The Power of Tax Deferral

Harnessing the power of tax deferral can give clients a big savings boost over time. But, many investors overlook tax strategies as part of their planning processes. Tax-deferred investments, such as annuities, take advantage of tax-free growth. Earnings are reinvested, and your clients' money compounds over time, potentially offering stronger long-term outcomes than taxable accounts.

Rules to Remember

These three mathematical formulas showcase the power of tax deferral. While no investment can guarantee a return or the ability to double your clients' money, these calculations help provide a good estimation for understanding how tax status can affect savings.


The Rule of 72

If clients’ assets are in a tax‑deferred  vehicle such as an annuity, they can use the “Rule of 72” to estimate how long it might take to double their money.

Estimated years to double one’s money:
72 ÷ Expected growth rate

A tax-deferred annuity growing at 4% would double in about 18 years
(72 ÷ 4 = 18).


The Rule of 96

If clients' assets are in a taxable account, the "Rule of 96" can be used to estimate the time needed for that money to double, assuming a 24% federal income-tax rate assessed yearly on the taxable investments and an expected growth rate. Taxes are subtracted from the earnings each year, which increases the time it takes for the account value to double. See the table for examples.


The Rule of 108

The “Rule of 108” estimates the time needed for clients' taxable assets to double, assuming a 32% federal income-tax rate assessed yearly on the taxable investments and an expected growth rate. Taxes are subtracted from the earnings each year, which increases the time it takes for the account value to double. See the table for examples.


The Rules in Action

Below are examples of these rules using expected growth rates between 3% to 7%. Use the tool with clients to determine the amount of time it would take for their savings to double in value in a tax-deferred account. 

How Long Could It Take Clients to Double Their Savings?

Expected Growth Rate The Rule of 72 (Tax-Deferred) The Rule of 96 (Taxable at 24%) The Rule of 108 (Taxable at 32%)
3% 24 Years 32 Years 36 Years
4% 18 Years 24 Years 27 Years
5% 14 Years 19 Years 22 Years
6% 12 Years 16 Years 18 Years
7% 10 Years 14 Years 15 Years

For illustrative purposes only. There is no guarantee the expected growth rate can be achieved. Not intended to predict performance or demonstrate results for any product offered by Pacific Life. Some numbers above have been rounded to the nearest whole number. The Rule of 72, Rule of 96, and Rule of 108 are mathematical concepts and are not illustrative of any products offered by Pacific Life. 


Demonstrate the Long-Term Value of Tax Deferral

Show clients the impact of tax deferral in all phases of their retirement journeys. 



ILAPA Performance Tracking Chart

Want to Talk Further on This Topic?

The Retirement Strategies Group, subject-matter specialists with advanced degrees and designations such as CFA®, CFP®, ChFC®, CLU®, and JD, are ready to help.


Call: (800) 722-2333 or (800) 748-6907 in New York | Email:



The above is provided for informational purposes only and should not be construed as investment, tax, or legal advice. Information is based on current laws, which are subject to change at any time. Clients should consult with their accounting or tax professionals for guidance regarding their specific financial situations.

All investing involves risk, including the possible loss of the principal amount invested.

Under current law, a nonqualified annuity that is owned by an individual is generally entitled to tax deferral. IRAs and qualified plans—such as 401(k)s and 403(b)s—are already tax-deferred. Therefore, a deferred annuity should be used only to fund an IRA or qualified plan to benefit from the annuity's features other than tax deferral. These include lifetime income, death benefit options, and the ability to transfer among investment options without sales or withdrawal charges.

Pacific Life, its distributors, and respective representatives do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor or attorney.

Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

Unless otherwise noted, all aforementioned money managers, their distributors, and affiliates are unaffiliated with Pacific Life and Pacific Select Distributors, LLC.

Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products can be issued in all states, except New York, by Pacific Life Insurance Company or Pacific Life & Annuity Company. In New York, insurance products are only issued by Pacific Life & Annuity Company. Product/material availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues.

Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company and an affiliate of Pacific Life & Annuity Company. 

The home office for Pacific Life & Annuity Company is located in Phoenix, Arizona. The home office for Pacific Life Insurance Company is located in Omaha, Nebraska.

No bank guarantee • Not a deposit • Not FDIC/NCUA insured • May lose value • Not insured by any federal government agency

For financial professional use only. Not for use with the public.