UNDERSTANDING THE MMBB ANNUITY

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1 UNDERSTANDING THE MMBB ANNUITY Brian Doughney, CFP Wealth Management Senior Manager

2 What are the Three Types of Annuities? Know the Difference: Understanding Exactly What Insurance Companies are Selling You About the MMBB Annuity Don t Over-Annuitize Real planning, real solutions. That s our calling. 2

3 Immediate Variable Fixed Real planning, real solutions. That s our calling. 3

4 Immediate Annuities Real planning, real solutions. That s our calling.

5 You remit lump sum in exchange for lifetime income Payments may stay the same Fixed, so it has inflation risk Payments may fluctuate based on interest rates or market returns Variable, so it has stock market risk. However, it only risks the next year s annuity payment and not the entire lump sum. Real planning, real solutions. That s our calling. 5

6 Most important aspect of this annuity is that the longer you (or your spouse) live, the more interest you receive from annuity If you invest $500,000 and receive $28,380 / year your Internal Rate of Return depends on how long you live: 10 years: -9.16% 20 years: 1.24% 25 years: 2.9% 30 years: 3.85% No other payments are made upon death of both annuitant and spouse * We will discuss Internal Rate of Return further into the webinar. Real planning, real solutions. That s our calling. 6

years: -9.16% 20 years: 1.24% 25 years: 2.9% 30 years: 3.

7 Pro Con Money will last for your life and (if elected) your spouse s life Lose access to lump sum Real planning, real solutions. That s our calling. 7

8 Fixed Annuities Real planning, real solutions. That s our calling.

9 Give lump sum to insurance company in return for a fixed/ variable interest rate You will know how much you are getting each year Lump sum is locked for 5-7 years Get lump sum back at end of lock period Real planning, real solutions. That s our calling. 9

each year Lump sum is locked for 5-7 years Get lump sum back at

10 Invest $500,000 into a fixed annuity This balance will earn an interest rate of 1.45% for a lock period of 5 years - $537,316 After the lock period is up you are free to use the money If you need to cancel annuity before lock period, penalties will apply Much like a CD, but not FDIC insured and your account grows tax deferred *Assumption: Rate on Vanguard Fixed Annuity Real planning, real solutions. That s our calling. 10

you need to cancel annuity before lock period, penalties will apply Much like a CD, but not FDIC insured

11 Pro Con Principal is guaranteed (by insurance company) Pays very lidle interest and your lump sum is locked for 5-7 years Get your lump sum back aber lock period InflaIon Risk Real planning, real solutions. That s our calling. 11

5-7 years Get your lump sum back aber lock period

12 Variable Annuities Real planning, real solutions. That s our calling.

13 Lump Sum invested in a portfolio of mutual funds You If mutual funds perform poorly, you may loose principal Could have very high annual expenses, range of 2-3% / year Insurance Company Subaccounts Stocks Bonds Blend Early withdrawal penalties 7-10 years start at 7-10% Possible lifetime payments made to you Death benefits for beneficiaries Real planning, real solutions. That s our calling. 13

Stocks Bonds Blend Early withdrawal penalties 7-10 years start at 7-10% Possible lifetime payments

14 Mortality & Expense Charge (M&E) roughly 1% per year Guarantees principal to beneficiary Expenses of the mutual fund roughly % Guaranteed living benefits about 0.8% Total fees and expenses roughly 2.8%-3.0% / year Surrender charges: 7-10 years Real planning, real solutions. That s our calling. 14

2% Guaranteed living benefits about 0.8% Total fees and expenses roughly 2.

15 Pro Con Could beat inflaion through stock mutual funds Could lose your principal Real planning, real solutions. That s our calling. 15

16 Know the Difference: Understanding What Insurance Companies are Selling You Real planning, real solutions. That s our calling.

17 The most popular annuity being sold is very misleading Sold and disguised as a fixed annuity Actually a hybrid annuity between variable and immediate Has very high fees roughly 3% / year You control how to allocate assets, but have a high risk of losing principal Real planning, real solutions. That s our calling. 17

high fees roughly 3% / year You control how to allocate assets, but have a high

18 Guaranteed Return We will guarantee you 5% This is a Payout Rate and not an Interest or a Rate of Return Can t outlive your money True, but because of inflation may not be enough Money could be left to beneficiaries If there is anything remaining after fees and stock market gains / losses Real planning, real solutions. That s our calling. 18

be enough Money could be left to beneficiaries If there is anything remaining after

