Lincoln ChoicePlus Assurance SM variable annuity Lincoln Lifetime Income SM Advantage 2.0 and i4life Advantage GIB on INCOME Scan me to learn more about variable annuities or visit LincolnFinancial.com/MeetJerry Insurance products issued by: The Lincoln National Life Insurance Company Lincoln Life & Annuity Company of New York 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 881125
What s your view of retirement? You probably have some idea of how you d like to spend your retirement. Whatever your pursuits may be, they require you to have a solid retirement income strategy. Building an effective retirement income strategy requires planning beyond growing your savings. Have you considered how you will turn your savings into a monthly retirement income? Whether you re just starting to plan your strategy, working to accumulate assets or getting ready to enjoy retirement, Lincoln s comprehensive approach can help you address the challenges ahead and make the most of your retirement. Meet Jerry and Sue A hypothetical case study Jerry and Sue are still working, and they re looking forward to an active retirement. They want to be sure that their retirement income is reliable and will support their lifestyle no matter how long retirement lasts. Before Jerry and Sue retire, their primary goals are Growth for future income Protection from market volatility Tax deferral During retirement, Jerry and Sue want Guaranteed income that will last for life Protection from market volatility Continued growth potential Jerry and Sue Spring 2010 Jerry s plan: With the help of his advisor, Jerry decides to invest in a Lincoln ChoicePlus Assurance SM variable annuity. 2
The BIG picture Retirement planning has two sides: the time before and after you start taking income. Your retirement income should protect your lifestyle, have the potential to grow, and last the rest of your life. Jerry knows that the key to a successful retirement is to address and prepare for challenges he ll face in both the growth and income phases. Challenges & STRATEGIES 3-10 years 20-30+ years Growth phase The time to grow retirement savings Income phase The time to draw income from retirement savings Variable annuities are long-term investment products that offer a lifetime income stream, access to leading investment managers, options for guaranteed growth and income (available for an additional charge), tax-deferred growth, and death benefit protection for loved ones. To decide if a variable annuity is right for you, consider that its value will fluctuate with the market, it is subject to investment risk and possible loss of principal, it has various costs, and all guarantees, including those for optional features, are subject to the claims-paying ability of the issuer. Limitations and conditions apply. There are fees and charges associated with investing in a variable annuity such as mortality and expense, administrative and advisory fees. Optional features are available for an additional cost. 3
Jerry & Paul 10/67 Jerry, first paper route Life is unpredictable Planning for retirement takes more than balancing savings and expenses - especially when it comes to income. Traditional sources of income, such as pensions and Social Security, may not be enough to protect your lifestyle. Today, most Americans are expected to fund a large part of their own retirement. Understanding and preparing for key retirement challenges is essential to the success of your income strategy. 4
1 Longevity 2 Market volatility People are living longer, and that means they have to fund longer retirements. One of the biggest challenges facing folks in retirement is the risk of outliving their money. Reacting emotionally to market swings can lead to poor investment decisions, overriding years of thoughtful planning and compromising your long-term retirement security. Challenges & STRATEGIES 3 Inflation Over time, the prices of goods and services rise, and inflation erodes the purchasing power of your income. Based on historical average inflation rates, if you require $50,000 to maintain your present lifestyle, you will need over $131,000 in 25 years just to keep pace. 1 4 Healthcare Healthcare expenses tend to rise faster than the general rate of inflation. Combine that with the probability of living longer and medical expenses will likely become a larger percentage of your spending, especially in the later years of life (more on page 12). 5 Taxes If you don t manage taxes carefully, you may pay the government more than you need to. A solid strategy may help minimize the impact taxes have on your retirement savings and income (more on page 18). 1 U.S. Bureau of Labor Statistics, June 2010. 1 Longevity Plan for the long haul. Americans are healthier and living longer than ever. And while a longer life expectancy is a good thing, it also means that you will need to fund a longer retirement. Retirees should plan for living longer. Male age 65 85 92 Female age 65 88 94 One out of a couple (both age 65) 92 97 0 20 40 60 80 100 50% chance of one spouse surviving 25% chance of one spouse surviving Individuals 65 years of age have a significant chance of living well into their 90s. Consider how long you will need your retirement income as you are developing your strategy. 2000 Annuity Tables, Society of Actuaries. 5
2 Market volatility As you approach retirement, market swings can be difficult to overcome. But over the long term, equities may offer the growth potential needed to fund a longer retirement. Despite some significant declines within individual years, the S&P 500 Index has posted positive average annual returns in 8 of the past 13 calendar years. How the market responded to volatility (2000 2012) 40 Annual return Intra-year low 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 30 20 10 Percentage 0-10 -20-30 -40-50 2002 - Recession Bear market hits its lowest point 2000 - Internet bubble Rapidly rising internet stock prices result in a panic sell-off and many dot-com companies disappear altogether. 2007-09 - Financial crisis The credit crunch begins as housing prices fall and interest rates rise, leading to increasing default levels this is the onset of the worst financial crisis we ve seen in 80 years. The S&P 500 Index is a price index and does not reflect dividends paid on the underlying stocks and does not reflect any fees, expenses or sales charges. It is not possible to invest directly in an index. Past performance does not guarantee future results. 6
