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1 COMPLIANCE APPROVAL PACKAGE This package contains copyrighted information for use for compliance approval only. An active subscription to the SeniorLeads service is required in order to modify and/or distribute the materials included in this package. These materials are written by Finacial Educators and may not be reproduced without express written permission of the author. SeniorLeads is a prospect matching service ONLY, so compliance is not an issue if: 1. You have your own applicable booklets or materials you can send that your firm has already approved 2. Modification to the standard materials is required, as upon enrollment, editable versions of the materials will be made available to the participant. The materials are designed for customization to include the following: photo, biography, about company, and description of services. Important Notes: The option of linking modified versions of the Booklets to your SeniorLeads account is not possible. If you are using the editable versions, you MUST turn off the auto-send feature and manually attach the files to s through your own account. We recommend using Adobe Acrobat to convert the files to pdf format, before manually attaching your Booklet to an message. This will ensure that the client will be able to review the material in its entirety in an easy to view format. Please also note that the Booklets are provided at no cost, you only pay for the prospects you receive. In cases where our free materials cannot be used, please join our consulting call held EVERY Tuesday and Thursday 9am Pacific. This is where you can consult our Business Advisor about other ways of following up on your leads. Included are the FINRA* review letters for 5 of the booklets. This should help speed up your compliance approval process, as our materials contain information that is normally acceptable and satisfactory and within regulation standards.** *There are 5 FINRA review letters available. We offer a reimbursement of the submission fee should you require a FINRA review letter that is not available. We are not regulated and do not have the ability to submit to FINRA directly. Should you decide to provide us with permission to provide the FINRA review letters to other agents, we will reimburse the submission fee ($100-$200.) Please note that this is a first come-first serve basis. **FINRA review letters do not expire, unless there are material changes to the content. There have been no material changes to these booklets since the dated review. If your firm requires a "fresh" letter, please follow the instructions above, or simply use your own materials. S e n i o r L e a d s 2 5 A C r e s c e n t D r i v e, # P l e a s a n t H i l l, C A w w w. s e n i o r l e a d s. c o m

2 COMPLIANCE APPROVAL PACKAGE Table of Contents FINRA Letter Notice... 3 IRA Distribution Mistakes Booklet FINRA: IRA Distribution Mistakes IRA Rollover Booklet FINRA: IRA Rollover Booklet FINRA: How Wealthy People Invest How Wealthy People Invest Long-Term Care Booklet CD Shopper s Guide Booklet Life Insurance Booklet Annuity Owner Mistakes Booklet FINRA: Annuity Owner Mistakes Six Strategies Booklet FINRA: Six Strategies FINRA: Retire SMART Booklet Retire SMART Booklet FINRA: Prosper & Thrive in Retirement Booklet Prosper & Thrive in Retirement Booklet S e n i o r L e a d s 2 5 A C r e s c e n t D r i v e, # P l e a s a n t H i l l, C A w w w. s e n i o r l e a d s. c o m

3 FINRA Letter Notice Please note that FINRA review letters is provided as an additional resource only and is not a substitute for compliance approval from your firm if required. There is no expiration date associated with FINRA letters. If your compliance department requires a more recent letter, you may either send your own compliance approved materials to a SeniorLeads prospect (instead of the materials we provide), or submit our booklets to FINRA for review yourself (see below). SeniorLeads is considered an unregulated third-party, and cannot submit to FINRA directly. ONLY broker dealers can submit materials for FINRA review. However, we WILL reimburse the submission fees (approx. $100-$200) for an advisor to submit the booklet(s) to FINRA through their BD and supply us with the FINRA review letter. We will make necessary adjustments required by FINRA, if any. The submitting broker dealer will provide us a copy of the final clean FINRA Review Letter for our files and to post in the SeniorLeads Back Office for reference by all active SeniorLeads clientele. Note: these booklets may have been updated since their FINRA review in order to keep them current. These updates are considered immaterial, and merely change tax rates, figures, or computation methods, so that the booklets are up to date and accurate.

4 Helping You Avoid IRA Distribution Mistakes Provided to you by

5 Helping You Avoid IRA Distribution Mistakes Written by Financial Educators Presented by

6 Helping Preserve Your Retirement Assets by Taking Smaller Distributions You own two pots of money: The money that has already been taxed (let's call it "regular money") and the money that has not been taxed (let's call this "retirement money" such as IRA, 401k, 403b, etc.). When you spend a dollar of regular money, the cost to you is exactly $1. When you spend $1 of retirement money, the cost to you could be as much as $ (1/.65) because you may have to pay off federal income tax on the amount you withdraw. Therefore, if you want to reduce your taxes, consider not taking more than the required distribution from your retirement money. Some people think they should never spend their principal, but this can be a mistake if you want to save taxes. It could be better to spend some of your regular assets first, so that you can take advantage of the tax-deferral benefits associated with IRAs and qualified retirement plans. You could be better off financially from an income tax standpoint. Your lifetime tax bill can be less or you will at least defer taxes for many years. Consider the following hypothetical example that assumes you have a taxable regular money account and a tax-deferred retirement account with a $100,000 balance each. Let's assume the money in each account earns a return of 6% per year. Let's further assume that annual distributions of $6,000 per year are being taken for a 20-year period. Under one scenario, the $6,000 will be taken first from the taxable money and the other scenario considers what would happen if the money was taken first from the qualified money. Under this example, you would have $150,000 more at the end of 20 years by spending your regular money first. The upside is that you could potentially hold onto more money while you are alive. Of course, the down side is that your beneficiaries will eventually have to pay income taxes on the money when you are gone. As the information provided by this example is hypothetical, actual results will vary depending upon the performance of your investments. 2 1 Federal income tax rates range between 10% to 35% under the 2011 federal tax code, and are based upon the taxpayer's level of annual income. State income taxes could also apply, which vary from state to state. Please note that federal and state tax laws are subject to frequent changes. 2 The fact that the beneficiaries are going to pay income taxes at a later date could be an advantage if they are in a lower tax bracket. As previously explained, estate taxes could also apply if the decedent's estate exceeds $5 million in 2011 and 2012 and $1 million thereafter.

7 Spend Regular Money First Spend Regular Money First Today In 20 Years Regular Money $100,000 $40,916 IRA Money $100,000 $320,713 TOTAL $200,000 $361,629 Spend IRA Money First IRA Money $100,000 $0 Regular Money $100,000 $211,247 TOTAL $200,000 $211,247 Assumptions: All money is assumed to earn 6%. This assumed rate is used for tax illustration purposes only and does not reflect any particular investment. Federal income taxes are assumed to be 35% in this example, and your income tax rate could be lower based upon your annual income. This illustration covers a 20-year duration, with distributions of $6,000 occurring each year. The income taxes on withdrawals are also deducted from the IRA account. Two Things That Could Ruin Your Plans to Stretch Your IRA Money If you have consulted a financial advisor about your IRA, they may have told you about the "stretch" IRA the concept of allowing your beneficiaries to spread out the tax on the portion of your retirement dollars that you leave to them. Continuing from our previous hypothetical table, if your $100,000 retirement fund happened to grow to $320,000 and you died before spending any, your heirs would receive the $320,000. They can spread out the payments from the IRA and a spouse can continue to defer taxation until age 70½ (see IRS Publication 590). The two things that can impair this tax deferral are the possible actions of your heirs and your IRA custodian. At your death, your heirs can remove the whole balance in one lump sum and go buy a yacht. Yes, they will pay all of the tax at once and lose years of tax deferral. One way to control this is not to leave your IRA assets outright to heirs, but to leave the assets in an IRA trust. In a trust, you can control how the heir gets paid. (See more about trusts in "Avoiding Potential Mistakes in Selecting IRA Beneficiaries through an IRA Trust" later in this booklet). Also, your IRA custodian may have rules such as "all distributions to heirs must be paid out in five years." Please call for a list of important questions you will want to ask your custodian about your account. Now, let's examine in greater detail why the beneficiary forms your IRA custodian uses could cause some problems.

8 Why You May Need an IRA Asset Will Let's say you have two sons, Jack and Tom. You name them as primary beneficiaries for your IRA when you open the account by completing an "IRA Beneficiary Designation Form." As shown below, Jack and Tom each have a son. Jack's son is Bob. Tom's son is Dan. So you put your grandsons names on the line of the beneficiary designation form that says "secondary beneficiaries." Don't Let Your Custodian Mess You Up Primary Beneficiaries: Your Sons Secondary Beneficiaries: Your Grandsons Jack Bob Tom Dan If Jack dies before you do, what happens to Jack's half of your IRA when you pass away? You probably think it goes to his son, Bob. It could go to Tom, because on your beneficiary designation form, there may be no place to specify how the primary beneficiaries and secondary beneficiaries were related. There may be no place for you to explain your intentions and your desires with respect to those beneficiaries. Those beneficiary designation forms that you filled out with the bank or the securities firm may not be sufficiently detailed to carry out your wishes. What's the possible solution? Give your IRA custodian your complete instructions on your own form. These forms are known as "Retirement Asset Wills" because they provide a complete set of instructions regarding your retirement assets. You should have such instructions drawn by a knowledgeable attorney. Please call if you would like names of local attorneys knowledgeable in preparing these customized IRA instructions that contain your wishes. By the way, some retirement plan custodians may refuse to take your custom instructions. If this happens, call for a list of custodians that will accept your instructions. And since retirement assets are transferable from custodian to custodian in most cases, you can move your accounts. The same flexibility often applies to a beneficiary who inherits an IRA and finds that the custodian has a rule to pay out the IRA quickly rather than allow the stretch concept. The beneficiary can just transfer to a more flexible custodian. However, income taxes and penalties will apply if you take a distribution and your entire account is not rolled over within 60 days of the day your money is distributed. For this reason, it is often a good idea to have your account transferred via direct rollover.

9 Avoiding Potential Mistakes in Selecting IRA Beneficiaries through an IRA Trust When most people select beneficiaries for their IRAs, they select their spouse or their children. As simple as this seems, it can create problems. Consider this scenario. If instead you leave the IRA to your son, he could withdraw the funds immediately and decide to buy a mansion jointly with his spouse. Let's say that the following week, your daughter-in-law files for divorce and gets to keep the mansion in the settlement. You just gave your ex-daughter-in-law a mansion with your IRA money. Although these examples are hypothetical, they illustrate problems that sometimes arise when younger family members are left with substantial retirement assets. To help avoid the above scenario, you may decide to leave your IRA to your estate. Based upon the tax rules today, a designated beneficiary must usually be a natural person (except for cases with qualified trusts, which will be explained later in this booklet). 3 If you leave these assets to an estate, the IRS will require the account to be distributed over a five-year period, rather than the lifetimes of the respective beneficiaries. So what do some people do to avoid the scenario above? They may leave their IRA in a qualified trust and appoint a trustee like an accountant, financial advisor, attorney, etc., a person that has common sense and tax knowledge. 4 Within the boundaries of your wishes and IRS-required minimum distributions, the trustee can be empowered to decide who among your beneficiaries will get the IRA and how much they get. The trustee can then be empowered to decide how quickly this money gets distributed over and above the annual minimum amount of required IRS distributions. You can even give very detailed instructions. For example, if the money is to be used for education you may stipulate that up to $15,000 a year can be distributed, or to start a business up to $25,000 can be distributed, and you can go on and on with such instructions. Please note that the trust must satisfy the rules set forth in the treasury regulations to qualify as an IRA beneficiary, and it is important to consult with an experienced attorney prior to setting up such a trust. 5 So if you would like to have restrictions or limitations on how your retirement plan eventually gets used and distributed, you should leave it to a trust rather than directly to a person. Because if you leave it to a person, it's their decision how to use it as they desire. You can call the representative who has provided you with this booklet for referral information regarding experienced attorneys in your area. 5 3 Treasury Reg revised 4/1/06 4 See Prop. Reg (a)(9)-4, A-5(a), A-6 (2006) for further guidance on establishing a qualified trust. 5 The cost of establishing an IRA trust or IRA asset will vary by location and attorney and may be significant.

10 If You Have Charitable Desires... If you want to leave even $1 to charity, you may want to do it from your IRA money. You can specify one or more charities to receive portions of your IRA, and your other heirs could thank you for doing it. When you leave your heirs a dollar of IRA funds, they could pay up to 35 cents tax and have 65 cents left to spend. 6 If your estate is over the estate taxable amount of $1 million in 2011 and thereafter (there is no estate tax for 2010), you may also be required to pay estate taxes on some of this money. However, when you leave beneficiaries a dollar of non-retirement money, the income tax they pay could be reduced and sometimes eliminated as a result of the basis increase they will typically receive on the transferred asset (assuming the transfer is made after death). Furthermore, the estate tax burden can also be minimized and even eliminated in some cases with credit-shelter trusts, irrevocable life insurance trusts, and other estate planning strategies. Therefore, your surviving family could be better off if they received their inheritance from non-qualified resources. On the other hand, qualified charities do not pay any income taxes on death bequests that come from IRAs and qualified retirement money. 7 Also, your estate will receive an estate tax deduction for the amount of the charitable gift, which helps to reduce the overall tax. Therefore, if your estate plan includes charitable gifts, it is often a good idea to satisfy these gifts with qualified money. Which Investments Should You Consider for Your Retirement Accounts? Stocks? Real Estate? Treasury Bonds? Investment Options CDs? Municipal Bonds? Mutual Funds? Many of you already know that no federal, state, or local income taxes are incurred on the income received from municipal bonds. Also, income from federal treasury bonds is typically exempt from state and local taxes. If the income from these investments is already being received tax-free outside your retirement plan, does it make sense from a 6 Federal income tax rates range between 10% to 35% under 2011 federal tax code and are based upon the taxpayer's level of annual income. State income taxes could also apply, which vary from state to state. Please note that federal and state tax laws are subject to frequent changes. 7 Certain restrictions may apply to the amount of the deduction, based upon the status of the charity and the annual income of the donor. See your tax advisor for further details regarding charitable donations.

11 tax-planning position to hold these investments in a tax-deferred account? 8 It may not, in many cases. In fact, holding these investments in your qualified account could result in a situation where your earnings will be subjected to taxes in the future. If we assume that it's reasonable for a certain investor to balance his or her portfolio with some equity investments, then a purchase through an IRA or qualified plan could help this investor to achieve some tax-deferred growth on any income received. Although a gain on the sale of these investments would normally be subject to federal income taxes, these taxes can be deferred when the investments are bought and sold inside a qualified retirement account. Outside the plan, any earnings and growth are subject to immediate taxes. Inside the plan, these taxes can be deferred for many years (usually until distributions are taken at retirement). The point of this is that it makes sense to consider income taxes when deciding what assets should be purchased with qualified and non-qualified resources. Please keep in mind that municipal bonds held outside of a qualified plan can be subject to the Alternative Minimum Tax. These bonds are usually exempt from state and local taxes, though discount bonds may be subject to capital gains tax. These bonds are also backed by the issuing state or local government. On the other hand, equity investments such as stock and mutual funds involve market risk, which includes the possible loss of your principal investment. How you chose to allocate your investment funds is a serious decision, based upon these and other suitability considerations specific to your financial situation. Please call if you would like more information on this. How Lower Stock Values May Lower Your IRA Distribution Taxes and Increase Your Income One thing you can consider to save on federal income taxes during your retirement is to convert your qualified tax money into a Roth account. By doing this, you could shield any appreciation on these assets from federal income taxes. Additionally, distributions from these assets will come to you free of income taxes as well. This, of course, assumes that the holding period rules are satisfied (age 59½ and the five-year holding period). Unlike the traditional IRAs, the owner of a Roth is not required to take distributions at age 70½. Also, any distributions you do take from Roth accounts are not counted for purposes of figuring income taxes on Social Security benefits. This provides Roth owners with another tax benefit that cannot be achieved from a traditional IRA. 8 Of course, assets held inside a qualified retirement plan are protected assets under ERISA and federal bankruptcy law. Creditor protection is just one of a number of additional issues that should be considered when planning for retirement.

12 Although an income tax must be paid if you convert your retirement money to a Roth, the potential for future tax savings could make this a good strategy. For instance, let's consider an example where a taxpayer converts $300,000 of traditional IRA money into a Roth IRA. Let's further assume that the Roth money is invested in a diversified portfolio of investments. If we assume over the long-term that the investments grew at 10% for 15 years, the accumulated value of this portfolio would be $1.2 million. Although the portfolio grew by $900,000, no income tax is paid in the future. Although your beneficiaries are required to take minimum distributions based upon their life expectancies, any future appreciation in the account will come to them free of income taxes. Please remember that investments in traditional and Roth IRAs are subject to various levels of market risk, depending on the type of investments held in the accounts. Therefore, you should never assume that your IRA investments will perform in the same way as was explained in this example. Your results will likely vary from this example. Please call if you would like more information about Roth IRAs. For Those of You Who Are Holding Your Employer's Stock Inside Your Qualified Retirement Plan... Some people reading this might be holding employer stock in their retirement plan. If this stock has appreciated significantly, it might be worth your while to take a lumpsum distribution of this stock. Yes-this is one case where a lump-sum distribution could actually make more sense. If you take a lump-sum distribution of the employer stock from your plan, you are only required to pay ordinary income taxes on the value of the stock when you obtained it through your plan. The appreciation on this stock will be taxed at the lower capital gains rates, which are currently 0% to 15%, depending upon your annual income. Tax experts commonly refer to this unrealized gain as net unrealized appreciation (NUA). Additionally, any appreciation that occurs after the distribution date will receive the favorable capital gains rates if the stock is held for an additional 12 months. Now had you simply left the stock in your plan, the appreciation would have eventually been subject to income taxes at your ordinary income tax rates when you start taking retirement distributions. On the other hand, the net unrealized appreciation strategy can help you reduce income taxes by taking advantage of the lower capital gains rates that are now in place today. As is the case with most complex tax planning strategies, there are rules that must be followed to get the tax benefits. First, this strategy only applies to qualified employer stock. For NUA purposes, this means the stock of your employer. So, if you worked for

13 IBM, the NUA tax break only applies to IBM stock. Also, the employee must elect a lump sum, in-kind distribution from the plan, and this distribution must also occur within one calendar year. Please note that tax laws are subject to frequent changes and you should consult with a qualified tax professional before making any final decision. Please call if you have any questions regarding this particular strategy.

14 About Phone today with questions or to see if we can help you. There is no charge for an initial meeting Financial Educators First Published 12/10/02 This booklet is copyrighted. It may not be reproduced without express written permission of the author. Published by Financial Educators

15 Review of IRA Mistakes booklet FINRA Review Letter FR /H May 19, 2008 The reviewer comments on language about 1031 exchanges and annuities on page 16. However, this is not part of the booklet as written by Financial Educators and the language references existed only in the personalized version submitted by the BD on a behalf of a specific rep. The reviewer comments on language about Certified Retirement Financial Advisor, however, this is not part of the booklet as written by Financial Educators and the language references existed only in the personalized version submitted by the BD on a behalf of a specific rep. Consequently, no changes were required to the booklet as published by Financial Educators.

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18 The Six Best & Worst IRA Rollover Decisions Provided to you by

19 Six Best & Worst IRA Rollover Decisions Written by Financial Educators Presented by

20 Six Best and Worst IRA Rollover Decisions (When You Retire or Change Jobs) IRA owners and their advisors can make expensive mistakes handling IRA rollovers. These mistakes range from the simple to the complex. A simple mistake occurs when an employee takes a check when they retire and their employer must withhold 20%. In order to complete a tax-free rollover, the IRA owner needs to replace the 20% withheld by their employer using their own funds to meet the tax-free rollover requirement within 60 days (more on this later). 1 Then there's the more complex mistake the advisor who does not realize that his client was born prior to 1/2/36 and qualifies for 10-year averaging. The tax on the funds would potentially be 20% using averaging, but may be as much as 35% if a normal rollover is completed. 2 Read on for the dos and don ts of handling IRAs. Best Decisions 1. Leave money in the qualified plan if retiring between ages 55 and 59½ and distributions are required. Since there is no penalty on withdrawals from a qualified plan after attainment of age 55 and separation from service (age 50 for qualified public safety employees), distributions are more liberal than if funds are rolled to an IRA. 3 Once funds are rolled to an IRA, there is generally a penalty for withdrawals prior to age 59½. Therefore, it s best for people who need money from their retirement account in this age bracket to leave the money as is, in their company retirement plan. Often, people who have already completed their rollover are younger than age 59½ and need a distribution. In these cases, they can use rule 72(t) to avoid penalties. When they do this, it s best to split the IRA into pieces for maximum benefit. Each IRA stands on its own, which means that taking 72(t) distributions from one account has no effect on the others. Therefore, if one IRA produces more income than is needed when placed on 72(t) distributions, you could split the IRA into more than one account, and use one of the smaller accounts to make your withdrawals. 1 IRS Publication IRS publication Ibid.

