Hi, my name is [presenter] with Forethought annuities. Today we ll be talking about some of the myths and truths regarding variable annuities. You may have asked yourself, at some point, whether you have enough money to last throughout your retirement, if you can afford to retire when you want to, and if a variable annuity is the right product for you to add to your retirement portfolio. 1
Does an annuity make sense for you? Today we are discussing a specific type of annuity the tax-deferred variable annuity, which we refer to here as a VA. There are common misconceptions about annuities, which we cover in this presentation. This is not an argument for or against purchasing an annuity, and we aren t promoting a specific company s product. The goal of this presentation is to provide you with more information so that you can have a more informed conversation with your financial advisor. 2
Let s start by defining what exactly a VA is and what it offers. A variable annuity is a contract in which you agree to pay premiums to an insurance company in exchange for a future income stream, typically in retirement. It offers flexibility in the accumulation and payout phases, and provides guaranteed income you can t outlive. In addition, a VA is one of the only investment products that offers a death benefit to help provide for your beneficiaries. Guarantees are based on the claims-paying ability of the issuing company and assumes compliance with all benefit rules. 3
VAs offer several features and benefits. [Read list above] With a VA: Your initial investment can often be as low as $1,000 You can move money from one investment option within the contract to another, tax free, often as many as 20 times a year You decide how much and how often you contribute to your nonqualified VA 4
Now let s look at some of the common misconceptions around these products. First, you may have heard that VAs can be complicated. While VAs may appear somewhat complex because they combine investment and insurance features all in one product, this is actually one of their main attractions. Simply speaking, VAs have many features that could benefit you and your retirement planning strategy. [Review list above] 5
You may have heard that tax deferral isn t an advantage of a VA, since everyone eventually has to pay federal income taxes on their earnings. But saving money in a tax-deferred annuity IS an advantage because your money accumulates tax-free until you retire, compounding potential returns without the drain of taxes. Plus, when you retire, you have the potential to be taxed in a lower tax bracket. 6
As we mentioned earlier, VAs do offer flexibility, even though you may have heard that your money is locked in a VA account. This is a myth. For example, you can transfer your money among investment options tax-free and take a percentage of your contract value each year without penalty. You can surrender (terminate) the contract if you have not yet started the payout phase. A surrender fee schedule typically applies for a defined period typically no more than 10 years. After that, all of the contract value is available without charge. And remember, VAs are intended to be long-term investments. Fees for withdrawals encourage you to allow your money to accumulate income taxdeferred. 7
You may have heard that there is no way to invest with a guarantee, but VAs actually do offer guarantees you can count on. VAs offer optional living benefits [read above], often for lifetime income, and are one of the only investments to offer a death benefit. These benefits are guaranteed by the company. Let s take a quick look at some common living and death benefits that may be offered. Guarantees are based on the claimspaying ability of the issuing company and assume compliance with all benefit rules. 8
Here we have some of the living benefits. When considering an optional living benefit, it s important to realize what is guaranteed and what isn t. [Review slide] Guarantees are based on the claims-paying ability of the issuing company and assume compliance with all benefit rules. 9
While contracts usually come with a base death benefit, you typically have the option to upgrade it. These are some of the common optional death benefits offered. [Review slide] 10
You may have heard that you should never fund your qualified plan with a VA. However, VAs have been around since 1952 and have funded: College and university retirement plans 403(b) plans for schools and charitable organizations 401(k)s Keoughs IRAs If you only want to take advantage of the tax deferral benefit of a VA, a VA doesn t provide any additional tax benefit to the qualified plan. If you want to take advantage of a VA s other benefits, you can certainly consider funding your qualified plan with a VA. These may include: [read above slide] 11
You may have heard that VAs are expensive. While there are costs associated with owning a VA, you must consider the value for the benefits and guarantees you receive, including the benefit of tax deferral. Purchasing a VA is an important decision, and your investment representative can provide you with a complete cost breakdown. You can then evaluate if the benefits of a VA are worth it to you. Guarantees are based on the claims-paying ability of the issuing company and assume compliance with all benefit rules. 12
Some standard VA expenses include [read above]. It is important to understand what these charges cover: Mortality and expense risk charge covers VA protection features (base income and death benefits) Administrative fees covers costs associated with administering annuity Annual maintenance fee covers record-keeping and communications Total fund operating expense covers expertise of professional money managers Any optional living and death benefits you elect are typically offered at an additional charge. Remember, the tax-deferred benefits of a VA may offset the average annual VA charge of 2.42%.* A conversation with your financial advisor should help you determine whether this is right for you. *Based on 2012 industry average B-Share products, per $25,000 investment, which are offered with no initial sales charge, and a contingent sales charge of 5 13
or more years. Source: Morningstar Annuity Research Center 4Q 2012 Contract Expenses Report. Note: These charges do not include charges for any optional living benefit or death benefit riders, or any premium based/distribution charges, if applicable. 13
You may have heard that the company behind your VA is an important consideration. This is absolutely true and you should choose a company you know and trust. [Read questions above] You should also research companies independently by: Reviewing the company website Consulting the local library Contacting your state s Department of Insurance 14
Now that we ve debunked some common VA myths, we encourage you to: [Read above] You should understand your VA (cost, investment choices, guarantees, company) You should develop a good understanding of the optional living benefit riders (cost, cancellation policy, exposure) and death benefit riders. 15
There are always ways to learn more. Consult product literature, the product prospectus, and your financial advisor for more information. You can also research online. 16
That wraps up today s presentation. Thank you for coming. 17