1. Supplemental Retirement Income Planning
A life insurance strategy that helps diversify your taxes during retirement.
“Pay them now, or pay them later!”
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Policies issued by American General Life Insurance Company ("AGL“)

2. IUL Target Market Doctors Clients Seeking Tax Diversification Dentists
Successful Business Owners
Attorneys
CPAs
High-Income Business Executives
Chiropractors
Veterinarians
High Wage Earners
As a consumer, you may be the ideal client for a valuable tool that that can help you not only from an asset diversification perspective, but also from a tax diversification perspective. This tool, Indexed Universal Life (IUL), has many valuable advantages that can help to lead you down the road to a successful retirement.

3. The conversation: “Pay them now, or pay them later!”
A life insurance strategy that helps diversify your taxes during retirement
The conversation: “Pay them now, or pay them later!”
Today we’re going to talk about how you can diversify the taxes on your retirement cash flow by incorporating life insurance into their plans. Many people simply contribute to their employer’s 401(k) plan without giving any thought to the income tax ramifications later, when they retire. Although this may not be a significant issue for everyday employees, it can be particularly significant for high-income-earners such as doctors, dentists, attorneys, CPA’s, veterinarians, chiropractors, funeral home directors, and numerous other occupations that tend to produce above-average income for its key employees.

4. Today’s Focus
Today we’ll learn about income-tax diversification for your retirement savings
By discussing retirement plan taxation during contribution, accumulation and distribution
So that we can offer high-income-earning clients a competitive supplemental retirement solution
So let’s look at our overarching agenda for the day. We’ll learn about income-tax diversification as a high-income-earner for your retirement savings by discussing retirement taxation during the contribution, accumulation, and distribution stages of retirement so that you see just how powerful a solution this supplemental retirement strategy may be for you.

5. History of Top Marginal Tax Rates
One major issue to consider is overall top marginal tax rates. Here you can see the top marginal income tax rates dating back to From 1933 through 1982 the top marginal tax rates were above 60%. After that point they reduced to near-historic lows, where’ they’ve held pretty constant ever since.
But what about future income tax rates? Many worry that with today’s economic issues, tax rates will need to go up in the future. Let’s talk a little bit about what that means to retirement strategy.
2017 Marginal Tax Rates:
Single Married (Joint)
10% $0 - $9, % $0 - $18,650
15% $9,326 - $37, % $18,651 - $50,800
25% $37,951 - $91, % $50,801- $131,200
28% $91,901 - $191, % $131,201 - $212,500
33% $191,651 - $416, % $212,501 - $416,700
35% $416,701 - $418, % $416,701-$444,500
39.6% $418, % $444,501+

6. What has been the secret to success?
Pre-Tax/Tax-Deductible Tax-Deferral 401(k), 403(b), 457, Traditional IRA
As people have accumulated this wealth in their employer-sponsored retirement plans, what has always been touted as the secret to success?
The idea has always been that you will be in a higher marginal tax bracket during your working years than you will in your retirement years. Therefore, you should contribute to your employer-plan rather than non-qualified assets because, in your employer-sponsored plan, you can have tax-deferral on pre-tax or tax-deductible dollars.
Intrigued by this notion, many employees have flocked to their 401(k), 403(b), 457, and traditional IRA plans to accumulate their retirement wealth. Let’s take a closer look at what that means.

7. What makes pre-tax/tax-deductible tax-deferral work?
Contribution
Distribution
High Tax Rate
Low Tax Rate
Big Tax Deduction/ Reduction
Lowest Possible Taxes
Let’s give a little more thought to what makes pre-tax/tax-deductible tax-deferral work. The basic premise is that, during the contribution phase, you want to be in a high tax bracket so that you maximize the value of your tax deduction / tax reduction on your contribution.
Alternatively, when you begin withdrawing the money during retirement you want to be in the lowest tax rate possible so that you pay very little income tax on the distribution.

8. It worked before. . . Tax rates were high in the 1940’s – 1970’s
Tax rates dropped dramatically in the 1980’s
Lower retirement income meant lower
retirement tax rate
With pensions and Social Security, retirees
didn’t own the assets and, therefore, didn’t
pass them on to their children
Contribution
This concept of pre-tax/tax-deductible tax-deferral worked in the past. When employees were working, and were in the high tax rates that existed in the 1940’s through the 1970’s, their tax deductions were valuable. Then, when they retired any time after the early 1980’s, they enjoyed taking the income out at a much lower tax rate.
Remember the tax rate graph we talked about previously?
But there’s another issue looming that many investors don’t think much about.
Back in the day when the primary sources of retirement cash flow were pensions and Social Security, retirees didn’t actually own the assets that supported them in retirement. Frequently there were no assets to be passed-on – and taxed – to their children. As such, historically, the beneficiary’s income tax rate was generally not an important part of the equation.
Distribution

