income mindsets - cdn.ymaws.com€¦ · retirement planning and advice is different, too. 3...

Income Mindsets

For professional use only. Not to be distributed to the general public.

Why segmentation is key to winning in the Baby Boomer market

1678298 (1/11/18)

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Retirement income isn’t one-size-fits-all

2 For professional use only. Not to be distributed to the general public.

Cash Management

Relationship Management

Investment Products

Client Service

Social Security Retirement

Plans/ IRA Rules

Insurance Products

Healthcare Issues

Retirement planning and advice is different, too.

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Accumulation Phase Distribution Phase

Asset Allocation

Relationship Management

Investment Products

Client Service

Source: New York Life analysis of “Retirement Solutions: Achieving Success in the Retirement Income Market; The Financial Advisor Guidebook 1.0, Raymond James”, 2014.


Success in the retirement income market requires a new approach.

For professional use only. Not to be distributed to the general public. 4

1. Meet the income mindsets

2. Learn new insights about each

3. See where guaranteed income fits in

Meet the income mindsets.

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Individuals may want to:

Their mindset:

Reduce Risk

Increase Income

Stay Flexible

Worriers Generation More What Ifs


“Worriers” want to reduce risk in retirement.


They are concerned about:

• Outliving their savings

• Market volatility eroding their nest

egg

• Covering their expenses

• Not being able to keep up with

inflation and rising health care costs

Worriers

Retirees face different financial risks

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Accumulation Phase

Investment risk

Sequence of return risk

Longevity risk

Withdrawal rate risk

Distribution Phase

Investment risk

Sequence of return risk

Longevity risk

Withdrawal rate risk


Worriers

Market risk and sequence of returns risk can affect retirement portfolio balances.


Worriers


This is a hypothetical portfolio with the same average return but different sequence if returns


Worriers

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Longevity risk means retirement assets need to last longer.


Worriers

Withdrawal rate risk means outliving savings is a real possibility.

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Hypothetical illustration-not specific to the performance of any product. Assumptions: Hypothetical annual return assumption 6.4%. Source: Ibbotson SBBI 2015 Classic Yearbook, average of Long Term Corporate Bonds from 1926-2014. Annual withdrawals adjusted for 3% inflation. Past performance is no guarantee of future results. Source: New York Life Insurance Company 2015.

Withdrawal Rate

For professional use only. Not to be distributed to the general public. Worriers

Rising health care costs remain top of mind for many.


Worriers

Supply of secure retirement income is diminishing

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Source: Bank of America Merrill Lynch, 2015.

Worriers

Age 62 is the most popular time to start taking benefits, accounting for 50% of claims by women & 45% of claims by men in recent years.*

American workers retiring with pensions: 1980: 80% Today: 25%*

VA carriers de-risk or exit market completely

Decline of pensions

Unoptimized Social Security

benefits

Carrier pull back on living

benefits


Boomer age wave drives market demand

15 Worriers

2000-2010

Source: US Census Bureau, 2012.

Population Growth by Age:

25 – 34 35 – 44 45 – 54 55 – 64 65 – 74

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Retirement Opportunity


Boomer age wave drives market demand

16 Worriers

Source: US Census Bureau, 2012. -20.0%

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2010-2020E

25 – 34 35 – 44 45 – 54 55 – 64 65 – 74

Retirement Opportunity

Population Growth by Age:


“Generation More” wants to turn a good retirement into a great one.


They want to:

• Maintain their lifestyle

• Make sure their basic expenses,

which include internet, travel, and

professional hair color, are always

covered

• Feel confident spending in

retirement

Generation More

Retirement is a tale of two cities: Income exceeds spending at every age in retirement for your clients

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Generation More

Net Spenders: 25th Percentile (Average of $2,786 in investable wealth at age 65 – 69.9)

Net Savers: 75th Percentile (Average of $284,270 in investable wealth at age 65 – 69.9)

Income Consumption

$K

$20K

$40K

$60K

$80K

$100K

$120K

55-59.9 60-64.9 65-69.9 70-74.9 75-79.9 80-84.9 85+

$K

$5K

$10K

$15K

$20K

$25K

$30K

$35K

$40K

55-59.9 60-64.9 65-69.9 70-74.9 75-79.9 80-84.9 85+

Source: New York Life analysis of data from University of Michigan Health and Retirement Study, 2014


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Generation More

“I wish I could, but I just can’t afford it right now.”


Generation More

Certainty is Created by Reducing the Unknown

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• Retirees who own long term care insurance consume more – across every spending category – than similarly-situated retirees without long term care insurance.

Generation More

Source: New York Life analysis of data from the Employee Benefit Research Institute's (EBRI) "Expenditure Patterns of Older Americans, 2001-2009" by Sudipto Banerjee, 2014

$K

$5K

$10K

$15K

$20K

$25K

$30K

$35K

$40K

Do Not Own LTCi Own LTCi

Median spending for Individuals 65+

Health Home Related Food Transportation Cloth/Ent/Other


Today’s retirees expect more out of retirement

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Generation More

98%

84%

66%

51%

50%

46%

43%

42%

38%

35%

34%

31%

Source: Consumer Retirement Income Planning Study, conducted by MainStay Investments and Harris Interactive

The New “Basic Expenses”

Health Care

Internet

Shopping Pet Care

Vacation

Weekend Getaway

Prof. Hair Color

Kids Education

Dining Out

Travel Ordering Takeout

Tech.


