For internal and producer information only. Not for use in sales situations. MAXIMIZING GUARANTEED...

For internal and producer information only. Not for use in sales situations.For internal and producer information only. Not for use in sales situations.

MAXIMIZING GUARANTEED

INCOMEfor your

Retirement Years

SPIA(Single Premium Immediate)

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DIA & QLAC(Deferred, Delayed, Longevity Income)

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Income Riders

For internal and producer information only. Not for use in sales situations.

SPIA’s allow people to take “immediate” GUARANTEED Income Payments

• Minimum Deferral Period: 30 days

• Maximum Deferral Period: 12 months

• Payout Choices: Life ONLY, Life & Refund, Life and Period Certain, Period Certain ONLY

• Example - Life with Cash Refund:• Payout Rate:

– A55 Male = 6.0% • Rate of Return:

– A55 Male = Roughly 2.5% - 2.9%

SPIA – Single Premium Immediate Annuity?

For financial professional use only. Not for distribution to the public.

GUARANTEED INCOME PAYMENT!

What are Clients purchasing?


• Minimum Deferral Period: – DIA (NQ) = 13 – 24 mos.– QLAC (Q) = 13 – 24 mos.

•Maximum Deferral Period• Nonqualified (DIA) – earlier of

30 years from the contract issue date or age 95

• (Qualified (QLAC) – earlier of 30 years from the contract issue date or age 85)

• Payout Choices: Life ONLY, Life & Refund, Life and Period Certain, Period Certain ONLY

• Example if delayed 5 yrs (Life with Cash Refund):• Payout Rate:

– A55 Male = 7.0% • Rate of Return:

– A55 Male = 3.9%

What is a Deferred Income Annuity (DIA or QLAC)? (Also known as Delayed Income or Longevity Annuity)


GUARANTEED FUTURE INCOME PAYMENTS!

DIAs & QLAC’s allow people to defer the start of Guaranteed Income Payments



Qualified Longevity Income Annuity (QLAC) is a tax-preferred DIA –––––––––––––––––––––––––––––––––––––––

QLAC contracts allow a client with IRA assets to defer the distribution of a portion of their IRA assets beyond age 70½, reducing early RMDs

–––––––––––––––––––––––––––––––––––––––

No other qualified investment options offer this opportunity –––––––––––––––––––––––––––––––––––––––Product features in some cases are more limited than with a traditional qualified annuity contract

What is a QLAC?WITH TRADITIONAL IRAs AND QUALIFIED PLANS … Individuals typically must begin taking required minimum distributions (RMDs) no later than age 70½. ––––––––––––––––––––––With a QLAC, you can defer a portion of your RMDs up to age 85.



• Minimum Deferral Period: 30 days to 13 months

• Unlike Annuitization the Payouts under an income rider do not cancel the base policy nor are payments gender based.

• Example of a Payout Rate:— A55 Male waiting 5 yrs = 5.80%— A55 Male waiting 10 yrs = 7.30 %

• Rate of Return:— Based on Index Return

What is an Income Rider?


FLEXIBLITY AND GUARANTEED FUTURE INCOME PAYMENTS!

Income Riders are attached to a Deferred Annuity (usually Index or Variable) and allow people to accumulate money for Retirement tax deferred and through the Income Rider provide a source of predictable Guaranteed Income for Life



Sample Income Rider Payouts


Predictable Income

Age at Issue

Single Payout base

Annual Payout Increase

Single Payout after 10 yrs

54 or less 3.80% 0.25% 6.30%

55-59 4.30% 0.30% 7.30%

60-64 4.80% 0.35% 8.30%

65-69 5.30% 0.40% 9.30%

70-74 5.80% 0.45% 10.30%

75-79 6.30% 0.50% 11.30%

80 6.80% 0.55% 12.30%

Allianz Core 7


Sample Income Rider Payouts


Increasing Income

Age at Issue

Single Payout base

Annual Payout Increase

Single Payout after 10 yrs

54 or less 3.00% 0.25% 5.50%

55-59 3.50% 0.30% 6.50%

60-64 4.00% 0.35% 7.50%

65-69 4.50% 0.40% 8.50%

70-74 5.00% 0.45% 9.50%

75-79 5.50% 0.50% 10.50%

80 6.00% 0.55% 11.50%

Allianz Core 7


Why Sequester Funds in a SPIA?