3 Inflation Over time, inflation can erode the value of your retirement savings. Even a relatively low inflation rate can have a significant impact on your purchasing power. Decline in purchasing power over time Challenges & STRATEGIES Years from retirement start date Today 5 years 10 years 15 years 20 years 25 years $60,000 Income to maintain present lifestyle $50,000 $40,000 $30,000 $20,000 $10,000 $50,000 2% inflation 3% inflation 4% inflation $30,477 $23,880 $18,756 $0 Source: Morningstar. All numbers were calculated based on hypothetical rates of inflation of 2%, 3%, and 4% (historical average from 1926 to 2012 was 3%) to show the effects of inflation over time. Actual inflation rates may be more or less, and will vary. It s your retirement, and you deserve to be confident that your retirement income can endure these challenges and help protect your lifestyle. 7
The commitment to meet your needs For more than 100 years, Lincoln Financial has been positioned to help Americans secure their financial future. We are confident that our unique solutions are needed now more than ever, and we are well-positioned to help put you in charge. The Lincoln difference We have the capability We develop products and solutions by understanding your changing needs. We have the commitment Our strength as a company allows us to remain committed to the businesses we serve well into the future. We are consistent Lincoln has long been distinguished by a steady approach deliberate decisions that consider the long-term economic environment. As president and CEO (1905-1939), Arthur Hall created the culture of honesty, integrity and respect that has shaped Lincoln Financial for more than a century. 8 This history of the Lincoln Life is not so much a story of business as it is a story of the development of ethical ideals. Arthur Hall, 1926
The Lincoln Risk Managed Strategies Choosing the right investments is an important part of your retirement strategy. You ll want your investments to grow your assets, so you can retire when and how you want. And if you re like most people planning for retirement, you ll want to protect your assets from market volatility. Challenges & STRATEGIES The market changes, your strategy doesn t No matter what the market does, you still have financial goals you d like to achieve. Fortunately, The Lincoln Risk Managed Strategies, available with select Lincoln variable annuities, offer multiple levels of risk management for your investment. These strategies seek to capture upside potential and minimize loss. Tackle volatility head-on: The Lincoln Risk Managed Strategies seek to stabilize the volatility of your investments through turbulent markets, providing a smoother ride for you. Stay in the market: The Lincoln Risk Managed Strategies may give you greater confidence to stay invested through market cycles, so you can potentially maximize your future retirement income. 9
Invest in your retirement 1 The Lincoln Risk Managed Strategies adjust daily to reduce equity risk and provide shelter from market Equity Equity Fixed Fixed Equity Equity Fixed Fixed volatility. When electing either Lincoln Lifetime Income SM Advantage 2.0 or i4life Advantage GIB, you must select from either of the following two options: LVIP Managed Risk Profile Funds Prebuilt portfolios that match your risk tolerance and goals. Equity LVIP Managed Risk Profile Growth Fund Fixed LVIP Managed Risk Profile Moderate Fund LVIP Managed Risk Profile Conservative Fund 10 2 U.S. Equity options Large-cap Mid/Small-cap Small-cap Fixed income options High Quality Short duration Intermediate/ Long duration LVIP Risk Portfolio Management (RPM) Funds Build your own portfolio. If a living benefit is selected, you may only invest a maximum of 70% into equity and a minimum of 30% into fixed income options. LVIP BlackRock Equity Dividend RPM Fund LVIP ClearBridge Variable Appreciation RPM Fund LVIP Dimensional U.S. Equity RPM Fund LVIP Franklin Mutual Shares VIP RPM Fund LVIP Invesco Diversified Equity-Income RPM Fund LVIP Invesco V.I. Comstock RPM Fund LVIP SSgA Large Cap RPM Fund LVIP UBS Large Cap Growth RPM Fund LVIP VIP Contrafund RPM Portfolio LVIP American Century VP Mid Cap Value RPM Fund LVIP Columbia Small-Mid Cap Growth RPM Fund LVIP JPMorgan Mid Cap Value RPM Fund LVIP VIP Mid Cap RPM Portfolio LVIP SSgA Small-Cap RPM Fund LVIP BlackRock Inflation Protected Bond Fund LVIP Delaware Bond Fund LVIP Dimensional/Vanguard Total Bond Fund LVIP Global Income Fund LVIP SSgA Bond Index Fund International/Global Equities LVIP Dimensional Non-U.S. Equity RPM Fund LVIP MFS International Growth RPM Fund LVIP Multi-Manager Global Equity RPM Fund LVIP Templeton Growth RPM Fund LVIP SSgA International RPM Fund LVIP BlackRock Emerging Markets RPM Fund (up to 10% can be invested into this fund) Invest 100% or as part of your 70% equity allocation into these funds: LVIP BlackRock Global Allocation V.I. RPM Fund LVIP SSgA Global Tactical Allocation RPM Fund Med/Low Quality Delaware VIP Limited-Term Diversified Income Series LVIP Delaware Diversified Floating Rate Fund LVIP PIMCO Low Duration Bond Fund Delaware VIP Diversified Income Series Each of the LVIP Managed Risk Profile Funds is operated as a fund of funds, which invests in other funds rather than in individual securities. Funds of this nature may be more expensive than other investment options. The LVIP Managed Risk Profile Funds are asset allocation funds; asset allocation does not ensure a profit or protect against loss.
