Jefferson Pilot Financial Annuit by liuqingyan

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									      The Retirement Boom
                    SPIAs in Action!


            Jefferson-Pilot Life Insurance Company




                                                            1
FA-04726E
                                                     8.05
                       Agenda
 Income Market
 Financial Risks in Retirement
 Today’s Retirement Market
 Retirement Income & Expenses
 Retirement Planning Challenges
 Prospects for Immediate Annuities
 How SPIAs Work
 SPIA Sales Opportunities

                                             2
 FA-04726E                            8.05
                                Income Market
         The Future of a Growing Market: Years 2010 & 2025
                                                           40 Million
                                                           Age 65+
                70
                60
                                40 Million
                50              Age 65+

                40
                                                                                  Total
                30                                                                Population
                20
                10
                 0
                              2010                     2025


Source: Drinkwater, Matthew. “The Annuitization Market: Any Way You Slice It, It’s Gigantic”. LIMRA’s
MarketFacts Quarterly, Spring 2004.                                                                            3
    FA-04726E                                                                                           8.05
                                    Income Market
When they plan to retire: Ages 55-75


                          Retired                                                     5 Years
                           46%                                                          23%




                                                                                  5 years +
 *Number of Households
                                                                                     31%
 Source: Drinkwater, Matthew. “The Annuitization Market: Any Way You Slice It, It’s
 Gigantic”. LIMRA’s MarketFacts Quarterly, Spring 2004.                                                4
       FA-04726E                                                                                8.05
    Most Important Reasons for
           Annuitization
                     3%         5%
                                            7%

                                                                  Provide temporary income
                                                 16%              Not be a burden
                                                                  Specific Expense
                                                                  All other reasons
69%
                                                                  Guaranteed income
            Source: Drinkwater, Matthew. “Annuitization Study.” LIMRA, 2003.
                                                                                                    5
FA-04726E                                                                                    8.05
                    Retirement Triggers
                   Trigger                   % Retirees               % Pre-Retirees
              Health
              (self or family)                    32%                          23%
              Eligible for
              employer                            15%                          17%
              pension
              Reduce Stress                       13%                          18%
              Financially able                    12%                          21%
              Eligible for SS                     10%                          12%
              Forced                               6%                           NA
              Other                                6%                           9%
Source: LIMRA. Triggers and Thresholds for Financial Advice. 2004. James Mitchell, Joy Hansen, Linda Roland.      6
  FA-04726E                                                                                                8.05
                    Years in Retirement
                                          at Age 65
 Avg. Retirement Age                Yrs in Retirement             Life Expectancy



      2000



      1990



      1980



      1970



      1960


             60                   70                      80                       90
Source: Centers for Disease Control, Life expectancy at birth and at 65 years of
age by sex and race, 1900-2002 Health, United States 2004, table 27.                           7
  FA-04726E                                                                             8.05
     Years in Retirement: Men (1960-2000)
    Avg. Retirement Age                Yrs in Retirement              Life Expectancy



   2000                                    18.8                                  80.8

                62
   1990    62.6                            17.4                                   80


   1980        63                           16                                    79


   1970        64.2                        13.9                                  78.1


   1960         65.7                       12.2                                  77.9


          60                         70                          80                            90
Source: Frank Pompa, USA Today. Murray Gendell, Center for Population Research at Georgetown
University, Social Security Administration. February 2005.                                                 8
          FA-04726E                                                                                 8.05
Years in Retirement: Women (1960-2000)
     Avg. Retirement Age                Yrs in Retirement              Life Expectancy


    2000                                    22.5                                  83.9

                 61.4
    1990    62.8                            21.2                                   84


    1980        63.2                        20.2                                  83.4


    1970         64.2                       17.9                                  82.1


    1960          66.1                      14.8                                  80.9


           60                         70                          80                            90
 Source: Frank Pompa, USA Today. Murray Gendell, Center for Population Research at Georgetown
 University, Social Security Administration. February 2005.
                                                                                                            9
     FA-04726E                                                                                       8.05
                           How Long Will Money Last?
                                   Hypothetical Example

