Purpose Meets Planning Tool

You know the benefit of a solid financial plan. Now, you can see how the power of protected lifetime income1 may improve your client’s probability of success in retirement. The Purpose Meets Planning Tool provides three different scenarios for you to explore their options. Plug an annuity in, take it back out, and see in an instant how different their circumstances can be.2

Larry - Secure Saver
  • Age: 55
  • Income Need: $6,000
  • Assets: $800,000

A Literate and Secure Saver, Larry is hands-on and strategic about managing his money. He plans to retire at 65 and wants to see capital growth for the 25 years he plans to spend in retirement. With Social Security income and $600,000 in his 401(k), Larry plans to leave an inheritance for his loved ones.

Demographics

  • Male
  • Age = 55
  • Employment Income = 100,000
  • Single
  • No Children
  • Retirement age = 65
  • Plan end age = 90

Financial Information

  • Desires $72,000 per year in retirement income, in today's dollars adjusted for inflation, starting at age 65
  • Claiming Social Security at age 65 with $2,000 per month in today's dollars (assuming a cost of living adjustment of 2.5% per year)
  • 401k = $600,000 current value, 50/50 asset allocation (U.S. Large Cap Equity and U.S. Aggregate Bond).
  • Taxable savings = $200,000, 50/50 asset allocation (U.S. Large Cap Equity and U.S. Aggregate Bond).
  • Annuity = Generic variable annuity with an optional guaranteed lifetime withdrawal benefit. Includes a benefit fee of 1.5% and a core contract charge of 0.45%. The add-on benefit represents a 7% annual deferral bonus prior to withdrawals beginning and a 5% guaranteed withdrawal rate. Allocated to U.S. Large Cap Equity.
Sally - Cautiously Optimistic
  • Age: 65
  • Income Need: $6,000
  • Assets: $1,200,000

A Cautiously Optimistic Preparer, Sally is most focused on having enough money to live comfortably in her retirement. With Social Security income and $700,000 in her 401(k), Sally is considering including an annuity in her financial plan.

Demographics

  • Female
  • Age = 65
  • Not employed
  • Single
  • No Children
  • Retirement age = 65
  • Plan end age = 90

Financial Information

  • Desires $72,000 per year in retirement income, in today's dollars adjusted for inflation, starting at age 65
  • Claiming Social Security at age 65 with $2,000 per month in today's dollars (assuming a cost of living adjustment of 2.5% per year)
  • 401k = $700,000 current value, asset allocation is one-third U.S. Large Cap Equity and two-thirds U.S. Aggregate Bond.
  • Taxable savings = $500,000, asset allocation is one-third U.S. Large Cap Equity and two-thirds U.S. Aggregate Bond.
  • Annuity = Generic variable annuity with an optional guaranteed lifetime withdrawal benefit. Includes a benefit fee of 1.5% and a core contract charge of 0.45%. The add-on benefit represents a 7% annual deferral bonus prior to withdrawals beginning and a 5% guaranteed withdrawal rate. Allocated to U.S. Large Cap Equity. Annuity withdrawals are deferred until age 75.
Erin - Wishful Thinker
  • Age: 45
  • Income Need: $6,500
  • Assets: $600,000

Erin is a Complacent Wishful Thinker. Her optimism about the future outpaces her strategy, but the right products may help her financial goals align with the rest of her plans. By allocating yearly contributions to an annuity, Erin could make progress toward reaching her retirement dreams.

Demographics

  • Female
  • Age = 45
  • Employment Income = 100,000
  • Single
  • No Children
  • Retirement age = 65
  • Plan end age = 90

Financial Information

  • Desires $78,000 per year in retirement income, in today's dollars adjusted for inflation, starting at age 65
  • Claiming Social Security at age 65 with $2,000 per month in today's dollars (assuming a cost of living adjustment of 2.5% per year)
  • 401k = $400,000 current value, 50/50 asset allocation (U.S. Large Cap and U.S. Aggregate Bond).
  • Taxable savings = $200,000, 50/50 asset allocation (U.S. Large Cap and U.S. Aggregate Bond).
  • Annuity = Generic variable annuity with an optional guaranteed lifetime withdrawal benefit. Includes a benefit fee of 1.5% and a core contract charge of 0.45%. The add-on benefit represents a 7% annual deferral bonus prior to withdrawals beginning and a 5% guaranteed withdrawal rate. Allocated to Emerging Markets Equity.