9. Will it work now? Pressure for tax rates to increase
Increasing levels of wealth for financially
successful retirees
Because of personal savings in 401(k)s, IRAs, etc.,
retirees now own assets that will be
passed to their children
Children’s tax rates are rising, creating income tax implications
But today the landscape is entirely different. Because of the historically low tax rates from the early 1980s until today, employees have found themselves in very low tax brackets during their working years. What does that mean about the impact of their tax deduction? That, too, is much less important, relatively speaking.
Meanwhile, due to economic circumstances, there is significant pressure for tax rates to increase. And, because of employer-sponsored retirement plans, financially successful retirees now OWN the vast majority of the assets that provide their retirement cash flow.
For many successful retirees, they won’t spend their entire nest egg. Rather, they’ll pass it along to their children. What does that mean?
It means that the children will be inheriting these assets – commonly while they are in their 50’s and 60’s, which are likely to be their peak income-earning years – and, with increasing pressure for rising tax rates, may end up paying taxes at a much higher rate than the tax bracket their parents were in when they originally took a tax deduction on their contribution.
This virtually turns pre-tax/tax-deductible tax-deferral upside-down! Contributions that defer income taxes expecting lower tax rates on distributions (to the children) are a formula for disaster. Under that scenario, the income tax “leverage” of pre-tax/tax-deductible tax-deferral is lost.

10. Contribution, Accumulation, Distribution
Every dollar put towards retirement goes through three phases:
The bad news is:
You must pay taxes on at least one of these three phases
The good news is:
You get to decide which one
It depends on the investments you choose
Contribution
Accumulation
Distribution
So let’s talk a little bit about this concept. Essentially, every dollar that goes towards your retirement goes through three phases:
The contribution phase, where you put money in,
The accumulation phase, where you grow it, and
The distribution phase, where you take it out.
With regards to those three phases I have good news and I have bad news:
The bad news is that the IRS will require you to pay taxes on at least one of these three phases.
The good news is that YOU get to decide which one. It all depends on the investments you choose.

11. Your assets continue to grow throughout each phase
Successful Investing
In a successful retirement investment strategy,
consistent long-term investment growth means:
Your assets continue to grow throughout each phase
With that in mind, in a successful retirement investment strategy, consistent long-term investment growth means that your assets continue to grow through each phase. Therefore, your contribution should be the smallest, as it grows it should be worth more at the end of the accumulation phase. And with continued growth it should distribute even more.
By way of example,
If you invested $10,000 per year for 25 years from age 40 to age 65, you would have contributed a total of $250,000.
If we assume a consistent 6% growth rate, at the end of 25 years that investment would be worth $581,564 (ignoring taxes for the moment).
If we continued with a 6% growth rate assumption, you could take annual distributions of $42,800 per year for 25 years (from age 65 to age 90) and still not completely exhaust the funds.
Assumptions: $10,000 annual contribution for 25 years. $42,800 distributions for the next 25 years. 6.00% growth rate

12. Successful Investing
If the choice was yours, which would you pay taxes on?
Now that you know the choice is yours – that you can choose to pay taxes on the contribution phase, the accumulation phase or the distribution phase – which would you prefer?
Most people will answer, “I choose to pay tax on the smallest number, the contribution”.
Assumptions: $10,000 annual contribution for 25 years. $42,800 distributions for the next 25 years. 6.00% growth rate

13. Ask yourself: “Which phase would I rather pay taxes on
Ask yourself: “Which phase would I rather pay taxes on?” It’s likely your answer will be: “The lowest dollar figure!”
So you might ask yourself: “Which phase would I rather pay taxes on?”
It’s likely that your answer will be: “The lowest dollar figure!”

14. Successful Investing
Where are the bulk of your retirement assets currently invested?
401(k), IRA
Which phase will you pay taxes on with those plans?
Now let’s think for a moment about where the bulk of your retirement assets are currently invested.
That’s right, they’re in your 401(k), IRA, or some similar kind of plan.
So the big question is this: With those assets, which of these three phases will you be taxed on?
That’s right, the distribution phase. And the tax rate on those funds, especially if they get left to your children in their peak career earnings years, will be taxed at a high rate.
Is that what you want for ALL of your retirement assets? Do you have too many eggs in one basket?
Assumptions: $10,000 annual contribution for 25 years. $42,800 distributions for the next 25 years. 6.00% growth rate

