1. Life Insurance Retirement Planning A life insurance strategy that helps diversify your taxes during retirement
The conversation: “Pay them now, or pay them later!”
Presented by:
Name
Title
Life Insurance | AIG Financial Distributors
Welcome and thank you for attending. Today we are going to address in 20 minutes or less, we are going to discuss a life insurance strategy that can help diversity your taxes during retirement.
Policies issued by American General Life Insurance Company, member of AIG

2. 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 you can offer your high-income-earning clients and prospects a powerful supplemental retirement solution
We’ll learn about income-tax diversification for your high-income-earning clients’ retirement savings by discussing retirement taxation during the contribution, accumulation, and distribution stages of retirement so that you can offer these clients and prospects a powerful supplemental retirement strategy.

3. Target Market Age 35 – 50 Good health High-income earner
Maxed out their qualified retirement options
Accumulating for retirement, looking for tax advantages

4. Contribution – Accumulation – Distribution
“The Napkin Sale”
Let’s talk about how you can convey the message on how the maximum-funded life insurance works to a client on a legal pad, white-marker-board, or even a cocktail napkin!

5. 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.

6. $5 $10 $20 Additional Benefits: Self-Completing at owner’s death
No set limit on contributions1
Pre age 59 ½ access
No income tax or penalty tax2
Catch-up on missed contributions
No RMDs for owners
No RMDs for beneficiaries $5
$10
$20
To get the conversation started, I simply write $5, $10, and $20 on the corner of the napkin or piece of paper. I then tell my prospect that this represents their retirement plan. (Remember how we just noticed, in Darren’s case study, that the accumulation was more than double the contribution, and the distribution was nearly double the accumulation?)
I go on to tell them that every dollar of their retirement goes through three phases: the contribution phase, the accumulation phase, and the distribution phase. For purposes of our conversation I’m going to represent the contribution phase with the $5, the accumulation phase with the $10, and the distribution phase with the $20.
Now, as pertains to these 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 the IRS doesn’t dictate which one it will be. They leave that decision up to you, based on the investments you choose.
Now that you know the choice is up to you, please circle which one of these three you’d prefer to pay taxes on! This literally never fails. People tend to circle the $5 contribution.
To that I respond with: Well, isn’t that interesting. Allow me to ask you a question: where is the bulk of your retirement assets currently invested?
Most will respond that the majority of their retirement savings is in their employer-sponsored plan (401(k), etc.).
To which I respond: And which of these numbers is going to get taxed on those assets? They, of course, recognize that they’re going to pay tax on the $20 distribution.
If you had access to a retirement strategy that provided you with the
tax treatment you want, and you could put in as much money as you
want, how much would you put into a plan like that every year?
Where are the bulk of your retirement assets currently invested?
Which of the numbers above is going to get taxed?
Wouldn’t it make sense to diversify a portion of your portfolio?
The Bad News: You must pay tax on one of these three
The Good News: You get to choose
Policy must comply with IRS requirements to qualify as a life insurance contract. Total premiums in the policy cannot exceed funding limitations under IRC 7702.
Assumes the policy is not a Modified Endowment Contract Withdrawals during the first 15 years of the contract may be treated as income first and includible in policyholder’s income.

7. Case Study: Darren Johnson
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 $17,000 per year, and doesn’t know what to do with the other $23,000 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

8. Case Study: Darren Johnson
Life Insurance Policy Assumptions (VUL):
Minimum death benefit (Initially $550,000)
Underwriting Class: Preferred
Option B increasing death benefit during contribution phase
Option A level death benefit during distribution phase
Assumed average annual growth rate (gross): 7.00%
Weighted annual average fund expense: .75% (75 bps)
Pay premiums to age 67
Withdrawals and loans for 20 years beginning at age 68
Policy endows at age 100 on a “current assumption” basis
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 $23,000 per year if he has a death benefit of at least $550,000. 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 $550,000 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

9. Case Study: Darren Johnson
Will Darren be glad he paid tax
on the $594k and not the $2.1M?
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 $594,000 contribution (after-tax premiums) rather than on his distributions of $2.1 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 27 years. $109,000 distributions for next 20 years. 7.00% gross return
Not an actual case, and is a hypothetical representation for illustrative purposes only

10. Life Insurance: The list of benefits is long and powerful!
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
It shares the tax benefits of the Roth-IRA, but also has a long list of advantages, many of which aren’t available in any other financial vehicle that’s offered today.
The death benefits of the policy provide an income-tax-free inheritance to your beneficiaries at the time of your death. So, in addition to everything you withdraw and borrow from the policy income-tax-free, the residual net death benefits are generally paid to your beneficiaries income-tax-free.
The IRS doesn’t impose any annual contribution limit on the amount of premium you can contribute to a life insurance policy. The amount you can contribute is really only limited by your health and your financial circumstances.
As a sub-point to that, keep in mind that, once you purchase the policy, there will be a maximum amount of premium you can contribute based on the amount of death benefit you purchased.
There is no limit on the amount of income you can earn, and still be able to contribute premiums. Unlike Roth-IRA’s, there’s no such thing as “making too much money to contribute.”
With a maximum-funded life insurance policy, you can skip contributions, in part or in whole, and you can make-up for those contributions in the future, essentially “catching up” on your missed contributions. Do remember that you shouldn’t skip a premium if it would cause the policy to lapse or to lose any other valuable benefits.
The policy’s account value grows income-tax-deferred, so no taxes are paid as it grows each year.
* 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.

11. Questions?

12. IMPORTANT INFORMATION
This information is general in nature and may be subject to change. The Company, its financial professionals and other representatives are not authorized to give legal, tax or accounting advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For advice concerning your situation, consult your professional attorney, tax advisor or accountant.
Policies issued by American General Life Insurance Company (AGL) except in New York, where issued by The United States Life Insurance Company in the City of New York (US Life). Issuing companies AGL and US Life are responsible for financial obligations of insurance products and are members of American International Group, Inc. (AIG). Products may not be available in all states and product features may vary by state. Guarantees are backed by the claims-paying ability of the issuing insurance company.
FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION
AGLC © AIG All rights reserved.