Lincoln SmartIncome sm
Inflation annuity
helping keep pace during your retirement
Client Guide
the lincoln national life Insurance company lincoln life & annuity company of new york
Not a deposit Not FDIC-insured May go down in value Not insured by any federal government agency Not guaranteed by any bank or savings association
for Income Immediate Annuities
2048605
lIncoln for Income
we belIeVe...
Your income
should have
the potential
to grow
Your income
should weather
the market’s ups
and downs
Your income
should last
your lifetime
1 Source: Ned Davis Research, 2009. Based on the DJIA, 1901 to 2009. Past performance does not guarantee future results.
2 U.S. Bureau of Labor Statistics, June 2010.
3 Source: 2000 Annuity Tables, Society of Actuaries, April 2006.
4 www.IRS.gov.
5 LifePlans, Inc., “Long-Term Care Market Summary,” www.LincolnFinancial.com; Research & Analysis; January 15, 2010. For a printed copy of the report, call 877 ASK-LINCOLN.
Your income
should help
protect your
lifestyle
It all comes down to lIfestyle protectIon
what could sabotage your retIrement lIfestyle?
no matter what, you want a lifestyle you can count on in
retirement — regardless of the risks you’ll face
To have confidence that your retirement income can weather
these challenges, you need the right solution.
taXes
They can take a big bite out of your income. The top marginal tax bracket for many retirees in 2009 was 35%, so minimizing your tax burden can help stretch your savings.4 longeVIty
Your retirement could last 20 to 30 years or more. One member of a 65-year-old couple today has a 50% chance of living to age 92 and a 25% chance of living to age 97.3 InflatIon
You’ll need to maintain your purchasing power. Based on historical average inflation rates, if you need $50,000 today, you will need over $131,000 in 25 years — just to keep pace.2
marKet VolatIlIty
No one can predict what the market will do or when it will do it. The market has experienced annual returns ranging from greater than 50% to less than –40%.1
healthcare
Everyone needs it, and it can be expensive. Approximately 70% of Americans currently age 65 or older will need some type of long-term care — and the costs are rising faster than inflation.5
see the power of inflation over time
The longer you live, the greater the chance that inflation will erode the purchasing power of your money. If you rely on a fixed income for a number of years, inflation can become a serious concern. Over time, the purchasing power of that income significantly diminishes — even though it is the same dollar amount, it won’t buy as much as it did. The chart below shows how historical inflation, as measured by the Consumer Price Index-Urban (CPI) over the past 25 years, would affect the purchasing power of a $10,000 annual income.
While the payment itself remains steady at $10,000, the purchasing power — what it will actually buy — diminishes with time. A note about measuring inflation: The Consumer Price Index-Urban, published by the U.S. Bureau of Labor Statistics and referred to in this brochure as the “CPI,” measures changes in the prices paid by urban consumers for a representative basket of goods and services.
0 2000 4000 6000 8000 10000
1982 2009
$4,394 Fixed annual income payments
$0
$2,000
$4,000
$6,000
$8,000
$10,000
Purchasing power
Lincoln SmartIncome
smInflation annuity
As you can see, inflation doesn’t stop after retirement. Lincoln has a solution that helps maintain your purchasing power against inflation while protecting your income from market volatility so you can enjoy retirement. Lincoln SmartIncomeSM Inflation Annuity, a single premium annuity, offers you:
• Inflation adjustments to your income payments, calculated annually, based on changes in the CPI
• Income that’s guaranteed to last as long as you do
• Tax-efficiency for nonqualified money
• Emergency access to your Reserve Value
• Nursing home and terminal illness benefits
• Death benefit protection for your beneficiaries
• Control and flexibility
Data source: Bureau of Labor Statistics, August 2009.
