Delayed Income Annuities / Longevity Insurance. Presented By: Scott White, AAPA, ALMI Annuity Marketing Manager

Transcription

1 Delayed Income Annuities / Longevity Insurance Presented By: Scott White, AAPA, ALMI Annuity Marketing Manager

2 CPS Overview Founded in 1974 The Largest Independently-Owned Wholesaler of Life, Long Term Care, Annuity, & Disability Insurance Companies, Products, and Service Over 50 Top Rated Carriers A Diverse Product Line Service Oriented Experts In Every Line Of Business

3 Carrier Relationships Professional Relationships Developed Over 39 Years Traditional Life: 38 Traditional Life Carriers Variable Life: 17 Variable Life Carriers Disability Income: 6 DI Carriers Annuities: 34 Fixed, Indexed, SPIA Long Term Care: 7 LTC Carriers / 4 Linked Benefit Carriers Variable Life Insurance and Annuity products are offered through CPS Financial & Insurance Services, Inc. (member FINRA) exclusively to registered Broker-Dealers and their appointed representatives. Fixed Annuities and other insurance products are offered through licensed agents of CPS Insurance Services, a licensed insurance agency. Products and features are subject to state availability.

4 Companies

5 Product Lines Life Insurance Fixed, Indexed, Variable Annuities Fixed, Indexed, SPIA Long Term Care Individual, Multi-life, Linked Benefit Disability Income Individual, DI Buyout, Business Overhead Expense Specialty Products Critical Illness, Med Supps Structured Settlements

6 Agenda Delayed Income Annuities (DIAs) for Your Business DIA for Your Clients Client Opportunities Case Study Wrap Up / Review / Q and A

7 Why Delayed Income Annuities for Your Business?

8 DIAs Reaches A Large And Growing Baby Boomer Market Boomers represent 3x more market than retirees

9 Baby Boomers Control More Financial Assets Financial Assets by Age and Retirement Status Pre-retirees age hold, on average, 35% of assets in cash or cash equivalents.

10 Retirees Have A Range Of Income Objectives When considering their most important income objectives in retirement, clients may want More Income More Income Stability More Capital Growth Abundance Confidence Wealth Better Living Sustainability Legacy or a combination of these objectives.

11 Boomers Redefine Basic Needs, Aim To Spend More Source: Consumer Retirement Income Planning Study, conducted by MainStay Investments and Harris Interactive, May Percentages represent the portion of survey participants that consider a particular category a basic need.

12 Clients Want to Talk About Income 70% of investors who deal with a stockbroker, financial planner or advisor will change advisors before retirement. 1 55% say they are planning to consolidate savings and investments with a primary financial advisor. 2 53% of affluent retirees allocated assets for retirement 5+ years before retirement. 3 61% of advisors say clients are asking for annuities.3

13 Retirees Rely On Pensions And Social Security There is a higher incidence of pension income among affluent retirees than conventional wisdom would suggest. $120K $100K Consumption Matchers: 75th Percentile of Non-Housing Assets (Average of $349,406 in non-housing wealth at age ) $80K $60K $40K $20K $K Social Security Inc Pension/Annuity Inc Capital Inc Labor Inc Other Inc Consumption Values above show annual income and consumption for households broken into 5 year age cohorts. The household's age is the female spouse's age if there is one, or the respondent's age otherwise. Income was surveyed in 2010 and expenses in Households were segmented into percentiles based on their level of non-housing wealth as surveyed in 2010.To find the income and consumption values, consumption and income values for households across a 20 percentile range were averaged. For example, to find the 25th percentile values, households from the 15th to 35th percentiles were averaged. The income bar chart is segmented by the key components of income. The component values were found by the same averaging method as the total income and consumption values (averaging across a 20 percentile range). Source: University of Michigan Health and Retirement Study (HRS), sponsored by the National Institute on Aging.

