for INCOME How to optimize your retirement income Client Guide INCOME SOLUTIONS Prime Income Optimizer TM fixed indexed annuity

Transcription

1 Prime Income Optimizer TM fixed indexed annuity Preparing How to optimize your retirement income for INCOME Insurance products issued by: The Lincoln National Life Insurance Company Not a deposit Not FDIC-insured May go down in value Not insured by any federal government agency Not guaranteed by any bank or savings association Client Guide INCOME SOLUTIONS

2 Look at the big picture A successful retirement plan addresses and prepares for the challenges you ll face before retiring as well as once you start taking income. Viewing retirement in two phases, growth and income, will allow you to focus your strategy on building an income that will last. Keep in mind that your retirement income should protect your lifestyle, have the potential to grow, and last the rest of your life years For a lifetime Growth phase The time to grow retirement savings Income phase The time to draw income from retirement savings 2

3 Facing retirement challenges Throughout our lives we set goals to get us to the next step. Taking that first step toward retirement is no different. Whether your retirement goals include traveling, owning a beach house, antiquing, or getting serious about golf, you ll need a plan that allows you to have the lifestyle you want. Know the real challenges to retirement Market ups & downs Volatility makes the market unpredictable. For example, the S&P 500 Index in 2009 posted a 23% return, but also lost 28% at one point during that same year. Looking back further, you ll see a similar trend with annual stock returns ranging from +50% to 40%. 1 It s clear that volatility can make investment decisions very challenging. Value of the dollar Based on historical average inflation rates, if you need $50,000 today, you will need over $131,000 in 25 years just to keep pace with inflation. 2 Don t outlive your money Your retirement could last 20 years, 30 years, or even more. One member of a 65-year-old couple today has a 50% chance of living to age 92 and a 25% chance of living to age Taxes hurt They can take a big bite out of your income. The top tax bracket for many retirees in 2013 increased to 39.6%, so minimizing your tax burden can help stretch your savings. 4 Everyone needs healthcare Approximately 70% of Americans age 65 or older will need some type of long-term care and the costs are rising faster than inflation. 5 1 Ned Davis Research, Based on the DJIA, 1901 to Past performance does not guarantee future results. 2 U.S. Bureau of Labor Statistics, June Annuity Tables, Society of Actuaries, April LifePlans, Inc., Long-term Care Market Summary, Research & Analysis; January 15, For a printed copy of the report, call 877-ASK-LINCOLN. 3

4 Planning for retirement Where should you put your money? Human nature finds that most people prefer safety over risk. For that reason, many investors put their money in places they perceive to be less risky, such as bonds, money market accounts, savings accounts, and certificates of deposit (CDs). Unfortunately, safety can also come with the risk of investing in products that fall short of retirement goals. Fixed indexed annuities can help bridge the gap between return and safety and can help provide a less volatile investment strategy. As you can see with the CD table below, real returns on a safe investment don t always meet expectations. With today's economy, higher inflation, and low interest rates, CDs are losing value. Based on a 25% tax rate, this chart displays the negative impact of CDs on savings from 2007 to The real return on CDs ( ) Year CD Inflation Real rate % 2.8% 1.10% % 3.8% 1.48% % 0.4% 1.08% % 1.6% 1.30% % 3.2% 2.90% % 2.1% 1.82% Source: Ned Davis Research This diagram will help you understand how fixed indexed annuities fit into the spectrum of investment choices. The bank The market CDs, savings accounts, and money market accounts Mutual funds, traditional stocks, and variable annuities Less risk, less reward fixed indexed annuities More risk, more reward Pros: Safety, access to money, FDIC-insured Cons: Lower growth potential Pros: Growth potential Cons: Potential for loss 4

