Presenting Sponsor: Produced By:
Presenting Sponsor: Produced By:
Current State of the Retirement Income Industry
Panelists: Rebekah Barsch, Northwestern Mutual
Tom Hegna, TomHegna.com Curtis Cloke, Thrive Income Distribution System
Moderator: Chris Raham, Ernst & Young LLP
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Retirement Income A key Retirement Money-in-Motion™ milestone
Rollover Growing from US$323B in 2010 to US$490B in 2015 (annual DC / DB)
The movement of investable assets from defined contribution and defined benefit plans into retail/individual retirement and investment accounts (e.g., IRAs, managed accounts)
Asset consolidation Avg. institutions per households declining since 2000 (7 accounts)
Clients nearing retirement tend to consolidate their accounts to a primary institution for ease of managing and spending down accumulated wealth
Retirement income 18 Million retired households in the US control US$2.5T
The shift in investment assets from accumulation strategies to de-accumulation strategies, which requires the use of income producing products and spend-down analysis
Retirement Money in Motion: The flow of retirement money between accounts and financial institutions, initiated as a result of a life-changing event.
Retail banking Retention leaders enjoy 10% higher growth and 80 bps lower cost of funds
Meeting the basic banking needs of the consumer is the first step in gathering and retaining assets of and establishing a positive relationship with the Generation Y and Z consumer
Client age
Client assets
Accumulation phase Retirement Income Transition
Retirement income spend
Asset consolidation
Rollover due to job change
Rollover institutional assets to individual accounts
The fastest growing age group in the US is the “65 or older”; 80 million individuals will turn 65 in the next decade
Money in Motion milestone
Beneficiary/ trustee
Retirement income planning
Basic planning, investing and banking needs
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State of mind or state of emergency Client actions and questions to advisors are consistent…
Source: Spectrem,
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State of mind or state of emergency
Client actions and questions to advisors are consistent…
•Retirement planning actions comes too late driven by: -Life events—job loss, health issues -Imminent retirement (< 24 months)
•Ask fewer questions on finances, but have basics issues that need to be addressed
•Are focused more on government program impacts rather than what they can do
Source: Client FA Survey
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State of mind or state of emergency
40% of newly retired couples will outlive their assets 70% of middle market households approaching retirement (<10 years) will outlive their assets Source: Americans for Secure Retirement and Ernst & Young as of February 2009
47% of early boomers will outlive their assets 44% of Gen-X will outlive their assets Source: EBRI 2010 Retirement Readiness Ratings update, July 2010
And result in a pending state of emergency…
41% of early boomers will outlive their assets 56% of Gen-X will outlive their assets 53% of households remain at risk Source: The National Retirement Risk Index: After the Crash, October 2009, Oct 2012
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Presenting Sponsor: Produced By:
Northwestern Mutual’s Perspective
Rebekah Barsch VP – Market Strategy and Training
Northwestern Mutual
Presenting Sponsor: Produced By:
Investments
Long Term Care Insurance
Permanent Life Insurance
Annuities
© 2012 The Northwestern Mutual Life Insurance Company
Presenting Sponsor: Produced By:
The Northwestern Mutual Perspective on Financial Security in Retirement
© 2012 The Northwestern Mutual Life Insurance Company
•Use of stochastic modeling to produce 90% probability of success vs. 50% from deterministic modeling.
Clients deserve a high probability of success from their
retirement income plans.
•Removal of individual life expectancy as a planning input; longevity monte carlo’d.
Even the smartest clients do not know when they are going to
die.
•Combination of residual assets and permanent life insurance used to fund legacy goals efficiently with high probability of success.
Leaving a legacy is a function of planning, not chance.
•Use of long term care insurance by clients with less than $6 million in liquid assets enables higher retirement income.
Financial security in retirement requires addressing long term
care risk.
• Inclusion of annuities not only secures essential needs but also enables higher retirement income.
Essential expenses should be covered by guaranteed lifetime
income.
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Presenting Sponsor: Produced By:
It’s all about Alpha RETIREMENT ALPHA that is…
Tom Hegna CLU, ChFC, CASL President, TomHegna.com
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Source: New York Life Insurance Company and Financial Research Corporation 2011
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“There is no other vehicle in the marketplace that can convert assets
into income as efficiently as the income annuity.”
“Our analysis shows that no other investment vehicle can rival the income annuity for retirement
security.”
“Income Annuities offer features others can’t – High cash flow, uncorrelated to market returns; retirement alpha in the form of mortality credits, which only life insurance companies can manufacture; longevity hedging and liquidity features…
Source: FRC White Paper, “Income Annuities Improve Portfolio Outcomes in Retirement”
Whitepaper from FRC
Retirement Alpha
Presenting Sponsor: Produced By:
…but only an insurance company can
manufacture a mortality pool.
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Age
Payo
ut
Investment Growth Return of Principal Mortality Credits
LIA Provides Clients with Higher Payouts
Components of Lifetime Income Payout Male age 65, $100,000 investment
Lifetime income annuities deliver higher payouts because, in addition to distributing gains and principal, they subsidize those who die late with the capital of those who die early.
Source: New York Life, 2009
Investment Advisors Can
Manufacture This Payout…
…but only a life insurance company can manufacture mortality credits
Source: New York Life Insurance Company 2010
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“While a Variable Annuity (VA) with a GMWB rider might seem like an
alternative to an income annuity, it is not”
“The income annuity offers unique properties that cannot be replicated using other insurance
products such as VA’s with GMWB’s.”
“Income Annuities generate more income per dollar of capital invested than any other income-generating asset class, are non-correlated with equity and bond
markets, and perfectly hedge longevity risk.”
