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How to Stop Taxing Social Security Income © Copyright 2001 APS.

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Presentation on theme: "How to Stop Taxing Social Security Income © Copyright 2001 APS."— Presentation transcript:

1 How to Stop Taxing Social Security Income © Copyright 2001 APS

2 Social Security In 1983 Congress legislated that up to 50% of Social Security could be taxed when combined income exceeded threshold limits. In 1993 the law was amended again to allow up to 85% of Social Security Income to be taxed under certain conditions.

3 Threshold Income Limits If income (which includes half of Social Security), exceeds the following thresholds, up to 85% of the amount received from Social Security could be subject to tax:

4 Taxing of Social Security A single, retired person who receives $950 per month ($11,400 annually) from Social Security, a pension of $1,600 per month ($19,200 annually) 1/2 of Social Security$5,700 Pension + Taxable Accounts+33,600 Total Combined Income$39,300 Threshold (Single)-25,000 Exceeded Threshold$14,300 Income in excess of Threshold 50% x $9,000 = $4,500 85% x $5,300 = $4,505 SOCIAL SECURITY SUBJECT TO TAX$9,005 POTENTIAL TAX ON SOCIAL SECURITY *$2,521 (*Based on a 28% Federal 1999 income tax bracket.) An additional tax was created because Social Security became taxable. A potential tax increase of $2,521. (28% of $9,005 = $2,521 in taxes)

5 What Is Threshold Income? INCOME INCLUDED AS THRESHOLD Deferred AnnuityNo PensionYes Income from MortgagesYes US TreasuriesYes Certificates of DepositYes Money Market AccountsYes Passbook SavingsYes Credit Union SavingsYes Dividends - StocksYes Dividends - Mutual FundsYes Capital GainsYes Municipal BondsYes Annuity - WithdrawalsYes

6 Eliminating Tax on Social Security A Deferred Annuity may eliminate the tax on Social Security. Using the example in Figure A on the previous page, transferring taxable interest accounts into an Annuity can potentially eliminate the tax increase of *$2,521 caused by Social Security becoming taxable. Also, there is a tax decrease because interest on the taxable assets are deferred and is not subject to current tax. A total tax savings of *$4,651!

7 Saving Taxes If taxable interest accounts were transferred into an Annuity, it might have deferred enough interest so that combined income would have been below the threshold amount. This would have resulted in Social Security not being taxed. 1/2 of Social Security$5,700 Pension19,200 Taxable Interest14,400 Total Combined Income$39,300 Exclude Annuity Interest (Deferred)-14,400 Income Subject to Threshold$24,900 Threshold$25,000 SOCIAL SECURITY SUBJECT TO TAX $0.00 You just eliminated the Tax on Social Security

8 Total Income Tax and Tax on Social Security $7,000 $6,000 $0 $1,000 $2,000 $5,000 $4,000 $3,000 Reduced tax amounts based on percentage of taxable assets transferred into a Deferred Annuity Tax Due Tax on Social Security 0%50%100% $6,320 $3,281 $1,669

9 If you’re currently earning 4% on a CD and you’re in a 28% tax bracket, when over 1% of your return goes to pay taxes leaving you less than 3%. When you subtract from that what’s eaten up by inflation, which is currently averaging about 3.5%, you’re actually losing one-half percent in purchasing power!

10 In that same 28% tax bracket, you would have to earn over 10% in a bank CD to beat the 7.5% Tax-Deferred return on the annuities that we offer. Annuities, simply put, are “TAX DEFERRED.” You don’t pay taxes until you take your money out to spend it.

11 Annuities Give You Triple Compounding:  Your principal earns interest.  Money you would normally pay the IRS every year earns interest.  Your interest earns interest. The power of tax-deferral means your money can grow much faster, and because there are no sales charges, 100% of your money goes to work immediately.

12 The Value of Tax-Deferral Interest earned on an annuity grows tax-deferred, and no income taxes are due until the funds are withdrawn. It can be worth thousands in additional values to you. Let's look at an example that illustrates the power of tax deferral:  If you had invested one cent at 5% interest in 1492, the year Columbus sailed the ocean blue, how rich do you think you would be today?  $610 million rich today.  Now, what if you had done the same investment, however, this time the interest on that penny was taxed every year at 33%, how rich would you be today?  A paltry $192,325 today! If a Dollar Doubled Every Year for 20 Years… $1,048,576 But if the Doubled Dollar Were Subject to a 28% Tax Bracket… $51,353 In a given year, the average person will work until May 9 th to pay all federal, state and local taxes. (Source: Tax Foundation, 1997)