             CAPITAL NEEDED to provide $1,000 monthly income

                     $300
                                  $200,575*
                                                    $166,361*
      In Thousands




                     $150                                              $104,879*



                      $0

                                 30 Yrs        20 Yrs.         10 Yrs.
$0 capital at end of time period.
*Based on Jefferson Pilot SPIA rates effective 9/1/05 and subject to change . Assumes income begins one month from
date of purchase.
                                                                                                                     10
                     FA-04726E                                                                              8.05
            Priority of Risks for Retirees

1.     Health
       Prescription drugs, health & long term care costs.

2.     Financial
       Tax increases, inflation, prolonged stock market
       downturn, decline in interest rates.

3.     Longevity
       Outliving assets, spousal mortality, order of death.




 Source: LIMRA, 2003. “Retirement and the Middle Market”

                                                                     11
       FA-04726E                                              8.05
 Financial Risks in Retirement




                                    12
FA-04726E
                                 8.05
               Financial Risks

 Prolonged stock market downturns

 Declines in interest rates

 Inflation & Taxation

 Decline in Defined Benefit Plans

 Potential downturn in housing market
  when Boomers sell homes



                                                13
 FA-04726E                               8.05
                  Impact of Inflation
            How much will your clients’ money be worth in
            coming years at various inflation rates?

                Age         4%         3%         2%


                65        $10,000    $10,000    $10,000


                70         8,219      8,626      9,057

                80         5,553      6,419      7,430

                90         3,751      4,776      6,095

                100        2,534      3,554      5,000

                                                                   14
FA-04726E                                                   8.05
            Add Taxes to Inflation

                                      After Tax
                    Return   1-Year               After 3%    Real
  Amount Invested                       (30%
                     Rate    Return               Inflation   Rate
                                        Rate)



       $10,000       2%      $200      $140        $9,845     <0%


                                                              <0%
       $50,000       4%      $2,000   $1,400      $49,903



      $100,000       6%      $6,000   $4,200      $101,165    1.65%

                                                                        15
FA-04726E                                                        8.05
         Not All Inflation Is Equal
                                Inflation: a CPI Perspective

                                       Of 50 top RX drugs
                                     for seniors, more than
                               300
                                         half (27) rose in
                                              price.*
        Consumer Price Index




                               250



                                                                       Food & Beverage
                               200                                     Housing
                                                                       Transportation
                                                                       Medical Care
                                                                       Medical Care Services

                               150




                               100
                   1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
*U.S. Department of Labor & Senior Journal, July 2003
Today’s Retirement Market
            Psyche Matters




                                17
FA-04726E
                             8.05
Pre-Retirement Psyche – Boomers
                                        ’46-’64
                          1940      1950      1960   1970   1980   1990   2000


                     27% of population; 76 million

                     What’s important to them?
                      –   “New mature” market wants to postpone aging
                      –   55% control 2/3 of nation’s financial assets
                      –   Discretionary $ to spend
                      –   Absence of “disposable time”; complex lifestyles


Source: LIMRA and Demographics Today. 2004.
                                                                                        18
     FA-04726E                                                                   8.05
  New Life Stages for Boomers
Challenges and Opportunities
     –      Empty-nesting
     –      Caregiving
     –      Grandparenthood
     –      Retirement
     –      Re-hirement (2nd careers)
     –      Widowhood



                                               19
FA-04726E                               8.05
Retirement Income & Expenses

             Finding the Niche for SPIAs




                                              20
 FA-04726E
                                           8.05
Sources of Income for Retirees
                                                          Percent of Retirees as
 Major Income Source
                                                                 of 2003
 Social Security                                                    61%