The upside in a down market No matter what the market does, you still have financial goals you d like to achieve. Fortunately, our risk managed strategies, available with select Lincoln variable products, offer multiple levels of risk management for your investment. This strategy seeks to capture upside potential and minimize loss due to unexpected swings in the market. Challenges & STRATEGIES Two portfolios: One WITH and one WITHOUT a risk managed strategy $130 $125 $115 $105 Start Year 1 Year 2 Year 3 Year 4 Year 5 $121.00 $113.40 $105.50 $119.61 $117.13 $95 $85 $75 Portfolio 1 Portfolio 2 $96.80 Portfolio 1 (without) 10% gain in years 1 and 2 20% drop in year 3 Even though it had 10% gains in years 4 and 5, it never reached the high-water mark set back in year 2 For hypothetical purposes only. Not representative of any specific investment. Portfolio 2 (with) Lower returns of 6.5% in years 1 and 2 Year 3, lost 7% 6.5% gains in years 4 and 5, pushing it past the high-water mark in year 2 and above the final return of portfolio 1 The risk management strategy used by the LVIP Managed Risk Profile Funds is separate and distinct from any annuity or insurance contract riders or features. These Funds are not guaranteed or insured by Lincoln or any other insurance company or other entity. Past performance does not guarantee future returns, and processes used may not achieve the desired results. The Fund s RPM strategy is not a guarantee and shareholders may experience losses. The Fund employs hedging strategies designed to manage overall portfolio volatility. The cost of these hedging strategies could limit the upside participation of the Fund in rising equity markets relative to unhedged funds. 11
PREPARE with Lincoln Lifetime Income SM Advantage 2.0, a living benefit rider To make the most of the growth phase, Jerry may choose to add Lincoln Lifetime Income Advantage 2.0 to his annuity contract because it may provide: Guaranteed growth for income 5% compounded step-ups or market step-ups Guaranteed lifetime income 5% withdrawals starting at age 65 (age 75 for joint life) Protection of principal for you and your family via a dollar-fordollar death benefit 10% nursing home enhancement Lincoln Lifetime Income Advantage 2.0 is available for an additional charge. 1 The Income Base is not a cash or surrender value, nor is it available as a lump sum. Investment requirements apply. 2 Guarantees are subject to limitations and conditions. Jerry can choose the joint life option for himself and his wife 4 Healthcare Approximately 70% of Americans currently age 65 or older will need some type of long-term care the cost of which is rising faster than inflation. Lincoln Lifetime Income Advantage 2.0 offers a nursing home enhancement that may help with rising healthcare concerns. 12 LifePlans, Inc., Long-Term Care Market Summary, www.lincolnfinancial.com; Research & Analysis; January 15, 2010. For a printed copy of the report, call 877-ASK-LINCOLN. 1 Lincoln Lifetime Income SM Advantage 2.0 (Managed Risk) is the currently available version of this rider. All other versions are no longer available for sale. 2 Please see page 10 for a full discussion of the investment options and restrictions available with this living benefit rider.