Keeping pace with inflation
Adjusting for inflation each year can have a powerful impact on your income over time — helping you to be able to buy the same bag of goods tomorrow that you do today. The following illustration shows what could have happened if a 65-year-old male had purchased a Lincoln SmartIncomeSM Inflation Annuity contract with $1,000,000 in 1990.‡
Values based on CPI change from 1990 – 2009*
year
ending unscheduled
payment changecpI scheduled payment nontaxable
income reserve Value benefit death
12/31/1990 $0 N/A $43,445 $38,500 $956,555 $956,555
12/31/1991 $0 3.96% $45,167 $38,500 $949,294 $949,294
12/31/1992 $0 2.99% $46,517 $38,500 $931,157 $931,157
12/31/1993 $0 3.05% $47,935 $38,500 $911,603 $911,603
12/31/1994 $0 2.68% $49,217 $38,500 $886,780 $886,780
12/31/1995 $0 2.67% $50,534 $38,500 $859,967 $859,967
12/31/1996 $0 2.61% $51,850 $38,500 $830,520 $830,520
12/31/1997 $0 3.26% $53,538 $38,500 $804,017 $804,017
12/31/1998 $0 1.83% $54,517 $38,500 $764,201 $764,201
12/31/1999 $0 1.55% $55,361 $38,500 $720,670 $720,670
12/31/2000 $0 2.62% $56,813 $38,500 $682,753 $682,753
12/31/2001 $0 3.45% $58,771 $38,500 $647,512 $647,512
12/31/2002 $0 1.90% $59,885 $38,500 $599,901 $599,901
12/31/2003 $0 2.20% $61,201 $38,500 $551,888 $551,888
12/31/2004 $0 1.77% $62,281 $38,500 $499,348 $499,348
12/31/2005 $0 3.52% $64,475 $38,500 $452,464 $452,464
12/31/2006 $0 3.46% $66,703 $38,500 $401,396 $401,396
12/31/2007 $0 1.97% $68,020 $38,500 $341,298 $341,298
12/31/2008 $0 4.31% $70,949 $38,500 $285,046 $285,046
12/31/2009 $0 1.07% $71,708 $38,500 $216,387 $216,387
Income that lasts as long as you do
This amount would be your first scheduled payment, which would provide you with an income for the rest of your life, provided you do not take any unscheduled payments. Even if the total income you’ve received over the years exceeds your original premium, you’ll continue to get checks for as long as you live.†
You choose when payments begin.
•
You choose the payment frequency: monthly, quarterly,
•
semiannually or annually, and you can select the date of your payments.
Protection against inflation
Here’s how Lincoln SmartIncomeSM Inflation Annuity protects your income payments and purchasing power. Your income checks are adjusted annually to follow shifts in inflation — positive or negative — as measured by the CPI. Since inflation was at 3.96%, your scheduled payment would have increased to $45,167.
In the event of deflation, when the CPI decreases, you are protected with a guaranteed minimum payment amount, which is your initial scheduled payment. In this case, you’ll be guaranteed to receive no less than $43,445 should deflation ever occur, as long as you do not take unscheduled payments.
Any decreases that are not applied due to the guaranteed minimum payment amount will offset future increases in the CPI value.
Tax-efficient income
If you purchased Lincoln SmartIncomeSM Inflation Annuity with after-tax dollars (nonqualified), then only the interest portion of each income payment is taxable until the cost basis is recovered. The amount indicated here, $38,500, would represent the nontaxable amount of your payment, while any interest portion earned is taxable.
Protection from market volatility
Your money is never invested in the market, which means your scheduled payments are protected from losses, and they have the potential to grow based on changes in the CPI. From 2001 – 2002 and 2008 – 2009, which were years when the market was down, payments still increased as measured by a positive shift in the CPI.
