Why Split? • Create income to meet current and future needs. • Reduce income taxes on earnings. • Allow assets to work harder while still generating income. • Ultimately use life expectancies to maximize opportunity.
When Split? • This concept works best with non-qualified money. We generally do not use IRAs and other retirement accounts. • When liquidity or income needs exceed the amount normally available through penalty free withdrawals. • When the client wants to accomplish two primary goals: • Increase their cash flow • Preserve their principal as long as possible All of this done on a tax-advantaged basis
The Immediate Annuity: An important building block to this concept… Supplies a series of income payments at regular intervals in return for a premium or premiums that have paid. An immediate annuity is most often bought for retirement income.
Non-Qualified Immediate Annuity Income Advantages • Payments are a blend of: • Earned interest (taxable) • Return of premium (which is excluded from taxes). • The percentage of each payment that is actually excluded from taxes is stated by the insurance company as an exclusion ratio. • As a result, in many cases only a small portion of the income received from the immediate annuity is taxable income.
INCOME OPTIONS Lifetime Income: Income payments are made for the entire life of the annuitant, no matter how long they live. Payments cease upon death. Period Certain Income: Income payments are made for a specific number of payments over a specific period of time. If the annuitant passes away during the period certain, the remaining payments will continue to the designated beneficiary. This creates a guaranteed and completely predictable cash flow. Period Certain with Life: This is essentially a blend of the two options above. Income payments are made for a specific period of time. If the annuitant lives beyond the specified period, payments continue until the annuitant passes away. If the annuitant passes away prior to the end of the specified period certain, the remaining payments will continue to the designated beneficiary.
Assets are split into three buckets or legs. Each bucket has a different purpose or goal. $ 1 Income 2 Future Income 3 Growth ***Values shown are before taxes
$ The Triple Split Annuity Concept The first bucket is used to create immediate income for you. Income payments can be structured monthly, quarterly, semi-annual or annually. The amount of money placed into this first bucket depends on your actual income needs. 1 3 ***Values shown are before taxes
$ The goal of the second bucket is to grow the funds for future income. Funds in this bucket grow with a competitive interest rate on a Tax-Deferred basis. 1 2 Immediate Income Growth & Future Income ***Values shown are before taxes
$ 1 2 3 The third bucket grows Tax-Deferred for a longer period. These funds can be converted to future income or used for other purposes including additional liquidity as buckets 1 and 2 are being utilized.
$ 1 2 3 Now let’s put some real numbers into this concept and evaluate how this might help you.
$100,000 75 Year Old $36,949 $30,200 $32,851 Provides $650 per mo. 5-Years 94.74% Exclusion Ratio Grows to $39,881 after 5-Years (10.74% 1st yr, 4.50% target renewal yield) Convert to SPIA $700 per mo. for 5-Years Grows to $54,062 after 10-Years (10.74% 1st yr, 4.50% target renewal yield)
$100,000 75 Year Old $36,949 $30,200 $32,851 Provides $650 per mo. 5-Years 94.74% Exclusion Ratio Penalty Free Withdrawals Income Payments Penalty Free Withdrawals Income Payments Flexibility
$100,000 75 Year Old The 3rd Bucket 10 years later, the client is now 85 Options: 5-Year Certain: $954 per mo. Life Only: $765 per mo. 5-Year Certain with Life: $648 per mo. $32,851 Grows to $54,062 after 10-Years (10.74% 1st yr, 4.50% target renewal yield)
$ Final Thoughts: Would you like to explore ways to increase your cash flow today? Does the idea of future guaranteed income payments appeal to you? Can you benefit from tax advantaged income and tax deferred growth of your assets? Let’s take the next step together. 1 2 3