13 Rule of 72 and Tax Deferral How fast do you want your money to grow? 72 divided by rate of return = years to DOUBLE your money Example: $100,000 Premium, at 6% annual interest, 33% tax bracket Tax-Deferred $100,000 Premium at 0% tax rate 0% tax on 6% = 6% net return Taxable $100,000 Premium at 33% tax rate 33% tax on 6% = 4.02% net return 72 Divided By 6% = 12 Years to Double72 Divided By 4.02% = 18 Years to Double Account Valued $100,000 $200,000 $400,000 $800,000 Account Valued $100,000 $200,000 $400,000 $800,000 -$100,000 principal $700,000 taxable gain -$231,000 tax of 33% $469,000 +$100,000 principal $569,000 at age 71 after tax $400,000 at age 71 after tax (Example assumes $100,000 allotment and 33% tax bracket.) Numbers are approximate for hypothetical purposes. At Age 35 47 59 71 At Age 35 53 71

14 Can your CD get money to you quickly? Would you like more liquidity? Withdraw a certain percentage every year at any time?NoYes Withdraw in the event of nursing home needs? * Loan privileges? Start an income stream you cannot outlive? Withdraw penalty free required minimum distributions? Withdraw money for dollar cost averaging opportunities? Disappearing surrender charges? * No Yes CDAnnuity * Availability of benefits vary by product.

15 The Real Return on a CD: 1988-2000

16 What is the Real Rate of Return on your Money? What cripples a CD the most?  Returns  Inflation  Taxes Premium Amount$100,000.00 Interest rate 4.5% Taxes 33% Amount after tax Inflation 3.5% Amount left +-=-=+-=-= $4,500.00 $1,485.00 $103,015.00 $3,605.53 $99,409.48 Net Loss($590.52)

17 Just say NO to 1099s Unlike a bank CD, an annuity offers interest that grows tax-deferred. No income taxes are due until the funds are withdrawn. This graph shows the difference this tax-deferred advantage can make. This example assumes $100,000 invested at 5% annual compounded rate of return, at a 33% tax bracket. $300,000 $250,000 $200,000 $150,000 $100,000 Get the advantage of triple compounding with an annuity. You will:. Earn interest on your money.. Earn interest on your interest.. Earn interest on the money you would have lost in taxes. Growth if tax-deferred Growth if taxable 5 Years10 Years15 Years20 Years $193,290 taxable $265,330 tax-deferred

18 There is no comparison! Look into a tax-deferred annuity and compare these important advantages: FDIC Insured Tax-deferred growth Potential inflation hedge Potential disability benefit Penalty free access to funds Bonuses on premium Avoidance of probate delays and costs Advantages for Social Security taxation Close to your money Flexible premium Puts power of deferral to work for you Higher yields "Issue no money" potential Higher monthly income Nursing home benefit Guaranteed lifetime income Safety of S&P Rating                  Bank CDAnnuity

19 A Tax-Deferred Annuity Puts You in Control of When You Pay Taxes. The Difference is Dramatic! THE POWER OF TAX DEFERRAL $50,000 Initial Deposit 28% Individual Tax Bracket Taxable Account at 6% Tax-Deferred Account at 6% $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 5 YEARS $287,175 30 YEARS $177,827 $160,357 20 YEARS $116,499 $89,542 $76,321 10 YEARS $61,744 $66,911

20 No Wonder Investors Are Frustrated About 3% - 4% Bank Certificates (CDS - CERTIFICATES OF DEPRECIATION). HIGH BANK PROFITS, LOW CD INTEREST. HIGH SURRENDER PENALTIES. NO LIQUIDITY, LOCKED IN DEPOSITS. NO TAX-DEFERRAL, INTEREST TAXED. NO PASSING ON TO HEIRS WITHOUT PROBATE. ZERO RETURN AFTER TAXES AND INFLATION. NO TRIPLE INTEREST COMPOUNDING. CAN AFFECT YOUR SOCIAL SECURITY BENEFITS. NO BENEFITS IF DISABLED OR TERMINALLY ILL. NO COMPARISON TO OTHER SAVINGS ALTERNATIVES IS THERE ANY REASON YOU CAN THINK OF WHY YOU WOULD WANT TO BUY A BANK CERTIFICATE?