Keeping pace with inflation
Adjusting for inflation each year can have a powerful impact on your income over time — helping you to be able to buy the same bag of goods tomorrow that you do today. The following illustration shows what could have happened if a 65-year-old male had purchased a Lincoln SmartIncomeSM Inflation Annuity contract with $1,000,000 in 1990.‡
Values based on CPI change from 1990 – 2009*
year
ending unscheduled
payment changecpI scheduled payment nontaxable
income reserve Value benefit death
12/31/1990 $0 N/A $43,445 $38,500 $956,555 $956,555
12/31/1991 $0 3.96% $45,167 $38,500 $949,294 $949,294
12/31/1992 $0 2.99% $46,517 $38,500 $931,157 $931,157
12/31/1993 $0 3.05% $47,935 $38,500 $911,603 $911,603
12/31/1994 $0 2.68% $49,217 $38,500 $886,780 $886,780
12/31/1995 $0 2.67% $50,534 $38,500 $859,967 $859,967
12/31/1996 $0 2.61% $51,850 $38,500 $830,520 $830,520
12/31/1997 $0 3.26% $53,538 $38,500 $804,017 $804,017
12/31/1998 $0 1.83% $54,517 $38,500 $764,201 $764,201
12/31/1999 $0 1.55% $55,361 $38,500 $720,670 $720,670
12/31/2000 $0 2.62% $56,813 $38,500 $682,753 $682,753
12/31/2001 $0 3.45% $58,771 $38,500 $647,512 $647,512
12/31/2002 $0 1.90% $59,885 $38,500 $599,901 $599,901
12/31/2003 $0 2.20% $61,201 $38,500 $551,888 $551,888
12/31/2004 $0 1.77% $62,281 $38,500 $499,348 $499,348
12/31/2005 $0 3.52% $64,475 $38,500 $452,464 $452,464
12/31/2006 $0 3.46% $66,703 $38,500 $401,396 $401,396
12/31/2007 $0 1.97% $68,020 $38,500 $341,298 $341,298
12/31/2008 $0 4.31% $70,949 $38,500 $285,046 $285,046
12/31/2009 $0 1.07% $71,708 $38,500 $216,387 $216,387
Emergency access through the Reserve Value
The Reserve Value is your premium less any scheduled income payments, unscheduled payments, related charges and taxes. Each year, your Reserve Value adjusts to reflect changes in the CPI.
You have the option to take emergency withdrawals, or unscheduled payments,† from your Reserve Value as long as it’s greater than $0. Please note that any unscheduled payments will significantly reduce your future regularly scheduled payments, including your guaranteed payment amount as well as your Reserve Value and death benefit, so carefully consider this before deciding to make an emergency withdrawal.
Unscheduled payments† over 10% of the Reserve Value taken in the first seven years are subject to unscheduled payment charges. If purchased prior to age 59½, any unscheduled payments taken within the first seven years, or before reaching age 59½, may subject current and prior taxable distributions to a 10% federal tax penalty.
Nursing home and terminal illness benefits
After your first contract year, you can choose to access your money without charges should you unexpectedly enter a nursing home or be diagnosed with a terminal illness as long as you meet certain conditions. The Lincoln SmartIncomeSM Inflation Annuity Nursing Home and Terminal Illness Waiver Benefits Guide contains necessary requirements and additional details for exercising these benefits. The nursing home benefit is not available on contracts issued in the state of Massachusetts.
Death benefit
If you, the annuitant, pass away, you can name beneficiaries to receive a death benefit, which is the remaining Reserve Value. If there are joint annuitants, the death benefit is available after the death of both annuitants. Your beneficiaries are responsible for any taxes on the death benefit amount received.
Lincoln SmartIncomeSM Inflation Annuity offers you some control over your money
After seven years, you can take any remaining Reserve Value out of the contract without incurring unscheduled payment charges.
Based on this example and using this feature, you would have received
$334,665 in scheduled payments over the first seven years and additionally have over $800,000 in remaining Reserve Value to take out. So you would have accumulated more than your $1,000,000 initial premium if you decided to take the remaining Reserve Value after seven years.
* This chart and CPI values shown are for illustrative purposes only. Past changes in the CPI are no guarantee of future changes in the CPI or of future adjustments to a Lincoln SmartIncomeSM Inflation Annuity contract. Actual future results may be more or less favorable than those shown. However, in no case will the scheduled payment adjustment result in a scheduled payment less than the applicable guaranteed minimum payment amount.
†Unscheduled payments are not available in New York.
