UNDERSTANDING THE MMBB ANNUITY

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UNDERSTANDING

THE MMBB ANNUITY

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Real planning, real solutions. That’s our calling. | 2

• What are the Three Types of Annuities?

• Know the Difference: Understanding Exactly What

Insurance Companies are Selling You

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Immediate

Fixed

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Real planning, real solutions. That’s our calling. |

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•  You remit lump sum in exchange for lifetime income •  Payments may stay the same

•  Fixed, so it has inflation risk

•  Payments may fluctuate based on interest rates or market returns •  Variable, so it has stock market risk. However, it only risks the

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•  Most important aspect of this annuity is that the longer you (or

your spouse) live, the more “interest” you receive from annuity

•  If you invest $500,000 and receive $28,380 / year your “Internal

Rate of Return” depends on how long you live:

•  10 years: -9.16%

•  20 years: 1.24%

•  25 years: 2.9%

•  30 years: 3.85%

•  No other payments are made upon death of both annuitant and spouse

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Pro

Money will last for your life and

(if elected) your spouse’s life

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•  Give lump sum to insurance company in return for a fixed/ variable interest rate

•  You will know how much you are getting each year

•  Lump sum is locked for 5-7 years

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•  Invest $500,000 into a fixed annuity

•  This balance will earn an interest rate of

1.45% for a lock period of 5 years - $537,316

•  After the lock period is up you are free to

use the money

•  If you need to cancel annuity before lock

period, penalties will apply

•  Much like a CD, but not FDIC insured and

your account grows tax deferred

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Pro

Principal is guaranteed (by

insurance company) Get your lump sum back aBer lock period

Con

Pays very liDle interest and your

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•  Lump Sum invested in a portfolio of mutual funds

•  If mutual funds perform poorly, you may loose principal

•  Could have very high annual expenses, range of 2-3% / year •  Early withdrawal penalties 7-10

years start at 7-10%

You

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•  Mortality & Expense Charge (M&E) roughly 1% per year

•  Guarantees principal to beneficiary •  Expenses of the mutual fund roughly

1.0-1.2%

•  Guaranteed living benefits about 0.8% •  Total fees and expenses roughly

2.8%-3.0% / year

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Pro

Could beat inﬂaIon through

stock mutual funds

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•  The most popular annuity being sold is very misleading •  Sold and disguised as a fixed annuity

•  Actually a “hybrid” annuity – between variable and immediate •  Has very high fees – roughly 3% / year

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•  Guaranteed Return

•  “We will guarantee you 5%”

•  This is a Payout Rate and not an “Interest” or a “Rate of Return”

•  Can’t outlive your money

•  True, but because of inflation may not be enough •  Money could be left to beneficiaries

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•  Example of this “hybrid” annuity

•  Give insurance company $500,000 •  Payout Rate = 5% or $25,000 / year

•  25 payments of 25,000 / year = 1.8% (however, a balance may remain)

•  Account creates two balances:

•  Payout Balance is your initial contribution that does not go up or down with the stock market

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Remaining Balance

$259,401

-48%

In order to maintain balance you need an 8% ROR

•  Actual Balance - $25,000 +/- Market Return Net of Expenses

*Assumption: Returns of the Vanguard Balanced Fund

Actual Balance 5% Payout Return -‐ 3% Exp

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•  Payout Rate actually can go down with any distributions you take from the account

•  Payout Balance from contribution was $500,000 •  Take out an extra $50,000 above the $25,000 •  New Payout Balance $450,000 x 5% = $22,500 •  With inflation money decreases approximately 50%

every 20 years

•  $25,000 at age 65 is like getting $12,500 at age 85 •  Do you really want to annuitize third income stream?

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•  An Immediate Annuity with a variable income •  Reduces inflation risk

•  Offers downside protection – reduces stock market risk •  Has an assumed 4% Rate of Return

•  Choice of four payout options

•  Single Life or J&S 100%, 80% or 100% / 60%

•  If you have a balance in the Retirement Plan you have to annuitize 50% – Comprehensive Plan

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•  How the 4% advanced earnings assumption

•  Members initially get an extra 4% in units

•  $500,000 annuitized at age 65 gives

•  960 units at $36 = $34,560 per year for single life

•  But since MMBB assumes a 4% increase

•  Start with more units

•  960 x 4% = 998 units

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•  The Payout Options

•  Single Life: Only paid out to the member

•  J&S 100%: Spouse would “inherit” the same annual amount member was receiving

•  J&S 80%: Annual amount is reduced by 20% when one spouse passes away

•  J&S 100% / 60%: If spouse passes away, benefit is not

reduced. If member passes away, benefit is reduced by 40% •  All options can come with a 10-year guarantee (must elect

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•  Potential for increase and downside protection •  Money is invested in The Annuity Fund

•  The New Horizons Trust Fund

•  If the Fund is down in a year, maximum loss is 5%

•  If down in 2nd_{consecutive year, maximum loss is 10%}

•  Actuarial adjustments

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•  So how does the MMBB Annuity compare to the rest? •  Variable Annuity Guaranteed Income Rider: 1.7%

•  After 25 years of payments

•  Though there is a potential to have a balance •  Average Immediate Annuity after 25 years: 2.9% •  MMBB Annuity after 25 years: 11.71%

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Immediate Fixed Variable MMBB Pro •  Income for

Life* •  Known Interest rate* •  Get lump sum back •  May outpace inflaIon •  Could annuiIze for lifeIme income •  Variable Income which could outpace inflaIon •  Offers downside protecIon •  LifeIme income •  4% earnings assumpIon

Con •  Lose access to lump sum •  “Interest” depends on life expectancy •  Very low interest rate •  InﬂaIon Risk •  Very high fees •  Could lose lump sum •  Lose access to lump sum on amount annuiIzed

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•  Goals in retirement should be to keep annuity payments + Social Security = to monthly expenses

•  Keep your investment annual expenses low – under 1.2% •  Any balances not annuitized can be kept at MMBB

•  Diversify a portfolio based on your risk tolerance level

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UNDERSTANDING THE MMBB ANNUITY

UNDERSTANDING

THE MMBB ANNUITY

•

What are the Three Types of Annuities?

•

Know the Difference: Understanding Exactly What