21 And in the future, if you need more income, you could begin equal distributions from another account as well. This could provide greater flexibility in meeting your immediate and future income requirements if under age 59½ Make optimal use of creditor protection Some IRA owners and financial advisors think that the recent changes to the federal bankruptcy rules automatically protect IRAs. That is not true. For creditor protection purposes, an individual is best to leave his funds in his qualified plan because ERISA gives complete creditor protection to qualified plans (note that one person qualified plans do not receive the protection there needs to be at least one real employee in the plan). If the individual does roll over his qualified plan into an IRA, it is optimal to leave these funds in a separate rollover IRA, because the protection that the funds had under ERISA will follow the funds into the rollover IRA. According to the Supreme Court, IRAs are creditor protected to the extent reasonably necessary for your support. In the case of people with other assets, it is unwise to rely on the Courts decision. 5 Individuals may in fact have protection under the federal bankruptcy laws or their state s rules addressed below. Unfortunately, the protection one has is not always clear. Not all states actually use the federal bankruptcy exemptions. In fact, some have state level bankruptcy exemptions. Consequently, in some states, the states exemptions must be used; in other states individuals have the choice of federal or state exemptions, and only in the remaining states must the federal statutes be used. Consequently, the Supreme Court s decision will only apply in states where the individual has a choice between state and federal exemptions and chooses the federal exemptions, or in states where the federal rules must apply. ERISA protection provided to money in a qualified plan [401(k), etc] universally pre-empts state law and always provides creditor protection. It s also unclear whether the ruling will apply to Roth IRAs, which have far fewer age-based restrictions (since contributions can be withdrawn penalty-free at any time, and no required minimum distributions apply during lifetime). Therefore, Roth IRAs would not meet the threeprong test evaluated by the Supreme Court in the Rousey decision. Consequently, decisions to complete IRA rollovers from ERISA-protected retirement plans must still be made carefully. Be aware that when you roll assets from a company plan to an IRA, you may lose creditor protection, so it is wise to check with legal counsel. 4 Once rule 72t is selected, distributions must be taken for at least 5 years on that schedule or until age 59½, whichever is later. Failure to complete the schedule will result in a 10% penalty on prior withdrawals. 5 Rousey v. Jacoway ( ).

22 3. Re-Check Your Beneficiaries A company retirement plan (a qualified plan) is governed by the ERISA rules. And those rules state that you must name your spouse as a beneficiary or get spousal consent to name another person. The same rules do not apply to IRAs. Therefore, in creating your rollover account, you have the flexibility to name the beneficiaries you desire. Additionally, always name contingent beneficiaries in the event your primary beneficiary predeceases you. Here are some examples, and you may want to check with an estate planner to finalize your selections: a. Name your spouse as primary beneficiary and your children as contingent beneficiaries. In this situation, your spouse will inherit your IRA if he or she survives you. The children get none of the account. If your spouse predeceases you, your children inherit the IRA. Carefully consider if the beneficiaries have the capacity to manage potentially large sums of inherited money. If not, you may want to consider an IRA Asset Will or IRA Trust. b. Name your children as primary beneficiaries. They will inherit your IRA. If there are any adverse relationship issues between your children, you may want to have the IRA split so that each account goes to one child and nothing needs to be split among the children. c. Name anyone you desire. Beneficiaries do not need to be relatives. Remember this all important rule whoever you name as beneficiaries on your IRA account will inherit your IRA. Your will or living trust has no control over your IRA, so make sure your IRA beneficiaries are exactly as you desire. 1. Get a check from the company Worst Decisions Of course, this is just foolish. The company must withhold 20% from the payment, so that a person with a $100,000 account will have $20,000 withheld, and will receive a check for $80,000. In order to complete a tax-free rollover, the taxpayer must deposit that $80,000 in an IRA plus $20,000 from their pocket to complete a tax-free $100,000 rollover. The taxpayer may eventually get the $20,000 withheld as a tax refund the following year, but that will not help their cash flow, as they need to complete their IRA rollover within 60 days of receiving the check from their qualified plan. The bottom line is that people should never touch their qualified funds. The only sensible way to move funds is a direct transfer from the qualified plan to the IRA custodian and avoid withholding.

23 2. Rollover company stock Shares of employer stock get special tax treatment, and in many cases, it may be fine to ignore this special status and roll the shares to an IRA. This would be true when the amount of employer stock is small, or the basis of the shares is high relative to the current market value. However, in the case of large amounts of shares or low basis, it would be a very costly mistake not to use the Net Unrealized Appreciation (NUA) Rules. 6 If your company retirement account includes highly appreciated company stock, an option is to withdraw the stock, pay tax on it now, and roll the balance of the plan assets to an IRA. This way you will pay no current tax on the Net Unrealized Appreciation (NUA), or on the amount rolled over to the IRA. The only tax you pay now would be on the cost of the stock (the basis) when acquired by the plan. If you withdraw the stock and are under 55 years old, you have to pay a 10% penalty (the penalty is only applied to the amount that is taxable). IRA owners can then defer the tax on the NUA until they sell the stock. When you do sell, you will only pay tax at the current capital gains rate. To qualify for the tax deferral on NUA, the distribution must be a lump-sum distribution, meaning that all of the employer s stock in your plan account must be distributed. Hypothetical Example Jackie just retired and has company stock in her profit sharing plan. The cost of the stock was $200,000 when acquired in her account, and is now worth $1 million. If she were to rollover the $1 million to her IRA, the money would grow tax-deferred until she took distributions. At that time, the withdrawals would be taxed as ordinary income (up to 35% federal). When Jackie dies, her beneficiaries would pay ordinary income tax on all of the money they receive. But if Jackie withdrew the stock from the plan rather than rolling it into her IRA, her tax situation would be different. She would have to pay ordinary income tax on the $200,000 basis. However, the $800,000 would not be currently taxable. And she would not have to worry about required minimum distributions on the shares. If she eventually sells the stock, she would pay the lower capital gains tax on the NUA and any additional appreciation. Jackie s beneficiaries would not receive a step-up-in-basis for the NUA. However, they would only pay at the capital gains rate. Appreciation between the distribution date and the date of death would receive a step-up-in-basis (based on tax rules in effect in 2011); and, therefore, would pass income tax-free. 6 IRS Publication 575

24 With NUA Without NUA 35% Tax on $200,000 $70,000 35% Tax on $1 million $350,000 15% Tax on $800,000 $120,000 Total Tax $190,000 $350,000 Let s assume the stock value increases to $1.5 million in five years, and she decides to sell. With NUA Without NUA Taxable Amount $1.3 million $1.5 million Tax Rate 15% 35% Potential Income Tax to Jackie $195,000 Plus Amount Previously Paid $70,000 Total Tax $265,000 $525,000 Finally, assume that Jackie died in five years after the stock increased to $1.5 million. What would her beneficiaries have to pay? Taxable Amount $800,000 With NUA Tax Rate 15% 35% Without NUA $1.5 million Income Tax $120,000 $525,000 Amount Receiving Step-Up in Basis $500, Rollover after-tax dollars Sometimes, qualified plan accounts contain after-tax dollars. At the time of rollover, it is preferable to remove these after-tax dollars, and not roll them to an IRA. That way, if the account owner chooses to use the after-tax dollars, he will have total liquidity to do so. You can take out all of the after-tax contributions, tax-free, before rolling the qualified plan dollars to an IRA. You also have the option to rollover pre-tax and aftertax funds from a qualified plan to an IRA and allow all the money to continue to grow tax-deferred. The big question is, will you need the money soon? If so, it probably will not pay to rollover the after-tax money to an IRA, because once you roll over after-tax money to

25 an IRA, you cannot withdraw it tax-free. The after-tax funds become part of the IRA, and any withdrawals from the IRA are subject to the Pro Rata Rule. The Pro Rata Rule requires that each distribution from an IRA contain a proportionate amount of both the taxable and non-taxable amounts in the account. The non-taxable amounts are called basis. In an IRA, the basis is the amount of nondeductible contributions made to the IRA. Example Paula has $100,000 in an IRA; $20,000 is the basis (the total of her non-deductible contributions made over the years). She rolls over $200,000 from her former employer s plan to the IRA, of which $10,000 is from after-tax contributions. After the rollover, she ll have $300,000 in her IRA. The basis becomes $30,000 (the $20,000 non-deductible plus the $10,000 of after-tax funds rolled into the IRA = $30,000 basis). Now Paula wants to withdraw $10,000 of after-tax money from the IRA, figuring it will be tax-free. It will not. Only $1,000 of the withdrawal will be tax-free. She will pay tax on the other $9,000. The Pro Rata Rule requires each withdrawal contain a proportionate amount of both taxable and non-taxable funds. Therefore, the non-taxable amount in the IRA is $30,000, and that is 10% of the total $300,000 IRA balance after the rollover. This means that each withdrawal will be 10% tax-free and 90% taxable. Another option is to convert Paula s entire $300,000 IRA to a Roth IRA (assuming she otherwise qualifies for the conversion). Then all withdrawals will be tax-free. She will pay tax on $270,000; the $30,000 of basis will transfer tax-free to the Roth IRA. A partial conversion will require the use of the Pro Rata Rule. The seemingly simple task of rolling over money from a company plan to an IRA bears many complicated decisions. If talking with a professional would be of value, we welcome your questions.

26 About Phone today with questions or to see if we can help you. There is no charge for an initial meeting Financial Educators First Published 09/10/08 This booklet is copyrighted. It may not be reproduced without express written permission of the author. Published by Financial Educators.

27 February 26, 2014 Matthew Bahrenburg CFD Investments, Inc S. Goyer Kokomo IN Reference: FR /E Org Id: Six Best and Worst IRA Rollover Decisions Rule: FIN 2210 REVIEW LETTER 10 pages Fee: $125 Attention: Matthew Bahrenburg Total Fee: $125 A revision is necessary for this material to be consistent with applicable standards. We offer the following comments: Although this submission is intended for use of the broker-dealer and other firms, and will have proper CFD disclosures, pursuant to FINRA Rule 2210(d)(3)(A), the material did not prominently disclose the name of the member firm (CFD Investments, Inc.) which appears on the member s Form BD. The material must be revised to address our concerns. Reviewed by, Evan L. Spevak Associate Principal Analyst jrk

28 NOTE: This review is limited to the communication that was filed. We assume that the communication does not omit material facts, contain statements that are not factual, or offer opinions that do not have a reasonable basis. This communication may be described as Reviewed by FINRA or FINRA Reviewed ; however, there must be no statement or implication that this communication has been approved by FINRA. Please send any communications related to filing reviews to this Department through the Advertising Regulation Electronic Filing (AREF) system or by facsimile or hard copy mail service. We request that you do not send documents or other communications via .

29 Modifications to Comply with FINRA Reviewer Comments FR /E September 19, 2014 How Wealthy People Invest 1. There is no offer of a prospectus in this document. The language which confused the reviewer has been removed. (page 9) 2. The verbiage How Wealthy People Invest and Secrets of professional Money Management has been changed to: How Wealthy People Use Professional Money Management (pages 1 and 2) and the footnote for substantiation has been added Most households that own mutual funds have moderate family incomes, Investment Company 2013 Fact Book, p Alternatively, only 1% of respondents worth $5 million to $10 million invest in mutual funds.among those worth $20 million or more, NONE invest in mutual funds. Study by Prince and Associates, 3. This verbiage has been deleted To address the disadvantages above, Wall Street created Exchange Traded Funds (page 4) 4. The following disclosure has been added: (note that diversification does not ensure a profit or guarantee against loss.) (page 3) 5. Add footnote 2: The Real Cost of Owning a Mutual Fund, Forbes 4/4/11 (page 3) 6. Verbiage added: Do note that to trade ETFs, the investors pays a commission for the transaction. (page 5) 7. Verbiage added: (Please consult with a tax advisor as the information below s a general discussion). (page 4) 8. This paragraphs has been added: Caution Some separately managed accounts invest in mutual funds or other registered investment companies and may thereby subject the investor to 2 sets of fees the advisory fee for the separately managed account itself plus the management fees and expenses of the underlying registered investment companies. (page 6) 9. The words perfect and perfectly have been removed (page 6) 10. The statement on fees regarding separately managed accounts has been replaced with this statement: Mutual funds often charge sales loads, management fees and service fees while separately managed accounts typically charge an all-inclusive "wrap" fee. And this substantiation, footnote 6:

30 MFS Investment Management, Is a Separately Managed Account for You? December 2013 MFS Investment Management, Is a Separately Managed Account for You? December This verbiage providing protection has been replaced with: potentially reducing risk 12. Added extensive table of comparisons Mutual funds, ETFs and Separately Managed Accounts (pages 8 and 9)

31 September 19, 2014 Anna Lautenbach Packerland Brokerage Services, Inc. 432 Security Blvd Green BayWI _:. I Reference: FR /E " '.,..' :1 --,,; ''- ' OrgId: ,.,.. t..:; "': preview LE'tJ;'E~\ '.' 1. How Wealthy People Invest Rules: FIN 2210, SEC pag~s Fee:.$125 Attention: Anna Lautenbach '.. --~ '1 Total Fee: $ r Revisions are necessary for this 'material to be consistent with applicable standards.. ""~ '" -:,'1. The prospectus offer on page 9 must be revised to more closely track the language required by SEC Rule 482(b)(1)..," '~. In addition, the prospectus offer must be presented in a type size at least as large as and of a style different from, but at least as prominent as, that used in the 'major portion of the material, in ~.' ~ 1 :.... T f'. accordance with SEC Rule 482(b)(5)..,, "'.'. --. ' ".. ~. The title "How Wealthy People Invest" and "The Secrets of Professional Money M;nagement" (emphasis added) on pages 1 and 2 is unwarranted as they lack basis. Therefore, they must be revised, pursuant to FINRA Rule 221O(d)(1): ".', ~!, " In addition, the claim "To address the disadvantages'above> Wall Street created Exchange Traded Funds" on page 4 lacks basis and must be deleted, pursuant to FINRA Rule 2210(d)(1). The mat~rial must be revised to ad~ress-thefoilo~i~g,;u~s~ant...,.,..,j to FINRA Rule 2210(d)(1)(A): To balance the reference to diversification in the "Mutual Funds" discussion on page 3, an explanation must be included to the effect that diversification does not ensue a profit or guarantee against loss. Investor protection. Market integrity. Advertising Regulation t KeyWest Avenue f Rockville, MD 20850

32 ----._ , Flnra A basis for the "Money Magazine" discussion on page 3 must be provided (e.g., date of article, time period, etc.). To balance the language"... the cost to manage the fund and the fees to the investor or much smaller" in the "Exchange Traded Funds (ETFs)" discussion on page 5, an explanation must be included to the effect that commissions are charged on every trade. To balance the tax discussion throughout the material, an explanation must be added to. advise the reader to consult with a tax advisor. To provide a sound basis for evaluating the facts, the "Separately Managed Accounts" (SMAs) discussion on page 6 must be revised to include an explanation to the effect that some SMAs invest in mutual funds, or other registered investment companies, thereby subjecting investors to two sets of fees: the advisory fee for the SMA itself plus the management fees and expenses of the underlying registered investment companies. The following claims are unwarranted and must be deleted, pursuant to FINRA Rule 221O(d)(1)(B): The reference to perfectly in the statements "Mutual funds are p"erfectlydesigned for the small investor... " and "Secondly, mutual funds offerperfect liquidity... " on page 3. "Fees vary widely and can be comparable of open-ep.d mutual funds or more reasonably comparable to those of an ETF" on page 6:.The language"... and providing protection to your principal" (emphasis added) in the "Mutual Funds" discussion on page 3 is promissory and must be revised, pursuant to FINRA Rule 2210(d)(1)(B). -The comparison between mutual fu~ds, exchange traded funds, and SMAs throughout the material must disclose all material differences between them, inchiding (as applicable) investment objectives, costs and expenses, liquid~ty, safety, guarantees, or insurance, fluctuation of principal or return, and tax features, pursuant to FINRA Rule 221O(d)(2). ~. : ~ The material must be revised to clarify and reflect any relationship between the member (Packerland Brokerage Services, Inc.) and any non-member (P&R Associates, Financial Educators,), pursuant to FINRA Rule 2210(d)(3)(B). In addition, the communication should clearly state that Mr. Petcka is a registered representative. of Packerland Brokerage Services, Inc., pursuantto FINRA Rule 221 O(d)(3)(B). Investor protection. Market integrity. AdvertisingRegulation t KeyWest Aven ue f Rockville. MD 20850

33 Flnra Reviewed by, Natlyn D. Murrain Senior Analyst hrrn This year's Advertising Regulation Conference will be held on October 9-10 in Washington, D.C. For more information and to register, please view our online brochure at NOTE: This review is limited to the communication that was filed. We assume that the communication does not omit material facts, contain statements that are not factual, or offer opinions that do not have a reasonable basis. This communication may be described as "Reviewed by FINRA" or "FINRA Reviewed"; however, there must be no statement or implication that this communication has been approved by FINRA. Please send any communications related tofiling reviews to this Department through the Advertising Regulation Electronic Filing (AREF) system or by facsimile or hard copy mail service. We request that you do not send documents or oth~r communications via . Investor protection. Market integrity. Advertising Regulation t l<ey West Avenue f Rockville, MD 208S0

34 How Wealthy People Use Professional Money Management Provided to you by

35 How Wealthy People Use Professional Money Management 1 Written by Financial Educators Provided to you by 1 Most households that own mutual funds have moderate family incomes, Investment Company 2013 Fact Book, p Alternatively, only 1% of respondents worth $5 million to $10 million invest in mutual funds.among those worth $20 million or more, NONE invest in mutual funds. Study by Prince and Associates,

36 Introduction Just as surgeons don't operate on themselves, wealthy people usually do not invest their own money. They have investment professionals manage their money for them. In this booklet, we will discuss three types of professional money management and the differences between each. We will look at mutual funds, exchange traded funds and separately managed accounts, and the pros and cons of each. Advantages Mutual Funds Mutual funds are perfectly designed suitable for the small investor because most accept small investment amounts, typically $2500 or less. Secondly, mutual funds offer perfect liquidity with the ability to add or withdraw from your account at the end of any day. Additionally, the money is invested by an individual or team of individuals who are typically experienced investors, have a tested investing methodology, and have typically earned the Chartered Financial Analyst credential. This is a rigorous program of study, far more comprehensive than the exams a financial advisor or investment advisor must pass. So far, mutual funds appear to be an easy investment for any type of investor. Maybe most important is diversification. Mutual funds may have from 30 to 500 different stocks in the fund thereby diversifying your money and providing protection potentially reducing risk to your principal. Should a couple of companies in the mutual fund do exceptionally poorly; the poor performers will not have a large impact on a big portfolio (note that diversification does not ensure a profit or guarantee against loss.) However, there are investors who would prefer not to use mutual funds as explained under the disadvantages section. Disadvantages Fees: One of the often cited complaints about mutual funds is that of heavy fees. A summary of costs from various reaserch studies calculated the average cost of owning a domestic equity fund at 3.17% annually in a non-taxable account. This does not include the cost of any front end or back end cost, redemption fees or 12b-1 fees. 2 A similar study by the SEC concluded that average fees were lower. 3 2 The Real Cost of Owning a Mutual Fund, Forbes 4/4/

37 Turnover and Taxes: Closely related to the issue of high fees is the issue of portfolio turnover and income taxes. (Please consult with a tax advisor as the information below is a general discussion). The turnover rate (frequency of purchases and sales) in a fund is not necessarily a bad thing but it does increase your tax bill if the fund is selling stocks with lots of shortterm gains. Additionally, turnovers cost you money. If turnover does hurt a fund s return, wouldn t there be a correlation between a fund s turnover rate and its after-tax return? Indeed there is! 4 To optimize your mutual fund returns, or any investment returns, know the effect that taxes can have on what actually ends up in your pocket. Mutual funds that trade quickly in and out of stocks can have what is known as high turnover. While selling a stock that has moved up in price does lock in a profit for the fund, this is a profit for which taxes have to be paid. Turnover in a fund creates taxable capital gains, which are paid by the mutual fund shareholders. The SEC requires all mutual funds to show both their before- and after-tax returns. The differences between what a fund is reportedly earning, and what a fund is earning after the investor pays taxes on the dividends and capital gains, can be tangible. If you plan to hold mutual funds in a taxable account, please check out these historical returns in the mutual fund prospectus to see what kind of taxes you might be likely to incur. If you would like to know if your funds have high turnover and resulting high tax impact, please call for a free analysis on the funds you own. Next we have the issue of style drift. Style Drift: Did you know some funds might borrow money to buy securities? Are you comfortable knowing that these funds may borrow money (in an effort to buy more stocks and enjoy gains), which could magnify losses if the market falls? Do you know if your fund uses volatile derivatives in order to boost returns? Derivatives are financial instruments, whose up and down price movements are based on the movements of an underlying security, such as a stock or bond. However, the derivative s volatility is usually greater. If the stock moves 10% in value, the derivative could move even more. These issues are mentioned in your fund s prospectus, but you may not know that your fund can be volatile until your fund s semi-annual report. The use of leverage by mutual funds can significantly increase a fund s volatility, so low-risk investors may want to avoid funds that trade derivatives. Included in this topic of the fund-holding securities, what you may not want to own is the issue of style drift. For example, one might invest in a value fund which focuses on large blue chip companies selling at modest price-earnings ratios. But the fund manager may get tempted by the fast increase in Internet stocks and start allocating the 4 "Taxes are one of the most significant costs of investing in mutual funds through taxable accounts Recent estimates suggest that more than two and one-half percentage points of the average stock fund's total return is lost each year to taxes." SEC website

