Tuesday, March 23, 2004
Immediate Annuity www.legacyannuities.com
Real life case study:
Here’s How Mary Increased the Value of Her Annuity by 700%!
Lots of seniors have purchased annuities for their safety, simplicity and tax deferral. And many financial planners would agree that annuities are a good idea. Yet many annuity owners lose half of their annuity value and most aren’t even aware of this!
Let’s take a look at how this happens. Mary, age 55, purchased a fixed annuity for $50,000. She held it for 10 years and the interest accumulated nicely. The account doubled to $100,000. So far, Mary was very happy with this safe alternative. She never gave much thought to what happens to the annuity at her death. She figured she would eventually withdraw the money and use it.
The truth is, less than 10% of the annuity owners I meet make any withdrawals from their annuity. These owners die with the policies and can get hit with some very large taxes. In Mary’s case, here’s the picture at death when the taxes are due:
Annuity value $100,000
Income Tax -20,000
Estate Tax -32,000
Beneficiaries get $ 48,000
In the blink of an eye, Mary's beneficiary loses $52,000! Over half of the annuity value! Is there a remedy? YES!
If you do not plan to use the annuity for yourself, you can make a smart move with the following tactic:
Annuitize the annuity (deferred tax or sales charges could apply or 10% tax penalty if under age 59½, so please call for a review of your contract). When you annuitize the annuity, you select a payout option, that may include a lifetime income from the annuity company. You trade the $100,000 balance for a guaranteed income for life (or any period you choose). (The shorter the period, the higher will be the monthly income paid to you). If you want to know how much monthly income you can receive, please phone with your balance and age and I will send you a printout of monthly income.
Mary had her insurance company make monthly payments to her of $735. She did not need the money, so she deposited the after tax amount for a life insurance policy on her life, payable to her beneficiaries.
Based on Mary's current age of 65 (and assuming she is a preferred non-smoker) This $735 ($588 after taxes) per month purchased her a $341,000 universal life policy.
Now, instead of Mary’s heirs getting only $48,000 at her death (what they would have received after the taxes on the annuity, as I showed you on the previous page), the heirs receive $341,000 of life insurance death benefit, free of estate and income tax! That’s 7 times as much money for the beneficiaries! A 700% return!!
Let’s say you start the payments from the annuity as I described. Each payment you receive from the annuity, you are depositing for the life insurance. Even if you died after the first deposit on the life insurance, your beneficiaries would still receive the entire $341,000 death benefit on the life insurance policy. Additionally, some annuity companies will give your beneficiary the unpaid amount on the annuity, depending on the payout option selected (deferred interest would be taxable to the beneficiaries).
By selecting the appropriate payout option, if you received only one year’s monthly payments (about $8000) and then died, the annuity company would give your beneficiaries the remaining $92,000. Under this scenario, your beneficiaries receive $341,000 tax free from the life insurance company and $92,000 (subject to income tax) from the annuity company!! Over $430,000 after all taxes rather than $48,000 if you just sit on the annuity!
If you would like to see this analysis for your annuity and your situation, we have a computerized illustration available to send you. Simply call and provide information on your current annuity and your age.
Notes
1 This analysis may not be accurate for every annuity owner as some people do not pay estate taxes. We assume a federal and state combined income tax bracket of 40% which may be higher or lower than your actual tax bracket. A single taxpayer with taxable income over $62,000 will have a federal tax bracket of 31% and a 9% state tax bracket in high tax states such as California.
2 Single premium immediate annuity (SPIA 4), lifetime payments, issued by American Life and Casualty Insurance Company, a Conseco Company, Carmel, IN. Illustration as of 5/19/97. 0112-IG-0161
3 Connecticut General Life Insurance UL-I, Form LN525 and state variations thereof. Premium assumes current credited interest rate of 7% and current cost of insurance charges. The guaranteed rate on this policy is 4%.
4 We can explain the additional estate planning required to keep the proceeds of your life insurance policy out of your estate so that it passes free of estate taxes. Additionally, you need to qualify medically and financially for the life insurance coverage. This suggestion may not be beneficial in all cases. It depends on your income and estate tax bracket.
