1. The Benefits of Fixed Annuities “ Presenter’s Name” “ Presenter’s Company” Seminar and Insurance Sales Presentation 1208 RI01146 710 Retirement Income Strategies Not Insured By FDIC Or Any Federal Government Agency May Lose Value Not Bank Guaranteed Not A Deposit
5. And which approach are you (and your spouse) most likely to use when withdrawing money? (Workers who will withdraw from savings/investments n=990) And which approach did you (and your spouse) use when withdrawing money? (Retirees who withdraw from savings/investments n=232) Yet, both workers and retirees manage their savings using the simplest of strategies. Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2006 Retirement Confidence Survey Take what you need to cover your expenses Try to have your savings untouched for as long as possible Take only the earnings on your investments Take a constant percentage or constant amount of money Don’t know/Refused 36% 35% 31% 33% 18% 17% 10% 8% 6% 8%
10. What will it cost to maintain your lifestyle? Here is an example of what an assumed 3% rate of inflation can do to a $30,000 per year standard of living. Be prepared to double your money if you’re retired for 25 years!! Inflation Matters This hypothetical example is for illustrative purposes only. $62,813 25 Years $54,183 20 Years $46,739 15 Years $40,317 10 Years $34,778 5 Years
11. Let’s compare fixed annuities to another popular conservative investment vehicle: Certificate of Deposits or CD’s. Certificates of Deposit (CDs) vs. Fixed Annuities What is a CD? An investment issued by banks that generally pays interest and is insured by the FDIC or the NCUA up to $250,000 per depositor. What is a Fixed Annuity? An insurance vehicle designed for conservative investors who may benefit from receiving a guaranteed rate of return. Guarantees are subject to the claims paying ability of the issuing company or companies.
12. Key Benefits: Fixed Annuities CD’s Certificates of Deposit (CDs) vs. Fixed Annuities 1 Liquidated earnings are subject to income tax and may be subject to a surrender charge. If taken prior to age 591/2, a 10% federal income tax penalty may apply. * Fixed annuity guarantees are based on the claims paying ability of the issuing companies or company. ** Annuities do not provide any additional tax advantage when used to fund a qualified plan. Restrictions may apply. Tax Deferral** Provides Stream of Income* Choice of Investment Period Free Withdrawals1 FDIC/NCUA Insured Guaranteed Returns*
13. Certificates of Deposit (CDs) vs. Fixed Annuities 1 Liquidated earnings are subject to income tax and may be subject to a surrender charge. If taken prior to age 591/2, a 10% federal income tax penalty may apply. * Fixed annuity guarantees are based on the claims paying ability of the issuing companies or company. **Annuities do not provide any additional tax advantage when used to fund a qualified plan. Restrictions may apply. Key Benefits: Fixed Annuities CD’s Choice of Investment Period Provides Stream of Income* Tax Deferral** Free Withdrawals1 FDIC/NCUA Insured Guaranteed Returns*
14. The Bottom Line on CDs – 1988-2007 Source: AIM Investments, February, 2008 Inflation rates are represented by the change in the Consumer Price Index and CD Rates are six-month certificates of deposit rates. Returns are net of annualized average monthly top federal income tax rates. Adjusted rate of return is equal to (CD rate minus inflation rate) minus (CD rate x tax rate). This chart is for illustrative purposes only and does not predict or depict the performance of any investment.
16. An immediate fixed annuity allows investors to begin receiving an income stream typically from within a month through up to a year after the purchase of the product. Fixed Annuities Payment of lifetime income is contingent upon the claims paying ability of the issuing company or companies.
18. A deferred fixed annuity allows investors to accumulate assets on a tax-deferred basis over the long-term before receiving an income stream. * Fixed Annuities * Payment of lifetime income is contingent upon the claims paying ability of the issuing company or companies. Annuities do not provide any additional tax advantage when used to fund a qualified plan. Investors should consider buying an annuity to fund a qualified plan for the annuity’s additional features such as lifetime income payments and death benefit protection.
20. The Benefits of Tax-Deferred Compounding $93,304 Tax-deferred $72,898 After Tax Surrender Value $66,489 Taxable The above illustration is hypothetical and does not represent any particular investment. This chart shows the value of $35,000 earning an effective annual pre-tax return of 4% in a taxable investment and a comparable tax-deferred investment over a period of 25 years, with no distributions. Combined state and federal tax bracket assumes 35% for entire period. Tax-deferred products may impose surrenders charges and other fees such as investment management fees. Since charges and fees are not reflected in the illustration, the performance numbers illustrated would be reduced if included. Distribution of tax-deferred accumulations are subject to income taxes and may be subject to surrender charges and, if taken prior to age 59 ½, 10% federal income tax may apply. $35,000 Annuities do not provide any additional tax advantage when used to fund a qualified plan. Investors should consider buying an annuity to fund a qualified plan for the annuity’s additional features such as lifetime income payments, living benefits and death benefit protection. Lower maximum tax rates on capital gains would make the return of the taxable investment more favorable, thereby reducing the difference in performance between the accounts shown. Consider your personal investment horizon and income tax bracket, both current and anticipate, when making an investment decision as these may further impact the results of the comparison.