15. What makes pre-tax/tax-deductible tax-deferral work?
Contribution
Accumulation
Distribution
Traditional Qualified Plan/ IRA Tax Treatment
Non-Taxable / Deductible
Tax-Deferred
Taxable
Your Desired Tax Treatment
Taxable /
Non-Deductible
Tax-Free
So let’s take a look at the most common options available.
Many people are accumulating their retirement savings in traditional qualified plans and IRAs. What does that tax treatment look like?
You make the contributions with pre-tax dollars.
The accumulations are tax-deferred, so there are no taxes as long as you leave the dollars in the plan.
The distributions are taxable to the extent of gain. If you didn’t make any non-deductible contributions, your entire balance could be subject to income tax, at ordinary income tax rates (not long-term capital gains rates) when the money is ultimately distributed to you or to your beneficiaries.
And, although pre-tax contributions is good news, you just indicated that you don’t want to pay taxes – nor do you want your beneficiaries to pay the taxes – on your distributions. Your desired tax treatment is to:
Forego the deduction on the front end. That means you pay taxes on your contribution.
Retain tax-deferral on the accumulation.
And take out your distributions income-tax-free.

16. Wouldn’t it make sense to position a portion of your retirement assets to add tax diversification to your portfolio?
So the big question is: Wouldn’t it make sense to diversify at least a portion of your retirement assets so they’ll be taxed the way you want?
Let’s explore the options.

17. Option 1: Roth-IRA Pros Cons Accumulates tax deferred
No tax on qualified distributions
No RMDs for Roth-IRA owners
Income-tax-free inheritance to beneficiaries
Limited amount you can contribute per year
Cannot make-up missed contributions
If your income is too high you cannot contribute
Tax penalty may apply to withdrawals prior to age 59½
RMDs for Roth-IRA beneficiaries
No death benefit for “self-completing”
When it comes to paying taxes on the contribution, and then enjoying the benefit of tax-free treatment on the accumulation and distribution, the first thought that comes to mind for most people is a Roth-IRA. The beauty of the Roth-IRA is that it’s taxed the way you want – on the contribution, not the accumulation or distribution. Another attraction for the Roth-IRA is that you aren’t required to begin taking money out when you reach age 70 ½.
However, stacked up against those two primary advantages are several important disadvantages.
There are limits on how much you can contribute per year. In 2016 you couldn’t contribute more than $5,500 per year unless you were over age 50, in which case you could contribute $6,500.
If you choose to skip a Roth-IRA contribution in any year, you can’t make-up for that contribution in the next year. For example, if you don’t contribute $5,500 in 2016, you don’t get to “double-down” and contribute $11,000 in 2017.
A serious consideration for high-income-earners is that, if your gross income is too high (over $183,000 for joint-filers in 2015), you can’t make any contributions to a Roth-IRA at all!
With Roth-IRAs, there are income-tax-penalties attributable to accessing the money in your Roth-IRA account prior to age 59 ½.
Even though you don’t have RMDs as the IRA owner, your children, when they inherit your Roth-IRA, are required to begin taking distributions, and must empty their inherited Roth-IRA account by the end of their life expectancy, according to tables published by the IRS.
With Roth-IRAs, there’s no death benefit. Therefore, if you die before you complete the funding, your beneficiaries simply end up with less money, perhaps far less than they needed, which could leave your heirs financially strapped.

18. Maximum Funded Life Insurance
Is there another way?
Maximum Funded Life Insurance
So if a Roth-IRA can’t give your high-income-earning clients what they’re looking for, is there any other way to do it?
The answer is a resounding “YES”!
I call it “Maximum Funded Life Insurance.”
Let’s talk about how it works.

19. Permanent Life Insurance
Retirement Saving Options
Features
Permanent Life Insurance
Taxable Investments
401(k)/
Traditional IRA
Roth IRA
Municipal Bonds
Tax-deferred growth √
Tax-advantaged distributions
No contribution limits
No additional tax for early withdrawals
Will not increase tax expenses, Social Security taxation , or Medicare premiums
Income tax-free death benefit
As you can see, some types life insurance can offer a valuable solution when compared to taxable investments, 401(k)/Traditional IRA, Roth IRA, and Municipal Bonds.
It is the only retirement savings option that offers tax-deferred growth, tax-advantaged distributions, no contribution limits, no additional tax for early withdrawals, will not increase tax expense, Social Security taxation, or Medicare premiums, and offers an income tax-free death benefit.

