Retirement Security and the Affluent Walter H. Zultowski, Ph.D. WZ Research + Consulting, LLC RIIA Webinar January 19, 2011

Questions to be Answered: What are the retirement security needs and concerns of the affluent? How are these needs and concerns changing? What about the longevity risk? How are they adjusting? What about the use of annuities? Are they getting help? 2

Source: The Phoenix Wealth Survey Annual survey of affluent households ($1M+ of net worth, not including primary residence) Conducted continually for 11 years; 2000 – 2010 Most recent data collected First Quarter, 2010 To be continued in 2011 as the “LIMRA Affluent Monitoring Program” 3

Retirement Security Needs and Concerns 4

A GoalMost Important Goal Comfortable std of living in retirement87%46% Not running out of money in retirement80%23% Health insurance in retirement68%3% Long-term-care for self/spouse66%5% Protect estate from taxes60%5% Minimize income/capital gains taxes47%4% Leave estate to heirs45%4% Children’s college education20%5% Transfer wealth to beneficiaries19%2% Care for parents/in-laws14%1% Source: 2010 Phoenix Wealth Survey 5 Financial Goals

$1 - $2M$2 – 3M$3 - $5M$5M+ Comfortable std of living47%51%47%26% Not running out of money26%18%17% Long-term-care for self/spouse 4%10%6%4% Health insurance in retirement 3%1%3%7% Source: 2010 Phoenix Wealth Survey Most Important Retirement Goals by Level of Wealth 6

Inflation eroding value of assets55% Poor investment performance diminishing assets51% Assets depleted too quickly50% Unforeseen healthcare expenses wiping out assets49% Outliving assets47% Source: 2010 Phoenix Wealth Survey 7 Financial Risks to Retirement Security

$1 - $2M$2 – 3M$3 - $5M$5M+ Inflation eroding value of assets 56%59%56%43% Poor investment performance diminishing assets 52% 41% Assets depleted too quickly 53%46%51%33% Unforeseen healthcare expenses wiping out assets 52%51%47%32% Outliving assets48%49%42%37% Source: 2010 Phoenix Wealth Survey Financial Risks to Retirement Security by Level of Wealth 8

How Are These Needs and Concerns Changing? 9

Most Important Financial Goal Over Time Source: Phoenix Wealth Survey 10

Inflation eroding value of assets 42%50% 55% Poor investment performance diminishing assets 33%39%51% Assets depleted too quickly 36%40%44%50% Unforeseen healthcare expenses wiping out assets 43%44%42%49% Outliving assets33%35%40%47% Source: Phoenix Wealth Survey Financial Risks to Retirement Security Over Time 11

What About Longevity? 12

Current AgeMedian Life Expectancy < – – Source: 2009 Phoenix Wealth Survey 13 The Psychology of Longevity

30% 41% 6% 21% The Psychology of Longevity 2% Source: 2009 Phoenix Wealth Survey 14 Description of Current Health Relative to Peers

Importance of Longevity Planning Source: 2009 Phoenix Wealth Survey 15

How Are They Adjusting? 16

9% 79% 12% Planning on Retiring Full-Time Someday? Source: 2010 Phoenix Wealth Survey 17

In Terms of Current Income Less than 80%19%17%22%21%24% 80% to 100%40%36%41%36%37% 100%28%32%25%29%28% 101% to 120%7%8%6% Over 120%6%7%6%8%5% Source: 2010 Phoenix Wealth Survey Definition of a Comfortable Standard of Living in Retirement 18

The Use of Annuities 19

OwnershipTotal$1 - $2M$2 – 3M$3 - $5M$5M+ Variable Annuities18%16% 22%27% Fixed Annuities15%13%16% 25% Future Purchase Intentions Variable Annuities5%3%5%8%16% Fixed Annuities4%2%5% 16% Source: 2010 Phoenix Wealth Survey Use of Annuities by Level of Wealth 20

Are They Getting Help? 21

Total72% $1M - $2M69% $2M - $3M71% $3M - $5M77% $5M +82% Source: 2010 Phoenix Wealth Survey 22 Percent With a Primary Financial Advisor by Level of Wealth

Primary Advisor Assists With… Interested in Receiving from Primary Advisor… Investing Advice75%7% Financial Planning67%12% Asset Allocation54%10% Retirement Planning54%12% Tax Planning40%18% Estate Planning37%16% Source: 2010 Phoenix Wealth Survey 23 What Are They Getting Help With?

Total26% $1M - $2M21% $2M - $3M27% $3M - $5M30% $5M +48% Source: 2010 Phoenix Wealth Survey 24 Percent With an Advisor for Life Insurance by Level of Wealth

34% 29% 37% Talked to an Advisor About Longevity Planning? Source: 2010 Phoenix Wealth Survey 25

Asset Allocation Strategies53% Deferred Annuities50% Managed Distribution Offerings48% Payout Annuities39% Longevity Insurance29% Other6% Source: 2009 Phoenix Wealth Survey 26 Longevity Planning Solutions Discussed

Observations… Wealth does not ameliorate retirement security concerns Traditionally, retirement security for the affluent was primarily about lifestyle protection The Great Recession has heightened their concern over all risks associated with retirement security, even the risk of outliving assets The affluent would rather change their lifestyle in retirement than continue working 27

Observations (cont’d)… The affluent market is underpenetrated when it comes to annuities The affluent market is highly penetrated when it comes to having advisors But, the majority of those advisors approach retirement planning with an investment/asset allocation mindset rather than an insurance mindset Longevity planning, as a subset of retirement planning, is of interest to the affluent 28

Opportunities Annuities, in general, should witness an increase in sales The bigger opportunity rests in positioning and promoting retirement security as an insurance problem, not just an investment/asset allocation problem Educate, and work with, investment-oriented advisors on this opportunity New products: –Insurance wrappers applied to investment products/portfolios –Indexed annuities (a return play on the fixed portion of a client’s portfolio) 29

Questions? 30

|