38 fund s money into these investments. You can avoid this problem of style drift by using funds that can never vary from their stated style in the prospectus. Trading Limitations: Note that unlike a stock, you cannot buy or sell open-end fund shares in the middle of the trading day. While the once-per-day trading limitation may seem fine to you, more active traders desire to trade in the middle of the day and also to sell short to capitalize on market movements. While we will not discuss shortselling in this pamphlet, mutual funds cannot be sold short and there are no puts or calls on mutual fund shares. Commingling: Last, is the potentially negative issue that your money is commingled with the money of other investors. When the market declines, if other investors in the mutual fund get nervous and take their money out of the fund, this forces the fund manager to sell securities in the fund. The sale is necessary to get the cash to send to the fund investors. So while you may view a decline as an opportunity to buy, your fund manager cannot do so as he is forced to sell to meet redemptions of the nervous investors. To address the disadvantages above, Wall Street created Exchange Traded Funds. Exchange Traded Funds (ETFs) ETFs were developed to mitigate the disadvantages of open-end mutual funds, covered previously. First, the shares provide diversification just as do open-end mutual funds in that they often track an entire index, such as the S&P 500 index. Therefore, one could argue that this is similar to owning the 500 shares in the S&P index. Secondly, ETFs shares are traded on the stock exchange. This means that the shares can be bought or sold at any time during the day like any share of stock. A more active trader finds this flexibility appealing as open-end mutual funds shares can only be bought or sold at the end of the day. Moreover, ETFs shares can be sold short and many have puts and calls traded on them, thereby enhancing their appeal for an active investor. Next, more sophisticated investors are typically sensitive about fees. Because many ETFs track an index, the holdings within the ETF rarely change. Because there are few changes, there is no need for an active manager, and as a result, the cost to manage the fund and the fees to the investor are much smaller. As Wikipedia summarizes, "Mutual funds can charge 1% to 3%, or more; index fund expense ratios are generally lower, while ETFs are almost always in the 0.1% to 1% range. Over the long term, these cost differences can compound into a noticeable difference. "5 Do note that to trade ETFs, the investor pays a commission for the transaction. 5

39 Closely related to the previous paragraph is the mentioned low turnover. Because there is very little buying or selling of shares, there is a very small tax impact to the investor. In the illustration of an ETF which tracks the S&P 500 index, all holdings in the ETF are typically held for more than a year, so when a sale does occur, it is a long-term sale resulting in a long-term capital gain or loss. Long-term capital gains are taxed at preferential rates as are qualifying dividends from the shares in the fund. An ETF, like an open-end mutual fund, has many investors money commingled. Some investors would like to have their portfolio managed separately and thereby gain ultimate tax control from the timing of purchases and sales. That opportunity is provided by separately managed accounts. Separately Managed Accounts Separately managed accounts go by several names in the securities industry such as wrap accounts, individually managed accounts, fee-based accounts, managed accounts and they were originally an offering available to the wealthiest of investors typically having $1 million or more in a portfolio. However, investment managers and brokerage firms, using technology, have been able to offer separately managed accounts to investors of more modest means. Let's take a look at the advantages. Individual cost basis Because each security in the account is your own security and belongs only to you, you know how much it was purchased for, and prior to sale, you know how much the taxable gain will be. This permits you to instruct the manager to avoid taking profits at times when it may be bad for you from an income tax standpoint. If you own shares in a mutual fund, you simply get a 1099 form at the end of the year outlining how much you have to report to the IRS. Surprise! Because you have an individual cost basis in each security, not only can you manage the gains and losses within that portfolio, you can manage your overall tax situation. Let's assume you sold a piece of real estate and have a profit. You may ask your separate account manager to sell some stocks with losses before the end of the year ; thereby recognizing those paper losses to save you tax dollars. To take the tax issue a step further, you may not have realized that when you buy a mutual fund, there may be embedded capital gains. This means that the fund has already made sales, captured profits, and at the end of the year even though you are a new shareholder you will be forced to pay your share of the tax on the gains that occurred prior to you becoming a shareholder. With a separately managed account, you never have this embedded capital gains issue. Personalization

40 If you have specific social convictions, such as the avoidance of tobacco stocks, you can provide that instruction to your separate account manager. Unlike a commingled account, your wishes within reason can be reflected in your investment account. Because separately managed accounts can be offered for as little as $100,000, for your $300,000, you could have three different professional managers. Each manager could focus on a separate financial goal you have, a goal that matches the selected manager's expertise. Transparency Separate accounts provide you with comprehensive performance reporting and full disclosure of all costs. Unlike a mutual fund that does not tell you how much you profited or lost for the year or what the fund holds at any time, you will receive a quarterly report that shows your gain or loss clearly with all costs clearly indicated. Because most separately managed accounts are available to view on-line, you can check on your holdings 24 hours a day. Fees Mutual funds often charge sales loads, management fees and service fees while separately managed accounts typically charge an all-inclusive wrap fee. 6 Discipline Possibly the most valuable feature of a separate account manager is their investment discipline. These managers typically have an investment model that tells them what to buy and sell and when to buy and sell it. They do not react to every news story as some individual investors do. It's this discipline that many wealthy investors feel separate them from those who have not been as financially successful. Caution Some separately managed accounts invest in mutual funds or other registered investment companies and may thereby subject the investor to 2 sets of fees the advisory fee for the separately managed account itself plus the management fees and expenses of the underlying registered investment companies. 6 MFS Investment Management, Is a Separately Managed Account for You? December

41 Comparing the Features Mutual Funds ETFs Separately managed account Investment Objectives Costs Expenses Ownership Portfolio holdings Fund owner typically desires passive involvement. Investor objectives can be income, growth or any combination thereof Available in load and no load varieties. Load varieties may contain front end or back end fees and/ or continuous marketing fees as well as management fees Actively managed mutual fund investors pay an average of 3.01% in annual fees 1 Investor owns shares in a pool of securities, commingled with assets of other investors Identical for all investors Fund owner typically desires passive involvement - may desire sector focus as ETFS are available with niche security holdings, equity, growth, combination, speculation, inverse or leveraged performance and shorting Each transaction to buy and sell ETF shares incurs a commission Operating expenses are lower than mutual funds 2 Investor owns shares in a pool of securities, commingled with assets of other investors Identical for all investors Investor desires higher degree of personalized service with objective of income, growth or combination thereof Usually no start up or redemption costs Typically a wrap fee of 1% to 3% annually Investor owns individual securities Based on a stated investment discipline but may be customized to a limited extent (usually by excluding specific holdings) Liquidity Minimum investment Tax basis Purchase or sell shares to/from the fund any day Typically ranges from $500 to $2,000 per fund May include embedded capital gains going back months or years before investor bought shares - investors pays capital Purchase or sell shares to another investor during market hours Typically ranges from $500 to $2,000 per fund Basis is original price paid. Capital gains/loss tax on an ETF is incurred only upon the sale of the ETF by the investor Securities in portfolio can be sold during market hours Typically $100,000 per account Basis is original price paid for each security. Capital gains/loss tax on an individual securities is incurred only upon the sale in the account

42 gains tax on his share of the fund each year Tax management Safety and Guarantees Under sole control of portfolio manager Will fluctuate with the market. Some funds may offer principal guarantees for extra cost. Potential for client and his or her financial advisor to manage taxation of gains by timing sales. Potential for unqualified dividends taxed at higher rates. Will fluctuate with the market- may incur loss. Potential for client and his or her financial advisor to manage taxation of gains Will fluctuate with the market - may incur loss. Data in above table from MFS Investment Management, Is a Separately Managed Account for You? December Wealthfront webisite 2 Table below from Forbes whats-the-difference-mutual-funds-and-exchange-traded-funds-explained/ Average Total Operating Expenses Fund Type Mutual Funds ETFs US Large- Cap Stock 1.31% 0.47% US Mid- Cap Stock 1.45% 0.56% US Small- Cap Stock 1.53% 0.52% International 1.57% Stock 0.56% Taxable Bond 1.07% 0.30% Municipal Bond 1.06% 0.23%

43 About Phone today with questions or to see if we can help you. There is no charge for an initial meeting. This booklet is presented solely as educational material about some aspects of Mutual Funds. It is not intended to recommend or dissuade the purchase or sale of any particular Mutual Fund or of Mutual Funds in general. Mutual Funds are sold by prospectus, which contains more complete information including risk factors, fees, surrender charges and other costs. You should obtain a prospectus from your financial representative. Please read the prospectuses carefully before you make a purchase or invest Financial Educators First Published 11/9/11 This booklet is copyrighted. It may not be reproduced without express written permission of the author. Published by Financial Educators

44 Avoid Mistakes in Buying Long-term Care Insurance Provided to you by

45 Avoid Mistakes in Buying Long-Term Care Insurance Written by Financial Educators Provided to you by

46 Do You Need Long-Term Care Insurance? Maybe-Maybe not. Statistics indicate that over half of all senior citizens (people over age 65) will require long-term care. In fact, the most current research statistics are below. 1 With such a great risk, doesn't everyone need insurance? After all, the cost of longterm care can run $6,400 or more monthly in some locations. 2 The truth is, you may or may not need to buy insurance. It comes down to the various income and asset resources you have available to you. To illustrate this, let's take a look at the varying needs of three general groups: Low Resources High Resources Medium Resources 1 Penn State University Policy Research Institute 3/2/06. 2 Average daily rate for a private room is over $80,000 annually. Average daily rate survey of all 50 states and the District of Columbia. MetLife Market Survey of Nursing Home and Home Care Costs, October 2010.

47 These groups are organized according to their income and asset resources. When reviewing this information, please keep in mind that nursing home costs and Medicaid qualification rules can vary widely from location to location. As everyone's situation is different, the need for insurance can also vary among people within the same resource group. Low Resources: This group has countable assets that are at or below the spend down limits imposed by their state Medicaid rules. Additionally, this group typically has monthly income below the average nursing home costs for the state where they live. In many cases, people that fall within this group will qualify for Medicaid without having to spend down their assets. Countable assets include such things as cash, stocks, bonds, mutual funds, cash value insurance policies, CDs, boats, jewelry, and real estate investments. 3 In most states, you will only qualify for Medicaid if you have no more than $2,000 in countable assets. 4 Spouses of a nursing home resident who still live in the family home are allowed to retain countable assets up to $109,560 for 2011, depending on the Medicaid rules in their state. 5 The Medicaid rules will allow the live-at-home spouse (also referred to as the "community spouse") to retain the family residence, a vehicle, and a modest amount of other assets for their support. The Medicaid rules also establish a monthly support allowance to help community spouses meet their living needs, and this allowance is up to $2,739 per month for 2011 depending on state law. 6 This means that if the community spouse's income falls below the allowance, the state will then allow the community spouse to keep an amount equal to the difference from the resident spouse's income. On the other hand, a community spouse is usually not allowed to retain any income from the resident spouse if their income exceeds the allowance. In some cases, even this group might want to consider the insurance if the monthly allowance is below the community spouse's living needs. AARP offers this advice: Long-term care insurance makes sense for those who earn good salaries, have accumulated assets they want to protect and have planned for a comfortable retirement. TheStreet.com Ratings says households with annual income of at least $50,000 to $75,000 and assets of $150,000, not including a car or house, might want to consider a policy. Financial planners typically recommend it for their clients, who tend to earn more. 7 3 U.S. Federal Medicaid limits ibid. 5 ibid. 6 ibid. 7 AARP Bulletin 12/06 "Pursuing Peace of Mind."

48 High Resources: This group has sufficient monthly income to support the community spouse's living needs and to cover the monthly nursing home costs in their area (which will vary from location to location). Alternatively, this group may have enough countable assets set aside to meet a three to five year nursing home stay ($240,000 to $400,000 per spouse, depending on nursing home costs in their community). 8 Many of these people, still do, however, obtain insurance because it can help them protect their estate from being reduced by a long-term care need. Most importantly, it can give them some added assurance by providing a separate source of funds to be used for long-term care needs. Medium Resources: This is the group that often needs the insurance. This group of people has countable assets that exceed the Medicaid limits, but they don't make enough money to cover the monthly costs of nursing home care in their area. Another thing that separates this group from those with high resources is that they lack a separate source of assets to cover an extended stay in a nursing home. For this group, having to come up with $6,900 per month over a long-term period could potentially deplete their estate or create an economic hardship for the community spouse. 9 If you are in this group, you should consider long-term care insurance. This insurance could help secure your financial independence. It can also help to preserve cherished assets for spouses and younger family members. When Should You Get Insurance? Assuming that long-term care protection is needed, you may want to buy this coverage as soon as possible. The longer you wait, the more expensive it gets. 10 Some people ask me if they would be better off saving money to prepare for a longterm care need rather than investing in insurance. However, you might not be able to save enough to cover your long-term care needs. Let's say that at age 60, instead of paying a premium of $1,498, you started saving $1498per year for your future long-term care needs. You started your program in 2010 planning for If we assume for illustration purposes that your savings produced a net return of 5% per year, your accumulated savings would be $49,533 at the end of 20 years. However, in the year 2030 the cost of the average stay in a nursing home could be over $180, MetLife Market Survey of Nursing Home and Home Care Costs (October 2010) (average cost for private room is over $80,000 annually). 9 On average, a senior citizen nursing home resident has lived there for 2½ years. Assuming that the $80,000 nursing home costs apply, the typical nursing home stay for a senior citizen could deplete an estate by $200,000 or more over such a timeframe. MetLife Market Survey of Nursing Home and Home Care Costs (October 2010). 10 As an example, comprehensive plan, 3 year coverage at $100 per day, 5% compounded inflation, 90-day elimination for nursing home. Monthly costs rise as follows: Age 60: $124.80, Age 65: $158.49, Age 70: $165.46, Age 75: $ Source: Federal LTC Insurance Program, last visited 1/21/ Federal long-term care insurance program annual cost in Los Angeles as of 2008 of $61,685 inflated by 5% annually

49 But the same amount paid in long-term care insurance would provide a policy with benefits of $397,000 for long-term care. 12 The assumed rate above does not represent any particular investment. This illustration also assumes that the insured is healthy and qualifies for preferred insurance rates. Your actual results will vary from this example. It is best to start a policy early because the premiums are typically lower. Most importantly, the reason to start with insurance early is so that you can qualify for coverage. As you age and the risk of adverse medical conditions becomes greater, you run the risk that you will not qualify for insurance. As you age, you may develop medical conditions and notations in your medical records that can make you uninsurable. Please note that these policy benefits are subject to the claims-paying ability of the issuing company. Does this mean if you're already age 78, you cannot get insurance? Not at all. Insurance companies do accept many pre-existing medical conditions and there is no cost to apply. So certainly apply if you want this protection, but do it now, rather than later. Two Important Reasons to Get Long-Term Care Insurance If you get sick and need help, who do you think will bear the burden? If you're married, you could turn your spouse's life upside down. You could also jeopardize a comfortable retirement. If you're single, your kids may get the burden. They may either feel obligated to help you and try to fit assisting you into their already over-worked schedule. Or, you could deplete your assets-money that would otherwise have gone to your heirs. Therefore, it's important to realize that a major reason to get long-term care insurance is to protect your family. The other reason is to preserve your independence. Do you want your children helping you brush your teeth? Do you want family members deciding how to spend your assets for your care? Insurance provides a separate asset that can be used only for your quality care. Whether inside or outside your home, insurance could help you to preserve your independence. 12 $180,000 future benefit is equal to a monthly discounted premium of $453. Based on the Federal longterm care quote engine 1/21/11 male, age 60,, comprehensive coverage, 3 yr term, 90 day elimination, inflation compounded at 5% provides total policy benefits in 2030 of $397,000 based on monthly premium of $453.

50 What Does It Cost? The cost can vary widely depending on the company you choose and the coverage you choose. For example, one company may charge more for inflation protection, while another may have a lower charge for inflation, or they may charge more for home care. The author of this booklet has analyzed coverage for hundreds of seniors and there is no single company that has the lowest cost in all cases. Therefore, the first step is to decide on the coverage you want, then quotes can be obtained from several companies to find the best quotation for the coverage you desire. There are five important items in choosing coverage: 1. Inflation Protection: This protection will increase your insurance benefit over time to hopefully keep pace with the actual cost of long-term care. If you are under age 75, you may want to get inflation coverage because it will hopefully be many years until you need benefits. But in many years, the cost will be a lot higher and you'll be glad you have the inflation-adjusted benefit. 2. Benefit Period: You select the term of coverage. In many cases, it is good to apply for at least four years of coverage. The coverage period determines how many years the insurance company will pay you benefits once you need them. Statistics indicate that a five year policy has historically covered 80% of all long-term care cases. 13 Of course, there is no guarantee that this pattern will continue into the future. 3. Daily Benefit: This is how much the insurance company will pay per day for your care. The amount of needed coverage depends upon your income and ability to cover these costs. For example, if you determine that an additional $4,500 of monthly cash flow is needed to cover the costs of long-term care, then you might consider a policy with a $150 day benefit ($4,500 divided by 30 days). You should consider your various sources of income and cash flow when making this determination (e.g., social security, pensions and retirement distributions, annuities, etc.). The previous discussion regarding inflation should also be considered. 4. Coverage for In Home and Outside the Home Care: You can select where you want to be covered. While many people like the idea of remaining in their own home and desire insurance for in-home care, the more important insurance for many is for outside the home (e.g., nursing home or assisted living facility). There are two reasons for this: (a) In your own home, the care you need is usually more moderate (homemaker duties such as shopping, cooking, cleaning, bill paying) and the cost may be less for such nonmedical help. Often friends and neighbors and family can lend a hand making it much 13 Kiplingers How to Minimize Long Term Care Premiums 6/25/2009 :20% of today's 65-year-olds are likely to need care for more than five years.

51 easier, financially, to cover in-home care. If you do need to go outside the home, the cost could be substantial and that's when you really need the insurance. 14 (b) Your home may be poorly designed for you if you're ill. Stairs, long distances to the car and narrow doorways can all present problems for people with walkers or wheelchairs. Often, it's easier and more sensible to obtain care outside the home in facilities designed appropriately. Of course, many seniors value their independence, and the ability to live at home certainly supports this value. With this in mind, it is also important to consider what coverage is available for home-based nursing care (also referred to as "community care"). If home-based coverage is an important priority, you will want to consider your sources of income to determine your coverage needs. 5. Elimination Period: Just as with your car insurance, the more you are willing to pay for a loss (the deductible) the lower your premium. Similarly, you select an "elimination period"-the number of days you will pay for care before the insurance starts to pay. Most policies allow you to select periods ranging from zero days to 180 days with shorter elimination periods generally corresponding to higher premiums. 15 Five Ways to Potentially Reduce the Cost of Long-Term Care Insurance While it would be ideal to have complete coverage (inflation protection, lifetime coverage, at least $200/day benefit), it is better to have at least a basic policy than to have none at all. In other words, a minimum policy is better than being uncovered for the high cost of long-term care. In order to help you minimize the cost of insurance, this booklet provides five ways to help you reduce costs and yet provide basic coverage. No one knows when a health catastrophe can strike. An onset of a heart attack, stroke, cancer, Parkinson's and Alzheimer's are debilitating illnesses, which give no advance warning. Protect yourself and your family financially. Here are five ways to get covered at a lower cost: 1. Reduce the coverage period. For example, reduce the term of the policy from five years to four years. Statistics indicate that a five-year policy has historically covered 80% of the long-term care cases. Of course, there is no guarantee that this pattern will continue on in the future Average daily rate for a private room is over $80,000annually or $6,900 monthly. Average daily rate survey of all 50 states and the District of Columbia. MetLife Market Survey of Nursing Home and Home Care Costs, Source: Federal LTC Insurance Program, last visited 1/21/ Kiplingers How to Minimize Long Term Care Premiums 6/25/2009 :20% of today's 65-year-olds are likely to need care for more than five years.

52 2. Reduce the daily benefit. The actual cost of nursing care averages $229/day. 17 If you cover just $130 or $160 per day with insurance, some people can make up the difference with other income sources, such as Social Security or interest income If you are age 75 or over, consider omitting the inflation protection. Although you will hopefully never need long-term care, if you do, you could need it within 10 years-by age 85. Therefore, you do not need to protect for inflation over as long a period of time as, for example, a 65-year old would need to prepare. 4. Consider partial home care coverage. Many companies offer, as an example, $100/day benefit for nursing home payments and $50/day for home care payments (home care costs can be less expensive if you have family or friends who can help with care). By reducing the benefits for home care, you can lower your premium. 5. Many people have a spouse or friends or relatives who can assist them in the home. Depending on the hours of needed care, the costs of a home health aide ($20 per hour on average) can be less than the costs of round-the-clock nursing home care. 19 With this in mind, the most important coverage area for many is the care provided outside the home. Other Options and Ideas Some people resist the idea of insurance. They argue that the money invested is wasted if they never use the insurance. Some companies have decided to address this concern with a type of policy that provides coverage for life insurance and long-term care. It is a single premium fixed universal life policy containing a rider for long-term care benefits. These policies are sometimes referred to as "combo" policies because of the two benefits provided. 17 Average daily rate for a private room is over $80,000 annually or $6,900 monthly. Average daily rate survey of all 50 states and the District of Columbia. MetLife Market Survey of Nursing Home and Home Care Costs, If you have sufficient interest income or Social Security income, it may be better for you to insure for a majority of the cost of long-term care and self-insure for the remainder. This has the effect of lowering the current cost of the insurance premiums without subjecting you to being unable to cover the costs of longterm care, if and when they arise. 19 Average hourly rate, MetLife Market Survey of Adult-Day Services and Home Care Costs, September2010.

