Tax Advantaged Distribution Strategy Non-Qualified Annuities & Guaranteed Minimum Withdrawal Benefits

When most reps are given the chance to invest a client’s funds into an annuity, they pick their favorite fixed, index, or variable annuity. Then they deposit the entire amount into that one annuity. $$$$

For argument’s sake, let’s say that the annuity premium of $100,000 grows to an accumulated value of $160,000 at the end of the surrender term.

Now the client comes to the rep and asks for $35,000 from their annuity after tax. The annuity distributions are accounted for on the last in first out (LIFO) basis. At a 33% tax bracket, the client would need to take a $52,000 distribution, leaving them with $108,000 annuity value. Now, here’s what we could have done…

$100,000 $25,000 Bundle 1 $25,000 Bundle 2 $25,000 Bundle 3 $25,000 Bundle 4 Company A Company B Company C Company D $40,000 $40,000 $40,000 $40,000

$25,000 Cost Basis + $15,000 Interest (Assumes a 33% tax bracket) Now if the client wanted $35,000 after tax we could cash in one of the annuities completely and then the client would receive some costs basis along with interest: $25,000 Cost Basis + $15,000 Interest (Assumes a 33% tax bracket) $25,000 Bundle 1 $25,000 Bundle 2 $25,000 Bundle 3 $25,000 Bundle 4 Company A Company B Company C Company D $40,000 $40,000 $40,000 $40,000

$120,000 $40,000 $40,000 $40,000 Bundle A cashed-in to provide $35,000 $25,000 Cost Basis +$15,000 Interest Bundle A cashed-in to provide $35,000 for the client -$5,000 Taxes Company A $25,000 Bundle 2 $25,000 Bundle 3 $25,000 Bundle 4 Remaining 3 bundles have a combined value of $120,000 Company B Company C Company D $40,000 $40,000 $40,000

Which would you rather leave your client? $108,000 or $120,000?

Let’s take this one step further. Let’s discuss the income needs of many of the baby boomers. Their needs will be income.

$25,000 Bundle 1 $25,000 Bundle 2 $25,000 Bundle 3 $25,000 Bundle 4 Why not take these 4 bundles and split them up into 5,6,7 and 8 year surrenders periods… 5 Year Surrender 6 Year Surrender 7 Year Surrender 8 Year Surrender $25,000 Bundle 1 $25,000 Bundle 2 $25,000 Bundle 3 $25,000 Bundle 4 Company A Company B Company C Company D

And while we’re at it, why not use multiple annuity strategies… 5 Year Surrender 6 Year Surrender 7 Year Surrender 8 Year Surrender $25,000 Bundle 1 $25,000 Bundle 2 $25,000 Bundle 3 $25,000 Bundle 4 Company A Company B Company C Company D Variable Annuity Index Annuity Fixed Annuity Index Annuity

What you have accomplished: Tax advantaged distribution vehicle Guaranty Association Avoid partial 1035 exchange Diversification Liquidity Flexibility/Portability

OR…… We could have put the entire pool of money into one of our favorite annuities with a 17 year surrender period!

Indexed Annuity Withdrawal Benefits How They Work and Where They Fit

Index Annuity Withdrawal Benefits Nuts & Bolts Available with most index annuity carriers Annual Fees generally range between .30% and .75% The withdrawal benefit value is not the accumulated value Interest rates on the withdrawal benefit range between 5% and 8% The withdrawal benefit is a guaranteed lifetime payment – even if the account value is decreased to $0.

