Welcome to Our Workshop! John Agent. President Agent Financial Group, Inc Somewhere St. Suite 200 Anywhere, ST Phone:

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1 Welcome to Our Workshop! John Agent President Agent Financial Group, Inc Somewhere St. Suite 200 Anywhere, ST Phone:

2 Disclaimer: This information is not intended to give tax, legal, or investment advice. Please seek advice from a qualified professional on these matters. Past performance is no guarantee future results. Crediting rates including caps for FIA s can change and are determined by the insurance companies at the time of issue, Annuity Contracts are products of the insurance industry and are not guaranteed by any bank or insured by the FDIC. When purchasing a fixed indexed annuity, you own an annuity contract backed by the insurance company, you are not purchasing shares of stocks or indexes. Product features such as interest rates, caps, and participation rates may vary by product and state and may be subject to change. Surrender charges may apply for early withdrawals. Be sure to review the specific product disclosure for more details. Guarantees are based on the financial strength and claims paying ability of the insurance company. Lifetime income benefit riders are used to calculate lifetime payments only. The income account value is not available for cash surrender or in a death benefit. Excess withdrawals may reduce lifetime income and may incur surrender charges. Fees may apply. Guarantees based on the financial strength and claims paying ability of the insurance company. See specific product disclosure for more details. Copyright 2015 David P. Vick. All rights reserved. This material was written and prepared by David P. Vick. Copyright by David P. Vick. All rights reserved. No part of this publication may be copied or distributed, transmitted, transcribed, stored in retrieval system, transferred in any form or by any means - electronic, mechanical, magnetic, manual, or otherwise - or disclosed to third parties without the express written permission of David P. Vick. Vick & Associates, Inc., 8700 E. Vista Bonita Drive, Scottsdale, AZ, U.S.A. The information contained in this workbook is not written or intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from you own tax or legal counsel. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security or product. David P. Vick assumes no responsibility for statements made in this publication including, but not limited to, typographical errors or omissions, or statements regarding legal, tax, securities, and financial matters. Qualified legal, tax, securities, and financial advisors should always be consulted before acting on any information concerning these fields. Vick & Associates, Inc., - Toll-free Phone:

3 Challenge #1: Living longer The GAO (US Government Accountability Office) in their April 2010 report titled, Challenges for Ensuring Income throughout Retirement, says that the average healthy 62 year old couple has a 47 percent chance for one of the two to live past their 90 th birthday. According to the Society of Actuaries Annuity 2000 tables the average healthy 62 year old couple has a 51 percent chance for one of the two to live to see their 92 nd birthday. According to the Social Security 2010 tables the average healthy 62 year old couple has a 27 percent chance for one of the two to live to see their 92 nd birthday. In other words, a 62 year old couple has somewhere between a 27% to 51% chance of living three decades in retirement, depending of course on your health and which study you read. That means: You ll have to fund life in retirement for three decades. Even more, you ll want to fund your quality of life for those decades. (1)

4 Challenge #2:Inflation Why does it matter? When planning for retirement you have to consider the possibilities of providing income for expenses for 30 to 40 years. The graphs below show what would happen if the 30 year 2.9% average inflation rate and 40 year 4.3% average inflation rate was used when purchasing a $25,000 item such as a car.(1) Inflation Rate 2.9% 10 Years 20 Years 30 Years 40 Years $25,000 $33,273 $44,284 $58,939 $78,443 CNN Money, an online publication, reported on April 9 th, 2013 that nursing home costs had risen to $80,000 a year. (2). Imagine the inflation on a projected nursing home stay in 30 to 40 years. Inflation Rate 2.9% 10 Years 20 Years 30 Years 40 Years $80,000 $106,474 $141,709 $188,604 $251,018 Here are some more important facts to consider when planning for inflation: Inflation can erode a portfolio s purchasing power at an average inflation of 3% to 4% per year. The value of a portfolio is cut in half every 23 years at a 3% inflation rate. Increasing your cash flow by the rate of inflation is necessary for an effective retirement income plan. In the end, inflation is the long life penalty! 1. Consumer Price Index History Table Bureau of Labor Statistics, 7/16/13, 2. Nursing Home Costs Top $80,000 a Year by Blake Ellis, CNN Money, April 9,

5 Challenge #3:Market Uncertainty Paradigm Shifts in the Market You have to wonder by now, what has caused all the volatility in the markets over the last 30 years. It seems that we were riding the heights of the 1990 s when the dot.com bubble burst. We were riding the Bull again until the housing bubble turned 2008 into a disaster with a 38% drop in the broad markets. According to YahooFinance.com, from the bottom of the market in March of 2009 to the half way through 2013, the S&P 500 rose from 676 to 1606, a 138% increase. What could possibly be next on this roller coaster 21 st Century-market-ride and why is the volatility so steep? 5