 Defined Benefit Pension                                            59%

 Personal Savings                                                   26%

 Job Earnings                                                       15%

 IRA                                                                14%

 Defined Contribution Plan                                          10%

 Annuities                                                          10%

  Source: Drinkwater, Matthew. “Annuitization Study, LIMRA, 2003.
                                                                                          21
FA-04726E                                                                          8.05
                             Social Security
Social Security and Pensions account for 75% of current
income sources for most retirees.
 Year        Workers                                          Ratio
 1945                                                         42 workers to 1
                                                              recipient




 1997                                                         3.3 workers to 1
                                                              recipient

 2020                                                         2.6 workers to 1
                                                              recipient


Profile of Older Americans, Administration on Aging, 1998
Office of the Actuary, Social Security Administration, 1998                             22
 FA-04726E                                                                       8.05
                  Pension & Savings
 Defined Plans
   – Only 40% of boomers have any pension coverage
     at all
   – More employers are shifting the responsibility of
     saving for retirement to employees

 Personal Savings
   – Only 6% of eligible workers save in IRAs
   – Fewer than half of all households own stock
     portfolios worth more than $5,000
   – Typical boomers may inherit between $10,000 and
     $30,000

  Source: LIMRA                                                 23
  FA-04726E                                              8.05
                  Personal Savings Rates
                        1960-2000
12%
10%
8%
6%
4%
2%
0%
          1960          1970           1980           1990           2000            2005
                    Percent of Disposable Personal Income

       Source: Bureau of Economic Analysis, Department of Commerce. January, 2005.                 24
      FA-04726E                                                                             8.05
Mutual Funds & Other Equity Investments


   Advantages            Disadvantages
     – Diversification      – Risk/return
     – Capital Gains
       taxation             – Liquidity
     – Risk/return          – No tax-deferral




                                                       25
   FA-04726E                                    8.05
CDs and Other Savings Accounts


 Advantages               Disadvantages
  – Perceived liquidity      –No tax-deferral
  – FDIC insured




                                                   26
 FA-04726E                                  8.05
             Income Changes at Retirement
                                                   Current Household Income

                  Pre-retirement               Less than      $35,000 -     $50,000 -      $75,000 or
                  household income              $35,000        $49,999       $74999          more



                  Less than $35,000             90%             8%             1%            1%         =100%

                  $35,000 - $49,999             59%            28%             9%            4%         =100%

                  $50,000 - $74,999             27%            43%            19%            11%        =100%

                  $75,000 or more                5%            13%            32%           50%         =100%

Source: Drinkwater, Matthew. “Retirement Planning – The Ongoing Challenge.” LIMRA, 2003.                          27
            FA-04726E                                                                                      8.05
                            Is Retirement Cheaper?
                                Actual and Anticipated Expenses in Retirement
                              Percent Reporting Significant Increase in Retirement
                                                                                                             41
                                              Travel                                                29

                                                                                               17
                             Insurance (life, health)                                          17

                                                                                    10
                        Home health care services                                        12

                                                                            7                            Pre-retirees
                                     Entertainment                                  10

                                                                        5
                                                                                                         Retirees
                                           Housing                              8

                                                                    4
                                       Automobiles                                       12

                            Financial assistance for            3
                            family members                                                    16

                                                                3
                                Personal services                                    11

                                                            2
                         Gifts, charitable donations                                     12

                                                        1
                                          Clothing                  4

                                                                        5
                                    Total expenses                                             17

Source: Drinkwater, Matthew. “Retirement Planning – The Ongoing Challenge.” LIMRA, 2003.                                 28
            FA-04726E                                                                                             8.05
Retirement Planning Challenges
              Knowing Where SPIAs Fit




                                           29
  FA-04726E
                                        8.05
                   Fact-Finding
1) Determine retirement income needs vs. current
   projections

2) Discuss retirement options
   a) Work options – do they love to work?
   b) Will spouse be ready to retire or a source of
      income?
   c) Living arrangements?