22. Massachusetts Mutual Life Insurance Company and affiliates, Springfield, MA 01111-0001 www.massmutual.com/annuities Thank You Annuity products are issued by Massachusetts Mutual Life Insurance Company and C.M. Life Insurance Company. C.M. Life Insurance Company is non-admitted in New York and is a subsidiary of Massachusetts Mutual Life Insurance Company. C.M. Life Insurance Company, 100 Bright Meadow Boulevard, Enfield, CT 06082 Annuities offer risk management features including income for life and death benefits. All guarantees, including the guarantee of lifetime income, are subject to the claims-paying ability of the issuing company. Annuities also offer tax deferral but do not provide any additional tax advantage when used to fund a qualified plan. Investors should consider buying an annuity to fund a qualified plan for the annuity’s additional features such as lifetime income payments and death benefit protection.
Compared to previous generations, today’s retirees are living longer, healthier and more active lives. The older population will continue to grow significantly in the future. According to the U.S. Bureau of the Census, Administration on Aging, by 2030 there will be over 71 million older persons, more than twice the number in 2000. People 65+ represented 12.4% of the population in 2000, but are expected to grow to be 20% of the population by 2030. With this increased lifespan comes a score of new opportunities but as we’ll see in a few minutes, along with these opportunities, come some formidable financial challenges.
Knowledge of investment techniques does not necessarily prompt action. Many workers have not done any formal retirement planning. Those who do have a plan appear to be better prepared for retirement. When asked if they had a specific asset allocation plan for their retirement investments, 42% of workers and retirees said they do not. Now remember, most people participating in the Investing For Retirement Survey had assets of $300,000 or more, not including their primary residence. That’s a lot of money to have invested without any plan. When asked how often do they review and rebalance their portfolios, that is, make necessary changes to their portfolios to maintain their planned allocation mix, 29% of workers with an asset allocation plan admit they review and rebalance their portfolios less often than every year. When asked, considering their age, how well prepared would they say they are financially for retirement, 42% of workers describe themselves as “very prepared” for retirement. Another 50% say they are somewhat prepared. But there is evidence that they are less prepared than they think they are. For example, 37% of Boomers who are 10 or less years away from retirement (ages 55-64) and say they are very prepared for retirement, have less than $500,000 in savings and investments.
An accumulation goal is a key piece of planning for retirement. And when it comes to a goal, specific targets are motivational and lead to better results. But only 19% of workers report having a specific goal for how much they need to accumulate for retirement. 56% have a general idea of how much they need, but not a specific dollar amount. This may be an indication that they haven’t put the necessary effort into calculating a specific goal and could be dangerous because their general idea might be very wrong. One example of where workers might be wrong is in their expectation of how much they will spend each year in retirement. 50% of workers think they will spend less in each of the first 5 years of their retirement than in the year before they retire. However, 68% of retirees report spending at least as much in these years as they did before they retired. This is an important finding.
Each year the Employee Benefit Research Institute conducts a retirement confidence survey among pre-retirees and retirees. In their 2006 survey, retirees indicated they are already feeling the pinch of less income and these are some of the measures they are currently taking to help manage their savings.
The retirement years will be expensive and Social Security will only provide a portion of the money you will need to live comfortably. It is estimated that you will need between 70 and 80% of your pre-retirement income to support a comparable lifestyle 1 . Since people are living well into their 80s and 90s 2 , health care expenses will play an ever increasing role as you age. The low interest rates as we have experienced over the last few years continue to affect savings growth. And, as always, inflation, even low inflation, continues to erode purchasing power. Lastly, taxes will always be a factor. As Ben Franklin said more than two hundred years ago – “The only two certainties in life are death and taxes.” 1 Source: OppenheimerFunds Investing For Retirement Survey, 2004. 2 Source: U.S. Government Administration on Aging “A Profile of Older Americans”, 2005.
Years ago, when people did not have the choices and opportunities we have today, Social Security was the best gift the government ever gave to its people. But times have changed. There are less people to fund the ever growing retired population and the Social Security Administration is strapped for money. In fact to compensate, the Social Security Administration is slowly driving up the retirement age until anyone born in 1960 or beyond will not be able to retire with full benefits until age 67!
Let’s take a quick look at some statistics that will affect all of us. Currently, people who have reached 65 years old have an additional life expectancy of over 18 years. And, the older population is increasing daily. Baby boomers, the largest single group of retirees on the horizon, are coming of retirement age. Over the next 30 years, the older population will more than double so that by 2030 it is estimated that there will be over 70 million people living in retirement.