6 Challenge #4:Taxation By the Numbers* 94% Highest historical tax rate, % Highest top marginal tax rate from , except for years % Highest top marginal tax rate from % Historical average of the top marginal tax rates 15% & 28% The only two marginal tax brackets from Will you pay more or less taxes in retirement? The typical answer is yes, but a little historical perspective here would be helpful. We currently live in a time with historically low tax rates. From 1913 to 2015, we ve seen the highest marginal rates rise from 7% to 94% with the average being 59% (1) U.S. Federal Individual Income Tax Rates History, Nominal and Inflation-Adjusted Brackets Tax Foundation Website, 2. Historical Highest Marginal Tax Rate The Big Picture, Barry Ritholtz, July 9 th

7 However many challenges there are in retirement, they seem to boil down to two main issues: Time & Money It comes down to funding the quality of life you want in retirement. What does your retirement dream include? How will you fund it? How long will you have to fund it? Do you know when you ll run out of money? How do you manage risk over time? What if a large bear market happens during your retirement? Average length of long bears(1): 17 years Average number of down years in a market(1): 3 out of 10 Most recent example: 2000 through 2009 If 70% of the market years are up, then retirement should be a slam dunk, right? Let s take a look at the concept called sequence of returns. 1. Russell Napier. The Anatomy of a Bear. Great Britain: Harriman House, Ltd.,

8 Sequence of Returns Note: Illustrations are hypothetical and the information provided in these materials is for illustrative purposes only. The projections used, including inflation rates and investment rates of return, are estimates only and in no way guarantee future performance. The assumptions and calculations are estimates and are meant to serve solely as a guideline. If any assumptions used in these materials are not realized, then the calculations will be inaccurate. There is no express or implied guaranty or warranty that any result shown will be achieved. 8

9 Two Retirement Maxims: 1. Protect what you have 2. Stay ahead of inflation ABC Planning Model How to Win! The ABC Planning Model helps you decide your liquidity, protection and risk needs. A B C Low Interest Taxable Cash Bank Accounts CDs Savings Accounts Moderate Interest Tax-Deferred Moderately Liquid 3 Green Money Rules Potentially Higher Returns Taxable Liquid 401k/IRA Stock/Bond Type Risk % % % Naturally, most people want a perfect investment: an asset that has double digit gains, always liquid and always protected. Since there isn t such an asset, obviously people have to prioritize what they want in their portfolio. Typically, the ABC Planning Model will help you prioritize your assets. In prioritizing you have to give up something in order to gain something. See the chart below: A B C Priority Liquidity Protection Gains Give Up Gains Liquidity Protection 9

10 Column B Assets Green money assets must obey 3 Green Money Rules 1. Protect your principal 2. Protect your gains 3. Protect your income Where do FIAs fit in a portfolio of assets? Between low fixed rates and the volatility of the market. Two ways to stay ahead of inflation. 1. Use a guaranteed income enhanced with inflation protection. 2. Use a guaranteed income and supplement with growth assets. Column B - Fixed Indexed Annuities (FIA) What is a Fixed Indexed Annuity? A FIA is a type of deferred annuity in which your returns are based on a specified equity-based index ( i.e. S&P 500). Your principal is protected and you gain interest based on the link to the equity-based index, giving you a part of the gain if the index goes up by way of interest credited to your account. If the index goes down for the year, you receive nothing in your account, however your principal and previous year s gains are protected. 10

11 Index Annuity: True or False? 1. FIAs are too complicated 2. Agents receive high commissions 3. FIAs are illiquid 4. When I die the insurance company keeps what s left 5. FIAs are long term assets 6. FIA returns don t keep up with the market Annuity Choices: 1. Company 2. Length of term 3. Crediting methods 4. GWB -Guarantees vs. performance 5. Bonuses 6. Add l riders (i.e. Nursing home waiver, Terminal illness waiver, etc.) 11

12 ABC Your Assets A B C Low Interest Taxable Cash Bank Accounts CDs Savings Accounts Moderate Interest Tax-Deferred Moderately Liquid 3 Green Money Rules Potentially Higher Returns Taxable Liquid 401k/IRA Stock/Bond Type Risk % % % Everyone has either: A. Pebble in your shoe Everyone has an asset in their portfolio that irritates them, but they don t do anything to fix it, usually until it s too late. B. Retirement confusion Do you know how all your assets & entitlement programs fit together to fund your quality of life in retirement? 12

13 So, now what can you do? Name: Phone: Address: City: ST: Zip: Address: Option #1: Please schedule my complimentary 60 minute strategy session. I understand I am under no obligation to purchase anything or pay any fees for the review. 1. Who s in control of your money? YOU US 2. Do you want to talk about income planning? YES NO 3. What are your ABCs? A B C 4. Meet at: our offices your home 5. Best time: Morning Afternoon Evening 6. I want to discuss: Pebble in the Shoe *Bring in any assets you want to review or think might be a pebble in your shoe. Retirement Confusion *For retirement confusion remedy, bring in all of your investment statements, last year s tax returns, and budget concerns. Option #2: Please put me on your communications list to receive s/mailings to inform me of future events and ABC Updates. I understand and agree that I am giving permission to Vick & Associates, Inc. to provide me with their complimentary ABC s regarding indexed annuities and other conservative assets I may or may not wish to use. I can opt out at any time and am under no obligation whatsoever. My information will not be shared with any outside firm. Agreed to by: 13