Bruce McGuirk CLU CFP ChFC Regional Director 336-312-2321 Help Eliminate the Risk of Outliving Assets in Retirement Retirement Income “Backstop” Insurance.

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Presentation transcript:

Bruce McGuirk CLU CFP ChFC Regional Director Help Eliminate the Risk of Outliving Assets in Retirement Retirement Income “Backstop” Insurance products are issued by: John Hancock Life Insurance Company (U.S.A.), Boston, MA (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY Insurance policies and/or associated riders and features may not be available in all states. © 2014 John Hancock. All rights reserved For Agent Use Only. Not For Use With The Public. MLINY CONTINUING EDUCATION MOVING YOU FORWARD

Retirement Income Backstop For Agent Use Only. This Material May Not Be Used With The Public 2 of 18

MOVING YOU FORWARD Retirement Income Planning Process An “imperfect science” –When do I want to retire? –How much will I need? –How much can my savings earn? –How long will I need it to last? Life Expectancy: Defined as the average period that a person may expect to live –Put another way, 50% of people will not live to that age, and 50% will live beyond that age For Agent Use Only. This Material May Not Be Used With The Public 3 of 18

MOVING YOU FORWARD Accumulating for Retirement During working years, or the accumulation period, individuals save for retirement based on analysis of current and projected future worth of: Qualified Plans (IRA’s – 401(k) etc..) Roth IRA’sAnnuities Other Savings/ Investment Accounts Life Insurance For Agent Use Only. This Material May Not Be Used With The Public 4 of 18

MOVING YOU FORWARD Sequence of Returns: A Hidden Risk The Problem: The order when good and poor market returns occur impacts on Accumulation and Distribution Phases differently Accumulation Phase – The Working and Savings Years –Risk is minimized over an extended accumulation period –We are looking to AVERAGE the assumed return rate Distribution Phase – The Income Years –The sequence of returns can have a significant impact on how long your retirement savings will last. Since we can’t predict future markets and we don’t want to delay retirement, Sequence of Return is a risk we assume in retirement. For Agent Use Only. This Material May Not Be Used With The Public 5 of 18

MOVING YOU FORWARD Sequence of Returns During the Distribution Phase This risk is often ignored Losses due to underperformance during the distribution phase are difficult to make up Combined with withdrawal rate risk, it is unlikely accounts will last as long as expected For Agent Use Only. This Material May Not Be Used With The Public 6 of 18

MOVING YOU FORWARD Sequence of Returns Does it matter when you retire? For Agent Use Only. This Material May Not Be Used With The Public Maybe… –Both Mr. Smith and Ms. Jones retire with $100,000 and amortize their investment over 30 years, taking $8,000 out annually –Mr. Smith retires in 1979, while Ms. Jones retired 10 years earlier –Mr. Smith’s 30 year average ROR is less than Ms. Jones, yet his investment is 5 times greater than his initial investment –Ms. Jones ran out of money after only 20 years This is a hypothetical example provided for illustrative purposes only. 7 of 18

MOVING YOU FORWARD Risks During the Distribution Phase The “Imperfect Science” has many risks What happens if one of the many risks associated with retirement planning occur that was not considered or planned for in the initial plan? For Agent Use Only. This Material May Not Be Used With The Public 8 of 18

MOVING YOU FORWARD Longevity & Illness Risks *Source: US Department of Health and Human Services longtermcare.gov 2014 For Agent Use Only. This Material May Not Be Used With The Public Longevity –What if the client lives beyond the years they expected? –What is the probability that one of the spouses living 30 years (to age 95)or longer in retirement? –Consider this risk “squared” if married. Illness –A sudden illness can erode assets very quickly –It is estimated that approximately 70% of people over age 65 will require long-term care services at some point in their lives* 9 of 18

MOVING YOU FORWARD Taxes & Inflation Risks For Agent Use Only. This Material May Not Be Used With The Public Taxes –Can anyone predict with accuracy what taxes (in all forms) might look like in 20 years or more? –Do your clients believe that tax rates will go up? –Will they be able to control taxation? Inflation –Was this aspect factored into the retirement needs analysis accurately? –How erosive is inflation over a long duration of time? –What is the effect of inflation on the cost of health care for the elderly? 10 of 18

MOVING YOU FORWARD Withdrawal Rate Risk What happens to accounts if the amount needed exceeds the planned amount due to one of the mentioned risks? What if an unexpected cash need occurs? For Agent Use Only. This Material May Not Be Used With The Public 11 of 18

MOVING YOU FORWARD Introducing the Retirement Income “Backstop” For Agent Use Only. This Material May Not Be Used With The Public A cash value life insurance policy with a Long Term Care rider can be a very useful backstop against these risks: Longevity Taxes Inflation Illness Withdrawal Rate Sequence of Return 12 of 18