14 But Boomers May Need To Rely More On Assets Unintended Consequence of the Pension Protection Act? The percent of employers providing defined benefit plans has fallen since Boomers will be the first generation to retire with a lower level of defined benefit plans in place. Social Security Will your clients be able to rely it? Your clients level of income from Social Security is not guaranteed. Their statement says so. *These estimates are based on the intermediate assumptions from the Social Security Trustees Annual Report to the Congress.

15 Boomers Are Willing To Pay for Guarantees Issue Ages Average Age: 58 Deferral Periods Average Deferral Period: 9 years % % % % 20+ 7% 71% Qualified 77% Single 33% Male $500 million in sales in first year!

16 But They Face Risks Unique to Retirement Will your clients have enough personal assets to retire? Risk #1: Portfolio losses just before and just after retirement income begins can undermine the value of the portfolio. In 2008, a balanced portfolio declined in value by 35%. $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $ Early Losses Later Losses This chart shows the result of early losses of -15% in Year 1, -10% in Year 2, and -5% in Year 3 versus losses of -15% in Year 28, -10% in Year 29, and -5% in Year 30. The hypothetical example assumes a $500,000 initial balance and $25,000 annual withdrawals. Withdrawals are adjusted each year by 4.07% inflation. This hypothetical investment assumes an annual 7.41% rate of return (based on the 50-year average annual return as of 12/31/10, and is comprised of 10% Ibbotson Associates Stocks, Bonds, Bills, and Inflation (IA SBBI) S&P 500 Total Return Index and 90% IA SBBI Intermediate Term Govt. Bond Index) in each year that the account does not have losses and does not take into account taxes or any applicable investment fees and expenses. This example is for illustrative purposes only and does not represent the performance of an actual investment. There is no assurance that similar returns will be achieved. Past performance is no guarantee of future results. Source: Morningstar, August, 2011.

17 And Market Conditions Are Uncertain Low Rate Environment A-rated muni bonds and corporate bonds are yielding 1.04% and 1.57%, respectively. Fed promises to keep rates low for the near term. Unknowns About Inflation Will asset growth help your clients keep up with inflation? Will consumption increase or decrease throughout retirement?

18 Why Guaranteed Future Income for Your Clients?

19 Guarantee Now That You Have Income Later: DIAs A flexible premium, fixed deferred income annuity Guaranteed income for life, much like a pension, beginning at a future date of your choosing Multiple Payout Options like a SPIA Option to change income start date or accelerate payments Uncorrelated to the market No ongoing, out of pocket expenses Simple and easy to understand

20 The Anatomy Of Income Payout rates are not interest rates. Income payments consist of: Return of Premium Mortality Credits Interest

21 Lifetime Income Annuities Provide Higher Payouts Lifetime income annuities can deliver higher payouts because they subsidize those who live longer with the capital of those who don t live as long (mortality credits), in addition to distributing interest and premium.

22 DIAs Can Provide Retirement Income Security Income Annuities: Portfolios containing them include: Can provide guaranteed income for life An income floor, supporting a sustainable portfolio withdrawal rate strategy Are not affected by market volatility* Predictable guaranteed payments and reduced sequence of returns risk, allowing for higher equity allocations Can take pressure off of a portfolio Reduced portfolio reliance rate, which may increase legacy potential

23 And The Confidence To Spend More I wish I could..but I just can t afford it right now

24 The Deferral Period Powers The Payout Deferral Period In this example, clients can expect about 25% more guaranteed retirement income in 7 years if they invest $100,000 in GFI today

25 Client Opportunities

26 Client Opportunities Rollover Near Retirement Tax-efficient Saving for Retirement Retiree Upgrades Fixed Income Ages Retiring in 7-10 years Interested in diversifying their income stream Want to maximize their income when they take their RMDs Hoping to maximize lifestyle in retirement Ages Saving for retirement Interested in securing more future income by investing over time while they work Maxing out contributions to qualified plans and seeking other tax efficient retirement income strategies Ages 65+ Retired, existing income strategy expiring in 3-5 years Interested in a fixed income alternative that can generate more guaranteed lifetime income than traditionally safe investments Wants to ensure retirement income doesn t run out, no matter how long they live