Source: FRC White Paper, “Income Annuities Improve Portfolio Outcomes in Retirement”
Whitepaper from FRC
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What is a Deferred Income Annuity (DIA)?
A guaranteed stream of income for life Provides “pension-like” stream of income for life
Income starts when you retire Typically 13 months – 50 years in the future Client selects income-start date
Built on the client’s terms Lump sum or multiple premiums Each premium payment guarantees future income at retirement date The more the client adds, the more income they get
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Safe, Secure, Reliable and Guaranteed
A DIA— unlike many other traditional fixed income investments: Has no duration limit — the guaranteed payments continue for a lifetime, no matter what. Is not callable — provides a steady stream of income payments for life. Is not impacted by the sequence of returns — regardless of when an investor retires, the payments remain consistent and level. Has no interest rate risk — since payments are fixed, even if interest rates rise or fall, payments do not. Can provide inflation protection — with the election of the Annual Increase Option payments can increase annually by a predetermined amount and help to keep pace with inflation. Offers Retirement Alpha — each check contains Principal, Interest and Mortality Credits.
DIA payouts contain both interest and return of premium. CDs and Bonds do not require distribution of principal.
Presenting Sponsor: Produced By:
Presenting Sponsor: Produced By:
Retirement RIOT™
Curtis V. Cloke, CLTC, LUTCF CEO / Founder
Thrive Income Distribution System
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… the authority on bonds
“We will not revert to the mean… There is a near certain probability that the financially based global economy of the past half-century will not return.” William H. Gross, Managing Director PIMCO
• Increased Taxation
• Increased volatility
• Lower growth rates
Presenting Sponsor: Produced By:
What do retirees want?
Retirement RIOT™
R
I
O
T
- Retirement
- Income
- On
- Time / Target
What’s Your Number! Copyright 2012– Thrive Income Distribution System®
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Psychonomics (Emotional vs. Financial) Retirement Fears Retirement Risks Pension Benefits - (Pension Envy) Social Security & Medicare (Pending Changes) Need for… Inflation Adjusted Income Floor Address Protection Goals for… Extended Catastrophic Health Preserving Legacy for Heirs
Managed Risk for… Growth Opportunity Periods of Hyper-inflation Suitable Liquidity & Flexibility
Defensive
Offensive
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Guaranteed Income
The Most for the Least
The Impossible Becomes Possible
Guarantees are subject to claims paying ability of issuing company
When the constraints of traditional thought are
thrown off … our clients win.
Creating a Retirement Income Floor
Process Driven Approach
Copyright 2012– Thrive Income Distribution System®
Presenting Sponsor: Produced By:
Single Premium Immediate Annuity
help us optimize what our clients want? What combination of Guaranteed* Solutions
Guaranteed Solutions Require Insurance
Guaranteed Lifetime Withdrawal Benefit
Rider to Deferred Annuity
Single Premium Deferred Income Annuity
Income Rider Withdrawals
Annuitized Payments
Annuitized Payments
Income NOW Income LATER
Copyright 2012– Thrive Income Distribution System®
Presenting Sponsor: Produced By:
Guarantee Income
Maximize Returns
Minimize Risk
Beat Inflation
Leave Legacy
Minimize Taxes
Many goals to achieve
… Meets emotional and financial needs for a lifetime
Creating a Retirement Plan is Complex
26
Process
Copyright 2012– Thrive Income Distribution System®
Presenting Sponsor: Produced By:
Thrive® Retirement Process
Your Assets
Income Value of assets needed to
create a stream of annually increasing retirement income
with precision
Growth Value of assets not needed for
income is used to provide liquidity, discretionary income,
growth, and legacy
+ ESSENTIAL INCOME ASSETS GROWTH & EXTRA INCOME ASSETS
PayCheck PlayCheck
Must be reliable and predictable
Managed risk is be acceptable
Divide and Conquer Defensive Offensive
Copyright 2012– Thrive Income Distribution System®
Presenting Sponsor: Produced By:
Meet Dick and Jane ASSETS
60 59
Details are simplified for ease of illustration
Pension
Social Security
D - $1,150 J - $950
D - $1,100
Non Qualified - $504,583
Dick IRA - $95,440
Jane IRA - $95,000
ESSENTIAL MONTHLY INCOME NEED
Income Gap INCOME SOURCES
Social Security
Pension
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
1 5 10 15 20 25
$5,000 a month 3% Inflation
Copyright 2012– Thrive Income Distribution System®
Presenting Sponsor: Produced By:
ESSENTIAL INCOME ASSETS GROWTH & EXTRA INCOME ASSETS
Details are simplified for ease of illustration
$695,023 $403,989 $291,034
Tax Control
Inflation Protected
Lower Fees
Two Guaranteed Income Sources Case History from 2009
1 2
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
1 5 10 15 20 25
Total guaranteed income 1,091,746 1
2
Meet Dick and Jane PayCheck PlayCheck
Copyright 2012– Thrive Income Distribution System®
Presenting Sponsor: Produced By:
Extra income from Growth assets and
RMDs $346,898
$167,286 $144,041
$652,604
Dick’s IRA
Jane’s IRA
NQ
$95,440 $95,000 $100,594 Potential value in 25 Years
$1,310,829
(not guaranteed)
GROWTH & EXTRA INCOME ASSETS
$695,023 $291,034 5% Growth Rate
Over their projected life span Details are simplified for ease of illustration Case History from 2009
$291,034
Meet Dick and Jane PlayCheck
Copyright 2012– Thrive Income Distribution System®