Income Amounts based on Age and Deferral Period. Talking Points

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1 Income Amounts based on Age and Deferral Period Talking Points GFIA II may not be available in all jurisdictions. Guarantees are subject to contract terms, exclusions and limitations, and the claims-paying ability of NYLIAC. This contract is irrevocable, has no cash surrender value and no withdrawals are permitted prior to the income start date. Income payments are guaranteed at least as long as the annuitant is living, provided the annuitant is living, provided the annuitant is alive on the designated income start date. Contracts in which a Life Only option is selected do not provide a death benefit either prior to, or after, the designated income start date (10/12) 1

2 What is a Variable Annuity? Insurance contract which provides: Potential for tax-deferred growth Professional money management Some access to your money 1 Option to receive income for life Death Benefit (if the policy owner dies prior to annuitization) 2 Some may offer optional riders at additional cost (e.g., GMIB, GMWB) that provide certain level of guaranteed income regardless of market condition. 1. Withdrawals of taxable amounts are subject to ordinary income tax and, if made before 59½, may be subject to a 10% Federal income tax penalty (or 25% in the case of a distribution from a SIMPLE IRA within the first two years of participation in the plan). Please note, upon withdrawal, your value may be worth more or less than the original cost. 2. Backed by the claims-paying ability of the issuing company 2

3 Basic Product Descriptions VA with GMWB Rider and GFI What is it? Features Potential Pros Potential Cons VA with Guaranteed Minimum Withdrawal Benefit ( VA with GMWB Rider )* A VA with an optional rider that guarantees that policy owner can make withdrawals of a certain amount (e.g. 5% of premium) each year for life, regardless of market performance. Guarantees backed by claims-paying ability of issuer. Variable account, the value of which can fluctuate over time. Lifetime income, via the GMWB rider, which is based on withdrawals from the accumulated account value. Market upside potential, via investments underlying the variable account. Guaranteed income for life, via the GMWB rider, based on values specified by the contract. In many circumstances, a VA with GMWB rider may provide a death benefit to a beneficiary. VA account balance can drop considerably. That is, although the income generated by the VA with GMWB rider is guaranteed for the lifetime of the annuitant, the variable account value is not guaranteed (either in terms of performance or duration). Annual account management fees may be higher than those of alternate variable investments. New York Life s Guaranteed Future Income ( GFI ) ** Deferred income annuity that provides income for life at a start date of your choosing. Guarantees backed by claims-paying ability of the issuer. Optional features including the Annual Increase Option and Reduction of Income Option; the additional cost for which is reflected in the policy payout (income) amount, per dollar of premium invested. Provides hedge against risks to retirement income, including: Longevity risk, Market risk, Inflation risk. Zero liquidity during the deferral period; limited shortterm liquidity once income starts. Potential loss in real value of payout amounts- Varies depending on the purchase of inflation protection feature, which is available for an additional cost. No market participation Life Only payout option does not provide payments for beneficiaries either prior to or after designated income start date. * Features described apply generally and do not represent a specific VA/ GMWB product. ** New York s Guaranteed Future Income Annuity II products are issued by New York Life Insurance and Annuity Corporation, a wholly owned subsidiary of New York Life Insurance Company. In New York, the issuer is New York Life Insurance Company. All guarantees are based on the claims paying ability of the issuer. 3

4 Important Considerations Clients with a need for guaranteed retirement income within two-20 years represent the audience generally most appropriate for the GFIA II. Keep in mind, advisors are ultimately responsible for determining the most appropriate product for a client, not the wholesaler. In some cases, the competition may be more appropriate. As such, figures/results should not be mischaracterized or misrepresented. Keep in mind, figures shown are the floor guarantees for sample GMWB, with the potential to be higher, while the GFIA II figures represent stable fixed payment amounts. 4

5 Who is selling annuities? In the wire and IBD channels, more than half of producers are non or passive producers of annuities. In the Bank channel, more than one third of producers are non or passive. Non-producer Passive producer (1-5 contracts) Active producer (6-11 contracts) Annuity advocate (12+ contracts) Source: Cerulli Quantitative Update, Annuities and Insurance 2011, p

6 Who is buying Variable Annuities with GMWB? The consumer base for VAs with guaranteed living benefits such as GMWB (and GLWB) is wide and varied. 50% 2009 Distribution of Purchase Age for VAs with Income Riders 45% 40% 35% Typical pre-retirement market 30% 25% 20% 15% 10% 5% 0% < >65 More than half of VA contracts with guaranteed living benefits are sold to people outside of the preretirement redzone. While utilization of VAs guaranteed living benefits increases with age, 50% utilization is not achieved until investors reach age 70. Source: LIMRA 2009 GLB Utilization Report In the Report, the terms guaranteed living benefits, GLWB and GLB are used interchangeably to refer to GMWB and GLWB riders and the benefits associated with these riders. 6