20. Advantages of Cash Value Life Insurance in Retirement Planning
Income-tax-free death benefit for beneficiaries*
No defined IRS limitation on premiums*
No limit on gross income affecting your ability to
contribute premiums
Missed premiums may be “made up” at a later time*
Tax-deferred accumulation*
Distributions using withdrawals and loans are
income-tax-free when structured properly*
Access to your values prior to age 59½*
Take distributions as needed*
No required minimum distributions (RMDs) for owners
Self-completing upon death
Death benefit exceeds account value
As you can see there are many advantages of using cash value life insurance in retirement planning.
Go through each of the advantages.
Please note:  -During the early years of a cash value policy, the premium will usually be significantly higher than for term insurance.  -If you need coverage only for a short period of time, your net costs will be significantly higher than if you purchase term insurance.  -The internal costs and expenses associated with a cash value policy can be difficult to understand.
* Policy must comply with IRS requirements to qualify as a life insurance contract. Total premiums in the policy cannot exceed funding limitations under IRC Withdrawals during the first 15 years of the contract may be treated as income first and includible in policyholder’s income. If the policy is classified as a modified endowment contract (see IRC 7702A), withdrawals or loans are subject to regular income tax and an additional 10% tax penalty may apply if taken prior to age 59 ½. Distributions will reduce policy values and may reduce benefits. Availability of policy loans and withdrawals depend on multiple factors including but not limited to policy terms and conditions, performance, and fees or expenses.

21. This hypothetical example is for illustration purposes only.
Discrimination Against High Wage Earners
What Percentage of Earned Compensation Will a 401(k) and Social Security Benefits Provide?
$5,000
14,781
21,072
35,853
72%
10,000
29,569
30,720
60,289
60%
15,000
44,357
34,296
78,653
52%
18,000
53,230
34,416
87,646
44%
35%
401(k) Annual Contribution (10% of Compensation)1
401(k) Annual Benefits at age 672
Social Security Benefits Beginning at age 673
Total Retirement Income Beginning at age 67
% of Comp. Replaced by Social Security and 401(k)
$50,000
$100,000
$150,000
$200,000
$250,000
Compensation
Table assumes a 45 year old wishes to defer 10% of compensation into the 401(k) plan.
Maximum 401(k) deferral in 2016 is $18,000
Retirement Benefits from 401(k) assume 10% deferred for 22 years (age 67) – 6% return on 401(k) plan assets – payout based on single life annuity at age 67
Social Security based on 2017 Quick Benefit Calculator at
1 The maximum contribution for 2016 is $18,000. Does not reflect the use of the catch-up provision. 2 Assumes: (1) Male age 45 (6/15/1971); (2) contributions for 22 years; (3) growth rate=6%; and (4) payout based on single life annuity, age Social Security benefits are based on the Quick Benefit Calculator at
This hypothetical example is for illustration purposes only.

22. Supplemental Retirement Income Planning Case Design Fundamentals
Read slide

23. 1. Select Life Insurance Policy 2. Client is Owner/Insured
Design
1. Select Life Insurance Policy
2. Client is Owner/Insured
3. Death Benefit set to Minimum Non-MEC
4. Client pays scheduled premiums
- usually short-pay until retirement
5. Policy cash value can be accessed during retirement for supplemental income
6. Beneficiaries will receive valuable income tax free death benefit
Designing the policy the correct way is important to take advantage of the cash value advantages in an IUL policy.
First, we will need to decide which life insurance policy is best for your needs. Next, you will be designated as the owner and insured of the policy.
Then, you will pay the scheduled policy premiums. We will design the policy in the most effective way for your needs. Usually, paying the premiums until you wish to retire.
Next, your policy cash value can be accessed during retirement for supplemental income. And finally, your beneficiary(ies) will receive valuable income tax free death benefit.
Not an actual case, and is a hypothetical representation for illustrative purposes only.

24. Occupation: Chiropractor Annual W-2 Income: $400,000
Case Study:
Age 40, good health
Occupation: Chiropractor
Annual W-2 Income: $400,000
Targeted Retirement Age: 67 (full Social Security Benefits)
Targeted Annual Retirement Savings:
-10% of W-2 Income = $40,000
Current annual contributions to 401(k): $18,000
Additional annual amount targeted to contribute: $22,000
To give some credence to the many things we’ve discussed so far, let’s put the theory into practice by examining a brief case study.
Let’s talk about Darren Johnson, a 40-year-old chiropractor in good health. Darren’s successful practice provides him an annual income of around $400,000.
As a 40-year-old, Darren knows that his “normal retirement age” for purposes of Social Security benefits is age 67. He enjoys his career, and sees no reason why he would stop working prior to that.
Darren has always been a pretty good saver. He has always maximized his contributions to the 401(k) he created for himself and his employees. But he has always targeted socking away at least 10% of his annual income. 10% of his $400,000 annual income would suggest a targeted savings goal of $40,000 per year.
Darren maximizes what he can contribute to his 401(k), currently investing $18,000 per year, and doesn’t know what to do with the other $22,000 he needs to invest each year to achieve his target of setting aside 10%, or $40,000, per year.
Not an actual case, and is a hypothetical representation for illustrative purposes only.