5 % compounded growth 5 % income even when the market is down Lock in growth when the market is up Income Base increases if your account value reaches a new high starting at age 65 (age 75 for joint) 10 % nursing home increases withdrawals to 10% for qualified nursing home expenses at age 70* Lincoln Lifetime Income SM Advantage 2.0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Nearing retirement Living in retirement Income Base Contract value Income Lincoln Lifetime Income SM Advantage 2.0 age bands Guaranteed annual income Single Joint Age % Age % 55 59½ 3.50% 55 59½ 3.50% 59½ 64 4.00% 59½ 64 4.00% 65+ 5.00% 65 74 4.50% 75+ 5.00% This chart is for illustrative purposes only. It does not reflect a specific investment. Past performance does not guarantee future results. This optional feature is available with a Lincoln variable annuity for an additional annual charge of 1.05%, or 1.25% for joint coverage, above standard contract expenses (maximum annual charge of 2.00%). Investment requirements apply. The 5% annual enhancements will continue for the earlier of 10 years or through age 85 (based on the oldest life for joint coverage). As the Income Base increases, the cost will increase proportionately. If a withdrawal is taken, the 5% enhancement is not available that year, but market growth can be locked in through age 85. A new charge may apply for 5% enhancements after year 10. Withdrawals in excess of the allowable amount will adversely impact the lifetime income. If account performance is higher, the Income Base will lock in at the higher amount that year. A new 10-year period will begin and a new charge may apply. * In order to qualify for the nursing home enhancement, 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 and file will receive the enhancement. Not available in all states. 13
GROWTH PHASE In this example, Jerry, at age 60, invested $500,000 of after-tax money in a Lincoln ChoicePlus Assurance SM variable annuity with Lincoln Lifetime Income SM Advantage 2.0 to potentially grow his future income. This illustration shows how the performance of the underlying investment accounts could affect the policy cash value and death benefit. This may not be used to project or predict investment results. The six investment options that these illustrations use are listed with their performance on page 20 and were chosen based on the funds assets under management and investment requirements. Age Period ending Account value Annual returns Income Base* Guaranteed annual income* Death benefit at issue $500,000 $500,000 $20,000 $500,000 60 12/03 $619,560 23.91% $619,560 $24,782 $619,560 1 61 12/04 $672,104 8.48% $672,104 $26,884 $672,104 62 12/05 $693,263 3.15% $705,709 $28,228 $693,263 63 12/06 $757,843 9.32% $757,843 $30,314 $757,843 64 12/07 $810,601 6.96% $810,601 $40,530 $810,601 65 12/08 $553,964 31.66% $851,131 $42,557 $553,964 66 12/09 $689,888 24.54% $893,687 $44,684 $689,888 67 12/10 $758,822 9.99% $938,372 $46,919 $758,822 2 68 12/11 $737,498 2.81% $985,290 $49,265 $737,498 69 12/12 $814,146 10.39% $1,034,555 $51,728 $814,146 1 Locked-in market growth Cumulative: 5.00% 5 % growth 3 2 3 compounded enhancements Final Income Base If Jerry started taking income at age 70, he would be eligible for the nursing home enhancement. * Income available subsequent year. The Income Base is used to calculate the guaranteed withdrawals or Guaranteed Income Benefit (GIB) if you elect i4life Advantage. It is not available as a lump sum withdrawal or a death benefit. The Income Base equals the contract value at election; however, while the contract value fluctuates with the market, the Income Base grows with annual lock-in opportunities and is reduced by excess withdrawals. 14 This table is for illustrative purposes only. Past performance does not guarantee future results. The cumulative returns represent the cumulative annualized return for the illustration period. The annual returns shown reflect the deduction of all applicable contract fees and charges. This includes a maximum 1.30% mortality and expense risk charge and administrative fee, and a 1.05% charge for Lincoln Lifetime Income Advantage 2.0. There are also investment management fees and expenses as well as a 12b-1 distribution fee. It does not reflect any state premium tax deducted upon surrender. Specific fees and expenses can be found in the prospectus.
INCOME PHASE Jerry may choose to take income from Lincoln Lifetime Income SM Advantage 2.0 because it s both an accumulation benefit and an income benefit. In this scenario, Jerry, at age 70, invested $500,000 of after-tax money in a Lincoln ChoicePlus Assurance SM variable annuity with Lincoln Lifetime Income SM Advantage 2.0 to begin taking lifetime income. This illustration shows how the performance of the underlying investment accounts could affect the policy cash value and death benefit. This may not be used to project or predict investment results. Age Period ending Account value Annual returns Income Base* Guaranteed annual income* Nursing home enhancement Death benefit at issue $500,000 $500,000 $25,000 $500,000 70 12/03 $590,391 23.70% $590,391 $29,520 n/a $590,391 Lincoln Lifetime Income SM Advantage 2.0 71 12/04 $608,541 8.30% $608,541 $30,427 n/a $608,541 72 12/05 $596,005 3.02% $608,541 $30,427 n/a $596,005 73 12/06 $619,217 9.25% $619,217 $30,961 n/a $619,217 74 12/07 $630,408 6.99% $630,408 $31,520 $63,041 $630,408 75 12/08 $405,830 31.53% $630,408 $31,520 $63,041 $405,830 76 12/09 $467,614 23.97% $630,408 $31,520 $63,041 $467,614 77 12/10 $479,397 9.61% $630,408 $31,520 $63,041 $479,397 78 12/11 $435,049 2.77% $630,408 $31,520 $63,041 $435,049 79 12/12 $446,773 10.34% $630,408 $31,520 $63,041 $446,773 Cumulative: 5.38% $335,455 5 % Guaranteed withdrawals for life starting at 65, based on the Income Base regardless of account value (age 75 for joint life). Total income received, and withdrawals will last his lifetime. nursing home income 10 % The nursing home enhancement increases withdrawals to 10% for qualified nursing home expenses at age 70. * Income available for the subsequent year. In order to qualify for the nursing home enhancement, 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 and file will receive the enhancement. Not available in all states. This optional feature is available with a Lincoln variable annuity for an additional annual charge of 1.05%, or 1.25% for joint coverage, above standard contract expenses (maximum annual charge of 2.00%). Investment requirements apply. 15
Income with i4life Advantage In this example, Jerry maximized his income potential by investing in a Lincoln ChoicePlus Assurance SM variable annuity with i4life Advantage Guaranteed Income Benefit (GIB). 1 In addition to receiving guaranteed lifetime income, Jerry will: Have access to his money Control his investments options Participate in the growth potential of the market Receive a dollar-for-dollar death benefit. The six investment options that these illustrations use are listed with their performance on page 20 and were chosen based on the funds assets under management and investment requirements. This illustration shows how the performance of the underlying investment accounts could affect the policy cash value and death benefit. This may not be used to project or predict investment results. Jerry s protected income The GIB guarantees Jerry a minimum payment. His future i4life Advantage payments will never be less than his first protected payment (provided he does not take additional withdrawals). i4life Advantage GIB age bands Percentage of account value for initial GIB Single Joint Age % Age % Under 40 2.50% Under 40 2.50% 40 54 3.00% 40 54 3.00% 55 59½ 3.50% 55 59½ 3.50% 59½ 64 4.00% 59½ 69 4.00% 65 69 4.50% 70 74 4.50% 70 79 5.00% 75 79 5.00% 80+ 5.50% 80+ 5.50% When Jerry s total income reaches a new high in subsequent years, his GIB payment (as long as it exceeds the current GIB) will automatically step up to 75% of that amount. Age at issue Period ending 70 12/03 71 12/04 72 12/05 73 12/06 74 12/07 75 12/08 76 12/09 77 12/10 78 12/11 79 12/12 Total 16 1 i4life Advantage GIB (Managed Risk) is the currently available version of this rider. All other versions are no longer available for sale. Please see page 10 for a full discussion of the investment options and restrictions available with this living benefit rider. If transitioning from Lincoln Lifetime Income SM Advantage 2.0 to i4life Advantage, an Income4Life feature, the initial GIB amount equals a percentage of the account value or the Income Base (less allowable withdrawals), whichever is greater. This table is for illustrative purposes only. Past performance does not guarantee future results. The cumulative returns represent the cumulative annualized return for the illustration period. The annual returns shown reflect the deduction of all applicable contract fees and charges. This includes a maximum 1.30% mortality and expense risk charge and administrative fee, and a 1.05% charge for i4life Advantage GIB. There are also investment management fees and expenses as well as a 12b-1 distribution fee. It does not reflect any state premium tax deducted upon surrender.
Pay to the order of For Jerry s i4life Advantage payments will increase if the return exceeds 4% net of the annuity fees and expenses, the assumed investment return. 4 % Jerry Core expenses Protected income: $25,000 The appropriate Lincoln issuing company Jerry opted to have his protected income and his additional income split into two checks. Pay to the order of For Jerry Life s extras Additional payment: $5,822 The appropriate Lincoln issuing company i4life Advantage GIB i4life Advantage Account value Annual returns Protected income (GIB)* Additional income (over GIB)* Annual income* Nontaxable income Death benefit $500,000 $25,000 $5,822 $30,822 $22,500 $500,000 $583,227 23.57% $27,599 $9,199 $36,798 $22,500 $583,227 2 1 $592,928 8.25% $28,761 $9,587 $38,348 $22,500 $592,928 $571,836 3.02% $28,761 $9,213 $37,974 $22,500 $571,836 $584,847 9.24% $29,962 $9,988 $39,950 $22,500 $584,847 $584,275 6.99% $30,852 $10,284 $41,136 $22,500 $584,275 3 4 $367,758 31.28% $30,852 $30,852 $22,500 $367,758 $423,251 24.56% $30,852 $1,023 $31,875 $22,500 $423,251 $431,967 9.99% $30,852 $2,927 $33,779 $22,500 $431,967 $388,426 2.36% $30,852 $783 $31,635 $22,500 $388,426 $396,945 10.81% $30,852 $2,937 $33,789 $22,500 $396,945 Cumulative: 5.73% $325,195 $61,763 Total income $386,958 $247,500 1 2 3 4 Guaranteed lifetime income Growth potential Nontaxable income Legacy planning Specific fees and expenses can be found in the prospectus. This optional feature is available with a Lincoln variable annuity for an additional annual charge of 1.05%, or 1.25% for joint coverage, above standard contract expenses (maximum annual charge of 2.00% for GIB). Additional withdrawals taken before age 59½ may subject current and prior taxable distributions to an additional 10% federal tax. Investment requirements apply for the GIB. Please see the prospectus for details. At certain broker-dealers, annuitization for nonqualified and standalone qualified contracts must occur by the annuitant s age 95. *Income available for the subsequent year. In some states payment may be slightly lower due to payout rates. 17