As required by the IRS, you are advised that any discussion of tax issues in this material is not intended or written to be used, and cannot be used, (a) to avoid penalties imposed under the internal Revenue Code or (b) to promote, market, or recommend to another party any transaction or matter addressed herein.

Variable annuities are long-term, tax-deferred investments designed for retirement, involve risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59½.

Tax deferral offers no additional value if an annuity is used to fund a qualified plan, such as a 401(k) or IRA, and may be found at a lower cost in other investment products. It also may not be available if the annuity is owned by a “non-natural person” such as a corporation or certain types of trusts.

Investments in securities are subject to investment risk, including possible loss of principal. Prices of securities may fluctuate from time to time and may lose value.

Past performance does not guarantee future results.

Assumptions

This tool is provided for educational purposes only and is intended to provide registered financial advisors with examples of the impact of adding a generic, illustrative variable annuity product with the additional purchase of a living benefit for income protection to a financial plan. Optional benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity.

In no way should the balance or withdrawal amounts shown within this tool be considered indicative or a guarantee of the future balance or withdrawal amounts of an actual portfolio. Withdrawals may be subject to withdrawal charges and excess interest adjustments (interest rate adjustments in New York), where applicable. Note that this tool assumes a 2.25% inflation rate and that the annual rate of return for the portfolio may vary based on the investment style selected by the investor. Actual annual rates of return will vary, and may be negative. The inclusion of additional fees and other expenses incurred in the management of an account would cause actual balance and withdrawal amounts to be lower than that shown. Actual results may differ substantially from that shown. Other investments not considered may have characteristics similar or superior to the types being analyzed.

This tool contains certain forward-looking analyses. Such forward-looking analyses involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking analysis for any reason. Past performance does not guarantee future results.

Important Information About the Simulated Value of The Selected Portfolio. The projections or other information generated by the Monte Carlo simulation regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Monte Carlo is an analytical method used to simulate random returns of uncertain variables to obtain a range of possible outcomes. Such probabilistic simulation does not analyze specific security holdings, but instead analyzes the identified asset classes within the strategy and identified cash flows. The simulation generated is not a guarantee or projection of future results, but rather, an analysis of the likelihood that you may be able to achieve your stated goals and a tool to identify a range of potential wealth outcomes that could potentially be realized. The Monte Carlo simulation is hypothetical in nature and for illustrative purposes only. Results noted may vary with each use and over time.

This should not be considered a substitute for a product illustration. Refer to the carrier's illustration for more detailed product information, including product guarantees.

The values in this report are hypothetical in nature and may not reflect the deduction of all fees and charges or income taxes inherent to insurance or investment products. If these deductions were included, the values shown would be reduced. The information contained in this report is not representative of the actual performance of any specific investment or product. Your results will vary.

Many variable annuities may offer benefit riders with additional guarantee options. Some options are part of the contract and others are optional and available for an additional stated cost. Benefit riders offer an income account value (commonly referred to as the benefit base, protected value or income base), which is not the same as the contract value. Unlike the annuity's cash value (which can be accessed at any time as a lump sum, subject to potential surrender charges and withdrawal charges), the income account value is generally not available as a lump sum withdrawal; it is used only for calculating the income amount available under the benefit rider provisions. These benefit riders often include other limitations and restrictions as well, so always review your contract carefully.

Certain annuity withdrawals will reduce the contract value and the value of any income rider or protection benefits. Early withdrawals or surrender of the contract can result in a withdrawal or surrender charge and will be subject to ordinary taxes. Loans and partial withdrawals will decrease the death benefit and cash value. In some instances, contracts may be subject to a market value adjustment. In addition to being taxed as ordinary income, if withdrawals are taken prior to age 59½, they can also be subject to a 10% federal additional tax.

