Navigating the Variable Annuity Along the Road to Retirement

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Navigating the Variable Annuity

Along the Road to Retirement

Matthew Chiccuarelli,

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Annuity Research Consultant

Commonwealth Financial Network

®

This presentation is intended for informational/educational purposes only and should not be construed as investment advice or a solicitation or recommendation to buy or sell any variable annuity. All examples are for illustrative purposes only and are not meant to be an endorsement for any product.

IMPORTANT INFORMATION: Variable annuities are long-term investment products designed

for retirement purposes and are subject to market fluctuation, investment risk, and possible loss of principal. Variable annuities contain both investment and insurance components and have fees and charges, including mortality and expense (“M&E”), administrative, and advisory fees. Optional features are available for an additional charge. An annuity’s value fluctuates with the market value of the underlying investment options, and all assets accumulate tax-deferred. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59½, may be subject to a 10% federal tax penalty Withdrawals will reduce the death benefit and cash subject to a 10% federal tax penalty. Withdrawals will reduce the death benefit and cash surrender value.

Investors are advised to consider the investment objectives, risks, and charges and expenses of the variable annuity and its underlying investment options carefully before investing. The applicable variable annuity prospectus contains this and other important information about the variable annuity and its underlying investment options. Please contact your financial professional for a free prospectus. Read it carefully before investing or sending money. Products and features are subject to state availability.

All contracts and rider guarantees, including those for optional benefits, fixed sub-account crediting rates, or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer or insurance

agency from which this annuity is purchased, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer.

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The variable annuity*

•

A tax-deferred investment strategy can offer

additional insurance guarantees aimed at

additional insurance guarantees aimed at

helping to meet both longevity and legacy

needs.

*All contracts and guarantees, including those for optional benefits, fixed sub-account crediting rates, or annuity payout rates are backed by the claims-paying ability of the issuing insurance company.

Components of the VA

•

Chassis

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Based on share class

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CDSC/Surrender Schedule, Mortality & Expense

(M&E)

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Benefit riders (insurance guarantees)

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Account Value vs. Benefit Base

–

Rider charge

•

Subaccounts

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Let’s focus on these

insurance guarantees . . .

The death benefit

•

M&E fee covers contract’s basic Death

Benefit (DB)

Benefit (DB)

•

Other options

–

High Anniversary Value (HAV)

–

Percentage roll-up

–

Earnings enhancement

•

Additional DB guarantees usually work

against the living benefit, and visa versa

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The GMAB

Guaranteed Minimum Accumulation Benefit

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Guarantees the return of initial purchase payment

after a specified waiting period

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Usually 10-year hold

•

Some offer step-ups

•

Hedged by limiting access to equities

–

Access diminishes over time

The GMWB

Guaranteed Minimum Withdrawal Benefit

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Guarantees the return of purchase payment through

NON-lifetime systematic distribution schedule

–

Age-banded withdrawals

•

Not nearly as popular as lifetime

income benefits, but a cheaper alternative for an

income guarantee

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Lifetime GMWB Vs. GMIB

Lifetime Guaranteed

Minimum Withdrawal

Guaranteed Minimum

Income Benefit

Benefit

•

Both guarantee a lifetime stream of income for the

client, while accumulating a benefit base

•

Most popular

•

And . . . most expensive

p

Know the differences

Lifetime GMWB

•

Aggressive guarantees

GMIB

•

Increase flexibility

•

Aggressive guarantees

–

Higher roll-ups

–

Doubling features

–

Age-banded withdrawals

•

Most numerous

•

More rigid

•

Stick to the plan

•

Increase flexibility

–

Start and stop withdrawals

–

Ability to simultaneously

withdraw income and grow

benefit base

–

Single or joint life

decision postponed

•

Forced annuitization

p

–

Early withdrawals

disrupt deferral

–

Potential to void

certain features

–

Triggering age

–

Depleted account value

–

Pay cuts?

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Key features for

“income now” individuals

•

No opportunity for deferral credits

Only for those who wait but everyone pays

–

Only for those who wait, but everyone pays

•

Stripped-down costs

–

Some companies able to strip off 50%

•

Can have a better rising income story

–

Lower cost, less drag

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•

Exceptions

–

GMIBs

•

Single Premium Immediate Annuities (SPIA)

Key features for

“income later” individuals

•

Focus on deferral credits

Stacking

–

Stacking

–

“Doubling”

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Compound vs. simple interest

•

Income in 10 years

–

Focus on a “double”

•

Income later than 10 years

•

Income later than 10 years

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This is a lot to absorb

•

Break each case down

I f

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Information gathering

•

For the general public:

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Have an idea of what you want to achieve

–

Consult with a licensed professional

•

For financial professionals:

p

–

Know the investor; survey your book of business

–

Establish relationships with good

external wholesalers

FAQs

•

Where is the VA market headed?

Wh

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b

fi ?

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