MOVING YOU FORWARD Benefits of Cash Value Life RiskOffset LongevityDeath benefits can help replenish diminished retirement assets for surviving spouse TaxesEliminated as life insurance policy loans are free of taxation and not reportable as income (unlike 401(k)s or IRAs) InflationIndexed UL or Variable UL can help offset the risk of inflation as accounts are indexed to (or participate in) market performance IllnessLTC riders help protect other investment accounts from unexpected costs due to illness risk Withdrawal RateMinimized by being able to vary the loan amounts (unlike IRA’s where RMD’s must be taken) Sequence of Return Minimized in Indexed UL as the indexed account cash values are protected from market losses. In addition, the fixed account of all cash value products provides a stable yield to minimize risk. Loans and withdrawals will reduce the death benefit and the cash surrender value, and may cause the policy to lapse. Lapse or surrender of a policy with a loan may cause the recognition of taxable income. Withdrawals in excess of the cost basis (premiums paid) will be subject to tax and certain withdrawals within the first 15 years may be subject to recapture tax. Additionally, policies classified as modified endowment contracts may be subject to tax when a loan or withdrawal is made. A federal tax penalty of 10% may also apply if the loan or withdrawal is taken prior to age 59 1/2. Cash value available for loans and withdrawals may be more or less than originally invested. Withdrawals are available after the first policy year. For Agent Use Only. This Material May Not Be Used With The Public 13 of 18

MOVING YOU FORWARD Case Study: Mr. Quigley & Mrs. Quigley Both 55, Preferred, Non-Smokers Quigley Financial Plan –Save for retirement –Paid off mortgage and children’s college expenses –Have enough money to last their entire retirement When they review their retirement plan, they realize that there is a real possibility that one or both of them could live past age 85, which was the estimated “end date” for their retirement income For Agent Use Only. This Material May Not Be Used With The Public 14 of 18

MOVING YOU FORWARD How Long Will Retirement Last? The Quigley’s joint life expectancy is 93, meaning there is a 50% chance that one of them will live longer than that! At age 85, there is less than a 15% chance that both Mr. and Mrs. Quigley will have died. So, there is better than an 85% chance that either Mr. or Mrs. Quigley will need income after age 85. For Agent Use Only. This Material May Not Be Used With The Public Based on 2008 VBT Primary Table. Life Expectancy (LE) tables are based on actual mortality experience collected from sources such as the life insurance companies and the Social Security Administration. LE tables show the average probability of death by a certain age. The LE data provided is not necessarily indicative of life expectancy, and the insured may live longer than indicated by the table. The LE tables used are not tailored to a particular situation or risk class; rather, they are based on population averages and are presented to help form a generalized idea of potential ages at death. 15 of 18

MOVING YOU FORWARD This is a supplemental illustration. Not all benefits and values are guaranteed. The assumptions on which the non-guaranteed elements are based are subject to change by the insurer. Actual results may be more or less favorable. The Solution: Retirement Income Backstop Concerns –Need retirement income from age 85 to 100 –Need Long Term Care protection Solution –The Quigleys commit to a monthly additional savings of $2,000 per month for 10 years –Purchase Accumulation IUL on each at assumed 6% rate of return, with a 4% Long Term Care rider Benefit –Roughly $330K of death benefit on each life, with each of them being able to access over $13,000 per month for their for LTC expenses –Combined tax-free income over $47,000 per year from ages 85 through 100 via loans. For Agent Use Only. This Material May Not Be Used With The Public 16 of 18

MOVING YOU FORWARD Case Study: One Product Providing Multiple Benefits While retirement income planning is an “imperfect science”, the Quigleys were able to continue on their original retirement plan while also proving a “backstop” through a life insurance policy that provides tremendous value with multiple benefits: A death benefit Long term care benefits Discretionary tax-free income through distributions For Agent Use Only. This Material May Not Be Used With The Public 17 of 18

MOVING YOU FORWARD Disclosures Insurance policies and/or associated riders and features may not be available in all states. Life insurance death benefit proceeds are generally excludable from the beneficiary’s gross income for income tax purposes. There are few exceptions such as when a life insurance policy has been transferred for valuable consideration. The Long-Term Care (LTC) rider is an accelerated death benefit rider and may not be considered long-term care insurance in some states. There are additional costs associated with this rider. The Maximum Monthly Benefit Amount is $50,000. When the death benefit is accelerated for long-term care expenses it is reduced dollar for dollar, and the cash value is reduced proportionately. Please go to to verify state availability. This rider has exclusions and limitations, reductions of benefits, and terms under which it may be continued in force or discontinued. Please contact the licensed agent or John Hancock for more information, cost, and complete details on coverage. This material was not intended or written for use and cannot be used by any taxpayer for the purpose of avoiding any IRS penalty. It was written to support the marketing of the transactions or topics it addresses. Anyone interested in these transactions or topics should seek advice based on their particular circumstances from independent professional advisors. For Agent Use Only. This Material May Not Be Used With The Public 18 of 18