                                                             30
  FA-04726E                                           8.05
                     Fact-Finding
3) The Process
    a) Build trust
    b) Gather data on current investments
    c) Estimate post retirement sources of income
    d) Estimate post retirement expenses
    e) Provide need vs. actual for income to expense
       ratio
    f) Explore current holdings that might be best suited
       for a SPIA



                                                                   31
FA-04726E                                                   8.05
     Appropriate Asset Allocation
 Understanding risk tolerance
   – Fully explain risks
   – Ask lots of questions
 Age appropriate investments
   – Time until needed
   – What type of income needed
   – How long needed
 Staggering SPIAs




                                           32
 FA-04726E                          8.05
Prospects for Immediate Annuities
               And Why?




                                    33
   FA-04726E
                                8.05
       Basic Profile: SPIA Buyers

  70 ½ years old
  Risk Intolerant
  Estate Consideration: using for Estate
   Planning (Estate taxes & Wealth
   Transfer)
  Retirement Considerations: 80% sold to
   give guaranteed income in retirement


   Source: LIMRA
                                                   34
FA-04726E                                   8.05
                        Basic Profile: Annuitants
               Nonqualified Annuitants are:
                 – Primarily over age 75
                 – Highest $ Annuitizers
               3 in 5 Annuitants are married
               More likely to have a college or post-graduate degree
               Most have at least $100,000 in liquid financial assets (10%
                have $1 million or more)
               71% of all Annuitants have life insurance coverage
               2% of Deferred Annuities are Annuitized


Source: LIMRA. Annuitization Study: Profiles and Attitudes. 2004.
                                                                                     35
            FA-04726E                                                         8.05
                           Sales Opportunities

           Consider cross-selling income annuities to existing life
           insurance customers.
       2/3 of Annuitants purchased other financial products from
        the same source that sold them the annuity.
       1/3 of Annuitants have never had a personal life insurance
        agent – so 2/3 have!
       41% of Annuitants have someone they consider their
        personal life insurance agent.
       Pursue Rollovers from employer-sponsored plans and IRA
        withdrawals.


Source: LIMRA. Annuitization Study: Profiles and Attitudes. 2004.
                                                                             36
           FA-04726E                                                  8.05
Why Buy an Immediate Annuity?

 It is the only product that can offer
 an income that cannot be
 outlived!
 And
 The insurance industry is the
 only industry that can offer this
 type of guarantee.
                                                37
 FA-04726E                               8.05
            Immediate Annuities as a
               Funding Vehicle

1) Life Insurance Second to Die
2) Long Term Care
3) Retirement Home Costs
4) Property Settlement
5) Business Buy/Sell Agreements




                                              38
FA-04726E                              8.05
            How SPIAs Work




                                39
FA-04726E
                             8.05
                SPIAs Defined

“An investment from which one receives an
 income for a lifetime or a specified number of
 years.”

Source: Webster’s Dictionary




                                                         40
FA-04726E                                         8.05
                           SPIA Payout Options
                           The Significance of the Payout Option.


 Nearly 9 out of 10 Annuitants said the income provided by their
 annuity increased their confidence in meeting the financial
 challenges of retirement.




Source: Drinkwater, Matthew. “The Annuitization Market: Any Way You Slice It, It’s Gigantic”. LIMRA’s MarketFacts Quarterly,
Spring 2004.
                                                                                                                               41
          FA-04726E                                                                                                   8.05
            SPIA Payout Options

1) Certain Only
   Pays for defined period selected
    (ex. 10 years, 20 years)

2) Life Only
   Pays as long as the individual lives

3) Certain & Life
   Pays for defined period plus life

4) Installment Refund
   Lifetime income or until premium is recovered

5) Joint & Survivor
   Pays for length of two measuring lives
                                                          42
FA-04726E                                          8.05
                       Exclusion Ratio
      Ratio of Periodic Payment Excluded from Taxes

                    Qualified                          Non-Qualified
            (Purchased with pre-tax dollars)      (Purchased with after-tax dollars).

