How to Stop Taxing Social Security Income

© Copyright 2001 APS

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.

Threshold Income LimitsIf 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:

Total Income Including 1/2Social Security

Percentage of SocialSecurity that is Taxable

$25,000 up to $34,000 Up to 50%(Minimum $4,500)Single

Over $34,000 Up to 85%(See Maximum Below)

$32,000 up to $44,000 Up to 50%(See Maximum $6,000)Married

Over $44,000 Up to 85%(See Maximum Below)

Please Note: The IRS is limited in the amount of Social Security they can tax.The amount cannot exceed 85% of the taxpayers total Social Security received this year.

Taxing of Social SecurityA 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 $5,700Pension + Taxable Accounts +33,600Total Combined Income $39,300Threshold (Single) -25,000Exceeded Threshold $14,300

Income in excess of Threshold

50% x $9,000 = $4,50085% 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)

What Is Threshold Income?

INCOME INCLUDED AS THRESHOLDDeferred Annuity NoPension YesIncome from Mortgages YesUS Treasuries YesCertificates of Deposit YesMoney Market Accounts YesPassbook Savings YesCredit Union Savings YesDividends - Stocks YesDividends - Mutual Funds YesCapital Gains YesMunicipal Bonds YesAnnuity - Withdrawals Yes

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!

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 $5,700Pension 19,200Taxable Interest 14,400Total Combined Income $39,300Exclude Annuity Interest (Deferred) -14,400Income Subject to Threshold $24,900Threshold $25,000

SOCIAL SECURITY SUBJECT TO TAX $0.00

You just eliminated the Tax on Social Security

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

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!

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.

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.

The Value of Tax-DeferralInterest 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)

Rule of 72 and Tax DeferralHow 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 rate0% tax on 6% = 6% net return

Taxable

$100,000 Premium at 33% tax rate33% tax on 6% = 4.02% net return

72 Divided By 6% = 12 Years to Double 72 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 Age35475971

At Age35

53

71

Can your CD get money to you quickly?Would you like more liquidity?

Withdraw a certain percentage every year at any time? No Yes

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

No

No

No

No

No

Yes

Yes

Yes

Yes

Yes

Yes

CD Annuity

* Availability of benefits vary by product.

The Real Return on a CD: 1988-2000

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

CD Rate 9.28 8.12 7.64 4.41 3.55 3.35 6.78 5.49 5.47 5.82 5.01 6.07 6.30

Inflation 4.4 4.6 6.3 3.0 3.0 2.8 2.6 2.6 3.3 1.7 1.6 2.7 3.4

Real Rate ofReturn

Less 33% Tax & Inflation

1.82 0.84 -1.18 -0.05 -0.62 -0.56 1.94 1.08 0.36 2.20 1.76 1.37 0.82

What is the Real Rate of Return on your Money?

What cripples a CD the most?ReturnsInflationTaxes

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)

Just say NO to 1099sUnlike 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 Years 10 Years 15 Years 20 Years

$193,290taxable

$265,330tax-deferred

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 CD Annuity

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 Deposit28% Individual Tax Bracket

Taxable Account at 6%

Tax-Deferred Account at 6%

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$05 YEARS

$287,175

30 YEARS

$177,827

$160,357

20 YEARS

$116,499$89,542$76,321

10 YEARS

$61,744

$66,911

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 WHYYOU WOULD WANT TO BUY A BANK CERTIFICATE?

S A F E T Y

BANKS - F.D.I.C.FEDERAL RESERVE SYSTEMCAN LEVERAGE DEPOSITS

$1 TO $7 OR MOREPRINCIPLE ONLY INSURED TO $100,000

INSURANCE COMPANIESLEGAL RESERVE SYSTEM

$1 TO $1

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

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

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!

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. ChoptonFmr. Asst. Secretary of the U.S. TreasuryTestimony on Misc. Tax Bills Before Senate Finance Committee

Long Term CarePresentationFor your future and your family…

© Copyright 2001 APS

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

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 19992. Americans for LTC Security 19993. AARP and Health Ins. Assoc. of America 19994. Health Care Financing Review 1996

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.

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.

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

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?

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.

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?

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

Medicare Will Pay the Following:

DURATION AMOUNT 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.

How do you Qualify for Medicaid?

Your liquid assets must be below…

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.

Distribution of Assets(Spousal Impoverishment Provision)

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.

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.

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 19962. .Journal of Health Politics, Policy and Law 19943. US Health Care Financing Admin.2001

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

The High Cost of Waiting to Purchase aLong 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%.

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.

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.

My Statement to You

I’m a LTC Professional

I will not sell you a LTC policy without an

inflation rider.

How soon would you want to start protecting your assets and your

family from a long term illness?

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.