Powerful Language andSimple Solutions for Retirement
Tom Hegna CLU, ChFC, CASLFirst Vice President
New York Life Insurance Company
00411996 Exp. 12/31/10
…Retirement used
to be a promise.
Whatever happened to Happily Ever After?
78 million Baby Boomers…are racing headlong &
headstrong into retirement
Longevity –Conventional Wisdom #1
• Spend 18.1 years in retirement*• Average life expectancy:
•65 year old male, live to 85**•65 year old female, live to 88**
Sources: *Employee Benefit Research Institute (EBRI), 2004 ** Annuity 2000 Mortality Table, Society of Actuaries
Half of us will outlive our own life expectancy!
93
Longevity –Real Life Expectancy
Source: Annuity 2000 Mortality Tables
0%
25%
50%
75%
100%
65 70 75 80 85 90 95 100 105
MaleFemaleAt least one spouse
Age
78 81 86
85 88 92
91 97
Pro
babi
lity
Probability of a 65-year-old living to various ages
50% chance
25% chance
5% chance
26 Years!
People know how much money they have.
They don’t have a good idea what they can expect from that money.
Lifetime Income –Conventional Wisdom #2
SHAKE THE LADDERSHAKE THE LADDER
When you start taking money out of a portfolio, average returns are not
important!!!
Monte Carlo Simulations
Impact of Randomness50% Large Cap Stocks / 50% Intermediate Bonds
Source: NYLIMHypothetical value of $100,000 portfolio: 50% large company stocks, 50% intermediate-term bonds, assuming two investment returns from 1973 – 1995, then in reverse from 1995 – 1973. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only, and is not indicative of any investment. Past performance is no guarantee of future results. Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and is considered to be representative of the stock market in general; Bonds—5-year U.S. Government Bond; Inflation—Consumer Price Index.
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
$1,100,000
$1,200,000
Yea
r 1
Yea
r 2
Yea
r 3
Yea
r 4
Yea
r 5
Yea
r 6
Yea
r 7
Yea
r 8
Yea
r 9
Yea
r 10
Yea
r 11
Yea
r 12
Yea
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Yea
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Yea
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Yea
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Yea
r 17
Yea
r 18
Yea
r 19
Yea
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Yea
r 21
Yea
r 22
Yea
r 23
~10.1% Annualized
Return Over
22 Years
Jan. 1, 1973 – Jan 1, 1995 = $846,443Jan. 1, 1995 – Jan 1, 1973 = $831,107
Impact of Randomness Adding Systematic Withdrawal Payments
Same 50%/50% portfolio; withdraw $5,000 a year (adjusted for inflation)
Source: NYLIMHypothetical value of $100,000 portfolio: 50% large company stocks, 50% intermediate-term bonds, assuming two investment returns from 1973 – 1995, then in reverse from 1995 – 1973. Assumes reinvestment of income and no transaction costs or taxes. Withdrawal of $5,000 per year assumes the then current rate of inflation. This is for illustrative purposes only, and is not indicative of any investment. Past performance is no guarantee of future results. Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and is considered to be representative of the stock market in general; Bonds—5-year U.S. Government Bond; Inflation—Consumer Price Index.
~10.1% AnnualizedReturn Over 22 Years
How long will your retirement assets last?
Jan. 1, 1973 – Jan 1, 1995 = $694Jan. 1, 1995 – Jan 1, 1973 = $330,338
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
Year
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3
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Impact of market returns on long-term portfolio values
Later Losses
Early Losses
Source: New York Life Investment Management LLC, 2006
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
Year 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
A Closer Look at Retiree Risks Market Risk - Early Losses
Accumulation vs. Distribution
• Market risk has opposite affect on portfolios in accumulation and distribution phases
• Market risk is greatest in transition between accumulation and distribution phases
Market Risk
Market risk is greatest in years just before and after retirement
TimeAccumulation Distribution
Hypothetical example intended for illustrative purposes only and is not indicative of the actual performance of any particular product. Sales charges, taxes, and administrative fees are not taken into account and would reduce the performance shown.
What might $1,000 buy in the future?
0% 1% 2% 4% 6% 8% 10%1 $1,000 $990 $980 $962 $943 $926 $909
5 $1,000 $952 $906 $822 $747 $681 $621
10 $1,000 $905 $820 $676 $558 $463 $386
15 $1,000 $861 $743 $555 $417 $315 $239
20 $1,000 $820 $673 $456 $312 $215 $149
25 $1,000 $780 $610 $375 $233 $146 $92
30 $1,000 $742 $552 $308 $174 $99 $57
35 $1,000 $706 $500 $253 $130 $68 $36
Years fromnow
Source: The IFID Centre, 2004
Inflation
Hypothetical inflation rate
g
Knowing the Types of Annuities
• Immediate annuities– Guaranteed income for life– Guaranteed income for a certain
period• Deferred annuities
– Fixed– Variable
What is a Lifetime Income Annuity?