21 S A F E T Y BANKS - F.D.I.C. FEDERAL RESERVE SYSTEM CAN LEVERAGE DEPOSITS $1 TO $7 OR MORE PRINCIPLE ONLY INSURED TO $100,000 INSURANCE COMPANIES LEGAL RESERVE SYSTEM $1 TO $1

22 Insurance Companies SAFE - GUARANTEED REGULATED BY STATE INSURANCE DEPARTMENTS MINIMUM CAPITAL AND SURPLUS REQUIREMENTS MINIMUM RESERVE REQUIREMENTS FILING OF ANNUAL STATEMENT STATUTORY ACCOUNTING INVESTMENT RESTRICTIONS GUARANTY FUNDS

23 Buying a CD vs. an Annuity Violates Common Sense ANNUITIES OFFER SOME OF THE BEST TAX ADVANTAGED STRATEGIES AVAILABLE TODAY! THEY ARE EVEN A SECRET WITHIN THE INVESTMENT COMMUNITY! THE NEW ALTERNATIVE TO CDS - 26 GREAT REASONS. Triple tax deferred savings. No federal, state or accumulation tax until withdrawn. Stops the tax leaks that keep men poor. Keeps you from losing up to half the interest you earn on CDs. Can choose a locked in rate from 12 to 60 months. Earns more than jumbo CDs, tax deferred. Earns more than money market funds, tax deferred. Earns more than government T-Bills, tax deferred. Doesn't get you trapped by lower CD rates. No market risk like municipal bonds. Does not count against Social Security. No load, no fees, no sales charges. More liquid than CDs. Safety of principle guaranteed, backed by billions. Accumulate or use as income, now or later. For most, the best retirement rollover available. Non-qualified, fully assignable as collateral. Great for estate planning, highly liquid. Grandparents' ultimate gift to grandchildren

24 THE NEW ALTERNATIVE TO CDS - 26 GREAT REASONS - CONTINUED -. Guaranteed way to save for college education. Heirs receive money usually without probate. Deferred interest excellent inflation hedge vs. taxable income. Tax-deferred income growth can be used to pay off mortgage early. Higher interest can increase value of IRA. Higher interest can be given to charity with tax advantages. May be one of the last best tax favored plans left - Congress is trying again to limit the inside tax deferred benefits and the amount you can put in because of the tax deferred growth. Buy now before Congress takes it away through tax reform. WHAT THE EXPERTS ARE SAYING…  Tax sheltered annuities for safe, guaranteed big-gain hunters!  A simply sensational tax deferral that may be gone soon!  The hottest tax deferred savings available today!  Just about the best tax deferral that may be gone soon!  The hottest tax deferral around!  Seems too good to be true and it is on the up and up!  The ninth wonder of the world, tax deferral compounding tax deferred!

25 A Quote from the Assistant Secretary of the U.S. Treasury "From the standpoint of the contract holder, a deferred annuity during its accumulation period does not significantly differ from the long term certificate of deposit (which incidentally, also may be subject to penalty if it is surrendered prematurely), or any other portfolio investment which may be reduced to cash at any time. Nevertheless, interest from other portfolio investments is taxed currently whereas earnings credited to a deferred annuity are not. To the extent that annuities can be fashioned to offer interest rates that are competitive with rates paid by other financial instruments, there is little reason why a potential investor should purchase anything but a deferred annuity." Hon. John E. Chopton Fmr. Asst. Secretary of the U.S. Treasury Testimony on Misc. Tax Bills Before Senate Finance Committee

26 Long Term Care Presentation For your future and your family… © Copyright 2001 APS

27 What is Long Term Care? (Extended Chronic Care) Nursing Home Care –provides a room, meals, help with daily living and recreational activities. Usually resident has health problems that require special care. Home Health Care – Provides services to someone recovering from illness. Two areas of service, skilled and non skilled. Skilled services require a nurse, rehabilitation and social services. Non skilled services include meals, assistance with dressing or bathing, and grocery shopping. Assisted Living – provides a combination of housing, health care and personal care services. It does not provide any skilled nursing care. Adult Day Care – Usually is in a group setting and is used while primary care giver is at work. It also provides activities and supervision for residents

28 Nursing Home Care  43% of people over age 65 will spend some time in a nursing home. (1)  76% of people believe they will never need long-term care. Yet, 43% actually will. (2)  73% of people believe Medicare will pay for a nursing home stay. Medicare will pay 100% for the first 20 days if you receive skilled care – less than 2% of people currently in a nursing home are receiving skilled care. (3)  In 10 years nursing home costs will average over $100,000 a year. (4) 1. Americans for LTC Security 1999 2. Americans for LTC Security 1999 3. AARP and Health Ins. Assoc. of America 1999 4. Health Care Financing Review 1996

29 The Odds are 1 Out of 2 While the general population perceives the risk of needing long-term care services to be less than 25%, the actual risk for needing long-term care (either home care or nursing home care) is greater than 50%. (1) Health Insurance Association of America/Life Plans.

30 Facts of Home-Health Care  Home –Health Care allows you to keep your spouse at home longer.  For every person today in a nursing home you have 6 receiving home health care.  After just 26 weeks of receiving home-health care over 48% of elderly will become impoverished.  In just 12 months 70% of people receiving home health care will be poor.