53 There are no annual premiums. The policyholder makes one premium payment. That amount earns interest comparable to rates at the bank. Here is a hypothetical example for a 65-year old male: 20 Single Premium Payment $50,000 Long-Term Care Insurance Benefit $241,393 Life Insurance Benefit $80,464 The policy provides the following features: 1. He can surrender the policy at any time and receive back at least his original premium (less loans, withdrawals, fees, and expenses). While he has the policy, he earns interest and has both long-term care insurance and a death benefit. 2. The policyholder dies. The heirs will receive the $80,464life insurance benefit (less loans, withdrawals, fees, and expenses). 3. The policyholder enters a nursing home or needs home health care. He can receive from the policy up to $241,393in LTC benefits (payments reduce the death benefit and payments are reduced by prior loans, withdrawals, fees, and expenses). The policyholder or his heirs collect the original premium or the long-term care insurance benefit or the death benefit, depending on which situation applies, provided there have been no previous loans or withdrawals (surrender charges may apply). Who is suitable for this type of policy? People who want to preserve countable assets such as stocks, bonds, CDs, bank accounts, cash value life insurance policies, or real estate without having to incur a yearly insurance premium. In this example a minimum required single premium of $10,000 is typically required. This policy is a modified endowment contract, and loans or withdrawals of account value in excess of premiums paid are taxed as ordinary income. The purchase of life insurance and long-term care insurance requires a health review and not everyone is insurable. The purchase of insurance incurs fees, expenses, and commissions and possible surrender charges. Which Insurance Company is Best? Many companies have policies with competitive features and rates. Other companies have better rates for people in their 70's than in their 50's. Other companies offer options you may find important. As recommended earlier, the first step is deciding on the 20 A 65-year old, nonsmoking male in good health. Lincoln National Policy Form LL-2020 series, 1/3/2010, single premium fixed UL policy includes a long-term care benefit rider and a return of principal feature provided no loans or withdrawals are taken. Three percent minimum interest rate, death benefit guaranteed to age 100. Benefits and guarantee based on the claims-paying ability of the insurer. There are no minimum interest rates required to keep the death benefit or long-term care benefit in force for the policyholder's life, provided there are no loans or withdrawals.

54 coverage items most important to you. Then it becomes easier to find the insurance company that best fits your needs. The way to find the right coverage is to supply your medical information so that we can submit it for an actual quote. The quote supplied from an insurance company rate book applies for people who meet a specific health standard. To determine the actual cost for you, the insurance company will first review your medical history based on the information you supply, as well as obtain records from your physician. The company will then make you an offer of coverage. If you are interested in getting this important coverage to protect your family, call to make a free appointment. When you call, we will ask for relevant details in order to have information ready for you when we meet. By the way-the biggest mistake in getting protected is waiting. If you get insurance, you can always cancel it. But if your health fails or you have a need for long-term care, you can become uninsurable. Waiting could be a mistake you cannot undo.

55 About Phone today with questions or to see if we can help you. There is no charge for an initial meeting Financial Educators First Published 11/13/00 This booklet is copyrighted. It may not be reproduced without express written permission of the author. Published by Financial Educators

56 CD Shoppers' Guide Provided to you by

57 CD Shoppers' Guide Written by Financial Educators Presented by

58 Where to Obtain Higher Paying CDs Are you disturbed by the rates on CDs issued at your bank? There's something you can do about it. Many banks are FDIC insured, just like your local bank. Shop around for the best Certificates of Deposit. Check out other banks and saving institutions in your neighborhood, and in other states. Their rates could be higher than what you can get locally. In fact, the highest rates offered by some banks could be 45% higher than national averages... sometimes more. 1 How do you shop for a competitive rate? You could spend hours searching the Internet and maybe find a few. Or, you could call us and get a more comprehensive listing of CDs available right now. That list will show you CDs of various maturities and types. Just like at your local bank, your principal is returned at maturity. You receive interest every month or calendar quarter, depending on your desires. To get a current list, you can contact the representative that provided this booklet. Before we get started, please note that some CDs may be callable prior to maturity and therefore carry interest rate risk. Brokered CDs are typically subject to transaction costs not generally associated with bank CDs. Early withdrawal from any CD prior to maturity may be subject to early withdrawal penalties. Also, interest earned from a CD that is not held in a qualified retirement account is subject to federal and sometimes state income taxes. To learn more about CDs that pay higher rates, turn to the next page and read about callable CDs... Callable CDs "Callable CDs" are a variety of CDs that often pay more than regular (non-callable) CDs. The Federal Deposit Insurance Corporation insurance, full principal repayment at maturity and above-average yields appeal to safety-conscious retirees looking for income. Although FDIC insured, they have features you must understand. Before you jump at the rate offered by some ad in the Sunday newspaper, here's what you need to know about the features offered: 1 1/21/11. Average six month CD=.75%, highest=1.10%.

59 High Rate: The higher rate could be temporary. Some callable CDs are callable after a year or two, which means you can get paid off and your high rate stops. Although your principal may still be insured by the FDIC, you may be required to find another place to invest your money which could subject your investment to interest rate risk. Although the bank could have the option to pay you back after one or two years, you do not have the same flexibility. Banks offer callable CDs to shift interest-rate risk to the depositor. Because the depositor is taking on this interest-rate risk, a callable CD will have a higher yield than the same maturity CD without a call provision. The additional yield is partial compensation for the depositor accepting the interest-rate risk. They may have terms of 10 or 20 years. Therefore, these CDs are typically suitable for someone who does not need liquidity and wants higher returns than a non-callable CD and the safety afforded by the FDIC protection. Consider that earning more on your money could reduce the need for you to tap into your principal investments. If you buy such higher-paying CDs, it might be wise to keep other money for liquidity available in a money market account or bank account. Although money market accounts are typically considered to be safer than many equity investments, money-market shares are redeemable at net asset value, which may be more or less than original cost. An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in such a fund. These callable CDs are suitable for: People who want to protect their "core" principal that they never want to spend People who want to leave money for heirs People who need to safely maximize income People who have adequate liquid resources Take these precautions: Someone may tell you that you can sell these CDs at any time. It is true that most banks will buy back the CD from you but it could be at a steep discount. With respect to principal repayment, the bank's obligation is to pay you back at maturity. You may be told that if you pass away before the CD matures, your heirs can "put" the CD back to the bank and get the principal. This offer however is dependent upon the bank having enough funds in the "put" pool. Your heirs will have priority but could wait to see cash. Call for a free checklist to use before buying high rate or callable CDs. Want to hear about a CD that allows you to participate in the movement of the market? Please give us a call.

60 Index-Linked CDs These CDs pay interest based upon the overall performance of a stock market index, and your principal deposit is FDIC insured up to current limits. Here's an example of how one of these CDs work. Please note, however, that the various features of these CDs vary from company to company (e.g., maturity, interest rate determination, withdrawal penalties). Here's a hypothetical example. You make a deposit, say $10,000. The CD has a 3.75 year maturity, non-callable. At the end of 3.75 years, you would receive your deposit back plus interest based upon the movement of a pre-selected stock market index, such as the S&P Let's assume that the index increased 3% per calendar quarter over the next 3.75 years. In this hypothetical example, you would receive $12,271 (interest rates are subject to change and your actual results will vary). Please note that this example is used for illustration purposes and is not a prediction of future market performance. The attractive feature of such CDs is that you could earn a higher amount of interest. However, you could earn zero if the stock market falls during the term of the CD. Your full deposit is always returned to you at maturity no matter what occurs in the stock market. Index-linked CDs are subject to early withdrawal penalties, and an investor is not guaranteed to receive 100% of his or her principal investment if funds are withdrawn prior to maturity. Also, an investor's right of early withdrawal can be limited to certain dates. Note that some varieties have a "cap" limiting the gain. For example, a 100% cap would mean that a $10,000 CD would not provide more than $20,000 no matter how large the gain in the index. Others may have a call feature allowing the issuing bank to redeem the CD before maturity at pre-stated prices. Yet others may have a "participation rate" where you partially participate in the index gain. For example, if the stock index rises by 100% and your participation rate is 50%, you enjoy only half of the market gain. All of these features are included in the descriptive materials. So read and understand them carefully before you invest. If you think that the stock market performs well over the long term, index-linked CDs could interest you. It's an opportunity to participate in potential market gains and to protect your principal from market losses. But some people may still opt for the traditional CD with its fixed payment of 2.2% (Bankrate.com's national average rate for five year CD was 2.27% as of 1/21/11). If today's CD rates leave you yearning for a higher return with safety, index-linked CDs could be for you. Call the phone number on the last page of this booklet for some valuable information regarding these types of CDs. 2 The S&P 500 is an unmanaged group of 500 widely-held securities considered to be representative of the stock market in general. An index cannot be invested in directly.

61 FDIC Insurance - Do You Really Understand It? Most people realize that their bank deposits are insured up to $100,000 per person, per institution, now $250,000 per institution through December 31, To ensure that all your accounts are fully insured, you could just spread your money among different banks. However, you can also keep accounts at the same banks and get several hundred thousands of dollars of insurance if your accounts are organized correctly. One strategy is to use trusts or "pay-on-death" designations. Accounts that have named beneficiaries are insured $250,000 per named beneficiary. Here's an example of how two parents and one child can insure $3 million of deposits using the correct designations on accounts: How a husband, wife and one child may have insured amounts totaling $3 million Individual Account: Husband $250,000 Wife $250,000 Child $250,000 Joint Accounts: Husband and Wife $250,000 Husband and Child $250,000 Wife and Child $250,000 Revocable Trusts: Husband as a Trustee for Wife $250,000 Husband as a Trustee for Child $250,000 Wife as a Trustee for Husband $250,000 Wife as a Trustee for Child $250,000 Child as a Trustee for Father $250,000 Child as a Trustee for Mother $250,000 Total $3,000,000 To make sure you have the protection you want, the representative providing this booklet will be happy to review your list of CDs and explain how to designate each account.

62 Are Fixed Deferred Annuities a Good Alternative to CDs? If you have accounts at banks, you may have been pitched on fixed deferred annuities as an alternative. But you need to understand the differences. Under the right circumstances annuities may in fact be a great way to get higher income, get a tax benefit and reduce or eliminate tax on your Social Security income. Let's explore the differences: Safety Bank deposits are FDIC insured and annuities are not. Annuities are guaranteed by the claims-paying ability of the issuing insurance company. Therefore, select annuity companies that are at least "A" rated or higher. You can call for the current rating on any annuity you may now own or when considering such an investment in the future. Rate Before investing, you should find out how long the rate will be effective, and what the guaranteed rate is after that. After all, some companies have a guaranteed rate of 0%. Annuities and CDs often pay comparable rates. On 1/21/11, Everbank was offering a 5-year CD at 2.61% interest ( At the same time, at least one highly rated insurance company, American Equity was offering a five-year fixed-rate annuity for 3.15%. (Guarantee 5 SPDA-MYGA MVA). 3 Term Some people think that annuities force you to lock in your money. Annuities in fact come in terms from one year to 20 years and all terms in between. Of course, the term of the annuity or CD will typically affect the interest rate for the product. Even on a longterm annuity, you can cash it at any time. However, surrender charges and fees will apply. The amount of these surrender charges is typically based upon the time you have been invested in the annuity and these charges can last for 10 or more years in some cases. Some annuities apply surrender charges only to interest earned so you always get your principal returned. A common feature is the free withdrawal of 10% of the balance each year. This provides sufficient access to funds for many policyholders. At the end of the term, you can cash in the entire annuity or exchange it for a new annuity. Note that withdrawals from an annuity prior to age 59½ may be subject to income taxes and a 10% tax penalty on the withdrawn amount. Taxes 3 Annuities and CDs alike tend to pay higher interest rates for products that are issued for longer maturities. The rates of these products can vary greatly among companies and banks.

63 CDs can affect your taxes adversely because you pay tax even if you reinvest the income. Taxes on deferred annuities, however, are not paid until money is withdrawn. There is an additional tax benefit. Because deferred annuity interest is not included on your tax return, you may find that the tax on your Social Security income is reduced or eliminated. 4 That's because your Social Security income is taxed only if your reportable income exceeds specific amounts. 5 Call for an article on saving Social Security taxes. Lifetime Income Annuities can be "annuitized" or converted for a fixed monthly income that you cannot outlive. You can obtain a monthly income for as long as you live (note that the annuity principal is surrendered in exchange for the lifetime income). Index Annuities Similar to the index-linked CDs described earlier, you can obtain fixed annuities that have their annual interest based upon increases in an established market index (e.g., S & P 500). 6 Your principal is guaranteed by the claims-paying ability of the issuing insurance company when held to the maturity date. 7 When the market declines, your principal is protected, less applicable fees and charges. When the market increases, you get a percentage of the increase in the market. Such annuities typically provide a minimum guaranteed return. Annuities may be an alternative to CDs but understand the above differences before you invest. If someone has suggested an annuity, call for a second opinion. Equity indexed annuities are long-term investments subject to possible surrender charges and 10% IRS early withdrawal penalty prior to age 59½. Please note the application of surrender charges could result in a loss of principal, the minimum guaranteed return may be 0%, and investment return based on market increases may be capped. The guaranteed account value of an equity-index annuity only applies if the annuity is held until the end of the contract term and that loss of principal is possible if the annuity is surrendered before the end of the contract term. Equityindex annuities are not FDIC insured, unlike index-linked CDs. Please also note that ordinary income taxes are paid on withdrawals from an annuity, and withdrawals prior to age 59½ are subject to an additional 10% income tax penalty. 4 IRS Publication 17, This is not a comprehensive discussion of tax issues and you should consult a tax advisor. 6 The S&P 500 is an unmanaged group of 500 widely-held securities considered to be representative of the stock market in general. 7 Note that withdrawals prior to maturity may not participate in growth of the S&P 500 and may incur surrender charges.

64 Are Your CDs Titled Correctly? CDs are a popular investment among retirees because of CD safety. But some people do not give adequate attention to how the CD is titled and this can create problems. If you register the CD in your own name, it will need to be probated before your heirs can get it. That could be a delay of months. To avoid probate, some seniors register their CD as joint tenants with their children. However, did you know that by including their names as joint tenants, you could expose the CD to claims of your children's creditors? For example, let's assume your son is a building contractor. One of his buildings falls down and someone is killed. He gets sued for limits exceeding his insurance and his assets are attached including your CD! You then have to prove that the CD was your money and incur legal expenses to protect your CD. Therefore, consider not listing other people as joint tenants unless absolutely necessary. An alternative approach is to name them as "pay-on-death" beneficiaries. With this designation, the CD becomes immediately available (upon proof of identity) to those beneficiaries named upon death of the account holder. Another alternative is to have a living trust and have it own the CD. This also avoids probate and can allow you to place further restrictions such as distribution of only a portion of the funds annually. Titling of the CD also affects how much of the CD is insured as explained earlier in this booklet. Even simple investments can often require more complete understanding. Please call if you have any questions about CDs or other income alternatives.

65 About Phone today with questions or to see if we can help you. There is no charge for an initial meeting Financial Educators First Published 6/18/03 This booklet is copyrighted. It may not be reproduced without express written permission of the author. Published by Financial Educators.

66 The Best Way to Buy, Sell, or Replace Your Life Insurance Provided to you by

67 The Best Way to Buy, Sell, or Replace Your Life Insurance (Determine if you need life insurance and what to do with old policies) Written by Financial Educators Presented by

68 Why Would a Retiree Own Life Insurance? Traditionally, life insurance is purchased during your working years to replace your income for your family in case you died. But if you are retired, do you still need life insurance? There may be three reasons to own a policy: 1. Because many couples are dependent upon two social security checks or two pension checks, when one spouse passes away, the other spouse finds that their income falls, but many of the expenses and lifestyle requirements remain. The inexpensive way to protect against this is to own term life insurance. Recently, I obtained a $200,000 policy for a 70-year-old male for a premium of $200 monthly. 1 If he predeceases his wife (women statistically outlive men by four plus years) 2, his wife will receive this $200,000. Invested for income at 6% (a hypothetical rate), this would produce $12,000 annually of income to offset the loss of his social security check. If used up over her lifetime, (assumed to be another 4.5 years), the principal plus interest would generate over $52,000 annually for the wife. 2. For estate planning reasons: Let's say you have developed your net worth by owning real property. One son takes an active interest and manages most of your property. The other son lives 2,000 miles away, travels around the globe as an archeologist, and has no interest in the properties. Maybe you want to leave the properties to the son who cares for them, but are concerned about what to leave the other son. Easy answer, buy life insurance and name the archeologist as the beneficiary. Or if your estate is over $5 million, the excess is subject to estate taxes at hefty rates (up to 35%% starting in 2011 and 2012 and thereafter, amounts in excess of $1 million are taxed at rates up to 55%). A simple, often inexpensive, way to pay the tax without taking money from the beneficiaries is to have a life insurance policy to pay the tax. 3. To make the most of your IRA or retirement plan: Say you are age 70 and it's time to start taking mandatory distributions from your IRA. Let's assume that the distributions are a hypothetical $15,000 annually. If you invested that at a hypothetical 6% (3.9% net after combined taxes of 35%), you would accumulate $442,000 over 20 years. Of course, that amount is taxable when withdrawn. Take that same $15,000 annually and buy life 1 Prudential 10 year level term 1/3/10, Male, age 70, Florida resident rated preferred plus. The purchase of life insurance involves costs, fees, expenses and potential surrender charges and depends on the health of the applicant. Not all applicants are insurable. If a policy is structured as a modified endowment contract, withdrawals will be subject to tax as ordinary income and withdrawals prior to age 59 ½ are subject to a 10% penalty. 2 Social Security Administraton Life Expectancy Tables

69 insurance, and upon death your heirs will receive $600,000 3, tax free. You can do the same if you have a qualified retirement plan, but the numbers are even better as you can purchase the policy inside the plan with pre-tax dollars. As you see, there are powerful ways to use life insurance for retirement and estate planning purposes. Retirees May Need More Life Insurance Than They Think If you died today, your spouse would still be faced with daily living expenses for 10, 20, or even 30 years. Without life insurance, would he or she be able to pay off your obligations, maintain the lifestyle you have both worked so hard to achieve, and pass on something to your children and grandchildren? For example, depending on the size of your estate, your heirs could be hit with a large estate tax bill after you die (the top estate tax rate is 35% for 2011 and 2012 but jumps to 55% thereafter).) Tax would be payable on your non-exempt estate, and could be more than shown above, depending on your State's inheritance taxes. Enter life insurance. Life insurance proceeds are generally free of income tax, and can be set up so they avoid probate. As a result, your life insurance policy can potentially pay out immediately upon your death, allowing your heirs to pay those estate taxes, as well as funeral costs and other debts, without having to liquidate other assets. And if your life insurance policy is properly structured, the proceeds from it will not add to your estate tax liability. Moreover, if your circumstances change and you no longer have anyone who would need the proceeds of a life insurance policy, you may be able to surrender the policy and supplement your retirement income with the funds that have accumulated in the policy's cash value account. So, how much life insurance do you need as a retiree? That depends on how much your family will need to meet general obligations upon your death (such as medical costs, funeral expenses, and estate settlement bills) as well as how much future income your family will need to sustain them. The latter is tricky to calculate, because it involves calculating the present day value of future needed cash flow streams. Use Those Old Life Insurance Policies to Increase Your Return 3 John Hancock Life Insurance Company USA Protection UL-G09 - To Age 121 Level (No Lapse U/L) 1/3/2010, Florida Male, Preferred Plus.