25. Life Insurance Policy Assumptions:
Case Study:
Life Insurance Policy Assumptions:
Minimum Death Benefit (initially $558,031)
Underwriting Class: Preferred Non Tobacco
Option B increasing death benefit during contribution phase
Option A level death benefit during distribution phase
Assumed average annual growth rate (gross): 7.38%
Pay premium to age 67
Withdrawals and loans for 20 years beginning at age 68
Let’s review how we could help Darren out, using a maximum-funded life insurance strategy.
When using life insurance with a focus on retirement accumulations, protected by the policy’s death benefits, it’s common to structure the strategy with a minimum death benefit. That death benefit is normally significantly more than the annual contributions. In Darren’s case, he can contribute premiums of $22,000 per year if he has a death benefit of at least $600,000. That’s over 25 times greater than his annual contributions, which is the “self-completing” portion of Darren’s plan.
Because of his good health, we’ll assume that Darren qualifies for the “Preferred” underwriting class.
During Darren’s premium-paying years, we’ll use what we call an “option B – increasing” death benefit. This means that Darren’s death benefit will exceed his account value by $600,000 during the entire funding period. At age 67, when Darren stops paying premiums and begins taking distributions, the plan will be “fully funded” and we no longer need to pay the expense of an increasing death benefit. So, at age 67, we’ll change the policy to a level death benefit for the balance of his life.
Not an actual case, and is a hypothetical representation for illustrative purposes only.

26. Life Insurance Policy Non-Guaranteed Values:
Case Study:
Life Insurance Policy Non-Guaranteed Values:
Premiums: $22,000 per year for 27 years = $594,000
Illustrated Accumulated Value: At age 67 = $1,683,102
Distributions: $125,000 per year for 20 years = $3,000,000
Total premiums are $22,000 per year for 27 years, totaling $594,000 of aggregate premiums. That’s our “contribution.”
The policy’s “accumulation” is measured by it’s account value at age 67, which is hypothetically $1,444,205. Notice that this accumulated value is well in excess of double the total contributions made (ie: premiums paid).
Lastly, the projected hypothetical “distributions” are $125,000 per year for 20 years, totaling $2,500,000, all of which was received income-tax-free. Also notice that the total distributions are nearly double the age 67 accumulated value.
Before tax equivalent (40% Tax Bracket) $5,000,000

27. Case Study: Darren Johnson
Maximum Funded permanent Life Insurance may be
a way to achieve these results!
Will Darren be glad he paid tax
on the $594k and not the $3M?
Here is a graphical representation of Darren’s plan. For visual learners, you can see graphically that Darren’s accumulation is more than double his contribution, and his distribution is nearly double his accumulation.
If this scenario were to actually “play out” this way, do you think Darren will be glad he paid tax on the $621,000 contribution (after-tax premiums) rather than on his distributions of $2.6 million? Mathematically he has taken out, income-tax-free, more than four-times what he put in.
Maximum-funded life insurance may be the only way to achieve results like these. Why? Because of the tax advantages of life insurance.
Assumptions: $22,000 annual contribution for 26 years. $150,000 distributions for next 20 years. 7.00% growth rate

28. Important Information
Policies issued by: American General Life Insurance Company (AGL), Policy Form Number 13460, ICC , Rider Form Number 13972, 13600, ICC Issuing company AGL is responsible for financial obligations of insurance products and is a member of American International Group, Inc. (AIG). AGL does not solicit business in the state of New York. Policies and riders not available in all states. These product specifications are not intended to be all-inclusive of product information. State variations may apply. Please refer to the policy for complete details. There may be a charge for each rider selected. See the rider for details regarding the benefit descriptions, limitations and exclusions.
For all companies mentioned, their financial professionals and other representatives are not authorized to give legal, tax or accounting advice. For advice concerning your individual circumstances, consult a professional attorney, tax advisor or accountant.
Guarantees are backed by the claims-paying ability of the issuing insurance company.
AGLC110690
MC Job#
©2016. All rights reserved.
Here are some important notes about products and riders we’ve discussed, as well as information about AIG.
At AIG we hope to continue to provide you with the products, the people and the services that have become the hallmark of AIG.
Bring on tomorrow!