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.
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.
| 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.
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.