?• Peace of mind — income reliability

• No market risk, so can be more aggressive with other assets in portfolio

• Flexibility of annuity income options

• Optional inflation protection riders

• Side advantage: reduce taxes (Exclusion Ratio reflects a portion of payment is return of Principal)

Weakness – No additional money can be added. Not Flexible. This can be an advantage for some clients or situations.

1. Last dollars2. Unable to handle money3. Divorce situation where a guaranteed payout is needed


Why Sequester Funds Today in a DIA or QLAC?

?• To maximize future income

• Peace of mind — income reliability


• Flexibility of annuity income options

• Additional Money is allowed

• Optional inflation protection riders

• Side advantage: reduce taxes (Exclusion Ratio reflects a portion of payment is return of Principal)

Weakness – Not Flexible. You have to preselect a start date and payout option.


Why Sequester Funds Today in an Income Rider?

?• To maximize future income

• Peace of mind — income reliability


• VERY Flexible as to income start date

• Starting income does not end the base policy

Weakness – Lack of Income Options. Income is considered a “withdrawal” thus first dollars are taxable as interest.


• Is between the ages of 50-75

• Is concerned about outliving assets

• Is willing to use of assets today to guarantee a lifetime income starting today or at some point in the future

• Prefers guaranteed income to relying on the stock market

A typical income annuity client …


Issue age ranges

• SPIA: 0-95

• DIA: 0-93 (i.e. NA if already age 94)

• QLAC: 0-82

Minimum contribution

SPIA: $5,000 (DIA & QDIA): $10,000

Maximum contribution

SPIA & DIA: up to insurer’s issue limits

QLAC: Lessor of $125,000 or 25% of total prior year-end IRA balance.

IIIISSUEINFORMATION

FEATURES


DIA & SPIA- During the deferral period, the death benefit is return of premium (or none)

Income Rider – Account Value

DIA & SPIA- After the Income Start Date, the death benefit is determined by the Annuity Income Option selected at issue

Income Rider – Account Value

FEATURES

DEATHBENEFIT


You’re a Golfer with a Mission: To break 90 The Nat'l Golf Foundation calls the "avid" golfer a person who plays

21 times a year:

Typical Costs for an avid golfer: 8 indiv. lessons@ $585 total

One day long group clinic: $125 Subscrip to golf magazine & Books: $150

8 dozen golf balls: $170 Tees, markers, shoes: $260

2 new clubs (putter, wedge): $260 21 small buckets of balls: $110

7 rounds of 9 holes: $185 14 rounds of 18 holes: $730

Regional golf trip with buddies: $420 19th hole: $315

TOTAL: $3,310(“What it Really Cost to Play Golf? Washington Post. 13 April 2004)

SPIA - “The Golf Pension.”


• Buy a Life Annuity (with cash refund to keep the spouse happy if you die on

the course), and fund this $3,310/year habit, costs about $55,000 So - there's your golf pension.

• Concerned costs will rise? Add an inflation protection option, say 3% per year increase and the cost becomes $79,000.

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“Golf” does not have to be Golf. Maybe you prefer fishing, taking cruises, or going to the theater. The point is to build a

personal pension for what is important in retirement.

SPIA - “The Golf Pension.”


• Client with an old Annuity or money just sitting because “they want to leave it to their kids or grandkid(s)”.

• They personally don’t need income.

• Strategy:– Client buys a Joint SPIA with a Cost of Living increase on themselves and a

Grandchild

– Starting income immediately at a low amount which increases each year

– When she passes away her grand child will start to receive the payout.

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Ultimately what do we want after we pass away.

TO BE REMEMBERED!

Every year for the rest of the grandchild's life they will get a check from

“grandmother/grandfather”

Grandchild as Joint Annuitant - SPIA


Deferred Income Annuity

EXAMPLE #1

Glenn and Joy, each Age 60

• Each has a $100,000 lump sum to invest.

