorship Universal Life (LASUL) insurance policy from MetLife. For a $1.5 million guaranteed death benefit 1 the premium would be $18,917 annually for the remainder of their lives, assuming Mike and Sarah are both non-smokers and meet standard underwriting criteria. At this time they believe the flexibility of owning the policy themselves outweighs the potential estate tax advantages that might be recognized if owned by an irrevocable life insurance trust (ILIT), but agree to continue to review this decision with their tax and legal advisors periodically. Mike and Sarah ultimately opt to withdraw bond income and principal in the amount of $30,000 annually. This amount enables them to pay the life insurance premiums as well as income taxes associated with the sale of the bonds and still have approximately $10,000 remaining for their personal use. At the end of twenty-five years, the bond portfolio would be worth approximately $33,000 under these assumptions. 1 Guarantees are subject to the financial strength and claims paying ability of the issuing insurance company. Availability of life insurance products and riders may vary by state. 5

8 Mike and Sarah s Portfolio the Benefit Using the Live Better, Leave More strategy, Mike and Sarah were able to guarantee 1 their goals of providing each of their three children with a $500,000 income tax free inheritance by way of purchasing the Legacy Advantage Survivorship Universal Life insurance policy. Feeling confident they will provide the desired legacy for their loved ones also allows them the emotional freedom to use the remainder of the portfolio to supplement their other sources of retirement income. While Mike and Sarah s specific circumstances allowed them to Live Better and Leave More, the degree to which each individual will be able to see results will depend on many factors including: current assets, health, age, interest rates, taxes and more. 1 Guarantees are subject to the financial strength and claims paying ability of the issuing insurance company. Availability of life insurance products and riders may vary by state. 6

9 Current Approach Bond portfolio current value $500,000 with estimated 4% income annually Live Better Leave More LASUL policy and remaining bond portfolio after $30,000 annual withdrawal for 25 years Annual Income Pension and Social Security Emergency Fund Traditional IRA estimated growth 5% annually Legacy for Children in 25 years $75,000 $86,083 $500,000 $500,000 $1,332,918 $1,533,566 This example is for illustrative purposes only. Actual results will vary. Live Better, Leave More is designed for individuals who, through this process, have determined that they can generate sufficient income to live the life they want and still have excess assets for their legacy. The best way to learn what opportunities are available for you is to meet with your financial, tax and legal professionals and review this strategy with regards to your specific situation. 7

10 Core Stories for Life. There are concepts that focus on helping you or your business: create financial protection for your family Grow equity to help preserve your lifestyle, and Leave a legacy to the ones you love Life insurance is a flexible product that offers death benefit protection and may also offer an opportunity to save for your own future. Evaluating all available financial opportunities may help you reach your financial goals. Life insurance is one of those opportunities providing protection for today and helping prepare for tomorrow. This material is part of a series of financial strategies using life insurance named Core Stories for Life. These materials are designed to aid you and your financial professional in understanding the benefits of life insurance as a key financial asset within your overall portfolio. 8

11 Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate. The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance or other financial products and services. Clients should seek advice based on their particular circumstances from an independent tax advisor since any discussion of taxes is for general informational purposes only and does not purport to be complete or cover every situation. MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping them in force. Contact your financial professional for costs and complete details. Legacy Advantage Survivorship Universal Life is issued by MetLife Insurance Company USA on Policy Form 5E and in New York only by Metropolitan Life Insurance Company on Policy Form 1E All product guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. Insurance Products: Not A Deposit Not FDIC-Insured Not Insured By Any Federal Government Agency Not Guaranteed By Any Bank Or Credit Union May Go Down In Value Life insurance products are issued by: Metropolitan Life Insurance Company 200 Park Avenue New York, NY metlife.com CLVL L [exp0416][xGU,MP,VI] 2014 METLIFE, INC. FPO MetLife Insurance Company USA North Community House Road Charlotte, NC 28277

12 Please work with your financial professional to learn more about MetLife s Core Stories for Life.