      The whole payment                        A part of each monthly
      received each month from                 payment is considered a
      a qualified annuity is                   return of previously taxed
      taxable as income (since                 principal and therefore
      income taxes have not yet                excluded from taxation. A
      been paid on these funds).               part is considered taxable
                                               income. The amount
                                               excluded from taxes is
                                               calculated by an
                                               Exclusion Ratio.
                                                                                               43
FA-04726E                                                                               8.05
                  Exclusion Ratio
Example #1 (Hypothetical)
65 year old Male Purchaser pays a premium of $100,000

 Selects Payout of 10 Years Certain & Life
 Each Payment Contains Principal and Interest
 Exclusion Ratio = 64.70%

              Taxable Portion        $213.69

              Non-Taxable Portion    $391.65

              Monthly Payment        $605.34
                                                               44
  FA-04726E                                             8.05
                   Exclusion Ratio
Example #2 (Hypothetical)
65 year old Male Purchaser pays a premium of $100,000

 Selects Payout of 10 Years Certain
 Each Payment Contains Principal and Interest
 Exclusion Ration = 85.20%

              Taxable Portion        $144.76

              Non-Taxable Portion    $833.32

              Monthly Payment        $978.08
                                                               45
  FA-04726E                                             8.05
                   Exclusion Ratio
Example #3 (Hypothetical)
65 year old Male transfers $100,000 from a Deferred
  Annuity to a SPIA

•   Contains $50,000 Principal and $50,000 Interest
•   Selects Payout of 10 Years Certain & Life
•   Each Payment Contains Principal and Interest
•   Exclusion Ration = 32.35%

                         Taxable Portion              $409.51

                         Non-Taxable Portion          $195.83

                         Monthly Payment              $605.34
                                                                       46
     FA-04726E                                                  8.05
 SPIA Market Opportunities




                                47
FA-04726E
                             8.05
               Wealth Transfer
         Client owns a
        deferred annuity
          not needed
         for income or
         emergencies.
                           1035 Exchange it for an
                           immediate annuity with
                           payments going into a
                           life policy that pays a
                           tax free death benefit.



                                                            48
FA-04726E                                            8.05
                           Wealth Transfer
  What happens to a deferred annuity left in the
  estate after death? (Assumes $100,000 premium
  for each issue age.
                                  Income Tax                          Approximate
                                                 Estate Tax @
         Age         SPDA          @ Death*
                                                 Death (47%)           Inheritance
                                     (25%)

          65       $172,935     $9,664          $81,279          $81,992

          70       $221,939     $16,157         $104,311         $101,471

          75       $284,828     $24,490         $133,869         $126,469

          80       $365,537     $35,184         $171,802         $158,551

          85       $469,114     $48,908         $220,484         $199,722

*Includes an income tax deduction for estate taxes paid on the income in respect of a
decendent (IRD) under IRC Sec. 691 ( c ).
                                                                                               49
       FA-04726E                                                                        8.05
                Wealth Transfer
STEP 1:
  1035 Exchange the deferred annuity for an immediate
  annuity

STEP 2:
  Pay income tax on exclusion ration.

STEP 3:
  Use part of the immediate annuity to pay tax on the non-
  excludable portion of immediate annuity proceeds;

STEP 4:
  Purchase a life insurance policy with remaining immediate
  annuity proceeds.




                                                                     50
FA-04726E                                                     8.05
                Funding Vehicle


A SPIA can be used for:
1. Funding 2nd to Die
2. Retirement Home Costs
3. Estimated Taxes




                                         51
  FA-04726E                       8.05
                Estate Planning

       Client using
       life insurance
       for estate
       planning.

                        Pay the premium for
                        joint and survivor life
                        policy with an
                        immediate annuity to
                        further reduce the
                        taxable estate.


                                                         52
FA-04726E                                         8.05
               Estate Planning

STEP 1:
  Irrevocable life insurance trust is created and will
  be the owner of the life insurance.

STEP 2:
  The trustee applies for life insurance.