70 Do you own any old life insurance policies that have outlived their usefulness? Maybe you have a universal life policy that has very little cash value. Or perhaps your term policy is about to renew, but you know that the new premiums will be out of reach. And of course, there is always the possibility that you no longer need the insurance. How would you like to get some tax benefits from those policies that could possibly translate into more income for you or your beneficiaries? The IRS will allow you to make tax-free transfers of life insurance policies into an annuity. You may think that there could not be much of a benefit if there's not much cash value in the policies. But for tax purposes, the amount transferred is actually your cost basis less dividends and cash value. For example, let's say that you are considering investing $100,000 in an annuity, and you own a life insurance policy that you have paid $25,000 into over the years that now has a $2,000 cash value. You want the annuity to provide income sometime in the future and no longer need the life insurance. A 1035 exchange on the life insurance to the annuity could increase the annuity's cost basis from $100,000 to $123,000 ($100,000 + $25,000 - $2,000). This means that when you or your beneficiaries make withdrawals, an additional $23,000 of growth will come out tax-free from the annuity. Other ways to use your life insurance for investment purposes. Through a series of withdrawals or loans, cash value life insurance policies can often provide tax-free money. This could be as a lump sum or systematic payments to accommodate your needs. Then when you die, your beneficiaries will receive the greater of the remaining cash value or the death benefit, income tax-free. Also you might want to exchange your policy for one with a lower death benefit. This could be a tax-free transaction, and you could end up with a higher income since the cost of the insurance within the new policy may possibly be less. Life Insurance Trusts - Reduce Federal Estate Taxes and Provide for Your Family's Future When You Are Gone Most people hear the word trust and have visions of complex legal instruments; however, they can be an invaluable component of the estate plan. With this said, it is important for us to start out with the basics. A trust is essentially a legal arrangement where property control is transferred to another party (known as a trustee) for the benefit of another person or entity, who is commonly known as the beneficiary. A life insurance trust is a special type of trust that

71 holds title to a life insurance policy. In many cases, the primary purpose of this trust is to help certain taxpayers reduce their federal estate tax burdens. While few estates will be subject to tax in 2011 and 2012, in 2013 and beyond, federal estate taxes are imposed upon estates in excess of $1 million. In the absence of a trust, any insurance policy that you own personally is included in your gross estate. As a result of this, the death benefits from the policy would be included in your estate and could be subject to federal estate taxes. On the other hand, by purchasing the life insurance policy through a trust, you can keep the death benefits out of your estate. This can potentially result in a significant tax savings. Notwithstanding the tax benefits of these arrangements, these trusts can also facilitate your estate planning in other ways too. For example, you might decide that the needs of your beneficiaries are better served by allowing an experienced trustee to manage the policy proceeds in the trust. In this situation, your trust's beneficiaries can receive the income generated from the proceeds when the trust receives it. Furthermore, the trust can reinvest the proceeds on behalf of your beneficiaries. Unfortunately, not everyone is equipped to make sound investment decisions, especially those who are minors, disabled, or are not otherwise capable of managing money. These beneficiaries in particular would benefit from this sort of arrangement. Of course, the trust can also be structured in a manner that requires the policy proceeds to be distributed to the beneficiaries immediately, or when they reach a certain prescribed age. Notwithstanding the potential planning benefits, a few cautionary planning points must be observed. First, to prevent the policy proceeds from being placed in your estate, the arrangement must be structured as an irrevocable trust. This means that the trust cannot be revoked once it is funded. A small exception, however, might apply in the event that all beneficiaries are willing to agree to the revocation. Also, the trust grantor (i.e., the person who establishes the trust) cannot retain any incidents of ownership in the policy. This means that the grantor cannot change the policy's beneficiary. It is also commonly understood that the grantor should not serve as the trustee. Additionally, if the grantor borrows against the policy, then the grantor is considered the owner of the policy for federal estate tax purposes. As a result, the proceeds from the policy will be included in the grantor's estate and could be subject to the federal estate taxes. Most of us realize that life insurance can be a great way to provide for our loved ones' future when we are gone. Additionally, by taking an additional planning step in having the policy owned by a trust, you are potentially maximizing all the benefits that a life insurance policy offers. However, you will need a trusted legal professional to make sure it is done right! Contact our office for a referral to an appropriate attorney. Note: Life insurance qualification is subject to medical underwriting guidelines, which are based, among other things, upon the insured's age and health. Insurance premiums, which represent the cost of the policy, can also vary depending upon the insured's age, health, and desired coverage limits. Sales commissions surrender fees and

72 other policy charges can also apply to purchases of life insurance. Insurance guarantees are also subject to the claims-paying ability of the issuing company. Retirement Reasons for Updating Your Life Insurance At 55+ As you approach or begin retirement, there is much to look forward to for you and your spouse. The easing of stressful work, relaxation time, and enjoyment of things long put off may come to mind. Insuring replacement income for children, their education, and upbringing are gone. And life expectancy statistics put many years ahead of you to enjoy. But, unfortunately, these statistics also imply that some will die early, with a probability that increases faster after age 55. If so, will a premature and unexpected death of you or your spouse leave the other financially strapped for rest of her (or his) life? Beyond insuring for you and your spouse's legacy to your children and final estate costs, there are five reasons to update your life insurance now to ensure your spouse the relaxing retirement that you are in the processes of creating. You may consider more life insurance 1. To cover an adult child that is now evidently having a hard time in life. This may be due to a mental or physical disability or a short coming that has appeared in his adult life. 2. To cover the Social Security blackout period for your spouse. Social Security pays nothing from when the youngest child leaves high school until the surviving spouse applies for benefits based on the deceased spouse's record (minimum age for eligibility is 60). You anticipated qualifying for a certain amount of social security benefits as part of your retirement income, but there will be no help during this blackout period. 3. To offset the reduced benefits that you anticipated from Social Security and saving plans. As the main breadwinner with some high income years still left, you plan to contribute heavily to your qualified retirement plans. These years may also boost your social security benefits. Your early death will preclude that extra retirement income that you thought these savings and social security benefits would produce. 4. To meet your commitments that relied on two incomes. Perhaps both spouses work in your family. You may have committed to mortgages, loans, or other obligations that depended on both your incomes. You need to ensure that at least the deceased spouse's income is replaced to allow the surviving spouse to maintain those commitments. 5. To create an emergency fund to handle both the first spouse's death expenses and other unforeseen expenses that may come up in subsequent years.

73 Insuring for these needs will not only allow the surviving spouse to enjoy at least the income and asset benefits you anticipated for both of you, but also not undermine the legacy that you both wanted to leave to your children and charity. Do You Have a Reason To Sell Your Life Insurance Policy? A life insurance settlement presents a unique opportunity to a policy holder to extract the maximum possible value from an existing life insurance policy if he no longer needs the policy. He can re-purpose those funds for alternative needs. Many people choose this option because the cash value of a life settlement generally exceeds the surrender value that would have been paid by the life insurance policy. A life insurance policy is personal property just like a house, car, stocks, and bonds. You can sell your life insurance policy like you sell other personal property items. The sale of a life insurance policy is called a life insurance settlement, life settlement, or senior settlement. When the life insurance policy owner sells his own life insurance policy, he transfers all rights and obligations to a new owner. The purchaser of the policy will then become the new owner and the new beneficiary of the policy. He will be responsible for making all of the future premium payments. And, of course, the new owner now collects the full amount of the death benefit when the insured dies. Policies are sold for many different personal or business reasons. Below are some of possible reasons for considering a life insurance settlement: The original purpose for the policy no longer applies. The beneficiary of the policy died and no alternate exists. The policy holder is chronically ill, so selling the current policy provides needed funds to cover financial burdens caused by illness. A viatical settlement gives the ability to regain needed financial security. If the policy holder is over the age of 65, the life settlement or senior settlement maximizes the current assets by eliminating premiums and getting required funds that can be used today. The insured person wishes to distribute its value while he or she is living. The personal financial situation has gone bad and the owner is unable to make premium payments. The policy owner's current asset mix is weighed too heavily in life insurance. The owner wishes to invest in a more appropriate product, such as a lower cost survivor policy, single premium annuity for supplemental income, longterm care insurance, or other asset protection tools. A family trust has eliminated the need for personal life coverage. The policy holder needs cash to fund alternative healthcare that the present insurance does not cover.

74 The policy was purchased to ensure the availability of funds to pay off a mortgage, however, the mortgage has been paid. When a policy is in danger of lapse, the policy holder may be able to turn it into cash. Before You Let Your Life Insurance Lapse, Consider Selling It Most people think that their life insurance policy has no value until they die. But a market is emerging for buying and selling existing life insurance policies. If you currently own term or universal life coverage that you no longer want or need, you may be able to sell your policy and realize some cash value from it. A life settlement transaction involves selling a current life insurance policy to a life settlement company, who then pays the premiums and is named as the beneficiary on the policy. When the policyholder dies, the company receives the payout from the insurance company. Selling a current universal or term life insurance policy to a settlement company could be an effective strategy for raising cash immediately. The proceeds from the sale of a policy could be used to fund an immediate annuity that will provide monthly income for the rest of your life, or to pay premiums for long-term care insurance coverage (income based on the claims-paying ability of the insurance company). In cases where the insured is still healthy, the proceeds could also be used to purchase a paid-up single premium life insurance policy. Should you consider a life settlement? If you no longer need the coverage provided by your current life insurance policy, or you just do not want to pay the premiums anymore, a life settlement could help you realize more monetary value from your policy as opposed to surrendering the policy for the cash surrender value or, in the case of many term policies, from letting your policy lapse and getting nothing out of it. How much could you realize from the sale of your life insurance policy? Universal life policies can potentially be valued at three times or more the underlying cash value of the policy, according to the Viatical and Life Settlement Association. The value of a life settlement transaction is based on your age. The American Council of Life Insurers provides the following chart that illustrates typical payout at face value based on age. Age at issue Estimated max. payout as % of face value 5% 16% 26% 52%

75 What should you be aware of when considering a sale of a life insurance policy? Based on industry statistics, the average life settlement candidate is a 78 year-old male who owns a universal life insurance policy valued at $1.8 million, and the average lump sum payment typically ranges from 2 to 5 times the policy s cash surrender value. 4 It may not be a good idea to sell your policy if you know you will need the coverage to provide support to a surviving spouse or other dependents after your death. (Some settlement companies require that the current beneficiary endorse the sale of the policy.) Plus, once you arrive at an advanced age, you may find replacing your current policy either impossible or financially impractical. Life Insurance - You Do Not Need to Die to Get Paid Many life policies offer accelerated benefits (often called living benefits) that pay off during the life of the policy owner. Those benefits are accelerated if they are paid directly to a chronically or terminally ill policy owner before he or she dies. Provisions for accelerated or "living benefits" may be included in a policy when purchased or attached as a rider. Certain medical circumstances can trigger eligibility for early payment of all or a portion of your policy's proceeds, including: Terminal illness, with death expected within 24 months. Acute illness, such as acute heart disease or AIDS, which would result in a drastically reduced life span without extensive treatment. Catastrophic illness requiring extraordinary treatment, such as an organ transplant. Long-term care needed because you cannot perform a number of daily living activities, such as bathing, dressing, or eating. Permanent confinement in a nursing home. Some people are surprised that such a benefit is available thinking that they would not be insurable if ill. While that is likely accurate, the time to get a life insurance policy with the living benefits rider is when you are in good health. Once insured, that policy is yours for life as long as premiums are paid. In general, accelerated benefits can range from 25 to 95 percent of the death benefit. The payment depends on your policy's face value, the terms of your contract, and the state you live in. Some companies will permit you to accelerate 100 percent of your policy's face value, but will reduce the amount of your benefit to compensate for the 4 The Complete Lawyer Tax spects of Life Settlement Arrangements 3/31/ html

76 interest it loses on early payout. The amount of your benefit will also be reduced by any outstanding loans against your policy. In most cases, accelerated benefits are not subject to federal income taxes. Under the federal tax code, a terminally ill person (defined as a person having only 24 months to live) would not have to pay taxes on accelerated benefits. A chronically ill person is usually exempt, but may have to qualify for the exemption by being certified each year. To ensure compliance with current tax laws, check with a local tax advisor. What happens when you die? Let's say you have a policy with a death benefit of $500,000 that makes 100% of the benefit available as accelerated benefits, and you receive $200,000 as accelerated benefits during your lifetime. At death, your heirs receive the remaining $300,000. Essentially, the amount paid to your beneficiary is reduced by the amount you received as an accelerated benefit. If your policy's proceeds are entirely depleted, no benefit is paid after your death. Want to see an illustration? Contact our office. You Do Not Need to be Insurable to Use Life Insurance for Estate Planning Life insurance is a common estate planning tool as it provides liquidity in an estate. That liquidity can be used to pay estate taxes or equalize an estate. Let's say Mr. Smith has two sons. Son 1 works with him in the business and wants to take over the business when dad passes. The business is worth $5 million. Mr. Smith will leave the business to Son 1. Son 2 has no interest in the business. So how can Mr. Smith treat his sons equally in his estate plan? A simple answer is for Mr. Smith to purchase a life insurance policy payable to Son 2 for $5 million. Each son then inherits an asset worth $5 million in this simplified example. But what if Mr. Smith has a heart condition and he cannot get life insurance? One answer is to obtain a joint policy with Mrs. Smith. Often called survivorship policies or second-to-die policies, these policies insure two people. The insurance company bases the issuance of the policy on the healthier of the two parties. So even if Mr. Smith is ill, if Mrs. Smith is in fair to excellent health, the insurance company will place their bet on Mrs. Smith, as the policy pays off when the second of the two insured parties die. And since Mrs. Smith looks sure to outlive her husband, the insurance company is really taking their risk on Mrs. Smith. What if Mr. and Mrs. Smith are both in poor health and uninsurable? Does Mr. or Mrs. Smith have any siblings about their same age? If so, are these people insurable? If these siblings are amenable, they can have the insurance placed on their life payable to Smith Son 2. The reason this makes sense is that Mr. Smith's objective is that each son get the same amount of assets around the time of his death. If Mr. Smith is 70 and he has a brother who is 72, they have similar life expectancies. If the insurance is placed on the brother, Son 2 will receive the $5 million at the death of his uncle (rather than at the death of his uninsurable father) but Mr. Smith's objective is attained this way.

77 The point here is not to get hung up on the health or insurability of a specific person. Look to see if there are other relatives of the same age group that are insurable to pursue an estate planning objective. Also be aware that insuring the uncle may bring up an insurable interest question by the insurance company. A person has an insurable interest in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. For purposes of life insurance, everyone is considered to have an insurable interest in their own lives, as well as the lives of their spouses and dependents. But Son 2 does not have an obvious insurable interest in the life of his uncle. However, if the facts are presented to the insurance company including the family's overall objective to equalize an estate for the next generation, the insurance company will likely accept this arrangement. Not insurable but have a reason to want life insurance? Contact us for a creative solution. Use No Cash Value Life Insurance to Maintain a Legacy Against Asset Forfeiture to Medicaid and Long-term Care Expense All too often retirees find themselves doing last minute estate planning. One instance is when they realize that eventual long-term care costs may wipe out their assets and rob their ability to leave something for their kids or spouse. Though eligibility 5 for Medicaid is state dependent, it is designed for seniors who have a very limited income and few assets. So to be eligible, you will have to give away assets long before you seek eligibility, or spend down your assets under Medicaid, until your assets are low enough for Medicaid to pay. However, a single premium no cash value life insurance may represent a possible solution to this dilemma. In recent years, life insurance companies have designed policies aimed at people over age 70. These policies provide more death benefit and less cash value. Some term policies and certain universal life permanent policies can provide a guaranteed death benefit up to age 95 with a guaranteed premium and no cash value at all. Such policies can give more death benefit for each premium dollar spent. What's important here is that single premium life policies with no cash value, and purchased years in advance of applying for Medicaid, can help preserve a legacy. The death benefit goes to the beneficiary. Medicaid only counts as an asset the cash value of a 5 Section 1917(c) of the Social Security Act; U.S. Code Reference 42 U.S.C. 1396p(c).

78 policy when it is greater than $1, Such a policy can count towards the asset test and could disqualify a Medicaid applicant. So a person could have $800,000 of life insurance a with cash value of less than $1,500 and still be eligible for Medicaid. Any cash value of more than $1,500, though, would apply toward the asset test. States administer their Medicaid programs. They differ somewhat on restrictions. So, be aware of your state's rules 7 on transferring assets to a life insurance policy while applying for Medicaid and in the 'spend down' phase. You do not want to be in violation of any rules that may disqualify you. Creating a last minute estate through life insurance with some of your assets can let you use the rest of your assets for long-term care needs in the future. You are then assured that your children or a surviving spouse will receive some inheritance. And if the money does run out and Medicaid has to start picking up the costs, a single premium life insurance policy with less than $1,500 cash value will usually not disqualify you. Life Insurance Can Complement Your Pension Payout Option Deciding how to choose a company pension payout can be tricky. You need to keep open a variety of options to see what suits you best. If you have a life insurance policy on you, here is another way to use it in retirement. At retirement, your pension plan may present several options. You may be able to take it as a lump sum or as an annuity for life. Let's assume you are interested in taking an annuity. If you are married, we will assume for simplicity that you need to choose between two hypothetical monthly payout options: Take $1,000 per month but no payments to go to your spouse when you die, or Take $800 per month while you live, with $400 per month paid to your spouse after your death. If you have some 20 years of life expectancy, that $200 per month can add up if you choose the higher monthly payout. What option should you take? 6 Centers for Medicare and Medicaid Services 7 ibid.

79 A possibility may be to take the higher payout and buy life insurance on you for your surviving spouse's benefit. She can invest the insurance payout to generate a monthly income. She would have to have the capability to manage that investment, though. If buying life insurance late in life is too costly for you, then the first option may be more reasonable if you already have a policy in force. In that case, maintain the policy for the benefit of your spouse. On the other hand, if you do have other income and assets that can supplement your pension income, you may take the second option of a diminished monthly payment that will assure that your spouse, too, will receive payouts when you die. This will also relieve her from having to manage investment issues at such a hopefully much later time. Whatever option you choose, nurture a trusted relationship with your son or daughter to help manage money issues when you, or your spouse, are too old to do it responsibly.

80 About Phone today with questions or to see if we can help you. There is no charge for an initial meeting Financial Educators First Published 12/10/02 This booklet is copyrighted. It may not be reproduced without express written permission of the author. Published by Financial Educators

81 Annuity Owner Mistakes Tips and Ideas That Could Save You Thousands Provided to you by

82 Annuity Owner Mistakes Written by Financial Educators Provided to you by

83 Introduction: Fixed Annuities, a Great Idea, But... Annuities can be a great way to make your money work, but many people may not understand the risks, rewards, or the workings of their annuities! This booklet will point out some common mistakes to avoid and show you how to get a lot out of your annuity. You'll get an education and real understanding of your annuity, in plain English! Additionally, this booklet will point out some "hidden" values of annuities that many people are not aware of. If you find that you have questions after reading the booklet, feel free to call the representative that has provided you with this booklet. The representative's phone number is on the last page. Let's get started... A Closer Look at the 1035 Annuity Exchange. Does It Make Sense for Me to Change Annuities? If you have an annuity contract of any kind, you may have been approached about the idea of exchanging it for a new model or one with the latest features. A 1035 exchange could help you to achieve these objectives refers to a provision in the federal tax code ("Code") that allows you to transfer the accumulated funds in an existing annuity to another annuity without creating a taxable event. In other words, the earnings from your original investment continue to receive tax-deferred treatment until you take money out of the annuity. But the continuing tax benefit comes with some important conditions. First, the Code says the old annuity contract must be exchanged for a new contract. Therefore, you should have your current annuity company send the account funds directly to the new company. Secondly, the Code says you can make a tax-free exchange from: 1) a life insurance contract to another life insurance contract or an annuity contract or 2) from one annuity contract to another annuity contract. You cannot, however, exchange an annuity contract for a life insurance contract. Why might you want to exchange or roll over an annuity? Here are some questions to consider on this:

84 1. How safe is my annuity investment? For any annuity product, the safety of your money is backed by the claims-paying ability of the issuing insurance company, not any government agency. So you need to make sure that the issuing company is in sound financial health. Annuity owners will sometimes exchange to a company with greater financial stability. 2. How does the current interest rate compare to the original contract rate? Some fixed annuity products offer competitive initial rates to attract investors. However, the interest rate might only be guaranteed for a limited period of time, say one or two years. With this in mind, your current renewal rate could be lower than what you might otherwise get on a new annuity. 3. Is my annuity lacking some of the newer annuity benefits? In a highly competitive business, many annuity companies work to offer new insurance features, such as interest rate guarantees, bonuses, guaranteed death benefits, long-term care riders and guaranteed income payments to attract investors. Therefore, you could find that a new annuity may better meet your needs or provide you with the opportunity for competitive returns. Whether or not an annuity exchange makes sense depends on your existing policy and your individual financial situation. Although the thought of switching annuities might, at first, appear to be in your best interests, you should always consider the costs that will often be involved to do this. Your consideration of the consequences should also take into account the following additional questions: 4. What is the total cost to me of this exchange? Although income taxes continue to be deferred, there are some other costs to consider before making the switch. For example, will the annual fees or other charges assessed by the new insurance company offset the higher interest or bonus payments? Does the surrender charge justify the added benefits? What are the comparative costs associated with the guaranteed benefits and investment options? 5. How do the surrender provisions compare? One of the biggest transactional costs that often comes into play for any annuity exchange is the surrender charge. For many companies, surrender charges eventually expire with an existing contract after a certain period of time. However, a new contract could increase these charges and could even increase the period of time in which the surrender charges apply. 6. What are the new features being offered and why do I need or want those features? For example, you might realize the life insurance guarantee or long-term care benefit rider is not really needed if other resources already exist. Of course, just the opposite could hold true if you need the coverage and cannot find a life or long-term care insurer to take you because of health reasons. You should also consider whether there are any limitations that apply to the features? For example, if there is a guaranteed interest rate, then how long does it last? Although the current interest rate for one company might

85 be better, it's also important to consider past payment history. Also, what are the relevant expenses? Do they justify the benefits? Keep in mind that a 1035 exchange does not provide a permanent income tax exclusion for gains on such exchanges, but merely a deferral-since the basis of the contract given up is carried over as the basis of the new contract received. The representative who has provided this booklet has also provided a phone number for you to call if you would like to find out whether an annuity exchange can benefit you. How Your Annuity Payments Are Taxed Getting the most value from any annuity arrangement begins with an understanding of the relevant income tax rules. This helps us to understand how much income taxes will be taken from our annuity payments during retirement. This article will discuss some important tax rules you need to be aware of with respect to annuities. The income tax rules that apply to all annuity payments start with Section 72(b) of the Internal Revenue Code ("Code"). This rule begins with the idea that every person should be allowed to recover his or her own contributions to a non-qualified annuity free of tax. This makes perfect sense, as your own non-qualified contributions were paid for with after-tax money. Your personal investment in a non-qualified annuity is commonly referred to as your cost basis. The Code allows you to recover your cost basis gradually over the time you are receiving annuity payments. So, out of each payment received by you, a portion will represent a tax-free return of your basis. The amount of the payment that exceeds the basis portion is subject to federal income taxes at your respective tax rate. This will range anywhere from 10 to 35%, depending on your income level during your retirement years. To understand how this works, let's look at an example. First, let's assume that our annuity owner, who is a non-smoking 60-year-old male and in good health, invests $250,000 of his own funds into a fixed deferred annuity that will start making income payments to him for the rest of his life when he turns 65. Let's assume that this taxpayer will pay income taxes at a 15% marginal rate when he retires. 1 Let's also assume that the annuity payments in our example come to $1,827 based on the accumulated value of $301,976 when the annuity owner starts taking payments. 2 Now we have enough information to determine the federal income tax on the annuity. Looking at the life expectancy tables published by the Internal Revenue Service, we would see that the life expectancy established by these tables for a 65-year old male is 85 1 Married couples filing joint returns are taxed on the first $69,000 of their taxable income at the lower 10% and 15% rates (2011 IRS tax tables). 2 American General Life Insurance Company AG HorizonSelect 10 [MVA] 3.85% guaranteed for 10 years 12/31/09.