27 Client Opportunity #1: Rollover Near Retirement Benefit from higher payout rates by deferring the income start date Couple uses a portion of their portfolio to invest $100,000 into a DIA Joint Life Policy. They plan to start taking income at age 70, when they will also start taking their Required Minimum Distributions (RMDs). By deferring their income start date to age 70, not only will they maximize their income, but they can also satisfy their RMD for this portion of qualified assets. Age Premium Payout Rate Annual Income for Life at $100, % $7, $ $ $ $ $ $ $ $0 - - Total $100K $7,548 Please Note: This hypothetical example is for illustrative purposes only. Illustration is based on market rates as of 1/2/2013 for a Joint Life with a Cash Refund payout option. Rates are subject to change and payout will vary with age, gender, payout option selected and premium amount. Actual amounts are dependent upon interest rates in effect at time of policy issue. Income payments include return of premium, interest, and mortality credits.

28 Client Opportunity #2: Tax Efficient Saving For Retirement Build Guaranteed Income by Investing Over Time Client does not have a pension plan through work. She chooses to invest in a Guaranteed Future Income Annuity over time, much like a 401(k) or an IRA 1, and makes premium payments 2 when they make sense for her while she works. She elects to have income payments start at age 65. When she s ready to retire, she will have invested $100,000, which will generate a guaranteed stream of income for the rest of her life. Age Premium Payout Rate Annual Income for Life at $26, % $2, $ $ $11, % $ $15, % $1, $7, % $ $7, % $ $17, % $1, $7, % $ , % $ $0 65 $0 Total $100K $7,296 First year tax-free portion of income: $4,502 Please Note: This hypothetical example is for illustrative purposes only. Illustration is based on market rates as of 1/2/2013 for a Single Life with a Cash Refund payout option, female annuitant. Rates are subject to change and payout will vary with age, gender, payout option selected and premium amount. Actual amounts are dependent upon interest rates in effect at time of policy issue. Income payments include return of premium, interest, and mortality credits.

29 Client Opportunity #3: Retiree Upgrades Fixed Income Client wants a fixed income alternative $1 Million Traditional Portfolio Age 65, working part time, plans to fully retire in 5 years, 30/70 portfolio. Uses a portion of his fixed income to purchase a DIA and elects to start receiving income payments at age 70. These payments will be guaranteed for his entire lifetime. DIA creates an income floor starting at retirement, so he can confidently invest the rest of his portfolio more aggressively now for potential growth and to help keep up with inflation. $11,378 annual income Please Note: This hypothetical example is for illustrative purposes only. Illustration is based on market rates as of 1/2/2013 for a Single Life with a Cash Refund payout option. Rates are subject to change and payout will vary with age, gender, payout option selected and premium amount. Actual amounts are dependent upon interest rates in effect at time of policy issue. Income payments include return of premium, interest, and mortality credits. See slides 16 and 17 for more information on mortality credits.

30 Case Study: Get More Guaranteed Income

31 Meet Tom and Rita* Profile: 60 years old Planning to retire by age 67 $750,000 portfolio, nonqualified Primary need is $49,000 in retirement income Receiving $20,000 in annual Social Security Benefits Planning to take 4% in income from their portfolio each year to generate the extra $29,000 but worry that 4% isn t sustainable They seek more certainty in planning for retirement income, free from market risk, so they can spend down their portfolio more confidently Worry that traditional fixed income sources of income will not generate enough yield What if they purchased a DIA and distributed the difference?