5 Know how to protect and grow your money Prime Income Optimizer TM fixed indexed annuity not only protects your original investment and grows your account value it provides you with a guaranteed income stream that you can t outlive. This product is a flexible premium annuity with a 10-year surrender charge period. 1 Fixed indexed annuities (FIA) grow your account value by crediting interest based on the S&P 500 Index. 2 However, unlike the majority of FIAs, Prime Income Optimizer's built-in guaranteed lifetime withdrawal benefit rider grows your Income Base at the same time. This built-in income benefit helps you receive the maximum amount of income possible when you re ready to take it. The lifetime withdrawal benefit is included with the contract at issue for an annual cost of 0.85% and the maximum charge for this feature will never exceed 1.00%. The income benefit portion of the contract is not optional and cannot be terminated independently of the contract. The current charge for single and joint covered life riders is 0.85%. Prime Income Optimizer provides A way to save for the future without worrying about losing value on your savings The ability to grow your account value using a Fixed Account and three indexed accounts A built-in guaranteed lifetime income stream that pays you to wait A flexible premium annuity A flexible premium annuity allows the owner to make periodic payments once the initial premium has been paid. As opposed to a single premium annuity, contributions can usually be made at any time. Contributions are subject to limitations. 1 The 10-year surrender charge period is subject to state availability. Withdrawals above the free partial surrender amount are subject to a Market Value Adjustment (MVA) and a surrender charge during the surrender charge period. 2 The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Please note an investor cannot invest directly in an index. This annuity does not participate directly in any stock or equity investment. 5

6 Preparing for the growth phase Guaranteeing growth If you leave your money in a Prime Income Optimizer TM contract until the end of the surrender charge period, you are guaranteed to walk away with more than your initial premium (assuming no withdrawals were made). This amount is known as the guaranteed minimum cash surrender value (GMCSV). The GMCSV is based on a guaranteed minimum rate of return. If a contract is surrendered during the surrender charge period, a surrender charge and a Market Value Adjustment (MVA) will apply and can result in the GMCSV being less than your premium. If surrendered after the surrender charge period, no surrender charge or MVA will apply. Accumulate tax-deferred interest across four account buckets After purchasing a contract, your premium can be distributed among a fixed account and three interest accounts, each of which is based on the performance of the S&P 500 Index. Think of these as buckets that hold a portion of your money. As your needs change throughout the life of your contract, you are able to reallocate money among the buckets on the contract anniversary. Fixed Account Credits a fixed rate known in advance. Establishes an interest rate for each contract year, giving you predictable growth. 1 Account value grows regardless of S&P 500 Index performance. Guarantees are subject to the claims-paying ability of The Lincoln National Life Insurance Company. Limitations and exclusions apply. 1 Interest rates, specified rates, monthly indexed caps, and indexed interest spreads are declared by The Lincoln National Life Insurance Company at its discretion. Subsequent interest rates, specified rates, monthly indexed caps, and indexed interest spreads may be higher or lower than the initial ones and may be different from those used for new contracts. Applicable indexed interest is credited at the end of the indexed term. Amounts withdrawn (including amounts paid as a death benefit) before the end of an indexed term will not receive indexed interest for that indexed term. 6

7 Performance Triggered Indexed Account If, after a one-year term, the S&P 500 Index has a positive change or remains flat, your account is credited a specific rate. 2 If it s negative, your account is credited 0% no loss of principal, and any gains from previous periods remain intact. 1-Year Monthly Cap Indexed Account Credits sum of monthly percentage changes in the S&P 500 Index over the one-year indexed term. There is a cap on positive monthly changes, but no floor on negative monthly changes. 2 If sum of monthly percentages is positive, full percentage is credited to your account. If it s negative or zero, account is credited 0% no loss to the account and gains from previous periods remain intact. 1-Year Monthly Average Indexed Account Indexed interest is determined by comparing the average of twelve monthly index values of the S&P 500 Index to the starting index value and then applying a spread to the percent change. 2 If result is positive, account will be credited. If result is zero or negative, account will be credited 0%, so there is no loss. 2 The S&P 500 Index is a price index and does not reflect dividends paid on the underlying stocks. It is not possible to invest directly in an index. During the surrender charge period, Lincoln reserves the right to not offer any one of the indexed accounts, but will leave at least two indexed accounts available. After the surrender charge period, Lincoln reserves the right not to offer any of the indexed accounts. 7