As the elderly population increases, their medical costs increase as well. Medical advances have made tremendous strides in geriatric care but all of this comes at a cost. Because of the increased cost of premiums, employers are not making supplemental retiree benefits available as part of their employee benefits packages, meaning that out-of-pocket costs are skyrocketing. The concern of outliving one’s resources can become a reality - especially when taking nursing home costs into account. Since Medicare does not pay for nursing home benefits, the individual must use his/her savings to pay for these services, unless the individual has made other provisions. At an average annual cost of more than $50,000, income and savings can deplete rapidly.
You might not think that inflation has an impact on your finances or your purchasing power. However, over time it has a tremendous impact. Since most retirees are expected to live many years in retirement, inflation will have an even greater chance to erode your assets.
CDs are investments that are issued by banks that generally pay a fixed rate of interest and are insured up to $250,000 per depositor by the FDIC or the NCUA. Because they are ultra-conservative safe investments, they typically pay low interest rates of return as compared to other investment vehicles. Keep in mind that both vehicles are high quality products therefore the “better” choice depends on each individual’s own situation and financial goals.
Guaranteed Returns Both fixed annuities and CDs are considered low risk investments because they guarantee a positive rate of return. Conservative investors enjoy the peace of mind this feature helps bring to their savings . FDIC/NCUA Insured CDs are generally backed by banks and are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) per depositor. Fixed annuities are guaranteed by the issuing insurance companies, but are not insured by the U.S. government. Free Withdrawals Many fixed annuities allow for a contract owner to withdraw a certain percentage of their account value, usually around 10%, on an annual basis free of any charges. Amounts withdrawn in excess of this percentage are typically subject to surrender charges or adjustments, which cease after a certain amount of time. These charges generally decline year by year and will expire at the end of a certain number of years. CDs, on the other hand, charge an interest penalty if funds are withdrawn prior to maturity. Therefore an investor will have to wait until the CD matures if he or she would like to avoid early withdrawal charges. Continued on next page
Choice of Investment Period Compared to fixed annuities, CDs typically offer a choice of shorter investment terms, such as 90 or 180 days, but also offer 1 year and multiple year durations. Investments terms for fixed annuities may range between 1 and 10 years. Additionally, most fixed annuities do not limit the investment period, which allows the contract owner the flexibility to keep the assets accumulating until needed. Provides Income CDs are designed as a savings vehicle and do not provide an income stream. However, interest from CDs can be used as income upon maturity. Fixed annuities are designed to provide retirement savings and income. Most fixed annuities offer a choice of methods to receive income, one of which usually guarantees an income stream for life. 2 Tax Deferral Earned interest in CDs are taxable for the current year on an annual basis. Earnings in a fixed annuity are tax deferred until they are withdrawn, allowing your investment to take full advantage of the impact of compounding interest. 2 Payment of lifetime income is contingent upon the claims-paying ability of the issuing company or companies.
Many retirees invest heavily in CDs because they are guaranteed up to $250,000 by the FDIC or NCUA. However, CDs and other low yielding investments usually don’t keep up with inflation and by putting too much of your money into CD’s, you may run the risk of outliving your resources. As this chart illustrates, when you take inflation into consideration, a CD’s adjusted return is minimal. In fact, based on historical returns, both CD’s and fixed annuities are not guaranteed to keep up with inflation. Is there a place for CDs in your portfolio? Yes, as a short-term investment that acts as the base of your diversified portfolio.
Annuities are insurance products that guarantee income over a certain number of years or for life, or a combination of both. These guarantees are based on the claims paying ability of the issuing company or companies so it is important to ask your financial professional about the financial strength of the issuing company prior to purchasing a product. Annuities are either immediate or deferred.
Immediate annuities investors to begin receiving an income stream typically from within a month through up to a year after the purchase of the product.
Deferred annuities allow investors to accumulate assets on a tax-deferred basis over the long-term before receiving an income stream.
Safety: Your principal is guaranteed Tax-Deferral: You’ll pay no income tax on earnings until you actually receive them. Deferred interest is not subject to social security taxation Yield: You’ll enjoy a guaranteed rate of return (Guarantees are subject to the claims-paying ability of the issuing company or companies.) Liquidity: You’ll maintain access to your money though a provision that allows for partial liquidation of your account without surrender charges
There are tremendous benefits to be gained from tax-deferred investing. Annuities help you plan for tomorrow while saving on taxes today. Basically, the money not used to pay Uncle Sam can be invested thereby increasing your overall return. Among other things, tax-deferred investing may help increase your savings. This chart illustrates an example of the power of tax deferral by showing how a $35,000 investment grows tax deferred to over $93,304 compared to less than $66,489 when it is taxed – that’s over a $26,000 in your favor over 25 years. Of course, you need to bear in mind, that once you start withdrawing funds from a tax-deferred account, they will be taxable and perhaps subject to surrender charges. Distribution of tax-deferred accumulations are subject to income taxes and may be subject to surrender charges and, if taken prior to age 59 ½, a 10% federal income tax may apply. There is not additional tax advantage when an annuity is used to fund a qualified plan.
Contact your financial professional today to help you determine a retirement path that is right for you.