• Considering deferring income to

• A65, A75 & A85



SCENARIO #1

Age PremiumMonthly Income

starting A65(exclusion ratio)

Monthly Income starting A75

(exclusion ratio)

Monthly Income starting A85

(exclusion ratio)

Life ONLY

Male A60 $100,000 $625 (66.6%) $1,283 (51.8%) $3,144 (35.8%)

Female A60 $100,000 $585 (71.2%) $1,160 (57.5%) $2,652 (42.5%)

Life with Cash Refund

Male A60 $100,000 $586 (63.8%) $1,234 (48.1%) $3,025 (32.7%)

Female A60 $100,000 $555 (65.7%) $1,124 (53.1%) $2,558 (39.0%)

Payouts presume a Return of Premium Death Benefit prior to the start of income



EXAMPLE #2

Stephen, Age 53

• Stephen is a small business owner and will use a DIA to create his own Retirement type plan to supplement his Social Security income.

• Stephen invests $25,000 each year for 10 years

• The annuity will start at age 67, coincident with his Social Security benefits.



This is a hypothetical example for illustrative purposes only. Payout is based on single life with return of premium for death prior to annuitization and cash refund payout option. Rates are subject to change and payout will vary with premium amount, age, gender and annuity income option selected.

EXAMPLE #2

Year Premium Payout RateAnnual Income

for life

1 $25,000 10.51% $2,627

2 $25,000 9.86% $2,464

3 $25,000 9.13% $2,282

4 $25,000 8.59% $2,147

5 $25,000 8.09% $2,023

6 $25,000 7.63% $1,908

7 $25,000 7.15% $1,787

8 $25,000 6.76% $1,689

9 $25,000 6.39% $1,598

10 $25,000 6.06% $1,414

Income starts at age 67

$250,000 7.98% $19,939



EXAMPLE #3

Lori Age 60

• Lori has assets of $1,000,000 with $573,000 in a Mutual Fund where she is currently receiving $5,000/month ($60,000 per yr) earning approximately a 5% return.

• She is worried because at this rate she will be out of money in her Mutual Fund in 15 yrs (A75)

• She would like to “guarantee” this steady stream of income for the rest of her life after age 75.



EXAMPLE #3

This is a hypothetical example for illustrative purposes only. The income from the mutual fund for ages 60-75 is based on systematic withdrawals from a $573,000 portfolio earning approximately 5% rate of return for 15 years.. Hypothetical income at age 75 from the deferred income annuity is based on a single life, return of premium for death prior to annuitization, and a cash refund payout option. Rates are subject to change and payout will vary with premium amount, age, gender and annuity income option selected.

$1,000,000 IN ASSETS

Defers income for 15 years

Mutual Funds*$573,000

DIA $427,000

Draws down to $0 after 15 years

Age 75 begins receiving

$5,000/month guaranteed for the rest

of her life

Receives $5,000/month until

age 75


Deferred Income Annuity & Income Rider

EXAMPLE #4

David Age 55

• David is still working and is looking to invest his money to replace his income when he retires at age 65.

• He has $1,000,000 to invest.

• David likes the idea of a guaranteed income in 10 years.

• He is considering an Index or Variable Annuity with an income rider or a DIA or even a split of his investment between the two.



EXAMPLE #4

$1,000,000 split between a DIA and

an EIA or VA with a GMWB rider

DIA$500,000

EIA or VA with GMWB$500,000

Total combined income $95,547/yr Guaranteed for Life

9.55% payout rate!

Provides $43,047/year guaranteed for life!

(8.0% Payout)

Provides $52,500/year guaranteed for life!

(10.5% payout)

10 year deferral

The DIA includes an Exclusion ratio of 52.1% which means only 47.9% of the payment or $20,6120 is considered taxable. Income withdrawals from EIA or VA is considered 100% interest and taxable until there is no more interest.


EXAMPLE #4

Observations about Example 4:• In today’s market, David would likely put all his money in

the Index or Variable annuity, despite the higher taxation.

• In addition to the income advantages shown on the previous slide, an Index or Variable annuity:

• can provide upside market potential

• provides cash surrender flexibility

• Where the payout for the Income Rider is fixed, in a higher interest rate environment, the Deferred Income annuity (DIA) might be more attractive.



A Qualified Deferred Income Annuity (QLAC)



You can reduce a client’s RMDs today by:

The OpportunityDo you have clients who don’t want to take RMDs?