Why Should I Use a Lifetime Income Annuity?
Why Should I use a Lifetime Income Annuity?
*Rates effective as of 08/16/10
Issue Age Annual Payout Rate*
65 6.7% 75 8.7%85 12.4%
Issue Age Annual Payout Rate*
65 6.7% 75 8.7%85 12.4%
OK, What are Mortality Credits?
Understanding the Benefits of Risk Pooling and Mortality Credits
= $500$100 x 5
Suppose five 90 year-old women take a vacation together every year …
This example is hypothetical and intended for illustrative purposes only. It is not an indication of the actual performance of any particular product.
The five women place $100 in a box
Explaining Mortality Credits
Unfortunately one of the ladies died that year
So, they meet to vacation again
Now the four ladies split the $500; they now each have $125
That is a 25% rate of return
Question: How much was invested in the market?
What interest rate did it earn?
Explaining Mortality Credits
They decide to “let it ride”
The next year one more lady dies
Now the 3 ladies split the $500
They each get $167
That is a 67% return
All of this is based on mortality credits
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100
Age
Payo
ut
Investment Growth Return of Principal Mortality Credits
LIA Provides Clients with Higher Payouts
Components of Lifetime Income PayoutMale age 65, $100,000 investment
Lifetime income annuities deliver higher payouts because, in addition to distributing gains and principal, they subsidize those who die late with the capital of those who die early.
Source: New York Life, 2009.
Investment advisors can
manufacture this payout…
…but only an insurance company
can manufacture a mortality pool.
38
How Much Should Go into a Lifetime Income Annuity?
What Should I Do with theRest of My Money?
45
Asset Allocation Questionnaire by Ibbotson
14 questions– Age range– Risk tolerance– Income-to-expenses ratio– Bequest (legacy) motive– Expected longevity
46
Asset Allocation Tool by Ibbotson
Our Approach Directly Addresses Retiree Risks
Longevity– Income payments from Lifetime Income Annuities last as long as
you live
Inflation & healthcare costs– Lifetime Income Annuities provide 1%-5% inflation protection
options
Market risk– Lifetime Income Annuities have a zero standard deviation and
materially eliminate market risk to the income portion of a portfolio
– Covering basic expenses with Lifetime Income Annuities enables you to avoid taking withdrawals in unfavorable conditions
Overspending– Lifetime Income Annuities ensure you cannot exhaust your
income
Let’s Look at Some Ways We Help Real People Solve Real Problems…
CD Alternatives
Don’t be put off by those who want to wait, because time isn’t always on their side.
Don’t be put off by those who want to wait, because time isn’t always on their side.
RMD Maximization
Help Repair the Income Damage Caused by a Downturn in the Market
This concept card is helpful in illustrating how GLI can provide the same, or more, income even if the client has
less assets due to a downturn.
This concept card is helpful in illustrating how GLI can provide the same, or more, income even if the client has
less assets due to a downturn.
For mo
For mo
You’ve seen it in the papers…
Providing Investment SolutionsWhat Are Others Saying?
U S News & World Report(“Finding Income in Retirement” June 13, 2005)
• Annuities are “part of a diversified overall retirement plan. You can always use the other half or three quarters of your money to invest in a mix of bonds and stocks.”– This suggests that one quarter to one half of
your clients’ retirement portfolios should be used to purchase a lifetime income annuity
Forbes (“Do It Yourself Retirement” June 6, 2005)
• A better bet if you’re … worried about running out of savings might be to invest some of it in … [an] immediate annuity and invest the rest more boldly.
Providing Investment SolutionsWhat Are Others Saying?
Kiplinger’s Retirement Planning (Fall 2005)
• “The Perfect Portfolio When You’re Retired”
– “Retirees in their mid to late sixties should consider replacing some or all of their bond funds with immediate fixed annuities that pay guaranteed monthly checks for the rest of the policyholder’s life.”
– “Knowing you have this money coming in [from an immediate annuity] can also give you the confidence to invest the rest of your retirement savings more aggressively.”
– “Including an annuity in your portfolio can generally increase your monthly payouts beyond the safe 4% annual withdrawal level many financial advisors …recommend.”
You’ve Read it in the Papers
Clients Want to Know More
Clients are looking for answers
Always Remember
JUST SHOW IT!!
Powerful Language andSimple Solutions for Retirement
Tom Hegna CLU, ChFC, CASLFirst Vice President
New York Life Insurance Company
00411996 Exp. 12/31/10
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