8 A closer look at the crediting strategies The Fixed Account You receive a fixed interest rate stated in advance that provides growth you can always count on. This rate will never be less than 1%, and the money allocated to this account is not affected by index performance. Interest is credited and compounded daily. 1-Year Monthly Cap Indexed Account This account tracks monthly percentage changes in the S&P 500 Index over a one-year indexed term. At the end of each term, both negative and positive monthly changes are added to determine whether your account will receive any interest. This account has a cap on positive monthly index changes. There is no floor for monthly change percentage, and the account will not be credited with a rate lower than 0%. Your money in action Monthly cap: 1.5% There were seven months where the monthly index performance exceeded the monthly cap. In these months the 1.5% cap is recorded. In other months when performance is less than the cap, the exact return of the index is recorded. The final step is to add these percentages together (subtracting any negative months) to arrive at the amount of interest credited. Month Examples based on past market index performance; however, past performance does not guarantee future results. Actual interest credited could be higher or lower. Indexed interest cap shown (for illustrative purposes only) could be higher or lower depending on time of purchase. 4/22/09 4/22/10 6/1/08 6/1/09 Actual monthly percentage change of market index Percent change with monthly cap Actual monthly percentage change of market index Percent change with monthly cap 1 2.4% 1.5% 1.0% 1.0% 2 0.7% 0.7% 1.2% 1.2% 3 6.8% 1.5% 9.1% 9.1% 4 7.5% 1.5% 16.9% 16.9% 5 4.5% 1.5% 7.5% 7.5% 6 2.0% 1.5% 0.8% 0.8% 7 1.2% 1.2% 8.6% 8.6% 8 1.1% 1.1% 11.0% 11.0% 9 2.3% 2.3% 8.5% 1.5% % 1.5% 9.4% 1.5% % 1.5% 5.3% 1.5% % 1.5% 0.0% 0.0% Sum = 12.7% Total indexed credit percentage = 12.7% Sum = 47.6% Total indexed credit percentage = 0% 8

9 Performance Triggered Indexed Account This account credits a declared specified interest rate if the S&P 500 Index return is flat or positive. At the end of the indexed term, if the index return is higher than or equal to the starting value of the index, your account will be credited a specified rate. Credited interest that s earned in the account is locked in and you cannot lose that value on your account, even if the index later decreases. Your money in action Specified rate: 3% No matter what the amount of increase in the index is (represented by the orange bars), you will be credited 3% for that term, as represented by the tan bars. If the index is negative, your account earns 0% and you will not lose any money. S&P 500 Index return Interest earned during indexed period 2% 7% 3% 3% 3% 0% 0% -5% Year 1 Year 2 Year 3 Year 4 1-Year Monthly Average Indexed Account This account calculates interest by comparing the average of twelve monthly index values to the starting index value and then applies a spread to the percent change. No interest is credited if the index decreases, but your money is still protected from loss. Your money in action Index spread: 9.00% Here are the steps for calculating the amount of interest that would be credited: 1. Take average of 12 monthly index values = 12, = 1, ,071 is 16.50% higher than the starting value of Subtract the 9.00% spread from 16.50% 16.50% 9.00% = 7.50% S&P 500 Index closing value (5/1/09 5/1/10) First day of 919 contract year , , , , , , , , , ,089 Total indexed credit percentage = 7.50% 9

10 Growing your income Understanding the income benefit With a Prime Income Optimizer TM contract, while you work to build your retirement savings, the built-in income benefit works to grow your Income Base. Remember: The Income Base determines the amount of income you ll receive once your guaranteed lifetime withdrawals begin. Even if your account value was depleted to $0, your lifetime income stream would still be determined by your Income Base value. The Income Base matches your original investment and can increase with annual lock-ins in addition to market gains. Please note that your Income Base will only be reduced by excess withdrawals and that it is not available as a lump sum withdrawal, death benefit, or annuitization. 1 Your Income Base may increase in three ways Annual compounded enhancement percentage The longer you wait, the greater the enhancement percentage Enhancement period* During years 1 5 During years 6 10 During years % 5% 6% 2 3 Account value step-ups; or Additional premiums * The enhancement period starts at issue and continues until the earlier of 15 years or age 85 (based on the age of the oldest covered life). Additional premiums must be in the contract for at least one year before the enhancement percentage is applied to that premium (except for premiums made within the first 90 days of contract issue). 10