Take CHARGE with i4life Advantage GIB The way you take income can affect the amount you pay in taxes. With i4life, if you ve invested with nonqualified money, you can save a portion of your income from taxes. Our patented solution When it s time for income, Lincoln variable annuities offer a patented income distribution method, i4life Advantage GIB, which is available for an additional charge. You can either elect i4life directly or transition from Lincoln Lifetime Income SM Advantage 2.0. 1 5 Taxes If there are gains in the contract, systematic withdrawals start with fully taxable gains being paid out first, resulting in less current income. Systematic withdrawals Gains Principal i4life Advantage payments Gains Principal If there are gains in the contract, i4life includes a portion of the nontaxable principal along with the gains in each payment saving you money in taxes. For systematic withdrawals, if there are no gains all withdrawals are considered principal and are not taxed. For i4life, if the contract experiences no gains or is down, a portion of your payment is treated as a taxable gain and a portion is treated as principal. Once the principal has been paid out, each payment is fully taxable. The top marginal tax bracket for many retirees in 2013 was 39.6%, so minimizing your tax burden can help stretch your savings. www.irs.gov 1 If transitioning from Lincoln Lifetime Income SM Advantage 2.0 to i4life Advantage, the initial GIB amount equals the percentage of the account value or the Income Base (less allowable withdrawals), whichever is greater. 18
Comparing taxable income i4life Advantage GIB When it s time to convert accumulated retirement savings into a reliable stream of income, consider not only your retirement income strategy, but also your tax strategy. This case study illustrates how taxation can impact two different income strategies. Case Study: a 60-year-old male, invested $500,000 in a variable annuity with no living benefits elected. Over 10 years, his annuity grew to $800,000. The investor, now age 70, is ready to draw income from his retirement savings. He has two options: systematic withdrawals or income from i4life Advantage. The table below compares the taxable income of the initial guaranteed i4life payment against the taxable income of a typical systematic withdrawal. Four tax brackets are shown for comparative purposes. The initial i4life payment is based on age and amount of the initial investment. Future i4life payments will vary based on performance of the investment options chosen in the product. Please refer to pages 16 17 for a more complete illustration. Age 70 70 70 70 Account value $800,000 $800,000 $800,000 $800,000 Tax rate 28% 33% 35% 39.6% 5% systematic withdrawals $40,000 $40,000 $40,000 $40,000 5% withdrawals after taxes $28,800 $26,800 $26,000 $24,160 i4life withdrawal percentage 6.16% 6.16% 6.16% 6.16% i4life withdrawal amount $49,316 $49,316 $49,316 $49,316 Nontaxable percentage* 45.62% 45.62% 45.62% 45.62% Nontaxable amount $22,500 $22,500 $22,500 $22,500 Taxable amount $26,816 $26,816 $26,816 $26,816 Total tax paid $7,508 $8,849 $9,386 $10,619 i4life after tax $41,808 $40,467 $39,930 $38,697 Percentage increase with i4life 45% 51% 54% 60% The non-taxable return of the principal portion of your payment increases with the age you start taking income, giving you a greater percentage increase with i4life when compared to typical systematic withdrawals. This is shown in the Percentage increase with i4life row to the left. By taking payments from i4life Advantage GIB, you keep more of your money and can spend it any way you want. Talk with your financial advisor to see if i4life makes sense for you. *Excludable amount determined by IRS. This table is for illustrative purposes only. Past performance does not guarantee future results. The annual returns shown reflect the deduction of all applicable contract fees and charges. This includes a maximum 1.30% mortality and expense risk charge and administrative fee, and a 1.05% charge for i4life Advantage GIB. There are also investment management fees and expenses as well as a 12b-1 distribution fee. It does not reflect any state premium tax deducted upon surrender. Specific fees and expenses can be found in the prospectus. 19