‡Hypothetical annual rates are displayed and no unscheduled payments are taken. Actual rates are determined at the time of purchase and are based on age, gender, effective date of the contract, date payments start and payment frequency.
your right to end your contract
We are confident you will value the benefits of Lincoln SmartIncomeSM Inflation Annuity. However, if you choose, you have the right to cancel your Lincoln SmartIncomeSM Inflation Annuity contract within 20 days after you receive your contract (state variations apply). This is known as a “free look.” To cancel your contract, send a written request for cancellation to the Home Office of the appropriate issuing company. We will return your premium paid less any payments made to you. Upon receipt of your written request, canceling your contract voids it from the beginning. If you cancel your contract, you cannot purchase another Lincoln fixed annuity product for a period of six months. If you want to terminate your contract for any reason after the first 20 days, you may do so as long as there is a remaining Reserve Value.* This is known as terminating your contract. During the first seven years of the contract, you will incur an unscheduled payment charge as described in the Lincoln SmartIncomeSM Inflation Annuity Facts At-A-Glance. Terminating your contract means you will no longer receive any benefits or income payments from the Lincoln SmartIncomeSM Inflation Annuity.
protect your purchasing power with an income that lasts
a lifetime. speak with your agent or advisor to learn more
about how Lincoln SmartIncome
smInflation annuity can help
you face your future with confidence.
*Not applicable in New York.
Income lIfe
retIrement group benefIts adVIce
Important disclosures. please read. This material was prepared to support the promotion and marketing of an insurance product. Lincoln Financial Group® affiliates, their distributors, and their respective employees, representatives, and/or insurance agents do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein.
The exact terms of the annuity are contained in the contracts and any attached riders, which will control the appropriate issuing company’s contractual obligations. For more information about the annuity, please also read the Illustration, Disclosure, and Facts At-A-Glance, or contact your Lincoln representative. If purchased prior to age 59½, any unscheduled payments taken within the first five years, or before reaching age 59½, may subject current and prior taxable distributions to a 10% federal tax penalty. Unscheduled payments in excess of the annual free withdrawal amount may be subject to applicable unscheduled payment charges. Withdrawing any portion of the premium paid, unless received as part of the regularly scheduled payment, will significantly reduce subsequent scheduled payments. Lincoln SmartIncome SM Inflation Annuity single premium immediate annuity (contract form 07-611, or state variation) is issued by The Lincoln National Life Insurance Company, Fort
Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so. Contractual obligations are backed by the claims-paying ability of The Lincoln National Life Insurance Company.
Contracts sold in New York (contract form 07-611NY) are issued by Lincoln Life & Annuity Company of New York, Syracuse, NY, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer. Contractual obligations are backed by the claims-paying ability of Lincoln Life & Annuity Company of New York. Contract may be referred to as “certificate” in certain states (certificate may not be available in all states). The certificate is a group annuity certificate issued under a group annuity contract issued by The Lincoln National Life Insurance Company to a group annuity trust.
Purchase of the contract through a qualified plan does not provide any additional tax-deferral benefits beyond those already provided through the plan. If you are purchasing the contract through a plan, you should consider purchasing it for its death benefit, annuity options, and other non-tax-related benefits. Product and features are subject to state availability. Limitations and exclusions may apply.
Waiver of Unscheduled Charges for Nursing Home Confinement Rider and Waiver of Unscheduled Charges for Terminal Illness Rider (form AE-219 and form AE-218, respectively, or state variation) may not be available in all states. Nursing Home Rider not available for contracts issued in Massachusetts.
Not a deposit Not FDIC-insured Not insured by any federal government agency Not guaranteed by any bank or savings association May go down in value
©2010 Lincoln National Corporation 150 N. Radnor-Chester Road Radnor, PA 19087 www.LincolnFinancial.com Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Investment advisory services offered through other affiliates. Affiliates are separately responsible for their own financial and contractual obligations. LCN1012-2048605 RP 12/10 Z04
Order code: FA-SI-BRC398
helpIng you face your future wIth confIdence
at lincoln financial group, we’ve spent more than 100 years living up to the character of our namesake: integrity, honesty, and the belief in a better tomorrow. we provide advice and solutions to help people save for tomorrow, secure and maximize their income, protect themselves and their loved ones, and prepare for the unexpected.