Minimum Guaranteed Contract Value Election Interest Credited Illustration Assumes $100,000 premium – unfavorable period – 7% Withdrawal Benefit Interest Rate Minimum Guaranteed Contract Value 89,250 91,035 92,856 94,713 96,607 98,539 100,510 102,520 104,571 106,662 Election Interest Credited 0.00% 6.50% 8.50% 0.00% 8.50% 8.40% 8.50% 0.00% 0.00% 8.50% Projected MGWB Base 112,350 120,215 128,630 137,634 147,268 157,577 168,607 180,410 193,038 206,551 Accum Value 105,000 111,825 121,330 121,330 131,643 142,701 154,831 154,831 154,831 167,991 Accum Value 104,562 110,867 119,757 119,220 128,743 138,905 150,012 149,309 148,556 160,362 Year Ending 01/31/1967 01/31/1968 01/31/1969 01/31/1970 01/31/1971 01/31/1972 01/31/1973 01/31/1974 01/31/1975 01/31/1976 $11,360/year Surrender charges may apply

Minimum Guaranteed Contract Value Election Interest Credited Illustration Assumes $100,000 premium – unfavorable period – 7% Withdrawal Benefit Interest Rate Minimum Guaranteed Contract Value 89,250 91,035 92,856 94,713 96,607 98,539 100,510 102,520 104,571 106,662 Election Interest Credited 0.00% 6.50% 8.50% 0.00% 8.50% 8.40% 8.50% 0.00% 0.00% 8.50% Projected MGWB Base Accum Value 105,000 111,825 121,330 121,330 131,643 142,701 154,831 154,831 154,831 167,991 Accum Value 104,562 110,867 119,757 119,220 128,743 138,905 150,012 149,309 148,556 160,362 Year Ending 01/31/1967 01/31/1968 01/31/1969 01/31/1970 01/31/1971 01/31/1972 01/31/1973 01/31/1974 01/31/1975 01/31/1976 $11,360/year Surrender charges may apply

Withdrawal Benefits are Not All Created Equal Important Questions to ask… 1. What value is the annual fee based on? 2. What happens at death? 3. Can you have a joint withdrawal benefit on qualified money? 4. Who will provide the highest payout at the time of distribution? 5. What product(s) provide the most upside if the client does not need the income in the future?

Positioning Withdrawal Benefits in the Retirement Income Plan

X Create a Plan

How to Sell Annuities… Create A New Plan. Out With the Old.

The Annuity Market is Changing Saving Money Creating Income Accumulation Phase Distribution Phase

This also pertains to retirement income The 21st Century Retiree With the current economic environment, more consumers are concerned about GUARANTEES than ever before. This also pertains to retirement income Many in this group are aware of the need to guarantee a portion of their retirement income, but do not know how to achieve it.

$ $$$ The process begins with inventorying retirement savings assets 401(k) $ IRA NQ Savings $$$ Total savings available for creating a retirement paycheck

Social Security Benefits How long is it expected to last? The next step is to identify sources of retirement income that are not savings-dependent. Social Security Benefits + Pension Rental Business Other How long is it expected to last?

Required Income + Lifestyle Income TOTAL RETIREMENT INCOME Now we determine the clients’ retirement income needs and desires. Total Retirement Income Consists of Two Components Required Income + Lifestyle Income TOTAL RETIREMENT INCOME

The next step is to determine the “Required Income gap”. This is the difference between non-savings dependent income and the Required Income SIMPLE EXAMPLE Required Income @ Retirement $43,000 Social Security Benefits - $28,000 Him $18,000 Her $10,000 $15,000 Required Income Gap

Solving the Required Income Gap Guaranteed Income Benefits are well-suited for closing the Required Income Gap The minimum guaranteed dollar amount of the lifetime guaranteed income withdrawal can be precisely determined in advance

Solving the Required Income Gap Total Retirement Savings 60 Year Old Male Retirement Age 65 $179,750 Index Annuity with Withdrawal Benefit provides $15,000 of Guaranteed Lifetime Income after 5 Years Total Retirement Savings $500,000 $320,000 Average Return of 5% $520,000 after 10 Years Income Need at Retirement $43,000 4% Fixed 5% Index 6% Investments $28,000 Social Security $15,000 Annuity Income $43,000 EXAMPLE CASE

Illustration Guaranteed Lifetime Withdrawal Benefit Premium: $179,750 | Issue Age: 60 | Number of Months Deferred: 60 5% Bonus 7.2% Compounded 5.5% Withdrawal Percentage