86 years of age. Based upon the initial investment, annuity payment, and life expectancy, the annuity owner will be allowed to exclude $1,042 of each annuity payment from income taxation. 3 Once we apply the 15% rate to the remaining portion of the payment, we come up with a federal income tax of $117 for each annuity payment. 4 Here's a breakdown of how the excluded part of the annuity payment was calculated: Investment In Contract ($250,000) Expected Payment over Life ($1,827 x 12 mo x 20 yr) x Payment ($1,827) = $1,042 Excluded Amount In the event of an unfortunate death prior to the life expectancy, the Code still allows you to recover your unused cost basis by taking this as a deduction on the final tax return. For example, if we assume in our previous example that something happened to the annuity owner in the fifteenth year, he would be entitled to a $62,520 deduction on the final return. 5 On the other hand, if annuity payments are received after the life expectancy period, then the entire amount of these payments are subject to taxes. Like all annuity guarantees, annuity payments are subject to the claims-paying ability of the issuing company. The payment assumptions were taken from a hypothetical annuity illustration of a healthy male who is eligible for preferred underwriting rates. Your results could vary based, among other things, upon your age, income and tax rate status, contribution, annuity payment beginning date, health and tobacco-user status. Please also note that tax laws are subject to frequent changes. You should therefore consult with your tax advisor regarding your individual circumstances. Feel free to call the representative who has provided this booklet to you. An Annuity That Offers Market Participation Choosing a suitable vehicle for your retirement is not an easy task. With the numerous choices, which product is better suited for your needs? On one hand, you might want the guarantee of principal and past earnings. On the other hand, many prefer the potential of higher returns by being linked to the equity markets. Would you like an annuity that tracks the performance of the stock market, yet helps to protect your principal when the market declines? The equity-indexed annuity could help you to cover these objectives. The equity-indexed annuity can offer some market risk protection, tax deferral, a minimum interest rate guarantee, probate savings, and guaranteed minimum income 3 Reg (Table V). 4 ($786 multiplied by 15% tax rate). 5 (1042 x 12 mo) x 5 remaining years = $62,520 deduction on final return.

87 payments for life. The interest earnings for these annuities are based upon the growth in an accepted equity index, such as the S&P 500 Index, Dow Jones Industrial Average, and Russell The interest rate applied to these annuities is based upon the overall movement of the index. Many of these annuities will base the interest rate upon a pre-determined percentage of the market movement. For example, let's assume for illustration purposes that the annuity company set its participation rate at 50% of the index movement of the S&P 500. Let's assume that the S&P 500 had a good year and increased by 30% (this is a hypothetical assumption and is not based upon the performance of any particular investment). Let's also assume that the interest rate could actually move as high as 15% before any rate limitations were applied. Based upon the facts of this example, the interest rate that would apply to this hypothetical account would be 15% (before contract fees and expenses are subtracted from the account balance). Please note that participation percentages do vary among companies and can range anywhere from 50% to 90%. 6 Some companies also set a cap on the interest rate, which can vary from company to company (typically between 10% or less). The second fundamental feature of these annuities is the market risk protection. In the event that the market index should go down, this feature will help prevent your principal investment from being reduced below a certain percentage of your principal investment. The minimum guaranteed account value typically can also vary among companies and generally ranges anywhere from 75 to 100% of your premium, depending upon the type of product involved. Notwithstanding the benefits previously discussed, there are many other things that should be considered before a purchase is made, including: 1. Surrender Fees. Like fixed deferred annuities, equity-indexed annuities have penalties for early withdrawal called surrender charges. These charges can result in a loss of your principal investment (see discussion below on withdrawals). These charges typically decline over the length of the surrender charge period (typically 5 to 15 years, depending upon the company). 2. Tax Consequences. These annuities are also suited for investors with long-term investment horizons. Withdrawals from these annuities prior to age 59½ can also subject the annuity owner to income taxes and an additional 10% income tax penalty on the distributed amount. 3. Features Vary Among Insurance Companies. There are many companies that are offering these types of annuities, and the methods of calculating the minimum and maximum interest rate vary greatly among them. Although many companies offer a minimum interest rate (typically ranging between 1.5 to 3%), some companies offer minimum interest rates as low as 0%. 6 Accuquote blog 9/17/07.

88 4. Fees and Expenses. Asset management fees will be incurred on these annuities. Maintenance fees, sales commissions, trading costs and other contract charges could also apply. These charges will, in many cases, reduce the account value of these annuities. 5. Loans and Early Withdrawals. Although some companies do allow you to take minimal withdrawals with surrender charges, it is important to remember that some withdrawals can affect the amount of market downside protection provided under the contract. 6. Company Stability and Regulatory Oversight. All annuity features are guaranteed by the claims-paying ability of the issuing company. Please note guarantees associated with an equity index applies only if the annuity is held until the end of the contract term and that loss of principal is possible if the annuity is surrendered before the end of the contract term. Despite the market participation feature, the various state insurance departments regulate these products. Do you want to know more about these annuities? Please call for more information. Annuities Can Help Reduce or Eliminate the Tax on Your Social Security Benefits Prior to 1984, Social Security income was tax-free. Today, however, taxpayers could be paying tax on up to 85% of their Social Security income. 7 The good news is that annuities can help reduce and sometimes eliminate the income tax on your Social Security income! The IRS calculates the tax on your Social Security income based on your total income from all sources. However, income you earn on an annuity that is left to accumulate does not appear on your current tax return. Therefore, annuities may reduce your total income for Social Security benefit taxation purposes. In fact, if you shelter enough income in annuities and bring your income below the thresholds (adjusted gross income of $25,000 for a single taxpayer and $32,000 for a married taxpayer) you then pay no tax on your Social Security income. For your own benefit, please consult with a qualified tax advisor or attorney. Want to see if these calculations work to your advantage? Bring in a copy of your tax return (including Schedule B) to the rep who has provided this booklet to you. They should be able to let you know how much you could save in taxes. Annuities can provide yet another benefit... 7 Per Publication 17, single individuals and married with modified adjusted gross incomes exceeding $34,000 and $44,000, respectively, pay tax on up to 85% of their Social Security income. The explanation of the tax treatment of payments under an annuity contract is found in IRS Publication 17..

89 Cash Payments for Life 8 It's possible to get a fixed return on your money with a fixed immediate annuity. Similar to other types of annuities, an immediate annuity involves a premium payment to an insurance company. In exchange, the company will immediately start making monthly payments to you. Part of these payments is considered income and part comes from your principal investment. These payments can last for a term of years or even for your lifetime if you so choose. Note that immediate annuity payments could incur premium taxes in some states. Maintenance expenses and contract fees charged by the insurance company could also reduce your payments. For a detailed discussion on annuity income taxes, please revisit the article appearing earlier in this booklet. The amount of money you receive each month is dependent on several factors, including your estimated life expectancy, the amount of money you have invested and the current interest rate being paid by the annuity company (which is locked in at the time of purchase). The payout will typically be higher the older you are because the insurance company does not expect to have to make payments as long as they would to a younger person. Assuming that you have chosen the lifetime payment option, your annuity company will continue to make payments to you even if you live past your normal life expectancy. 8 If you die sooner, the insurance company keeps the balance of the annuity. You may also be able to elect to receive a lower payment in exchange for having the payments continued to your heirs until the entire amount of your original premium has been paid out. For whom may a fixed immediate annuity be suitable? A retiree needing increased monthly cash-flow A person with no heirs or who is not concerned about leaving an estate Someone who has set aside other funds to leave to heirs if they desire to leave an inheritance A retiree desiring the fixed payment and wanting to avoid maturities, rolling over investments and the maintenance and administration required of investing on one's own 8 Subject to the claims-paying ability of the insurance company, please note immediate annuities are designed to enhance cash flow and save taxes but are not the only investment vehicles by which these goals may be achieved. Always consider all possible investment options before you invest.

90 What can you expect to receive on an immediate annuity? $100,000 Premium, Male Age Monthly 65 $ $ $845 Life annuity payments, Comparative Annuity Reports, January 2009 Annuities Can Help Provide Insurance for Long-Term Care More and more people know someone or have a family member who has needed long-term care. In fact, over half of those almost age 65 spend at least some time requiring nursing care. 9 This is not medical care, but the type of care received in the home (shopping, meal preparation, assistance with bathing, eating, etc.) or in a nursing home. As you know, Medicare does not usually pay for this care. People are left to pay for this in one of three ways: 1. Out of their own pocket (about $6,965 per month) Purchasing long-term care insurance while they are healthy 3. Qualifying for Medicaid (different than Medicare) Many people cannot afford the $6,965 or more per month that some nursing homes charge. That's why many people are feeling the financial pinch within a year of entering a nursing home. This leaves many people exposed and unprotected from the catastrophic cost of long-term care. The state government may pick up the tab for you, but you may have to spend down your assets. Depending upon your state's Medicaid rules, this could leave you with as little as $2,000 in liquid assets (Medicaid allowances do allow spouses to retain some additional assets). So, if you have $100,000 in the bank, you could be required to spend it on your care before the state provides any assistance. Prior to applying for Medicaid, it might be possible to shift some assets to the healthy spouse. Please note that transfers to 9 Penn State University Policy Research Institute 3/2/ The MetLife Market Survey of Nursing Home and Care Costs, Survey calculations based on private room rates in 1971 licensed nursing homes from all 50 states and the District of Columbia.

91 other relatives could be subject to a look-back period of 60 months. If the transfer took place within the look-back period, the transferred asset will be counted as your property for Medicaid spend down purposes. There are ways to shelter your assets, however, and qualify for Medicaid without spending down your assets! One option is to place your funds in an immediate annuity. These annuities (when purchased in compliance with Medicaid rules) may be exempt assets, depending on how much you get and the state where you live. Some states exempt annuity payouts only up to a certain amount. That means you can keep this asset and still qualify for Medicaid payments. This is one way to obtain government support for longterm care and not have to spend your last dime. The rules on this are particular and vary by state so please consult someone knowledgeable on Medicaid procedures or call for more information. Summary These are only a few ideas to help you better protect your annuity assets and make the most of what you worked hard to accumulate. Financial and retirement planning can have an impact on your estate, even if your estate is of modest size. Find an advisor who is knowledgeable in senior matters. Find an advisor who will answer your questions as well as answer questions that you have not thought to ask. Find an advisor who will point out opportunities and caution you about risks and one who is knowledgeable about the special needs of retired individuals. With the sound advice of experience and a conservative retirement plan, you and your family can get the most out of your assets.

92 About Phone today with questions or to see if we can help you. There is no charge for an initial meeting Financial Educators First Published 1/11/00 This booklet is copyrighted. It may not be reproduced without express written permission of the author. Published by Financial Educators

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95 Six Strategies to Help Retirees Reduce Taxes and Preserve Their Assets Provided to you by

96 Six Strategies to Help Retirees Reduce Taxes and Preserve Their Assets Written by Financial Educators Presented by

97 How Fixed Immediate Annuities Can Help Increase Cash Flow It's possible to increase your monthly cash flow with a fixed immediate annuity. An immediate annuity is simply the payment of a premium to an insurance company. In exchange, the company converts your premium to a monthly cash payment for life or term of years. (Monthly payments are based on the claims-paying ability of the insurer, so picking a financially solid insurance company is important.) As each payment consists of principal and interest, each annuity payment is partially excluded from taxation as described by IRS Publication 590. Premium taxes could apply in some states. Here's a hypothetical example. 1 A 70-year old gentleman paid $250,000 in premium to an insurance company for a fixed, immediate annuity. In return, the insurance company makes annuity payments of $1,772 per month. Of this payment, $1,302 will be considered a return of investment and only $470 will be subject to federal income taxes. Assuming this taxpayer is in a 25% 2 federal income tax bracket, the income tax for each payment would come to $118 per month. Any payments received after the taxpayer exceeds his life expectancy are completely subject to federal income taxes. That's $21,264 each year of checks in the mail. Please note that these annuities cannot be surrendered for value and payments will usually cease at the insured's death. Please note that your actual results will vary based in part upon your age and premium paid. For whom may a fixed immediate annuity be suitable? A retiree needing increased monthly cash flow; A person with no heirs or who is not concerned about leaving an estate; Someone who has set aside other funds to leave to heirs if they desire to leave an inheritance; and A retiree desiring the fixed payment and wanting to avoid maturities, rolling over investments and the maintenance and administration often required of investing on one's own. 1 Minnesota Mutual Life Insurance Company as of Jan 21, Male, age 70, lifetime monthly payments. Lifetime payment guarantee is based on the claims-paying ability of the insurance company. Individual insurance companies may use a different assumption as to life expectancy and assumed interest rate in calculating their annuity payments. The payments in the example above are calculated on the life expectancy of the annuitant. The payments shown above are not subject to mortality fees, administrative charges, or other expenses. However, actuarial calculations, life expectancy assumptions, and interests rates can vary from insurer to insurer. 2 The 25% federal income tax rate in 2011 applies to single taxpayers with incomes between $34,500, and $83,600 and married taxpayers with incomes between $69,000 and $139, ,139,350. State income taxes may also apply, which vary from state to state. Your results will vary, based upon your income level. The amount excluded from federal income tax is based upon a calculation that compares the premium payment ($250,000) to the total annuity payments expected over taxpayer's lifetime. The total anticipated payments for a 70-year old male is $340,224 based upon a 16-year life expectancy set forth in IRS Publication 590. Of this, about 73% % will not be subject to federal income taxes ($250,000/$340,224).

98 An Alternative to Tax-Free Bonds? While tax-free bonds can be a popular source of tax-free income, some retirees are not aware that they can receive a potentially higher source of cash flow from insurance companies. 3 This source of money is from an immediate annuity. In exchange for the premium payment, the insurance company pays the annuity owner a cash payment for life or for a term of years. Each of these payments is comprised of interest and principal as determined by an actuarial calculation set forth in Section 72 of the federal tax code. The principal portion is not subject to income taxation. Once the owner has recovered his or her investment, the remaining payments will be taxed as ordinary income. Let's take a look at the hypothetical case of Mr. Jones, age 70 with a $500,000 portfolio of municipal bonds, earning 4.35% tax free. 4 He receives $21,750 of annual taxfree income (4.35% x $500,000). He decides to cash in his tax-free bonds and pay a premium to an insurance company of $500,000 for an immediate fixed annuity. With the immediate annuity, his yearly cash payment from the annuity would be $42,540 5 per year of which 73% is tax free (the taxfree portion of an immediate annuity is the part the IRS considers return of your principal and is based on your life expectancy and the expected return). After taxes, he will have $39,668 spend. 6 His spendable cash using the immediate annuity over the tax free bonds increases by $17,918 annually ($39,668-$21,750). So in this particular example, the yearly cash flow has increased by using the fixed immediate annuity. Of course, your results will vary based (among other things) upon your age, health, and premium payment. The payments in the example shown above are calculated on the life expectancy of the annuitant and the spot interest rates effective for the month of purchase under the contract. The spot interest rates can vary from month to month. The payments shown above are not subject to mortality fees, administrative 3 Each immediate annuity payment is comprised of interest and principal as determined by actuarial calculations. The principal portion is not taxable. Once the entire premium has been recovered through principal payments, the remaining payments are fully taxed as ordinary income. The purchase of municipal bonds incurs a commission. The purchase of annuities incurs commissions, fees, and potential surrender charges. Municipal bonds may be subject to alternative minimum tax. 4 Rate on 15 year, AAA rated municipal bonds, Bloomberg,1/21/11. Fifteen-year bonds closely approximate Mr. Jones' 16-year life expectancy to provide a sound basis for comparison with a lifetime immediate annuity expected to pay for 16 years as of 1/21/11 5 Minnesota Mutual Life Insurance Company as of Jan 21, Male, age 70, lifetime monthly payments. 6 The 25% federal income tax rate in 2011 applies to single taxpayers with incomes between $34,500, and $83,600 and married taxpayers with incomes between $69,000 and $139,350. State income taxes may also apply, which vary from state to state. Your results will vary, based upon your income level. The amount excluded from federal income tax is based upon a calculation that compares the premium payment ($500,000) to the total annuity payments expected over taxpayer's lifetime. The total anticipated payments for a 70-year old male is $680,640 based upon a 16-year life expectancy set forth in IRS Publication 590. Of this, about 73% will not be subject to federal income taxes ($500,000/$680,640).

99 charges, or other expenses. However, actuarial calculations, life expectancy assumptions, and interests rates can vary from insurer to insurer. Therefore, your results will likely vary from the examples shown above. However, an immediate annuity will usually not leave anything for your heirs unless you purchase from a company that offers a refund feature. This refund feature will typically reduce the size of the monthly annuity payments. The amount of the refund could also be reduced by surrender charges in some cases. Therefore, the immediate annuity is generally better suited for people who place more importance upon increasing lifetime cash flow. Tax-Free Bond Immediate Annuity Annual Payment $21,750 $42,540 Income Tax 0 $ 2,871 Net to Spend $21,750 $39,668 Amount Left at Maturity $500,000 0 Hypothetical Illustration - Your results will vary In some cases, an immediate annuity can produce more after-tax cash flow than taxfree bonds. Of course, the benefit of increasing your cash flow does involve a number of other trade-offs. Note that the difference between municipal bonds and immediate annuities are: Immediate fixed annuities have a stated payout for a stated period of time and municipal bonds have a fixed interest rate for a fixed term. Municipal bonds may be callable, while immediate fixed annuities are not. Municipal bonds may be subject to AMT taxes if your income exceeds certain amounts. You should consult with your tax advisor about this. The purchaser of municipal bonds incurs a commission. Premiums for immediate annuities include commissions, fees, and potential surrender charges. The payments in a fixed immediate annuity are guaranteed by the annuity claims paying ability of the insurance company, while the payments from a municipal bond are guaranteed by the issuing municipality. Part of each immediate fixed annuity payment is tax-free because it represents a return of the principal, while all of the interest from most municipal bonds is completely exempt from federal tax and may be exempt from state tax. Municipal bonds may be subject to AMT taxes if your income exceeds certain amounts. You should consult with your tax advisor about this. Immediate fixed annuities cannot be redeemed and are illiquid. Most municipal bonds can be sold at any time on the secondary market at a gain or loss. When held to maturity, the issuer guarantees payment of face value of a municipal bond.