Fund performance The illustrations shown in this brochure are intended to show the mechanics of a Lincoln ChoicePlus Assurance SM variable annuity. The six funds below were used for the preceding illustrations and were chosen based on the funds assets under management and investment requirements (30% LVIP Delaware Bond, 10% LVIP JPMorgan Mid Cap Value RPM, 15% LVIP UBS Large Cap Growth RPM, 10% LVIP Columbia Small-Mid Cap Growth RPM, 10% LVIP BlackRock Equity Dividend RPM, 25% LVIP Templeton Growth RPM). There are several funding options available. Investors should consider their financial objectives, risk tolerance and time horizon to adjust their funding options and allocation accordingly. Keep in mind, asset allocation and diversification do not guarantee a profit or eliminate the risk of investment loss. Performance is as of March 31, 2014 Nonstandard performance without surrender* Year to date 1 year 5 years 10 years LVIP BlackRock Equity Dividend RPM (2/3/94) 0.43% 8.75% 16.55% 3.22% LVIP Columbia Small-Mid Cap Growth RPM (5/1/01) 2.65 11.43 17.01 4.76 LVIP Delaware Bond (12/28/81) 1.68 1.93 6.15 3.49 LVIP JPMorgan Mid Cap Value RPM (5/1/01) 1.21 10.78 19.35 5.21 LVIP Templeton Growth RPM (8/1/85) 1.54 15.04 15.43 5.95 LVIP UBS Large Cap Growth RPM (2/3/94) 1.31 16.59 15.24 4.66 Nonstandard performance with surrender* Year to date 1 year 5 years 10 years LVIP BlackRock Equity Dividend RPM (2/3/94) 7.44% 1.75% 16.00% 3.22% LVIP Columbia Small-Mid Cap Growth RPM (5/1/01) 9.65 4.43 16.47 4.76 LVIP Delaware Bond (2/8/81) 5.32 8.93 5.35 3.49 LVIP JPMorgan Mid Cap Value RPM (5/1/01) 5.79 3.78 18.86 5.21 LVIP Templeton Growth RPM (8/1/85) 5.46 8.04 14.86 5.95 LVIP UBS Large Cap Growth RPM (2/3/94) 8.31 9.59 14.66 4.66 Standard performance with surrender 1 year 5 years 10 years/ Since inception LVIP BlackRock Equity Dividend RPM (6/6/05) 1.75% 16.00% 2.97% LVIP Columbia Small-Mid Cap Growth RPM (6/4/07) 4.43 16.47 1.24 LVIP Delaware Bond (11/20/98) 8.93 5.35 3.49 LVIP JPMorgan Mid Cap Value RPM (6/4/07) 3.78 18.86 2.32 LVIP Templeton Growth RPM (6/4/07) 8.04 14.86 0.56 LVIP UBS Large Cap Growth RPM (9/19/01) 9.59 14.66 4.66 Investors are advised to carefully consider the investment objectives, risks, and charges and expenses of the variable annuity and its underlying investment options before investing. The prospectus contains this and other important information about the variable annuity and the underlying investment options and should be read carefully before investing or sending money. Please call 888-868-2583 for a free prospectus. There are several funding options available. Investors should consider their financial objectives, risk tolerance and time horizon to adjust their funding options and allocation accordingly. Keep in mind, asset allocation and diversification do not guarantee a profit or eliminate the risk of investment loss. The performance data on this page represents past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so unit values, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the data for the most recent month end by calling 888 868-2583 or visiting our website at www.lincolnfinancial.com. All three sets of performance results reflect Lincoln ChoicePlus Assurance SM variable annuity with a maximum 1.30% mortality and expense risk charge and administration fee, investment management fees and a $35 contract fee (waived for contracts over $100,000). The surrender charge for the B Share option is 7%, 7%, 6%, 6%, 5%, 4%, 3%, 0%. *These returns are measured from the Fund inception date, which predates their offering as an investment option in the variable annuity. Therefore, they reflect performance. These returns are measured from the date that they were available as an investment option in the variable annuity. Investments in the Funds are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (the Macquarie Group ), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of Delaware Investments VIP Series, the repayment of capital from Delaware Investments VIP Series, or any particular rate of return. 20
Legacy planning An annuity isn t just for long-term retirement planning. It can also help add security for your family. With an annuity, you can ensure that your assets will be passed on to your loved ones after you are gone. Hidden Opportunities 1 2 3 4 Optional Account Value death benefit Standard Guarantee of Premium (GOP) death benefit Optional Enhanced Guaranteed Minimum Death Benefit (EGMDB) Optional Estate Enhancement Benefit (EEB): higher of current contract value plus 40% of earnings or EGMDB value Contract value Contract deposit Date of initial deposit Year 1 Year 2 Year 3 Year 4 Year 5 This hypothetical illustration assumes a lump sum deposit. It is intended to illustrate the mechanics of the death benefits but is not meant to represent the results of any variable subaccount. Variable annuity and feature charges will decrease investment returns. Basic protection Guarantee of Principal* (GOP) Allows beneficiaries to receive at least the initial investment (less withdrawals) in a down market or possibly more, depending on growth. Gives beneficiaries the greater of total premium payments less withdrawals or current contract value. Guaranteed annual income withdrawals under Lincoln Lifetime Income SM Advantage 2.0 or i4life Advantage payments reduce Guarantee of Principal death benefit on a dollar for dollar basis. Available at no extra cost. The charge for this standard death benefit is included in the standard contract expenses. PROTECTION Step-up protection Enhanced Guaranteed Minimum Death Benefit (EGMDB) Gives you the option to lock in any contract growth for added beneficiary protection. Pays beneficiaries the greater of the GOP or maximum value reached on a contract anniversary, through age 80. Available for an additional annual charge of 0.25%. Estate protection Estate Enhancement Benefit (EEB) Helps offset the potential tax impact for beneficiaries. Gives beneficiaries the greater of the EGMDB or the current contract value plus 40% of earnings if there are gains in the contract (25% if the rider is elected after age 69). Not to exceed 200% of deposits. Available to contractowners under age 76 for an additional annual charge of 0.45%. *If a rider is not elected, withdrawals will reduce the death benefit in the same proportion that the withdrawals reduce the contract value. Estate Enhancement Benefit (EEB) is not available in New York or Washington, and is not available with i4life Advantage. 21