11 A hypothetical example with Carlos and Maria Carlos and Maria plan to retire in 15 years. To realize this goal, they need to generate the greatest amount of income with the least amount of risk. By investing $100,000 in a Prime Income Optimizer TM fixed indexed annuity based on a single life they were able to achieve their goal. Prime Income Optimizer will apply the annual compounded enhancement percentage to your Income Base at every rider anniversary regardless of how the market performs. If the account value is higher than the Income Base at a rider anniversary, the Income Base will automatically be stepped up to the higher value. As you can see from the chart below, a starting Income Base of $100,000 would grow to $121,665 after five years. At 10 years, the Income Base would rise to $155,279; and at 15 years, the Income Base would more than double to $207,799. If Carlos and Maria waited 15 years to take income, their single life contract would generate a lifetime income stream based on $207,799. $250,000 $200,000 $155,279 $207,799 $150,000 $121,665 $100,000 $50,000 $ % 5 % 6 % Compounded enhancement percentages 11

12 Entering the income phase As you learned from the Carlos and Maria hypothetical example, the longer you wait, the larger your Income Base. The same idea applies to your Lifetime Benefit Amount (LBA), which is the percentage used to determine your lifetime withdrawals. If your total premiums equal $25,000 or more, an income bonus rate applies to your LBA after the 5th or 10th complete contract year. Withdrawals taken before the 5th or 10th contract year will eliminate the income bonus rate. Calculating your LBA Two key components to determining your LBA are your age and, if your total premiums equal $25,000 or more, the length of time you hold the contract before beginning withdrawals.* If you purchase the contract when you re 60 and take income immediately, your LBA is 4.25%. If you re eligible for the income bonus rate and wait until age 65 to start taking income, your LBA of 4.75% at age 65 increases 0.50% to 5.25%. By waiting to take income until age 70, your LBA increases 1.00% to 6.25%. This is the power of waiting. Age-based LBA LBA + income bonus rate Age bands Less than 5 years From 5 to 9 years 0.50% bonus At least 10 years 1.00% bonus % 3.75% 4.25% % 4.25% 4.75% % 4.75% 5.25% % 5.25% 5.75% % 5.75% 6.25% % 6.25% 6.75% % 6.75% 7.25% % 7.25% 7.75% % 7.75% 8.25% % 8.25% 8.75% *Payment percentages shown in the chart reflect a single life. For joint lives, reduce the payment percentages shown by 0.75%. If a withdrawal is taken before starting lifetime income payments, your income bonus rate will be based on when this withdrawal was taken and not when the income payments start. Withdrawals taken prior to electing an income withdrawal under the income rider benefit will impact the amount of the LBA provided with the rider. Income taxes are due upon withdrawal and if withdrawn before age 59½, an additional 10% federal tax may apply. 12

13 Bringing it back to the big picture Whether you take income now or wait until you receive a higher guaranteed amount, Prime Income Optimizer TM fixed indexed annuity protects your income for life at any age. The table below brings together all of the benefits of this product by illustrating how a 60-year-old with a $100,000 contract maximized their lifetime income. Age Compounded enhancement Income Base LBA Annual income Nursing Home Benefit 60 $100, % $4,250 N/A % $104, % $4,420 N/A % $108, % $4,597 N/A % $112, % $4,781 N/A % $116, % $4,972 N/A % $121, % $6,387 $12, % $127, % $6,707 $12, % $134, % $7,042 $13, % $140, % $7,394 $14, % $147, % $7,764 $14, % $155, % $9,705 $15, % $164, % $10,287 $16, % $174, % $10,904 $17, % $184, % $11,559 $18, % $196, % $12,252 $19, % $207, % $14,026 $20, % income bonus rate Annual income for life 1.00% income bonus rate This table is for illustrative purposes. In order to qualify for the nursing home enhancement you must be 65, you cannot be in a nursing home the year prior to election or for five years after, and you must have a minimum 90-consecutive-day stay. With joint life, the first person to qualify will receive the enhancement. Not available in all states. If a withdrawal is taken before starting lifetime income payments, your Income Bonus Rate will be based on when this withdrawal was taken and not when the income payments start. Withdrawals taken prior to electing an income withdrawal method under the Income Rider benefit will impact the amount of the LBA provided with the Rider. Income taxes are due upon withdrawal and if withdrawn before age 59½, an additional 10% federal tax may apply. 13