The Benefits In Withdrawal Benefits Guaranteed Income You Cannot Outlive What You See is What You Get – No Questions More Guaranteed Benefit

Potential Disadvantages Paying for Something You May Not Need Income Needs May Change Interest Rate Risk

Where Does It Fit? Consumers Seeking Future Guaranteed Income Consumers With Little Tolerance for Uncertainty Consumers Seeking a Plan Allocated as Part of a Consumer’s Portfolio, Not All

This Is Not Inflation Protection Don’t be fooled by the interest rate! The client does not earn 6, 7, or even 8%!! The client gets INCOME not INTEREST!!!

What is the client’s #1 concern? Index/Fixed vs VA “Why would I sell a Fixed or Index Annuity when I can sell a variable with a Withdrawal Benefit? What is the client’s #1 concern?

Three Things Clients Do With Their Money Save It Invest It Spend It

Three Things Clients Do With Their Money Save It Invest It Spend It (Now) Spend It (Later)

Savings Investments Protection Potential Income Income

Savings Investment Income Protection Potential Income

If Potential Growth is the primary goal for consumers… A Variable Annuity provides more potential earnings than Fixed and Index Annuities. (EVERY TIME.)

If Protection of Principal is the primary Goal… Fixed and Index Annuities provide the most protection on your clients principal, with a minimum interest rate guarantee.

If Guaranteed Income is the Primary Goal… Index Annuities provide the highest Guaranteed Income. 8% Annual Compounded Roll-up 10% Bonus (on income benefit) Competitive withdrawal benefit percentage

INCOME SAVINGS INVESTMENTS

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Index Annuity Withdrawal Benefits Nuts & Bolts Available with most index annuity carriers Annual Fees generally range between .30% and 1.25% The withdrawal benefit value is not the accumulated value Interest rates on the withdrawal benefit range between 4% and 8% The withdrawal benefit is a guaranteed lifetime payment – even if the account value is decreased to $0.

Minimum Guaranteed Contract Value Election Interest Credited Illustration Assumes $100,000 premium – unfavorable period – 7% Withdrawal Benefit Interest Rate Minimum Guaranteed Contract Value 89,250 91,035 92,856 94,713 96,607 98,539 100,510 102,520 104,571 106,662 Election Interest Credited 0.00% 6.50% 8.50% 0.00% 8.50% 8.40% 8.50% 0.00% 0.00% 8.50% Projected MGWB Base 112,350 120,215 128,630 137,634 147,268 157,577 168,607 180,410 193,038 206,551 Accum Value 105,000 111,825 121,330 121,330 131,643 142,701 154,831 154,831 154,831 167,991 Accum Value 104,562 110,867 119,757 119,220 128,743 138,905 150,012 149,309 148,556 160,362 Year Ending 01/31/1967 01/31/1968 01/31/1969 01/31/1970 01/31/1971 01/31/1972 01/31/1973 01/31/1974 01/31/1975 01/31/1976 $11,360/year Surrender charges may apply

Minimum Guaranteed Contract Value Election Interest Credited Illustration Assumes $100,000 premium – unfavorable period – 7% Withdrawal Benefit Interest Rate Minimum Guaranteed Contract Value 89,250 91,035 92,856 94,713 96,607 98,539 100,510 102,520 104,571 106,662 Election Interest Credited 0.00% 6.50% 8.50% 0.00% 8.50% 8.40% 8.50% 0.00% 0.00% 8.50% Projected MGWB Base Accum Value 105,000 111,825 121,330 121,330 131,643 142,701 154,831 154,831 154,831 167,991 Accum Value 104,562 110,867 119,757 119,220 128,743 138,905 150,012 149,309 148,556 160,362 Year Ending 01/31/1967 01/31/1968 01/31/1969 01/31/1970 01/31/1971 01/31/1972 01/31/1973 01/31/1974 01/31/1975 01/31/1976 $11,360/year Surrender charges may apply

Withdrawal Benefits are Not All Created Equal Important Questions to ask… 1. What value is the annual fee based on? 2. What happens at death? 3. Can you have a joint withdrawal benefit on qualified money? 4. Who will provide the highest payout at the time of distribution? 5. What product(s) provide the most upside if the client does not need the income in the future?