➤ Deferring a portion of the RMD withdrawals to a later date

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➤ Delaying paying taxes on money not needed in early retirement

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➤ Providing potential to leave more assets for surviving spouse or other heirs

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➤ Helping ensure they have the income needed in later retirement



Applying the Premium LimitsA client with a total eligible 12/31 IRA value of $400,000

$400,000 IRA value

X 25%

A client with a total IRA value of $800,000

$800,000 IRA value

X 25%

Since premium limit rules are the lesser of $125k or 25%, this client would have $125,000 eligible to be used to purchase a QLAC.

$100,000 $200,000In this scenario, the client has $100,00eligible to be used to purchase a QDIA.



Can a Client directly roll over from a Qualified Plan to a QLAC?

*Roth and Inherited IRAs cannot be included when calculating eligibility.

Yes, but the transfer cannot exceed the lesser of $125,000 or 25% of the individual’s eligible prior year-end (12/31) aggregate IRA values*

• If the individual does not have an IRA with a prior year-end balance, they are unable to directly roll over to a QLAC

• If no IRA balance exists and the client wants to move from a qualified retirement plan to a QLAC, they would need to: 1. First roll over to an IRA 2. Establish a year-end (12/31) value3. Use the 12/31 IRA value to determine QLAC eligibility in the following year4. Purchase the QLAC



Hypothetical Client ExampleAn individual has the following qualified assets as of end of yr 1401(k): $550,000 • IRA: $200,000

She could fund a QLAC with $50,000 ($200,000 x 25%)The funds for the QLAC could come from either the IRA or an eligible rollover distribution from the 401(k)

Assume she decides to roll $50,000 from the 401(k) directly into our QDIAShe now has the following balances: • 401(k): $500,000 • IRA: $200,000 • QLAC/IRA: $50,000• At the end of the next year can take another $50,000 from the 401k ($200,000 x 25%)



QLAC FeaturesAvailable income

optionsStructuring joint

life payoutsIncome start date

requirements

➤ Life Only

–––––––––––––––––––

➤ Life with Cash Refund

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➤ Available in single and joint life payouts

➤ Joint annuitants must be spouses

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➤The surviving joint annuitant will be treated as the primary beneficiary; any other beneficiary designation on record will be treated as a contingent beneficiary

➤ Payments must start no later than the first day of the month following the owner reaching age 85



QLAC Features

➤ A QLAC cannot be purchased with Roth or Inherited IRA dollars

➤ It is the client’s responsibility to ensure that any premiums paid into a QLAC meet applicable Treasury Department regulations

OTHER IMPORTANT

INFORMATION



Frequently Asked QuestionsCan a Deferred Income Annuity contract previously issued as a non-QLAC now be treated as a QLAC?• No. In order to be treated as a QLAC, it must be issued as a QLAC.

Can money in an IRA from which an individual has already started taking RMDs be moved to a QLAC?• Yes, as long as QLAC premium limit guidelines are met.

Note: The person may be required to take his/her RMD from the existing IRA prior to rolling money to the QDIA.

Can a married couple pool their IRA savings to fund one Joint Life QLAC?• No. Either spouse can purchase a Joint Life payout, but the premium can only

come from the owner’s own IRA.

Can the QLAC premium limits change over time?• Yes, the IRS is authorized to adjust premium limits.



RMD Reduction Example

➤ By moving 25% of their IRA assets to a QLAC, he or she decreases the initial required distribution by approximately $4,562. ($18,250 - $13,688) If in the 20% tax bracket, their annual income tax would drop by more than $900.

➤ Because the money in the IRA grows tax-deferred, they would also leave more money for a surviving spouse.

An individual with $500,000 in IRA savings

$18,250


Using $125,000 (25% of their $500k) to purchase a QDIA, the original RMD drops to approximately $13,688 ($500,000 - $125,000) x 3.65%

RMD = 3.65%


Deferred Income & QLACAnnuities are Gaining Popularity

American General*

Lincoln Financial*

Guardian

New York Life

Principal*

Symetra

United Of Omaha*

Companies With DIAs* QLAC confirmed


THANK YOU

Questions?


For internal and producer information only. Not for use in sales situations. MAXIMIZING GUARANTEED...

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Transcript of For internal and producer information only. Not for use in sales situations. MAXIMIZING GUARANTEED...