14 Income when you need it The nursing home enhancement feature This optional feature increases the withdrawal rate for qualified nursing home expenses for clients age 65 and over. If you were to enter a nursing home, your income withdrawal rate would increase to 10% of the Income Base. 1 Free partial surrender Ten percent of the contract value is available each contract year during the surrender charge period without charge. In this instance, "free" refers to being free of surrender charge and Market Value Adjustment. Any withdrawals taken prior to electing an income withdrawal method will reduce the Lifetime Benefit Amount. Income taxes are due upon withdrawal and if withdrawn before age 59½, an additional 10% federal tax may apply. Protection for loved ones Before a contract is annuitized, there is a death benefit that allows you to pass any remaining assets to your beneficiaries. The death benefit is equal to the greater of the Accumulation Value (surrender charge and Market Value Adjustment do not apply) or the guaranteed minimum values. Other income options You can also access your account value through systematic withdrawals or annuitization. 2 These income options will negate the guaranteed lifetime withdrawal benefit included with your contract. 1 In order to qualify for the nursing home enhancement, you must be 65, you cannot be in a nursing home the year prior to election or for five years after, and you must have a minimum 90-consecutive-day stay. With joint life, the first person to qualify would receive the enhancement. Not available in all states. 2 Annuitizing the contract will cancel any benefits under the Income Rider. Lincoln may offer additional annuity payment options. 14

15 The choice is up to you Growth potential without loss Allocate your money the way you see fit. Choose among a fixed interest rate and indexed accounts for growth potential. You may change allocations at any contract anniversary. And, remember, the longer you wait to begin withdrawals, the more income you re guaranteed. Income you can't outlast Prime Income Optimizer TM fixed indexed annuity gives you the ability to save for retirement and get guaranteed growth toward future income. Liquidity A 10% free withdrawal may be taken each contract year during the surrender charge period. Withdrawals over 10% are subject to surrender charges and a Market Value Adjustment. Withdrawals will impact the Income Base. Nursing home and terminal illness benefits Prime Income Optimizer has built-in nursing home and terminal illness benefits that give you access to your money without charges after the first contract year. For more information and details on these features, please read the disclosure statement and Facts At-A-Glance. Death benefit Upon the death of a contract owner or annuitant, beneficiaries may receive the greater of the contract value, the guaranteed minimum cash surrender value, or the guaranteed minimum non-surrender-value. 15

16 Contact your representative to help decide if a Prime Income Optimizer TM fixed indexed annuity can help you take charge of your future. Primerica is not an affiliate of Lincoln Financial Group. Not a deposit Not FDIC-insured Not insured by any federal government agency Not guaranteed by any bank or savings association May go down in value 2013 Lincoln National Corporation Lincoln Financial Group 150 N. Radnor-Chester Road Radnor, PA LincolnFinancial.com Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Affiliates are separately responsible for their own financial and contractual obligations. LCN POD 6/13 Z02 Order code: FA-PIO-BRC001 Important disclosures: This material was prepared to support the promotion and marketing of insurance products. Lincoln Financial Group affiliates, their distributors, and their respective employees, representatives, and/or insurance agents do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein. A fixed indexed annuity is intended for retirement or other long-term needs. It is intended for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. A fixed indexed annuity is not a registered security or stock market investment and does not directly participate in any stock or equity investments, or index. The index used is a price index and does not reflect dividends paid on the underlying stocks. Prime Income Optimizer TM Fixed Indexed Annuity (contract form and state variations) and the Guaranteed Lifetime Withdrawal Benefit Rider (form AC-268 and state variations) are issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker-dealer. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so. Contractual obligations are subject to the claims-paying ability of The Lincoln National Life Insurance Company. Contract may be referred to as policy or certificate in certain states (certificate may not be available in all states). The certificate is a group annuity certificate issued under a group annuity contract issued by The Lincoln National Life Insurance Company to a group annuity trust. The exact terms of the annuity are contained in the contracts and any attached riders, endorsements and amendments, which will control the issuing company s contractual obligations. For more information about the annuity, please also read the Client Guide, Disclosure Statement and Facts At-A-Glance, or contact your representative. Income taxes are due upon withdrawal and if withdrawn before age 59½, an additional 10% federal tax may apply. Withdrawals and surrenders may be subject to surrender charges and a Market Value Adjustment. There is no additional tax-deferral benefit for contracts purchased in an IRA or other tax-qualified plan, since these are already afforded tax-deferred status. Products and features subject to state availability. Not for use in New York.