Strategies for unique income situations Multigenerational income You can stretch your assets for income in retirement and create a legacy for beneficiaries over generations. With i4life Advantage, you can create an income stream long enough to span several generations with continued growth potential and the opportunity for increases in income. When a beneficiary isn t a spouse Typically, we see annuities used to provide lifetime income for married couples. But what do you do when you want to share a tax-efficient lifetime income with your nonspouse relative, companion, domestic partner, friend or business partner? A possible solution is a Lincoln variable annuity with i4life Advantage. For those looking for growth, who don t need to take withdrawals right away, 4LATER Advantage, an optional feature available for an additional charge, can provide a base for future income that s guaranteed to grow. 1 Income before age 591/2 According to the federal tax code, distributions from an immediate annuity are not subject to a pre-59½ tax. i4life, when elected with nonqualified money and regular payments start within one year of contract purchase, qualifies as an immediate annuity. Unlike typical immediate annuities, Lincoln variable annuities with i4life GIB provide lifetime income and access to account values, without incurring the 10% premature distribution tax. A lifetime gift If you have assets to spare and are looking for a tax-efficient way to pass them on to a beneficiary, a Lincoln variable annuity with i4life GIB can provide a guaranteed lifetime income for a loved one. Contact your advisor for more information on unique income solutions available with Lincoln variable annuities. 1 4LATER Advantage (Managed Risk) is the currently available version of this rider. All other versions are no longer available for sale. 22
Hidden Opportunities Take charge. Lincoln variable annuities are designed to provide retirement income for as long as you live. A variable annuity with the right features can help guarantee growth, protect income, and leave a lasting legacy. Ask your financial advisor how a Lincoln variable annuity may work as a part of your retirement income strategy.
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 2014 Lincoln National Corporation Lincoln Financial Group 150 N. Radnor-Chester Road Radnor, PA 19087 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-881125-031714 RP 4/14 Z11 Order code: CP-INC-BRC001 Important disclosures: THE LVIP MANAGED RISK PROFILE FUNDS AND LVIP RISK PORTFOLIO MANAGEMENT (RPM) FUNDS ARE NOT GUARANTEED OR INSURED BY LINCOLN OR ANY OTHER INSURANCE COMPANY OR ENTITY, AND SHAREHOLDERS MAY EXPERIENCE LOSSES. THE STRATEGIES USED BY THESE FUNDS ARE SEPARATE AND DISTINCT FROM ANY ANNUITY OR INSURANCE CONTRACT RIDER OR FEATURES. This material was prepared to support the promotion and marketing of a variable annuity product. 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. Variable annuities are long-term investment products designed for retirement purposes and are subject to market fluctuation, investment risk, and possible loss of principal. Variable annuities contain both investment and insurance components and have fees and charges, including mortality and expense, administrative, and advisory fees. Optional features are available for an additional charge. The annuity s value fluctuates with the market value of the underlying investment options, and all assets accumulate tax-deferred. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59½, may be subject to an additional 10% federal tax. Withdrawals will reduce the death benefit and cash surrender value. Investors are advised to consider the investment objectives, risks, and charges and expenses of the variable annuity and its underlying investment options carefully before investing. The applicable variable annuity prospectus contains this and other important information about the variable annuity and its underlying investment options. Please call 888-868-2583 for a free prospectus. Read it carefully before investing or sending money. Products and features are subject to state availability. Lincoln ChoicePlus Assurance SM variable annuities (contract form 30070-B 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. Contracts sold in New York (contract forms 30070BNYA, 30070BNYC, 30070BNYAL, and 30070BNYN) are issued by Lincoln Life & Annuity Company of New York, Syracuse, NY, and distributed by Lincoln Financial Distributors, Inc., a broker-dealer. All contract and rider guarantees, including those for optional benefits, fixed subaccount crediting rates, or annuity payout rates, are subject to the claims-paying ability of the issuing insurance company. They are not backed by the broker-dealer or insurance agency from which this annuity is purchased, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer. There is no additional tax-deferral benefit for an annuity contract purchased in an IRA or other tax-qualified plan.