7 Key Providers of Variable Annuities Top Three Providers by Channel A B C D $16.72B $4.44 $6.28 $4.74B $4.61B $1.38 $1.64 $1.47 $0.96 $1.89 $2.01 $6.00 Bank Wire IDB Source: VARDS (MARC) VA Sales and Asset Survey reports, as of Q and as of Q1 2011

8 When does initiating a GFI discussion make sense? What is the primary objective of the advisor s client base? Maximize Guaranteed Income Something Else (leaving a legacy, liquidity, income potential, etc.) There may be an opportunity to talk about GFI Is the Advisor an Active Producer of VAs with guaranteed income riders? Without a need for guaranteed income, there is little basis to talk about GFI No Yes What type of VA does the advisor use for income? GFI may be appealing as a simple and effective income solution Maybe an opportunity to educate the advisor about GFI; consult the chart. For illustrative purposes only 8

9 Presentation Assumptions Clients have a need for guaranteed income within two-20 years. The calculations in this presentation only consider before-tax guaranteed income payments on a $100,000 premium. Assumptions are based solely on age and deferral period. Other factors which may be relevant were not considered; these factors may have a material impact on overall results. This presentation does not consider other costs or benefits of deferred income annuities or variable annuities such as: Upside potential vs. income floor Tax treatment Growth potential Liquidity Death benefits Financial strength of the insurer Fees and expenses Other terms and conditions Principal preservation or depletion 9

10 Product Assumptions Used in this Analysis There are no projections of market returns or hypothetical income payments based on market conditions. These calculations are based on New York Life s Guaranteed Future Income Annuity II as of 10/15/12 and estimated guaranteed /income payments for VA-like products with income riders. Product A: Annual increase rate on the withdrawal benefit base is 5% compounded. The benefit base will double in 12 years if no withdrawals were taken. The initial benefit base is set equal to the premium. The benefit Product A s Guaranteed Withdrawal Percentages by Age base is increased annually by 5.0% compound interest. If no withdrawals have been take in 12 years, the benefit base will be 200% of the premium. The withdrawal amount is calculated as the benefit base at the time of withdrawal multiplied by the guaranteed withdrawal percentage. The guaranteed withdrawal percentages are based on the age when withdrawals are taken. Single Joint 3% 2.5% 4% 3.5% 5% 4.5% 6% 5.5% They are 3%, 4%, 5%, and 6% for ages 50-54, 55-64, 65-84, and 85+ for single lives, and are 0.5% less for joint lives. Product B: Annual increase rate on the withdrawal benefit base is 6% simple interest for 10 years. The benefit base will double in the later of the 70th birthday or 10 years if no withdrawals were taken. Product B s Guaranteed Withdrawal Percentages by Age Single 4% 5% 6% 7% The initial benefit base is set equal to the premium. The benefit base is increased annually by 6% simple interest for the first 10 years. If no withdrawals have been taken in the later of the 70th birthday or 10 years, the benefit base will be increased to 200% of the premium if it's higher. The withdrawal amount is calculated as the benefit base at the time of withdrawal multiplied by the guaranteed withdrawal percentage. The guaranteed withdrawal percentages are based on the age when withdrawals are taken, and they are 4%, 5%, 6%, and 7% for ages 50-64, 65-74, 75-80, and

11 Product Assumptions Used in this Analysis There are no projections of market returns or hypothetical income payments based on market conditions. These calculations are based on New York Life s Guaranteed Future Income Annuity II as of 10/15/12 and estimated guaranteed income payments for VA-like products with income riders. Product C: Annual increase rate on the withdrawal benefit base is 7% simple interest for 10 years. Product C s Guaranteed Withdrawal Percentages by Age 12/5/ The initial benefit base is set equal to the premium plus a 5% bonus. The benefit base is increased annually by 7% simple interest for the first 10 years. The withdrawal amount is calculated Joint 3% 3.25% 4.25% 5.25% as the benefit base at the time of withdrawal multiplied by the guaranteed withdrawal percentage. The guaranteed withdrawal percentages are based on the contract owner's age when withdrawals are taken, and they are 3%, 3.75%, 4.75%, and 5.75% for ages 50-59, 60-64, 65-80, and 81+ for single lives, and are 3%, 3.25%, 4.25%, and 5.25% for ages 50-59, 60-64, 65-80, and 81+ for joint lives.. Product E: Annual increase rate on the income benefit base is 5% compounded, limited to 10 years. Single 3% 3.75% 4.75% 5.75% Product D: The initial benefit base is set equal to the premium. The benefit base is increased annually by 5% compound interest. Withdrawals of 4.5% of the benefit base will reduce it dollar for dollar if taken prior to the fifth policy anniversary. Withdrawals of 5% of the benefit base will reduce it dollar for dollar if taken on or after the fifth policy anniversary. The calculation assumes that the allowable dollar for dollar withdrawals are taken. Product E s Guaranteed Withdrawal Percentages by Age Single/Joint 4% 5% The initial benefit base is set equal to the premium plus a 3% bonus. The benefit base is increased annually by 5% compound interest for the first 10 years. The withdrawal amount is calculated as the benefit base at the time of withdrawal multiplied by the guaranteed withdrawal percentage. The guaranteed withdrawal percentages are based on the age when withdrawals are taken, and they are 4% for ages 50-54, and 5% for ages