Real life case study:
Here’s How Mary Increased the Value of Her Annuity by 700%!
Lots of seniors have purchased annuities for their safety, simplicity and tax deferral. And many financial planners would agree that annuities are a good idea. Yet many annuity owners lose half of their annuity value and most aren’t even aware of this!
Let’s take a look at how this happens. Mary, age 55, purchased a fixed annuity for $50,000. She held it for 10 years and the interest accumulated nicely. The account doubled to $100,000. So far, Mary was very happy with this safe alternative. She never gave much thought to what happens to the annuity at her death. She figured she would eventually withdraw the money and use it.
The truth is, less than 10% of the annuity owners I meet make any withdrawals from their annuity. These owners die with the policies and can get hit with some very large taxes. In Mary’s case, here’s the picture at death when the taxes are due:
Annuity value $100,000
Income Tax -20,000
Estate Tax -32,000
Beneficiaries get $ 48,000
In the blink of an eye, Mary's beneficiary loses $52,000! Over half of the annuity value! Is there a remedy? YES!
If you do not plan to use the annuity for yourself, you can make a smart move with the following tactic:
Annuitize the annuity (deferred tax or sales charges could apply or 10% tax penalty if under age 59½, so please call for a review of your contract). When you annuitize the annuity, you select a payout option, that may include a lifetime income from the annuity company. You trade the $100,000 balance for a guaranteed income for life (or any period you choose). (The shorter the period, the higher will be the monthly income paid to you). If you want to know how much monthly income you can receive, please phone with your balance and age and I will send you a printout of monthly income.
Mary had her insurance company make monthly payments to her of $735. She did not need the money, so she deposited the after tax amount for a life insurance policy on her life, payable to her beneficiaries.
Based on Mary's current age of 65 (and assuming she is a preferred non-smoker) This $735 ($588 after taxes) per month purchased her a $341,000 universal life policy.
Now, instead of Mary’s heirs getting only $48,000 at her death (what they would have received after the taxes on the annuity, as I showed you on the previous page), the heirs receive $341,000 of life insurance death benefit, free of estate and income tax! That’s 7 times as much money for the beneficiaries! A 700% return!!
Let’s say you start the payments from the annuity as I described. Each payment you receive from the annuity, you are depositing for the life insurance. Even if you died after the first deposit on the life insurance, your beneficiaries would still receive the entire $341,000 death benefit on the life insurance policy. Additionally, some annuity companies will give your beneficiary the unpaid amount on the annuity, depending on the payout option selected (deferred interest would be taxable to the beneficiaries).
By selecting the appropriate payout option, if you received only one year’s monthly payments (about $8000) and then died, the annuity company would give your beneficiaries the remaining $92,000. Under this scenario, your beneficiaries receive $341,000 tax free from the life insurance company and $92,000 (subject to income tax) from the annuity company!! Over $430,000 after all taxes rather than $48,000 if you just sit on the annuity!
If you would like to see this analysis for your annuity and your situation, we have a computerized illustration available to send you. Simply call and provide information on your current annuity and your age.
Notes
1 This analysis may not be accurate for every annuity owner as some people do not pay estate taxes. We assume a federal and state combined income tax bracket of 40% which may be higher or lower than your actual tax bracket. A single taxpayer with taxable income over $62,000 will have a federal tax bracket of 31% and a 9% state tax bracket in high tax states such as California.
2 Single premium immediate annuity (SPIA 4), lifetime payments, issued by American Life and Casualty Insurance Company, a Conseco Company, Carmel, IN. Illustration as of 5/19/97. 0112-IG-0161
3 Connecticut General Life Insurance UL-I, Form LN525 and state variations thereof. Premium assumes current credited interest rate of 7% and current cost of insurance charges. The guaranteed rate on this policy is 4%.
4 We can explain the additional estate planning required to keep the proceeds of your life insurance policy out of your estate so that it passes free of estate taxes. Additionally, you need to qualify medically and financially for the life insurance coverage. This suggestion may not be beneficial in all cases. It depends on your income and estate tax bracket.
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