Distributions of taxable amounts from a non-qualified annuity may also be subject to the 3.8% Unearned Income Medicare Contribution tax that is generally imposed on interest, dividends, and annuity income if your modified adjusted gross income exceeds the applicable threshold amount. Withdrawals will reduce the living and death benefits and account value. Withdrawals may be subject to withdrawal charges.

Tool Inputs

The information entered as inputs to the tool may be modified to demonstrate the generic effect of different scenarios. Changes to these items will affect the results shown in the tool. These inputs do not take into account your client's entire financial position, investment objectives, risk profile, tax considerations, or investment horizon. You should carefully review these items and consider your complete profile before making any investment decisions.

Monthly Income Need - The amount of assets withdrawn from the portfolio. This amount is adjusted for inflation annually (increasing at 2.25%).

Qualified Assets - Amount of retirement assets that are tax qualified in the example portfolio.

Nonqualified Assets - Amount of assets that are taxable in the example portfolio.

Qualified Annuity Allocation - Percentage of qualified assets re-allocated to a generic qualified variable annuity.

Nonqualified Annuity Allocation - Percentage of non-qualified assets re-allocated to a generic non-qualified variable annuity.

Criteria and Methodology

RetireUp models different scenarios using fixed rate returns or variable rate returns with different market sequences. Variable returns can happen in different sequences or orders. These sequences cover a range of possible outcomes for a retirement portfolio, given a starting balance, the insurance or investment products in the portfolio, and a desired income level.

The portfolio's future returns, sequence of returns and individual year returns, are generated using a random number generator, using a normal distribution (bell curve) and standard deviation. The end result is a 100-year hypothetical sequence of returns. Typical scenarios in this tool will run 25-45 years, so only a subset of these 100 years will be used. These returns are all stimulated and do not represent historic sequences.

The various scenarios modeled do not indicate the probability of the scenario occurring but rather the outcomes if the scenario were to occur. To account for the effects of inflation, this tool uses a fixed annual inflation rate of 2.25%.

Income Stability Ratio™ is calculated as the ratio of protected or guaranteed income to total income multiplied by the ratio of total net income to total income goal for all years in the plan. For example, protected or guaranteed income may include Social Security benefits, pension benefits and withdrawals from living benefit riders attached to certain annuity products and subject to benefit rules. This compound ratio is averaged over the length of the analysis from retirement to end. In other words, it represents the amount of income which is not negatively impacted by or has a level of protection against changes in the market compared to the total income over the life of the plan.

Capital Market Assumptions

U.S. Cash = 2.00% annual return assumption with a 0.50% volatility assumption.

U.S. Aggregate Bond = 3.25% annual return assumption with a 3.75% volatility assumption.

U.S. Large Cap = 5.50% annual return assumption with a 14.00% volatility assumption.

Emerging Markets Equity = 8.00% annual return assumption with a 21.50% volatility assumption.

Financial plan
WITHOUT
Protected Lifetime Income
Probability of Success
Income Stability Ratio
Financial plan
WITH
Protected Lifetime Income
Probability of Success
Income Stability Ratio
Monte Carlo Simulation
Bad Timing Simulation
Monthly Income
Need
Monthly Income Need
Assets
Qualified
Variable Annuity
Allocation
Non-Qualified
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IMPORTANT: The projections or other information generated by the Purpose Meets Planning Tool powered by RetireUp regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The simulation is for illustrative purposes only. Results may vary with each use and over time.

This tool is provided for educational purposes only and is intended to provide registered financial advisors with examples of the impact of adding a generic, illustrative variable annuity product with the additional purchase of a living benefit for income protection to a financial plan. Optional benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity.

This should not be considered a substitute for a product illustration. Refer to the carrier's illustration for more detailed product information, including product guarantees.

Optional benefits are available for an additional charge.

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What is an Annuity?

Annuities are long-term, tax-deferred vehicles designed for retirement. Variable annuities involve investment risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59½. 

1Guarantees are backed by the claims-paying ability of the issuing insurance company.

2Past performance is no guarantee of future results.