12 Product Assumptions Used in this Analysis There are no projections of market returns or hypothetical income payments based on market conditions. These calculations are based on New York Life s Guaranteed Future Income Annuity II as of 10/15/12 and estimated guaranteed income payments for VA-like products with income riders. Product F: The withdrawal base is increased by an annual credit of 8% (simple) for the first 10 years. At the later of 10 years or age 70, the benefit base will be set to 200% of premium if no withdrawals have been taken. Product F s Guaranteed Withdrawal Percentages by Age Single 4% 5% 5.5% 6.25% 7% Joint 4% 4.5% 5% 6% 6.5% The initial benefit base is set equal to the premium. The benefit base is increased annually by 8% simple interest. If, at the later of 10 years or age 70, no withdrawals have been taken, the benefit base will be set to 200% of the premium. The withdrawal amount is calculated as the benefit base at the time of withdrawal multiplied by the guaranteed withdrawal percentage. The guaranteed withdrawal percentages are based on the age when withdrawals are initiated for single lives, ages 60-64, 65-74, 75-79, 80-84, and 85+, the withdrawal rates are 4%, 5%, 5.5%, 6.25%, and 7%. For joint lives, the withdrawals are 4%, 4.5%, 5%, 6%, and 6.5%. Product G: The income base is increased by an annual credit of 6% (simple) for the first 12 years, at which point the base will be set to 200% of premium, if no withdrawals have been taken. Product E s Guaranteed Withdrawal Percentages Single 5.5% for all ages Joint 5% for all ages The initial benefit base is set equal to the premium. The benefit base is increased annually by 6% simple interest for the first 12 years. The withdrawal amount is calculated as the benefit base at the time of withdrawal multiplied by the guaranteed withdrawal percentage. The guaranteed withdrawal percentages are 5.5% for single lives and 5% for joint lives. 12

13 Comparing Product A* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #10 9/17/12 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use and Onlycould potentially be higher, while GFIA II figures represent stable fixed payment amounts. 13

14 Comparing Product A* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #10 10/15/12 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use and Onlycould potentially be higher, while GFIA II figures represent stable fixed payment amounts. 14

15 Comparing Product B* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #10 9/17/12 *VA fees and charges are not taken into consideration. GMWB figures represent floor For Internal guarantee Use and Only could potentially be higher, while GFIA II figures represent stable fixed payment amounts. 15

16 Comparing Product B* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #10 10/15/12 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use and Onlycould potentially be higher, while GFIA II figures represent stable fixed payment amounts. 16

17 Comparing Product C* Income and GFI Income Payments- Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #11 9/17/12 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use and Onlycould potentially be higher, while GFIA II figures represent stable fixed payment amounts. 17

18 Comparing Product C* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #11 10/15/12 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use and Onlycould potentially be higher, while GFIA II figures represent stable fixed payment amounts. 18

19 Comparing Product D* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #11 9/17/12 19 *VA fees and charges are not taken into consideration. GMWB figures represent floor guarantee and could potentially be higher, while GFIA II figures represent stable fixed payment amounts.

20 Comparing Product D* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #11 10/15/12 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use and Onlycould potentially be higher, while GFIA II figures represent stable fixed payment amounts. 20

21 Comparing Product E* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #11 9/17/12 21 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use Only and could potentially be higher, while GFIA II figures represent stable fixed payment amounts.

22 Comparing Product E* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #11 10/15/12 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use and Onlycould potentially be higher, while GFIA II figures represent stable fixed payment amounts. 22

23 Comparing Product F* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #12 9/17/12 23 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use Only and could potentially be higher, while GFIA II figures represent stable fixed payment amounts.

24 Comparing Product F* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #12 10/15/12 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use and Onlycould potentially be higher, while GFIA II figures represent stable fixed payment amounts. 24

25 Comparing Product G* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #12 9/17/12 25 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use Only and could potentially be higher, while GFIA II figures represent stable fixed payment amounts.

26 Comparing Product G* and GFI Income Payments - Before-tax Guaranteed Income Amounts Based on Age and Deferral Period Assumptions and as-of date on slide #12 10/15/12 *VA fees and charges are not taken into consideration. GMWB figures represent For floor Internal guarantee Use and Onlycould potentially be higher, while GFIA II figures represent stable fixed payment amounts. 26

27 Thank you!