19 Example of this hybrid annuity Give insurance company $500,000 Payout Rate = 5% or $25,000 / year 25 payments of 25,000 / year = 1.8% (however, a balance may remain) Account creates two balances: Payout Balance is your initial contribution that does not go up or down with the stock market Actual Balance will change every day based on market returns minus the annual expenses Real planning, real solutions. That s our calling. 19

8% (however, a balance may remain) Account creates two balances: Payout Balance is your initial

20 Actual Balance - $25,000 +/- Market Return Net of Expenses Actual Balance 5% Payout Return - 3% Exp 500,000 25, % 446,215 25, % 370,332 25, % 404,488 25, % 403,509 25, % 385,474 25, % 389,600 25, % Remaining Balance $259,401-48% 376,595 25, % 263,556 25, % 278,681 25, % 280,191 25, % In order to maintain balance you need an 8% ROR *Assumption: Returns of the Vanguard Balanced Fund Real planning, real solutions. That s our calling. 20

08% 389,600 25,000.00 3.29% Remaining Balance $259,401-48% 376,595 25,000.00-25.04% 263,556 25,000.00 16.82% 278,681 25,000.00 10.

21 Payout Rate actually can go down with any distributions you take from the account Payout Balance from contribution was $500,000 Take out an extra $50,000 above the $25,000 New Payout Balance $450,000 x 5% = $22,500 With inflation money decreases approximately 50% every 20 years $25,000 at age 65 is like getting $12,500 at age 85 Do you really want to annuitize third income stream? With MMBB Retirement Plan (comprehensive plan), 50% must be annuitized Social Security is effectively an annuity because no lump sum is given over lifetime Real planning, real solutions. That s our calling. 21

22 An Immediate Annuity with a variable income Reduces inflation risk Offers downside protection reduces stock market risk Has an assumed 4% Rate of Return Choice of four payout options Single Life or J&S 100%, 80% or 100% / 60% If you have a balance in the Retirement Plan you have to annuitize 50% Comprehensive Plan Can annuitize all of your accounts TAS, TDA, DECA Real planning, real solutions. That s our calling. 22

23 How the 4% advanced earnings assumption Members initially get an extra 4% in units $500,000 annuitized at age 65 gives 960 units at $36 = $34,560 per year for single life But since MMBB assumes a 4% increase Start with more units 960 x 4% = 998 units 998 x $36 = $35,942 per year Difference of $1,382 Real planning, real solutions. That s our calling. 23

24 The Payout Options Single Life: Only paid out to the member J&S 100%: Spouse would inherit the same annual amount member was receiving J&S 80%: Annual amount is reduced by 20% when one spouse passes away J&S 100% / 60%: If spouse passes away, benefit is not reduced. If member passes away, benefit is reduced by 40% All options can come with a 10-year guarantee (must elect option) Real planning, real solutions. That s our calling. 24

25 Potential for increase and downside protection Money is invested in The Annuity Fund The New Horizons Trust Fund If the Fund is down in a year, maximum loss is 5% If down in 2 nd consecutive year, maximum loss is 10% Actuarial adjustments Any increase over 4% will be passed along to you Assuming we are not recouping any previous losses Check the Gap Tracker Real planning, real solutions. That s our calling. 25

26 Recoup previous losses Gap Tracker Real planning, real solutions. That s our calling. 26

27 So how does the MMBB Annuity compare to the rest? Variable Annuity Guaranteed Income Rider: 1.7% After 25 years of payments Though there is a potential to have a balance Average Immediate Annuity after 25 years: 2.9% MMBB Annuity after 25 years: 11.71% Example of an actual MMBB member Other actual returns 20 years: 4.27% 10 years: -7% Real planning, real solutions. That s our calling. 27

28 Immediate Fixed Variable MMBB Pro Income for Life* Con Lose access to lump sum Interest depends on life expectancy Known Interest rate* Get lump sum back Very low interest rate InflaIon Risk May outpace inflaion Could annuiize for lifeime income Very high fees Could lose lump sum *Guarantee is based on the claims paying ability of life insurance company Variable Income which could outpace inflaion Offers downside protecion LifeIme income 4% earnings assumpion Lose access to lump sum on amount annuiized Real planning, real solutions. That s our calling. 28

29 Goals in retirement should be to keep annuity payments + Social Security = to monthly expenses Keep your investment annual expenses low under 1.2% Any balances not annuitized can be kept at MMBB Diversify a portfolio based on your risk tolerance level Monitor your portfolio over the years, but don t make changes based on short-term trends Real planning, real solutions. That s our calling.

30 Comments or Questions? Real planning, real solutions. That s our calling.

31 Real planning, real solutions. That s our calling.

Annuities - Will Your Savings Last Your Lifetime?

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