Positioning Withdrawal Benefits in the Retirement Income Plan

X Create a Plan

How to Sell Annuities… Create A New Plan Out With the Old

The Annuity Market is Changing Saving Money Creating Income Accumulation Phase Distribution Phase

This also pertains to retirement income The 21st Century Retiree With the current economic environment, more consumers are concerned about GUARANTEES than ever before. This also pertains to retirement income Many in this group are aware of the need to guarantee a portion of their retirement income, but do not know how to achieve it.

The process begins with inventorying retirement savings assets $ $$$ 401(k) $ IRA NQ Savings $$$ Total savings available for creating a retirement paycheck

Social Security Benefits How long is it expected to last? The next step is to identify sources of retirement income that are not savings-dependent. Social Security Benefits + Pension Rental Business Other How long is it expected to last?

Now we determine the clients’ retirement income needs and desires. Total Retirement Income Consists of Two Components Required Income + Lifestyle Income TOTAL RETIREMENT INCOME

The next step is to determine the “Required Income gap”. This is the difference between non-savings dependent income and the Required Income SIMPLE EXAMPLE Required Income @ Retirement $43,000 Social Security Benefits - $28,000 Him $18,000 Her $10,000 $15,000 Required Income Gap

Solving the Required Income Gap Guaranteed Income Benefits are well-suited for closing the Required Income Gap The minimum guaranteed dollar amount of the lifetime guaranteed income withdrawal can be precisely determined in advance

Solving the Required Income Gap Total Retirement Savings $196,078 Index Annuity with Withdrawal Benefit provides $15,000 of Guaranteed Lifetime Income after 5 Years 60 Year Old Male Retirement Age 65 Total Retirement Savings $500,000 $304,000 Average Return of 5% $495,184 after 10 Years Income Need at Retirement $43,000 4% Fixed 5% Index 6% Investments $28,000 Social Security $15,000 Annuity Income $43,000 EXAMPLE CASE

Illustration Guaranteed Lifetime Withdrawal Benefit Premium: $196,078 | Issue Age: 60 | Number of Months Deferred: 60 2% Bonus 10% Simple 5% Withdrawal Percentage

The Benefits In Withdrawal Benefits Guaranteed Income You Cannot Outlive What You See is What You Get – No Questions More Guaranteed Benefit

Potential Disadvantages Paying for Something You May Not Need Income Needs May Change Interest Rate Risk

Where Does It Fit? Consumers Seeking Future Guaranteed Income Consumers With Little Tolerance for Uncertainty Consumers Seeking a Plan Allocated as Part of a Consumer’s Portfolio, Not All

This Is Not Inflation Protection Don’t be fooled by the interest rate! The client does not earn 6, 7, or even 8%!! The client gets INCOME not INTEREST!!!

What is the client’s #1 concern? Index/Fixed vs VA “Why would I sell a Fixed or Index Annuity when I can sell a variable with a Withdrawal Benefit? What is the client’s #1 concern?

Three Things Clients Do With Their Money Save It Invest It Spend It

Three Things Clients Do With Their Money Save It Invest It Spend It (Now) Spend It (Later)

Savings Investments Protection Potential Income Income

Savings Investment Income Protection Potential Income

If Potential Growth is the primary goal for consumers… A Variable Annuity provides more potential earnings than Fixed and Index Annuities. (EVERY TIME.)

If Protection of Principal is the primary Goal… Fixed and Index Annuities provide the most protection on your clients principal, with a minimum interest rate guarantee.

If Guaranteed Income is the Primary Goal… Index Annuities provide the highest Guaranteed Income. One of the highest guaranteed income riders includes: 10% Annual Simple Roll-up 2% Bonus Competitive withdrawal benefit percentage

INCOME SAVINGS INVESTMENTS

Thank You for Joining Us Today.