100 Immediate annuities provide a source of cash payments for life or the selected term while municipal bonds provide semi-annual interest until maturity or until called. At death, the payments from an immediate fixed annuity stop unless for a certain term and there is no residual value. At death, a municipal bond is included in the estate of the owner. Which is a better source of cash for you? Contact us to view the comparison. Free Online Resources There's no substitute for carefully reading the prospectus of a mutual fund or variable annuity before making a purchase. Regulatory agencies such as FINRA and Securities and Exchange Commission (SEC) offer a variety of free online resources to assist the investing public, here are a few: SEC Mutual Fund Cost Calculator SEC Mutual Funds SEC Variable Annuities: What You Should Know FINRA Investment Choices FINRA Variable Annuities: Beyond the Hard Sell P FINRA Understanding Mutual Fund Classes Investor Newsletter If you don't have Internet access at home you might try visiting your local public library to access the Internet free of charge, alternatively you can call for a free print-out of the above-mentioned web pages. 7 Annuities Can Help Reduce or Eliminate the Tax on Your Social Security Benefits Prior to 1984, Social Security income was tax-free. Today, however, taxpayers could be paying tax on up to 85% of their Social Security income. 8 The good news is that 7 Websites provided were last visited on 1/21/11 8 Per IRS Publication 17 single individuals and married with modified adjusted gross incomes exceeding $34,000 and $44,000, respectively, pay tax on up to 85% of their Social Security income. The explanation of the tax treatment of payments under an annuity contract is in IRS Publication 17.

101 annuities can help reduce and sometimes eliminate the income tax on your Social Security income! The IRS calculates the tax on your Social Security income based on your total income from all sources. However, income you earn on an annuity that is left to accumulate does not appear on your current tax return. Therefore, annuities may reduce your total income for Social Security benefit taxation purposes. In fact, if you shelter enough income in annuities and bring your income below the thresholds (adjusted gross income of $25,000 for a single taxpayer and $32,000 for a married taxpayer) you then pay no tax on your Social Security income. Want to see if these calculations work to your advantage? Bring in a copy of your tax return (including Schedule B) to the rep who has provided this book to you. They should be able to let you know how much you could save in taxes. Helping Preserve Your Retirement Assets by Taking Smaller Distributions You own two pots of money: The money that has already been taxed (let's call it "regular money") and the money that has not been taxed (let's call this "retirement money" such as IRA, 401k, 403b, etc.). When you spend a dollar of regular money, the cost to you is exactly $1. When you spend $1 of retirement money, the cost to you could be as much as $ ($1/.65) because you may have to pay federal income tax on the amount you withdraw. Therefore, if you want to reduce your taxes, consider not taking more than the required distribution from your retirement money. Some people think they should never spend their principal, but this can be a mistake if you want to save taxes. It could be better to spend some of your regular assets first, so that you can take advantage of the tax-deferral benefits associated with IRAs and qualified retirement plans. You could be better off financially from an income tax standpoint. Your lifetime tax bill can be less or you will at least defer taxes for many years. Consider the following hypothetical example that assumes you have a taxable regular money account and a tax-deferred retirement account with a $100,000 balance each. Let's assume the money in each account earns a hypothetical return of 6% per year. Let's further assume that annual distributions of $6,000 per year are being taken for a 20- year period. Under one scenario, the $6,000 will be taken first from the taxable money and the other scenario considers what would happen if the money was taken first from the qualified money. Under this example, you would have $150,000 more at the end of 20 9 Federal income tax rates range between 10% to 35% under the 2011 federal tax code, and are based upon the taxpayer's level of annual income. State income taxes could also apply, which vary from state to state. Please note that federal and state tax laws are subject to frequent changes.

102 years by spending your regular money first. The upside is that you could potentially hold onto more money while you are alive. Of course, the down side is that your beneficiaries will eventually have to pay income taxes on the money when you are gone. As the information provided by this example is hypothetical, actual results will vary depending upon the performance of your investments. 10 Spend Regular Money First Today In 20 Years Spend Regular Money First Regular Money $100,000 $40,916 IRA Money $100,000 $320,713 TOTAL $200,000 $361,629 Spend IRA Money First IRA Money $100,000 $0 Regular Money $100,000 $211,247 TOTAL $200,000 $211,247 Assumptions: All money is assumed to earn 6%. This assumed rate is used for tax illustration purposes only and does not reflect any particular investment. Federal income taxes are assumed to be 35% in this example, and your income tax rate could be lower based upon your annual income. This illustration covers a 20-year duration, with distributions of $6,000 occurring each year. The income taxes on withdrawals are also deducted from the IRA account. Do You Need Long-Term Care Insurance? Maybe-Maybe not. Statistics indicate that two-thirds of senior citizens (people over age 65) will require long-term care. In fact, the most current research statistics are below The fact that the beneficiaries are going to pay income taxes at a later date could be an advantage if they are in a lower tax bracket. As previously explained, estate taxes could also apply if the decedent's estate exceeds $5 million in 2011 and 2012 and $1 million thereafter.. 11 Penn State University Policy Research Institute 3/2/06.

103 With such a great risk, doesn't everyone need insurance? After all, the cost of longterm care can run $6,900 monthly or more in some locations. 12 The truth is, you may or may not need to buy insurance. It comes down to the various income and asset resources you have available to you. To illustrate this, let's take a look at the varying needs of three general groups: Low Resources High Resources Medium Resources These groups are organized according to their income and asset resources. When reviewing this information, please keep in mind that nursing home costs and Medicaid qualification rules can vary widely from location to location. As everyone's situation is different, the need for insurance can also vary among people within the same resource group. Low Resources: This group has countable assets that are at or below the spend down limits imposed by their state Medicaid rules. Additionally, this group typically has monthly income below the average nursing home costs for the state where they live. In 12 Average daily rate for a private room is $83,220 annually or $6,935monthly. Average daily rate survey of all 50 states and the District of Columbia. MetLife Market Survey of Nursing Home and Home Care Costs, October 2010.

104 many cases, people that fall within this group will qualify for Medicaid without having to spend down their assets. Countable assets include such things as cash, stocks, bonds, mutual funds, cash value insurance policies, CDs, boats, jewelry, and real estate investments. 13 In most states, you will only qualify for Medicaid if you have no more than $2,000 in countable assets. 14 Spouses of a nursing home resident who still live in the family home are allowed to retain countable assets up to $109,560, depending on the Medicaid rules in their state. 15 The Medicaid rules will allow the live-at-home spouse (also referred to as the "community spouse") to retain the family residence, a vehicle, and a modest amount of other assets for their support. The Medicaid rules also establish a monthly support allowance to help community spouses meet their living needs, and this allowance can be up to $2,739 per month depending on state law. 16 This means that if the community spouse's income falls below the allowance, the state will then allow the community spouse to keep an amount equal to the difference from the resident spouse's income. On the other hand, a community spouse is usually not allowed to retain any income from the resident spouse if their income exceeds the allowance. In some cases, even this group might want to consider the insurance if the monthly allowance is below the community spouse's living needs. AARP offers this advice: Long term care insurance makes sense for those who earn good salaries, have accumulated assets they want to protect and have plans for a comfortable retirement. The Street.com Ratings says households with annual incomes of at least $50,000 to $75,000 and assets of $150,000 not including a car or house might want to consider a policy. Financial planners typically recommend it for their clients, who tend to earn more. 17 High Resources: This group has sufficient monthly income to support the community spouse's living needs and to cover the monthly nursing home costs in their area (which will vary from location to location). Alternatively, this group may have enough countable assets set aside to meet a three to five year nursing home stay ($200,000 to $350,000 per spouse, depending on nursing home costs in their community). 18 Many of these people, still do, however, obtain insurance because it can help them protect their estate from being reduced by a long-term care need. Most importantly, it can give them some added assurance by providing a separate source of funds to be used for long-term care needs. Medium Resources: This is the group that often needs the insurance. This group of people has countable assets that exceed the Medicaid limits, but they don't make enough 13 Analysis of the use of annuities to shelter assets in state Medicaid programs as of 2/04/ Limits for 2011, Centers for Medicare and Medicaid Services. 15 ibid. 16 ibid. 17 AARP Bulletin 12/06 "Pursuing Peace of Mind". 18 On average, a senior citizen nursing home resident has lived there for 2½ years. Assuming that the $83,220 nursing home costs apply, the typical nursing home stay for a senior citizen could deplete an estate by nearly $200,000 or more over such a timeframe. MetLife Market Survey of Nursing Home and Home Care Costs (October 2011).

105 money to cover the monthly costs of nursing home care in their area. Another thing that separates this group from those with high resources is that they lack a separate source of assets to cover an extended stay in a nursing home. For this group, having to come up with $6,900 per month over a long-term period could potentially deplete their estate or create an economic hardship for the community spouse. If you are in this group, you should consider long-term care insurance. This insurance could help secure your financial independence. It can also help to preserve cherished assets for spouses and younger family members. An Annuity That Tracks Market Performance Choosing a suitable vehicle for your retirement is not an easy task. With the numerous choices, which product is better suited for your needs? On one hand, you might want the guarantee of principal and past earnings. On the other hand, many prefer the potential of higher returns by being linked to the equity markets. Would you like an annuity that tracks the performance of the stock market, yet helps to protect your principal when the market declines? The equity-indexed annuity could help you to cover these objectives. The equity-indexed annuity can offer some market risk protection, tax deferral, a minimum interest rate guarantee, probate savings and guaranteed minimum income payments for life. The interest earnings for these annuities are based upon the growth in an accepted equity index, such as the S&P 500 Index, Dow Jones Industrial Average, and Russell The interest rate applied to these annuities is based upon the overall movement of the index. Many of these annuities will base the interest rate upon a pre-determined percentage of the market movement. For example, let's assume for illustration purposes that the annuity company set its participation rate at 50% of the index movement of the S & P 500. Let's assume that the S & P 500 had a good year and increased by 30% (this is a hypothetical assumption and is not based upon the performance of any particular investment.) Let's also assume that the interest rate could actually move as high as 15% before any rate limitations were applied. Based upon the facts of this example, the interest rate that would apply to this hypothetical account would be 15% (before contract fees and expenses are subtracted from the account balance). Please note, that participation percentages do vary among companies and can range anywhere from 50 to 90%. 19 Some companies also set a cap on the interest rate, which can vary from company to company (typically 10%). The second fundamental feature of these annuities is the market risk protection. In the event that the market index should go down, this feature will help prevent your 19 Information regarding annuity product features was taken from the Accuquote Blog 9/17/07

106 principal investment from being reduced below a certain percentage of your principal investment. The minimum guaranteed account value typically can also vary among companies and generally ranges anywhere from 75 to 100% of your premium, depending upon the type of product involved. Notwithstanding the benefits previously discussed, there are many other things that should be considered before a purchase is made, including: 1. Surrender Fees: Like fixed deferred annuities, equity-indexed annuities have penalties for early withdrawal called surrender charges. These charges can result in a loss of your principal investment (see discussion below on withdrawals). These charges typically decline over the length of the surrender charge period (typically five to 15 years, depending upon the company). 2. Tax Consequences: These annuities are also suited for investors with long-term investment horizons. Withdrawals from these annuities can also subject the annuity owner to income taxes, and prior to age 59½, an additional 10% income tax penalty on the distributed amount. 3. Features Vary Among Insurance Companies. There are many companies that are offering these types of annuities, and the methods of calculating the minimum and maximum interest rate vary greatly among them. Although many companies offer a minimum interest rate (typically ranging between 1.5 to 3%), some companies offer minimum interest rates as low as 0%. 4. Fees and Expenses: Asset management fees will be incurred on these annuities. Maintenance fees, sales commissions, trading costs and other contract charges could also apply. These charges will, in many cases, reduce the account value of these annuities. 5. Loans and Early Withdrawals: Although some companies do allow you to take minimal withdrawals with surrender charges, it is important to remember that some withdrawals can affect the amount of market downside protection provided under the contract. 6. Company Stability and Regulatory Oversight: All annuity features are guaranteed by the claims-paying ability of the issuing company. The guaranteed account value of an equity-index annuity applies only if the annuity is held until the end of the contract term, and that loss of principal is possible if the annuity is surrendered before the end of the contract. Despite the market participation feature, the various state insurance departments regulate these products. Do you want to know more about these annuities? Please call for more information.

107 How Roth IRAs Could Lower Your IRA Distribution Taxes One thing you can consider to save on federal income taxes during your retirement is to convert your qualified tax money into a Roth account. By doing this, you could shield any appreciation on these assets from federal income taxes. Additionally, distributions from these assets will come to you free of income taxes as well. This, of course, assumes that the holding period rules are satisfied (age 59½ and the five year holding period). Unlike the traditional IRAs, the owner of a Roth is not required to take distributions at age 70½. Also, any distributions you do take from Roth accounts are not counted for purposes of figuring income taxes on Social Security benefits. This provides Roth owners with another tax benefit that cannot be achieved from a traditional IRA. Although an income tax must be paid if you convert your retirement money to a Roth, the potential for future tax savings could make this a good strategy. For instance, let's consider an example where a taxpayer converts $300,000 of traditional IRA money into a Roth IRA. Let's further assume that the Roth money is invested in a diversified portfolio of investments. If we assume over the long-term that the investments grew at 10% for 15 years, the accumulated value of this portfolio would be $1.2 million. Although the portfolio grew by $900,000, no income tax is paid in the future. Although your beneficiaries are required to take minimum distributions based upon their life expectancies, any future appreciation in the account will come to them free of income taxes. Please remember that investments in traditional and Roth IRAs are subject to various levels of market risk, depending on the type of investments held in the accounts. Therefore, you should never assume that your IRA investments will perform in the same way as was explained in this example. Your results will likely vary from this example. Please call if you would like more information about Roth IRAs.

108 About Phone today with questions or to see if we can help you. There is no charge for an initial meeting Financial Educators First Published 12/10/02 This booklet is copyrighted. It may not be reproduced without express written permission of the author. Published by Financial Educators

109 Review of Six Strategies booklet FINRA Review Letter FR /H May 19, 2008 The reviewer comments on language about 1031 exchanges and annuities on page 16. However, this is not part of the booklet as written by Financial Educators and the language references existed only in the personalized version submitted by the BD on a behalf of a specific rep. The reviewer comments on language about Certified Retirement Financial Advisor, however, this is not part of the booklet as written by Financial Educators and the language references existed only in the personalized version submitted by the BD on a behalf of a specific rep. Consequently, no changes were required to the booklet as published by Financial Educators.

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112 Modifications required by FINRA a Review Letter FR /E September 22, 2014 Retire SMART: A Simple Guide to a Comfortable Retirement 1. The claim You re a retirement financial planning master has been changed to: you've done good retirement planning (page 5) 2. Added disclosure about asset allocation: Although asset allocation may reduce risk, it does not insure a profit or guarantee against loss (page 4) 3. Added disclosure: An example follows but please note that the illustration is hypothetical and not indicative of the performance of any particular product. (page 5) 4. Added basis for statement : (online calculator from CalcXML (page 5) 5. Added tex6 to provide basis for statement: Retire later -- by working a couple more years, a $500,000 nest egg growing at 6% accumulates an additional $61,000 (6% x $500,000 compounded for 2 years = $61,000 Texas Instruments BA 54 or any financial calculator). That additional principal provides an additional $3,050 of spending money annually (assuming 5% annual retirement return x 61,000). (Page 5) 6. A description of an immediate annuity has been added: The above paragraph describes an immediate annuity a one-time payment of a premium to an insurance company. In return, you receive payments for a specified term or for life. Under the life option, payments cease when you die. Note that immediate annuities may have fees or commutation charges and generally cannot be surrendered for value. Payments you receive are subject to IRS rules which consider each payment part principal and part interest. The payments are guaranteed by and subject to the claims-paying ability of the issuing insurance company. (page 6) 7. The following footnote was added: The tax issues and risk issues of the investment options mentioned in this section are as follows: bank certificate deposits are FDIC insured to $250,000 and interest is taxed as ordinary income. Annuities are backed by the claims paying ability of the issuing insurance company. The portion of the payment that IRS considers interest is taxed as ordinary income. There is a 10% penalty for withdrawals before age 591/2. Federally-backed mortgage notes will fluctuate in value and have an implicit guarantee as to interest and terminal value by the federal government and interest is taxed as ordinary income. Municipal bonds will fluctuate in value, are guaranteed by the issuing municipality or issuing agency and interest is free from federal tax and may also be free from state tax if you are a resident of the state where the bond is issued. Corporate bonds and preferred shares are issued by public companies, will fluctuate in value and carry risk of loss. Interest on corporate bonds is taxed as ordinary income; dividends on preferred shares are generally taxed at the 15% rate. Mention of these securities does not constitute an offer to buy or sell.(page 6)

113 8. Sensible asset allocation will substantially lower the risks of investing has been replaced with: Sensible asset allocation may lower the risks of investing-including the chance that your money will not grow enough to meet your needs. Although asset allocation may reduce risk, it does not insure a profit or guarantee against loss. 9. The safest way to annuitize your assets is with a life annuity has been replaced with: one way to annuitize your assets is with a life annuity. 10. This statement is removed: Although this article is a stripped down version of comprehensive retirement financial planning, it covers far more than 95% of retirees ever plan for. 11. This verbiage is removed: so deposits with them are pretty safe. 12. The verbiage is removed: Diversify amongst these guaranteed sources of retirement income and enjoy a more comfortable retirement. 13. The verbiage A Simple Guide to a Comfortable Retirement has been changed to: A Simple Guide to Retirement 14. The remainder of this booklet will explain how to avoid these problems has been changed to :The remainder of this booklet will explain potential ways to deal with these issues. 15. The following articles provide guidance on how to avoid these common problems has been replaced with: The following articles provide guidance on ways to potentially address these issues.

114 Flnra September 22, 2014 Anna Lautenbach Packerland Brokerage Services; Inc. 432 Security Blvd ". Green Bay WI ;' Reference: FR /E.. ' Org Id: REVIEW LETTER' 1. Retire SMART: A Simple Guide to a Comfortable Retirell1ent Rule: FIN pages Fee: $145 Attention: Anna Lautenbach Total Fee: $145 Revisions are necessary for this material to be consistent with applicable standards. The claim"... you're a retirement financial planning mastef!" on page 5 is exaggerated and must be deleted, pursuant to FINRA Rule 221O(d)(1). _The material must be revised to address the following, pursuant to FINRA Rule 2210(d)(I)(A): To balance the reference to asset allocation in the "Settling for low returns" (page 4) discussion must be accompanied by an explanation to the effect that asset allocation does not ensure a profit or guarantee against loss. The mathematical discussion included in the "Generating Retirement Income" (page 5) discussion must be preceded by an explanation to the effect that the illustration is hypothetical and not indicative of the performance df any particular product. A basis must be provided for the claim"...if your nest egg were to earn a constant 6% annually you withdraw 8% annually of your beginn,ing balance, you exhaust the fund in 23 years" (page 5)., A basis must be provided for the claim beginning with "Retire later... " and ending with "That additional principal provides an additional $3,050 of spending money annually" (page 5). A more clear explanation of "Annuities"(page 6) must be provided (e.g., how they work, rider fees). -:1, ~~ Investor protection. Market integrity. AdvertIsing Regulation t Key West Avenue f Rockville, MD 20850

115 ---_.._ Flnra The risks associated with all the strategies included in the "Retirement Income Sources" (page 6) discussion must be provided. For example, the municipal bond tax-free income discussion must indicate which income taxes apply, or which do not, unless income "is free from all applicable taxes. With respect to the specific securities included in the "Retirement Income Sources" discussion, an explanation must be included to the effect that such securities do not constitute an offer to buy or sell.. The following claims are unwarranted and must be deleted, pursuant to FINRA Rule 221O(d)(1)(B): "Sensible asset allocation will substantially lower the risks of investing... " (emphasis added, page 4). "The safest way to 'annuitize'your assets is with a life annuity... " (page 5). "Although this article is a stripped down version of comprehensive retirement planning, it covers far more than 95% of retirees ever plan for" (page 5). "... so deposits with them are pretty safe" (page 6). "Diversify amongst these guaranteed sources of retirement income and enjoy a more comfortable retirement" (page?).. The following claims are promissory and must be revised, pursuant to FINRA Rule 221O(d)(1)(B): "A Simple Guide to a Comfortable Retirement" (pages 1 and 2). "The remainder of this booklet will explain how to avoid these problems" (page 3). "The following articles provide guidance on how to avoid these problems" (page 4). For example, we may not object ifthe claims were presented as goals or objectives. The material must be revised to clarify and reflect any relationship between the member (packerland Brokerage Services, Inc.) and any non-member (P&R Associates, Financial Educators,), pursuant to FINRA Rule 2210(d)(3)(B). In addition, the communication should clearly state that Mr. Petcka is a registered representative ofpackerland Brokerage Services, Inc., p)lrsuant to FINRA Rule 2210(d)(3)(B). Investor protection. Market integrity. Advertising Regulation t KeyWest Avenue f Rockville, MD 20850

116 Flnra f1nancia!lndumy Regulatory Authorlt;y Reviewed by, Natlyn D. Murrain Senior Analyst hrm This year's Advertising Regulation Conference will be held on October 9-10 in Washington, D.C. For more information and to register, please view our online brochure at NOTE: This review is limited to the communication that was filed. We assume that the communication does not omit material facts, contain statements that are not factual, or offer opinions that do not have a reasonable basis. This communication may be described as "Reviewed by FINRA" or "FINRA Reviewed"; however, there must be no statement or implication that this communication has been approved by FINRA. Please send any communications related tofiling reviews to this Department through the Advertising Regulation Electronic Filing (AREF) system or by facsimile or hard copy mail service. We request that you do not send documents or other communications via . i~ Investor protection. Market integrity. Advertising Regulation t KeyWest Avenue f RockviLIe,MD L08S0

117 Retire Smart A Simple Guide to Comfortable Retirement Provided to you by

118 Retire Smart: A Simple Guide to a Comfortable Retirement Written by Financial Educators Provided to you by

119 Introduction While many Americans have spent years planning for their retirements, a great many of them have made a basic discovery once they reach that plateau. Namely, that there are some issues that simple math and time will not necessarily resolve. If you are near retirement or have retired, listed below are several common mistakes that occur in the arena of financial planning for retirement that you can plan now to avoid. The remainder of this booklet will explain potential ways to deal with these issues. Let's get started... Common Retirement Financial Mistakes Underestimating your life expectancy: A generation ago, it was probably safe to assume that men would live to approximately age 70, and women to perhaps 75. But advances in medical science have pushed those ages up at least fifteen to twenty years. Realistic financial planning for seniors should probably assume that at least one spouse will live to age 90 or beyond 1. To make sure your money lasts, you may need to annuitize your assets to create a sufficient income (explained later). Are you thinking that you ll be able to retire when you want? In financial planning for retirement, many workers plan on working into their 70s until illness, disability, or mere fatigue forces them to reconsider. If you plan on working past the normal retirement age, do not count on the extra money earned to pay for essential expenses. Sound financial planning for senior years would have you save a sufficient nest egg by age 65 in case health reasons prohibit you from working longer. Neglecting to adequately factor in health care costs: Failure to do this can be disastrous, especially if long-term care treatment is needed. And don t count on the government to pick up the bill for you either. Make certain that your health coverage is adequate and that you have a plan to cover other elder care needs. This is the #1 error in financial planning for seniors, as it s estimated that half of the bankruptcy in the US 2 is caused by health failures and the accompanying costs. Settling for low returns: Don t let your fear of risking principal leave you with a guarantee of running out of money prematurely. Sensible asset allocation may lower the risks of investing-including the chance that your money will not grow enough to meet your needs. Although asset allocation may reduce risk, it does not insure a profit or guarantee against loss. But if you insist on keeping money in three month CDs and T- bills as many seniors do, your earnings will be so low that you increase the likelihood of running out of money. Sound financial planning for seniors means that your investment 1 For a married couple where both have reached age 65, there is a 39% chance that at least one will live to age The American Journal of Medicine: Medical Bankruptcy in the United States, 2007: Results of a National Study. Five states found that medical problems contributed to at least 46.2% of all bankruptcies.