31 7 Reasons Why People Buy LTC Helps protect your retirement savings Protect assets and avoid dependence on others Choices of facilities Freedom of choices and control Peace of mind Favorable tax treatment Don’t want to leave a legacy of debt

32 Did You Know? Did you know that according to the Select Committee on aging of the U.S. House of Representatives, the average American couple will have their entire savings wiped out in as little as 13 weeks of having someone confined on a nursing home?

33 Common Myth “It will never happen to me.”  Over 50% of all Americans will need long term care in their lifetime.  Over 70% of Alzheimer’s Disease people live at home and receive 75% of their support and assistance from family.  For a couple reaching 65, there is a 75% chance that one of them will enter a long-term care facility.  My family or someone else can take care of me.

34 Proper planning can provide you with the funds so you can have a choice. The question you need to answer is:  Do you have assets to protect?  You don’t want to be a burden on your family do you?  If you went into a nursing home, how long would the money last before you needed to sell your home?  What experience have you or someone you know had with long-term care?  Do you know how much a nursing home costs in your area?

35 Long-Term Care effects more than an individual, it protects the Entire family. You need to protect yourself! Check out the risk for Women and Couples for health coverage…  Women outlive men by seven years.  75% of non-paid caregivers are female. (1)  The average woman will spend over 18 years caring for a parent.  A couple will deplete their retirement in only 26 weeks from the date one of them enters a long-term care facility, without long-term care. (2) 1.) Committee on Aging –US house of Rep. 2.) Jane Bryant Quinn

36 Medicare Will Pay the Following: DURATIONAMOUNT PAID Day 0-20 Days 21-100 Days 101 + 100% All except $97 a Day Nothing The above benefits will only be paid if you have skilled care. Today less than 2% of patients in nursing homes are receiving the services of skilled care.

37 How do you Qualify for Medicaid?  Liquid Assets such as Cash, CD, Money Market Accounts, etc. must be below $2,000.  Irrevocable Burial Plan can’t be more than $3,000.  You can have $1500 in Life Insurance.

38  Remaining spouse at home can’t have more than $2,000 a month income from all sources.  The spouse still living at home can keep the home and one car.  Maximum limit of assets depend on each state. The average is $75,000. These assets will be established when the first spouse enters a nursing home.

39 Each of these risks could result in a loss of $100,000 or more. 1:1200 1 chance in 1200 that your home will be destroyed by fire. 1:240 1 chance in 240 that you will have a liability suit because of an auto accident. 1:15 1 chance in 15 that you will have major medical expenses. 1:4 1 chance in 4 that you will have a major LTC expense.

40 Here Are Some Disturbing Facts…  Today the average cost of nursing home care is over $40,000 annually. (1)  Home health care costs an average of $30,000 annually. (1)  Most nursing homes only have a limited amount of Medicaid beds. (2)  The shocking truth is the government can take your estate to recover long-term care costs. (3) 1. Health Care Financing Review 1996 2..Journal of Health Politics, Policy and Law 1994 3. US Health Care Financing Admin.2001

41 Based on today’s current economic environment with lower investment earnings, it is strongly advisable for individuals to consider LTC insurance when their asset base ranges between $50,000 and $2 million, not counting the home and automobile. Fortune magazine reports: In fact, for anyone with a household income ranging from $40,000 to $250,000…there’s long-term care insurance or nothing. (1) 1. A Health Care Safety Net

42 The High Cost of Waiting to Purchase a Long Term Care Insurance If you wait too long your health may not allow you to purchase long-term care insurance, even if you want it.  Wait just 3 years to purchase a LTC Insurance, it will cost you 24% more money the rest of your life.  Wait 5 years and it will cost you 68% more.  Wait 8 years and it will cost you 128%.

43 Benefits of a Long Term Care Policy  It protects your assets and allows your estate to pass intact to your heirs.  Protects your dignity and keeps you in control of your life.  Makes sure you don’t have to go on Welfare/Medicaid even in case of an expensive long-term care.  Allows you to take care of your long-term care expenses and still maintain your current income.  You don’t leave the legacy of debt for your children.

44 Facts you should be aware of: Long Term Care premium runs $1,500 to $2,300 per year. Average nursing home stay costs over $100,000. Alzheimer’s disease costs over $400,000.

45 My Statement to You I’m a LTC Professional I will not sell you a LTC policy without an inflation rider.

46 How soon would you want to start protecting your assets and your family from a long term illness?

47 Can you tell me what is the most expensive hotel you’ve stayed in and how much a day did you pay? Example: MGM Grand Las Vegas is about $150 per day. Imagine staying for 3 years. That’s exactly what you could be doing if you checked into a nursing home with a stroke or some other health condition. Total cost for one year could be $54,750 and three years is $164,250.


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