32 Step 1: Purchase GFI Today Tom and Rita use $100k (13% of their portfolio) to purchase a DIA They trade some liquidity in exchange for $6,786 in income payments Payments are free of market risk and guaranteed to last a lifetime $100k Premium GFI pays $6,786 1 per year for life At Age 100

33 Step 2: Distribute the Difference With the DIA, Tom and Rita can invest the rest of their portfolio. Even with zero return, they will be able to withdraw the extra $22,000 they need in income at a lower rate of 3.5% instead of 4%. If their portfolio grows, they will be able to take even more income at the more conservative 3.5% withdrawal rate. However, they understand that if the portfolio experiences a loss, their principal could be depleted. Remaining Portfolio = $650, % distribution $22,750 First Year Annual Income

34 More Guaranteed Income Means More Confidence With more guaranteed income, Tom and Rita are more comfortable with their retirement plans. They are less reliant on their portfolio for retirement income, and more confident about investing. Plus, they believe they will have the freedom to spend more in retirement. Lower Portfolio Withdrawal and Reliance Rates Means More Certainty Without DIA With DIA A. Income needed $49,000 $49,000 B. Guaranteed income $20,000 $26,786 C. Income provided by 4% 3.5% $30,000 $22,750 D. Total investment portfolio $750,000 $650,000 Portfolio Reliance Rate (C A) 61% 46% $49,536 Lower reliance on portfolio

35 A DIA is Hard to Beat Tom and Rita s $100,000 would need to achieve unrealistically high returns over the next seven years to generate the same first year income (based on their pre-determined withdrawal rate). Their $100,000 would need to grow to $169,650 in seven years in order to generate $6,786 at a 4% income distribution rate in the first year in another strategy they are considering. That means they d need a net annual return of 7.8% each year. DIA is Tough to Beat Net Annual Returns Needed to Generate $6,786 Beginning Investment at age 60 Accumulated Value at age 67 First Year Income at age 67 GFI $100,000 $6,786 $169,650 Alternate Scenario* $100, %** Net Annual Return x4% Income Distribution Rate $6,786 (The GFI payout consists of interest, return of premium, and mortality credits.) Given the market environment, Tom and Rita believe the DIA is hard to beat.

36 The Case for Guaranteed Future Income Consumers need more guaranteed income The younger you are, the less likely it is you can rely on Social Security and pension plans Low interest rate environment means it is difficult to generate necessary yields in safe investments Many consumers are overly conservative to avoid running out of money Guaranteed Future Income Annuities can provide more income Return of premium and interest Mortality Credits GFI provides a guaranteed income stream Can provide the financial security that a pension once provided Can serve as an income diversification tool Can provide an income floor that gives preretirees

37 Product Review Guaranteed Future Income Annuity II w/ NYL

38 Issue Ages Non-Qualified Qualified* Roth IRA ½ with a Roth IRA of any amount in place for at least five calendar years before the calendar year in which income payments start and can be within the deferral period. For Joint Life policies, both annuitants must be age 75 or younger. For Joint Life policies, both annuitants must be between the ages of 18-68½. Owner must be at least 59½ when income begins, not at purchase. Not available for Joint Life policies.

39 Flexible Income Start Date 1,2,3 Income start date chosen at purchase Ability to accelerate or defer income start date May be exercised once, income amount adjusted Any date 13 months from latest premium payment Original Income Start Date Any date 5 years out from original income start date

40 Flexible Premium Premium payments can be made at any time, up to 2 years before the income start date Future income payments are based on rates at the time each individual premium payment is received Auto-debit is available as often as monthly Commission paid on each premium payment Deferral Period (premium payments can be made any time up to 2 years before the income start date) Income Period

41 Withdrawal Feature 1 Payment Acceleration For non-qualified annuities with monthly payments Total of six income payments are paid all at once When exercised, income payments will not be paid for the next five months Must be at least age 59½ to exercise May be exercised two times during the life of the policy

42 Optional Features Annual Increase Option 1 Increase income payments each year by 1-3% Must be elected at time of purchase Policy owner must be at least 59½ at time of first income payment Reduction of Income Option 2 For Joint Life and Joint Life with Period Certain 3 policies Annuitants can decide, at time of purchase, to have income payments reduced by 40-99% after the death of one annuitant Allows for a higher income stream while both annuitants are living

43 Client Anniversary Statement Premium contributions Guaranteed income amounts Options selected Plus, solicits additional premium contributions!

44 Contact Scott White, AAPA, ALMI Annuity Sales & Marketing Manager ext. 128