120 horizon should match your actuarial life expectancy. In simple English, if you are age 70 with an expected life expectancy of 16 more years, your investment portfolio should be constructed to serve you for 16 years, not 6 months. Failure to monitor or control your distribution rate: Your financial advisor should be able to run some basic calculations based on the size and allocation of your portfolio that show a safe rate of withdrawal. A general rule of thumb is somewhere between three and five percent per year, depending on your portfolio s allocation between equity and fixed income investments. We have seen some financial planning disasters when people spend beyond this level. Refusing to get a fresh perspective: No matter how effective your advisor or plan is, getting a second opinion on it will never hurt. Different advisors have different areas of expertise, such as taxes or mutual funds. Therefore, having a different set of eyes review your situation may provide insights that you would otherwise miss. The following articles provide guidance on ways to potentially address these issues. Generating Retirement Income Financial planning prior to retirement is focused on asset accumulation, tax minimization, and maintaining a budget that allows for maximum savings. Retirement financial planning, however, is focused on these different objectives: maintaining an adequate income without salary or wages, maximizing pension and social security, having adequate health and long-term care protection and minimizing financial risk. You can't know for sure if you have adequate resources until you do some number work. If you find this nitty gritty retirement financial planning stretching your patience, then hire a retirement planner. Here are the steps: 1. Estimate your retirement spending needs: housing (including new furniture and updating), food (including dining out), insurance (including long-term care), personal expenses, vacations, entertainment, utilities, transportation, taxes (income and property), etc. Add to this list anything that applies to your desired lifestyle. Add up the total and now you know how much you need, which is Step 1 of your retirement financial planning. Let's say this figure is $50, Next, you want to see how much you have and create a retirement income plan. Add your sources of retirement income including social security, pensions, and annuities. An example follows but please note that the illustration is hypothetical and not indicative of the performance of any particular product. From any savings such as IRAs and 401k and other investment accounts, assume a withdrawal rate of 5%. So if you have a nest egg of $500,000, assume that you can take 5% annually and the nest egg

121 should be fairly safe at least for 30 years. 3 Note that just to maintain your standard of living, you need to always leave some earnings behind in your nest egg to account for inflation. An item that costs you $10,000 this year will cost you $10,300 next year. Even if you don't care about having anything left and want to spend more, you don't have much wiggle room. For example, if your nest egg were to earn a constant 6% annually and you withdraw 8% annually of your beginning balance, you exhaust the fund in 24 years (online calculator from CalcXML You could easily outlive your money and that's why it's important to stick to the retirement financial planning 5% rule. 3. Compare your total sources of income from Step 2 and your expenses from Step 1. If you have excess income, congratulations you've done good retirement planning. 4. If you have a deficiency, you have a few options: Adjust your lifestyle and spend less. Maintain your lifestyle, but move to a less expensive area of the country or out of the country. Work part time in retirement. Retire later -- by working a couple more years, a $500,000 nest egg growing at 6% accumulates an additional $61,000 (6% x $500,000 compounded for 2 years = $61,000 Texas Instruments BA 54 or any financial calculator). That additional principal provides an additional $3,050 of spending money annually (assuming 5% annual retirement return x 61,000). Note that later in life, say at age 75, you may switch your strategy and decide to "annuitize" some of your assets i.e. spend them down to zero and give yourself more income today. One way to annuitize your assets is with a life annuity, as payments will last as long as you do. (Get details from your financial or insurance advisor). Although this article is a stripped down version of comprehensive retirement financial planning, it covers far more than 95% of retirees ever plan for. Retirement Income Sources 4 3 Trinity Study: Sustainable Withdrawal Rates From Your Retirement Portfolio; Philip L. Cooley, Carl M. Hubbard and Daniel T. Walz 1998, updated The tax issues and risk issues of the investment options mentioned in this section are as follows: bank certificate deposits are FDIC insured to $250,000 and interest is taxed as ordinary income. Annuities are backed by the claims paying ability of the issuing insurance company. The portion of the payment that IRS considers interest is taxed as ordinary income. There is a 10% penalty for withdrawals before age 591/2. Federally-backed mortgage notes will fluctuate in value and have an implicit guarantee as to interest and terminal value by the federal government and interest is taxed as ordinary income. Municipal bonds will fluctuate in value, are guaranteed by the issuing municipality or issuing agency and interest is free from federal tax and may also be free from state tax if you are a resident of the state where the bond is issued. Corporate bonds and preferred shares are issued by public companies, will fluctuate in value and carry risk of loss. Interest on corporate bonds is taxed as ordinary income; dividends on preferred shares are generally taxed at the 15% rate. Mention of these securities does not constitute an offer to buy or sell.

122 Many retirees lack control over 50% or more of their retirement income. For example, if a retiree has income of $50,000 annually, and $30,000 comes from social security and employer pension, the retiree controls less than half of his retirement income making those sources somewhat useless to discuss. So let's focus on the sources of retirement income you can control and how to boost them. Let s work up the ladder of rates that you can get from guaranteed retirement income sources. Bank Certificates of Deposit: Terms from three months to five years. Generally, the longer the term, the higher the rate. Interest is available monthly for a guaranteed retirement income or can compound. A one year CD is 1.09% at the highest paying bank as of 1/6/14. 5 After inflation and taxes, you actually lose money. Therefore, holding large sums for long periods in CDs is financially foolish. Annuities: Guaranteed by the issuing insurance company, safest companies rated AAA by Standard and Poor s. Large companies like Prudential and New York Life actually lent money to the US Government during the depression. so deposits with them are pretty safe. Use deferred annuities (paying 3.80%) 6 if you don t need the income or immediate annuities if you need the income. A 70 year old male can get $677/month for life on a $100,000 deposit (equal to 8.1% cash on cash return) 7. Payments end at death and nothing is left. Some immediate annuities provide a feature for payments to heirs in case of early death, but the monthly payments will be less. The above paragraph describes an immediate annuity a one-time payment of a premium to an insurance company. In return, you receive payments for a specified term or for life. Under the life option, payments cease when you die. Note that immediate annuities may have fees or commutation charges and generally cannot be surrendered for value. Payments you receive are subject to IRS rules which consider each payment part principal and part interest. The payments are guaranteed by and subject to the claimspaying ability of the issuing insurance company. Federally Backed Mortgage Notes: Although you ve heard a lot in the news about Fannie Mae and Freddie Mac, the US government has backed their securities 100% giving them AAA safety. The same goes for Ginnie Mae Securities. Your money is loaned for mortgages, and the government agency guarantees your investment at 15 years, rates approximate 3.55%. 8 Actual term is uncertain as people can pay off their mortgages early. Income is monthly. Municipal Bonds: A source of guaranteed retirement income from cities, states or municipal districts. Buy those rated AAA for best security. Income is paid twice annually. Or, for another idea of guaranteed retirement income, build a ladder of zerocoupon municipal bonds. Interest and principal is paid all at once at maturity. Example: 5 Bankrate.com 1 year CD for Alostar Bank of Commerce 6 Midland National Life 1/6/14 MNL Guarantee Ultimate 10 (200k) /6/14. 8 Representative example 1/6/14: Federal Home Loan Mortgage Corporation 1/15/26, 4% coupon,

123 male age 52 buys $75,000 face value of municipal bonds to mature starting at age 62, and for each year thereafter for 20 years, to provide $75,000 of tax free income annually. The cost today of each bond averages less than 50 cents per dollar of face value yields of 6.1% tax free currently. 9 Corporate Bonds and Preferred Shares: These can be a reliable source of guaranteed retirement income from corporations. Again, for safety, buy those that are highly rated, at least A. Bonds pay interest twice annually, and preferred shares pay dividends quarterly. Diversify amongst these guaranteed sources of retirement income and enjoy a more comfortable retirement. Dividend income from stocks and mutual funds can be an important and significant source of retirement income, however, it is not assured as corporations may change their common stock dividends at any time. If you own mutual funds, there are funds oriented toward paying a consistent dividend income and those that do not. Are you in the right funds? Similarly, there are value stocks that pay dividends averaging 3.6%, 10 while many growth stocks pay no dividends at all. By your selection of stocks and funds, you control this important source of retirement income. 9 Representative example: as of 1/6/14 WESTMINSTER CALIF SCH DIST GO BDS SER % 08/01/ B Rated AA, S&P average yield of top 10 yielding stocks of the Dow Jones Industrial Average 1/6/14.

124 Protecting Your Assets While everyone needs car, homeowners and health insurance, there are specific types of insurance that are very pertinent to seniors or retirees. These senior insurances are detailed below, and the failure to have any of these protections could be the difference between a comfortable retirement and years of heartache. Life Insurance While the common reason to get life insurance is to replace income for the family should we die and our income stops, seniors or retirees are not dependent on their labor for income. Therefore, it seems that senior life insurance would be superfluous. But life insurance for seniors has other uses to solve other problems, such as providing liquidity at death for a surviving spouse, ease of estate settlement and division, creating a pool of money for special needs to create an estate and to pay estate taxes. Health Insurance No one should go without health insurance. However, senior health insurance is different in that private insurance is required in combination with government coverage. A typical senior health insurance program would include Medicare to cover 80% of health care costs and private insurance, or Medigap coverage, to cover the other 20%. Funeral Insurance (burial insurance) While it s true that a funeral can easily cost $20,000, most people of any means have the financial resources to cover their funeral, so special insurance may not be necessary. However, it is an excellent idea to have a funeral program structured so that your heirs don t need to take on this burden at their greatest time of grief. It could make sense to combine your funeral arrangements with funeral insurance as a package that relieves heirs of all financial and funeral planning concerns. Long-term Care Insurance Typically, in our working years, we have disability insurance to provide income in the event of our disability. Since we are no longer working in our retirement, it s wise to obtain long-term care insurance in the event of disability due to age. Long-term care insurance policies provide income to cover the extra expenses for the help you need for shopping, cleaning, cooking, bathing, dressing, driving and getting round. As you can see, there are many types of senior insurance issues that apply specifically to retirees past 65 years of age.

125 Other Retirement Issues Retirement is not just about the size of your nest egg. There are several considerations for a comfortable retirement experience in addition to a financial retirement plan. These considerations extend to where you live, housing options, and healthcare quality and choices. Most importantly, what activities will you do in retirement to stay mentally and physically fit? Here s a short list of considerations to add to your retirement checklist. Healthcare Needs for a Healthy Retirement Experience 1. Do you have insurance that will cover catastrophes? 2. Do you live in proximity to medical specialists you may need to consult? 3. Is your HMO or health plan available where you plan to have a second home or move? 4. If you plan to travel outside of the US, does your health plan cover you? 5. Do you have long-term care insurance? (Don t make the mistake of thinking that Medicare pays.) Retirement and Moving Your Residence 1. What are the tax rates in the new community property taxes, state income taxes, state sales tax and do they tax retirement income and social security income differently than other income? 2. If you reach an age where you cannot drive, will the public transit take you to your favorite places? 3. Is the climate satisfactory in all months? How about allergy months (e.g. spring time)? 4. Is there an adequate selection of senior housing complexes, assisted living facilities and nursing homes and what is the cost? 5. Is there an active population of retirees in the new area and people you can befriend? Retirement income structure 1. Does one spouse have a pension that ends upon death? Your retirement consultant can show you how to possibly replace that income. 2. If both spouses are eligible for Social Security income, there may be ways to maximize the benefit..check with a retirement planner. Estate planning Estate planning is not just for the rich. It is for anyone that cares about their heirs. In fact, most aspects of estate planning basics have little to do with money.

126 Estate planning basics do address the eventual and economical distribution of your possessions and authority but more importantly, how you take care of your loved ones. Many of you may think you don t have an estate plan but you do! Federal and state rules will determine who gets what and how much, and how you will be treated if you become very ill. If not prepared with basic estate planning knowledge, it costs money and heartache. Putting your estate in order can be complex. It depends on how many assets you have, where they are, your family structure children, divorced and previous children, state laws and more. But, no matter how small or large your estate is, here are the four tools of basic estate planning: 1. Will or trust 2. Durable power of attorney 3. Living will 4. Health care proxy (medical durable power of attorney) Your will shows your wishes for disposition of your assets and names a guardian for minors. In it, state how property in your name should be distributed, name an executor to be in charge of carrying out your wishes, and provide for payments of costs incurred in settling your estate. And for your minor children, designate a guardian and name a trustee to protect their inheritances. One estate planning basic is to use a trust in place of a will because it maintains privacy and avoids court involvement in the settlement of your estate. Additionally, trusts typically contain conservatorship provisions. If you should lose your mental capacity in your old age, do you want your family to be in court about your care, or would you rather have a written plan in advance? Estate planning basics call for planning ahead. Your Durable Power of Attorney gives someone else permission to manage your affairs if you become disabled or incapacitated. With it, as soon as you become incapacitated, your designated person, i.e. your spouse, adult child or anyone you trust, can manage (pay bills, make decisions) your affairs or you can restrict that power to only particular assets or accounts. Don t wait! You can t create a durable power of attorney once you ve become incompetent. Your Living Will expresses your wishes to your doctors when they must consider use of life-sustaining measures. This is your declaration on what life-sustaining medical treatments you will (or will not) allow if you become incapacitated. For example, you may request that artificial nourishment be (or not be) withheld if you become terminally ill. You may recall the Mary Schiavo case on this issue which became a national news story only because these estate planning basics were ignored. A Medical Durable Power of Attorney (or health care proxy) is a crucial and basic estate planning tool that designates someone to make health care decisions on your behalf in the event you no longer can. It s a document that gives a person you designate permission to make health care decisions on your behalf if you are unable to do so in the future, and perhaps, consistent with your living will. Talk to the person before appointing

127 him, and be sure he or she understands and is comfortable with your wishes, and is strong enough to carry them out despite some family members objections. Seek professional help in planning your estate consistent with your state laws and your particular circumstances. No one will tell you about the estate planning basics. Be proactive and ASK your retirement advisors what you need to do to get your estate in order. Summary These are only a few ideas to help you better protect your assets and make the most of what you worked hard to accumulate. Financial and retirement planning can have an impact on your estate, even if your estate is of modest size. Find an advisor who is knowledgeable in senior matters. Find an advisor who will answer your questions, as well as answer questions that you have not thought to ask. Find an advisor who will point out opportunities and caution you about risks, and one who is knowledgeable about the special needs of retired individuals. With the sound advice of experience and a conservative retirement plan, you and your family can get the most out of your assets.

128 About Phone today with questions or to see if we can help you. There is no charge for an initial meeting Financial Educators First Published 11/1/10 This booklet is copyrighted. It may not be reproduced without express written permission of the author. Published by Financial Educators

129 Modifications per FINRA Review Letter FR October 8, 2014 How to Prosper and Thrive in Retirement 1. In the section Maintain Your Independence and How to Leave Assets to the Heirs each item has received a basis for substantiation. The following verbiage and footnotes have has been added: and note that this is a hypothetical example that does not reflect any particular products. 13 IRS October 20, IRS publication shows a 26 year life expectancy for a couple both age IRS Instructions for form 709, This footnote was already present at the time of FINRA Review substantiating the cost of life insurance: 16 Protective Life Insurance Company Custom Choice UL To Age 100 9/23/13, Florida Male, Preferred Plus., annual premium $15,454. Note that the purchase of life insurance incurs charges and commissions and potential surrender charges. Not everyone is insurable and actual costs will depend on several factors including health. 11 Substantiation was updated and hyperlinked for facts on length of stay in nursing homes 2. Language added to footnote 2: CDs are subject to availability and this does not constitute an offer to buy or sell. 3. Verbiage added to footnote 7: Note that the interest on municipal bonds is free from federal income tax and likely also free from state income tax if the owner resides in the state of issuance. It is possible that such interest could be subject to AMT or taxable as ordinary income from private activity bonds 4. A hyperlink has been added to footnote 14: IRS publication shows a 26 year life expectancy for a couple both age 65

130 5. This disclosure was added to page 11: Be aware that tax laws, exclusions and estate exemptions are subject to change. 6. How to prospect and thrive in retirement has been changed to: For those who want to Prosper and Thrive in Retirement (pages 1 and 2)

131 Flnra October 8, 2014 Anna Lautenbach Packerland Brokerage Services, Inc. ' 432 Security Blvd Green Bay WI ) "i t..'''~ ~ Reference: FR fJi: Org Id: REVIEW LETTER 1. How to Prosper and Thrive in Retirement Rule: FIN pages Fee: $175 Attention: Anna Lautenbach Total Fee: $175 Revisions are necessary for this material to be consistent with applicable standards. The dollar values used for the long-term care and health insurance premium and annual premium in the illustration titled "How to Leave Assets to the Heirs"'on pages 11 and 12 lack basis and must be deleted, pursuant to FINRA Rule 221 O(d)( I )(A). To provide a sound basis for evaluating the facts, the material must be revised to address the following, pursuant to FINRA Rule 2210(d)(l)(A): With respect to the specific CD discussed on page 4, an explanation must be included to the effect that CDs are subject to availability and this does not constitute an offer to buy or sell. We note the reference to a federal and state tax exempt bond on page 5. However, the risk discussion must indicate which income taxes apply, or which do not, unless income is free from all applicable taxes (e.g., AMT). We note that footnote 14 on page 12 does not appear,to link to any information. An explanation to the effect that tax laws and exclusjon rates are subject to change must accompany the discussion titled "How to Leave Ass~ts to Heirs" on page 11. The title "How to Prosper & Thrive in Retirement" on the 1st and 2 nd pages is promissory and must be revised, pursuant to FINRA Rule 2210(d)(l)(B). For example, we may not object if the title were presented as a goal or an objective.. Investor protection. Market integrity. Advertising Regulation t KeyWest Avenue f Rockville, MD losso

132 Flnra The material must be revised to clarify and reflect any relationship between the member (packerland Brokerage Services, Inc.) and any non-member (P&R Associates, Financial Educators,), pursuant to FINRA Rule 221O(d)(3)(B). In addition, the communication should clearly state that Mr. PetCka is a registered representative ofpaekerland Brokerage Services, Inc., pursuant to FINRA Rule 2210(d)(3)(B). Reviewed by, Natlyn D. Murrain Senior Analyst hrm This year's Advertising Regulation Conference will be held on October 9-10 in Washington, D.C. For more information and to register, please view our online brochure at NOTE: This review is limited to the communication that was filed. We assume that the communication does not omit material facts, contain statements that are not factual, or offer opinions that do not have a reasonable basis. This communication may be described as "Reviewed by FINRA " or "FINRA Reviewed"; however, there must be no statement or implication that this communication has been approved by FINRA. Please send any communications related tofiling reviews to this Department through the Advertising Regulation Electronic Filing (AREF) system or-byfacsimile or hard copy mail service. We request that you do not send documents or other communications via . Investor protection. Market integrity. Advertising Regulation t Key West Avenue f ROCKville, MD 20850

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