Programs For: Business Owners

Programs for: Business Owners

Today’s Agenda

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Programs for: 

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What the Programs are: 

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Financed Planning for Business retirement

How the Programs work: 

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Business Owners

Overview of the Programs

Case Study:  

Paul Smith

The Business Owners’ Challenge • 47% of Business Owners surveyed indicated that they do not believe that they are financially prepared for their retirement1 • 68% of Business Owners believe that they will live below their current lifestyle when they retire2 So, what’s the challenge? 1 Harris Interactive on behalf of Sharebuilder 401(k) 2 LIMRA, 2006

Phases of the Entrepreneurial Business

Maturity Expansion

Growth Startup

Limited Excess Money

Excess Money Reinvested

Excess Funds Available

Cashing Out Phase

Selling the Business: The Perception

Most Business Owners believe that they will sell their business to fund their retirement – if they retire, that is Unfortunately…………

Selling the Business: The Reality Approximately 1.2 million viable businesses go on the market for sale each year Nearly 3/4 of these fail in their efforts to sell Most of the businesses sold end up selling for much less than their expected Market Value, and in many cases, below their Asset Value Source: 2005 Business Reference Guide, 13th Edition (West)

The Entrepreneur’s Dilemma: Restrictions

Government Mandated Restrictions

Retirement

Health

The Answer Programs: • designed solely for you, the Business Owner, • that use your business checkbook, • that allow for large sums of money to grow tax deferred, • that are tax efficient and cost effective, and • that will create less risk and more stability in your portfolio 

What the Programs are: Financed Planning

Rule of 72 The Rule of 72

How long does money take to double? Divide 72 by the assumed rate, the result is the number of years until a sum doubles.

$4M

$2M $1M

$500K $500K 0 Years Assumptions:

$500K 10 Years

$500K 20 Years

Net Book Value of Business - $500K

Note: Hypothetical results for illustrative purposes only and not a representation of past or future results.

$500K 30 Years Interest Rate – 7.2%

Compressed Time Frame Concept Accelerated Funding Choice 1 - $ 16,667 per year X 30 years = $500,000 Choice 2 - $ 50,000 per year X 10 years = $500,000 Choice 3 - $500,000 only once X Today = $500,000

$16,667

$1,684,584

$50,000

$2,860,393

$500,000

$3,808,127

Today

30 Years

Note: A hypothetical crediting rate of 7%. Represents approximations and should not be relied upon as tax or investment advice. The performance of financial products fluctuate over time. The actual time to achieve any result cannot be predicted with certainty.

Compounding with Real Estate

7%

average annual growth over 20 years

Asset Value = $500,000 $500k Mortgage

7%

Interest-Only $35,000 annual cost

Asset Value = $1,934,842 $500k Mortgage

Point A

Point B

$1,434,842 gross gain - $700,000 interest cost = $734,842 Net Gain Note: This is a hypothetical example, not indicative of actual results. Actual results will vary.

The Stability of Equity Indexed Products

Allows client to participate in market upside No downside risk to principal and prior period Annual earnings Crediting $1,134,000 Annual Crediting 0%

Annual Crediting 8% $1,000,000

5%

$1,080,000

Market Down Turn - 8%

$993,660

Needed to Catch Up 14.12%

Keep in mind… If you received the 5% as shown in this example on the $993,660, you would have a total of $1,043,343. That is a $90,657 difference because of the guaranteed floor.

How the Programs Work: An Overview

Program Overview Step 1

Step 2

Step 3

Commercial Loan

Transfer Method

Asset Funding Universal Life and/or Annuity Products

Client Business

Client Business

Global One Financial

Recent Cases

Industry • • • •  

Case Size

Furniture $200,000 Dentist $600,000 Doctor $2,400,000 Nuts & Bolts $1,000,000 ***Almost all Business***

Case Study: ABC Company

Case Study – ABC Company

Summary – Paul Smith

Solution – Paul Smith ABC Company implements a Financed Planning™ program in the amount of $600,000. • 

The $600,000 is placed into an Equity Indexed Annuity, owned by Paul Smith (assumed annual tax deferred earnings of 7%). • ABC Company makes interest payments of approximately $40,500 annually (assumed interest rate of 6.75%). • 

After 13 years, Paul’s annuity value will have grown to $1,445,907, which gives Paul an income in the amount of $115,957 per year for 25 years. • 

(This example assumes that the loan is repaid at retirement using assets that are not part of the program’s

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Equivalent Yield – Paul Smith ABC Company makes interest payments for the Program of approximately $40,500 annually. If the company were to distribute this amount to Paul directly, he would have to pay income tax at 35%, leaving him with $26,325 per year to invest. Paul’s investment of $26,325 per year for 13 years would have to earn an annual rate of return of 19.26% in order to provide the same annual income of $115,957 for 25 years.

Value and Benefits…

• Provides alternative to traditional retirement plans • Allows catching up on retirement planning • Provides asset protection opportunities

Program Structure - Asset Protection Corporate Level In order to make a loan with no personal guarantee, we lend directly to the corporation and place a lien on certain corporate assets. This may limit the attractiveness for a potential law suit. Individual Level The product is owned by the individual, not the corporation. If the corporation is sued, this is not its asset. Product Level This level depends on the state you sell in. State law defines the level of protection regarding cash value and policy attachment by creditors.

The Next Step

For more information contact John A Weisenberg Senior Finance Manager 240-462-8296 [email protected]