STEP 3:
  SPIA pays a portion to trustee to pay life
  insurance premiums, and another portion to pay
  income taxes generated by the SPIA.

                                                                53
FA-04726E                                                8.05
                   Estate Planning

Benefits:


1) Funds are removed from taxable estate via SPIA premium.

2) Life insurance will pay to beneficiaries outside of taxable
   estate, reducing effect of income and estate taxes.

3) Increase amount of assets that ultimately pass to heirs at
   death.




                                                                        54
 FA-04726E                                                       8.05
            Funding LTC Coverage

       Client wants
       to pre-pay
       long term care
       coverage.

                        Purchase an immediate
                        annuity to make the
                        long-term care premium
                        payments for the client.



                                                          55
FA-04726E                                          8.05
                  Split Annuity

        Client needs
         income but
       wants to protect
          principal.



                          Split premium between a
                          SPIA and a deferred
                          annuity.



                                                           56
FA-04726E                                           8.05
                      Split Annuity
                      Hypothetical Example
                     $100,000 Total Premium

            Immediate Annuity     Deferred Annuity


            Premium $15,392       Premium $84,608


              5-year monthly      Value at end of 5
                 income:               years:
                   $257          @ 3.40% $100,000

                                                             57
FA-04726E                                             8.05
                     Split Annuity
                     Hypothetical Example
                    $100,000 Total Premium

       Immediate Annuity          Deferred Annuity


            Premium $29,763       Premium $70,237



    10-year monthly income: Value at end of 10 years:
            $280.38           @ 3.60% $100,000


                                                               58
FA-04726E                                               8.05
                Gifting Income

       Grandparents want to
           give a gift to
        grandchildren but
       would like the money
          to last forever.


                              A $11,000 gift provides
                              a 15-year-old child
                              with x amount for 5 years
                              or y amount for 10 years
                              and meets the annual
                              exclusion from
                              gift tax.
                                                                 59
FA-04726E                                                 8.05
                  Gifting Income


Additional gifts may be used to purchase deferred annuities
      that can later be converted to additional income.




                                                                60
   FA-04726E                                             8.05
             Divorce Decrees &
            Property Settlements


        Divorce presents
         several financial
      concerns for the client.


                                 An immediate annuity
                                 can provide the alimony
                                 or support obligations
                                 when they come due.


                                                                  61
FA-04726E                                                  8.05
                 Business Buy/Sell

            Seller is asking a
            higher price for
            business than buyer
            is willing to pay, and
            seller would like tax
            benefits.

                                     Structure an installment
                                     purchase and fund it
                                     with an Immediate
                                     Annuity.

                                                                       62
FA-04726E                                                       8.05
                Handling Distributions

       Minimum Required Distributions
       Income from a Retirement Plan
       The basic RMD requirement will be met if
        the qualified account is annuitized
        through the purchase of a SPIA.




                                                          63
    FA-04726E                                      8.05
            Security & Control
                   Client’s Portfolio



      Pension                           Social Security
        Plan



            SPIA
                           Portfolio of Mutual Fund,
                                Stocks & Bonds

                                                                 64
FA-04726E                                                 8.05
      Example Retirement Living

                                   Discretionary &
        Essential Living Costs
                                 Emergency Spending
            provided by:
                                    provided by:
             Social Security        Mutual Funds
            Company Pensions           Stocks
            Deferred Annuities         Bonds
                 SPIAs




                                                             65
FA-04726E                                             8.05
                SPIAs Offer...

 Simplicity
 Security
 Flexibility
 Tax Advantages
 Guarantees


                                        66
FA-04726E                        8.05
            What’s In It For You?


      Help your client and get a piece of the
        Retirement Income Marketplace
       as the largest generation in history
                  comes of age.




                                                       67
FA-04726E                                       8.05
                   Questions?


                Annuity Marketing
                 888-895-4830
            Annuitymarketing@jpfinancial.com




                                                      68
FA-04726E                                      8.05

								
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