“What Ifs” want to stay flexible.


They need to be able to:

• Access their money when they need

to

• Spend more or less each year of

retirement based on changing

needs

• Change their planned retirement

date

• Fund their retirement over time

Generation More

Retirees rank control of their money highest when it comes to income solutions

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1. Control of my money

2. Safety of principal

3. Keeps pace with inflation

4. Easy access to my money

5. Income payments cannot be outlived

6. Investments are easy to understand.

7. Limited taxes

8. High growth potential

9. Pays a guaranteed fixed monthly amount

10. Leaving behind money for kids or grandkids

What Ifs

Source: New York Life analysis of survey conducted by Mathew Greenwald & Associates, Inc. and The Diversified Services Group, Inc., 2014


Client behavior indicates demand for income flexibility

24 What Ifs

Source: New York Life, 2015


If they could do it again, 46% of retirees would retire earlier

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Retirees with at least $100,000 in investable assets were asked:

“If you could ensure the same level of financial security you had when you actually retired, would you retire early? And if so, how much earlier?”

• 46% said yes

• Average of four years earlier

• 74% said they would be interested in financial solutions that could have helped make it possible

• Add time to the front end of retirement with proper planning

What Ifs

Press Coverage, April 2015*

Source: New York Life and Ipsos Retire Sooner Survey, 2015 *Also covered by WSJ MoneyBeat, Bankrate.com, Debt.com, NextAvenue, BenefitsPro, Financial Planning, PlanSponsor, and Think Advisor.

Some retirees say: “Retire as soon as you can”

4 Money Moves For A Happier Retirement

Nearly half of retirees wish they had retired earlier

This is the retirement regret nobody talks about

Retirees to Pre-Retirees: Add years to the front end of your retirement while you can


Position guaranteed income solutions based on mindset.


Once you know a client’s mindset, use talking points that directly address needs and concerns.


Worriers Generation More What Ifs

Reduce Risk Increase Income

Stay Flexible

“Let’s review your plan and make sure your most important retirement expenses are covered by income you can’t outlive or lose in the market.”

“Tell me more about what you want to do in retirement. I want to make sure you’re set up to be able to do it all.”

“Retirement isn’t just one big decision about how you’ll spend your money – it’s lots of little ones. Let’s talk about how you can stay flexible over the next 30+ years.”

Address retirement risks for the Worriers.


Retirement Concern Talking Point

How can I make sure I don’t run out of money?

Payments from an income annuity last as long as individuals need them to.

How much money should I withdraw?

Lifetime income annuities are steady, simple payments guaranteed to last for life – individuals can worry less about drawing from their assets too quickly.

How will the market affect my nest egg?

Income annuities are free from market risk.

How can I protect against inflation?

Many income annuities offer inflation protection.

What can I do to prevent against rising health care costs?

Income annuities can be a way to guarantee that some assets are dedicated to health care costs.

Show Generation More how they can get more in retirement.



I want to maintain my lifestyle.

Lifetime income annuities are steady, simple payments guaranteed to last for life – individuals can worry less about drawing from their assets too quickly.

How do I turn a good retirement into a great retirement?

More guaranteed income in addition to existing sources of guaranteed income (like Social Security and pensions) can help transform a retirement.

What about the rest of my portfolio?

Adding an income annuity can take the pressure off a retirement portfolio. By decreasing the income risk, individuals can invest more of their portfolio for growth.

How do I help ensure my loved ones are taken care of?

Income annuities can be purchased with death benefits and can also be set up to create a multi-generational income strategy.

Help the What Ifs understand an annuity’s flexibility.



What if I need access to my money?

Many offer liquidity options Some offer access to cash value

What if I need more/less income?

Many offer options to accelerate or decelerate payment amounts

What if I decide to change my planned retirement date?

Some offer the option to change income start dates

What if I want to purchase retirement income over time?

Many offer flexible premium payment options Have the option to “ladder” (purchase annuities over time)

Retirement Building Blocks: Sustainable Income Classes

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• For the affluent, retirement portfolios include income from four income classes that can generate sustainable income for a lifetime without risk of exhaustion.

Coupon income from • Municipal Bonds • Government Bonds • Corporate Bonds

Dividend income from Dividend Stocks

Lifetime payouts from • Income Annuities • Deferred Income

Annuities

Lifetime withdrawals from • Variable Annuities with

Guaranteed Living Benefits (GLBs)

• Fixed Indexed Annuities with GLBs

Traditional

Fixed Income

Insured*

Equity Income

*Insured income refers to guaranteed income backed by the claims-paying ability of the company issuing the financial product, usually an insurance company.


Client Needs Drive Income Class Selection

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• Depending on the client objective, risk tolerance, and time horizon, different income classes may be appropriate.

Because of the purely hypothetical nature of the information presented based on certain assumptions, it does not represent any specific product; no client actually had, or could have had, the results and income characteristics shown for a specified period. This is based on historical data as described on the “Assumptions” page - see Appendix. Past performance is no guarantee of future results. 1 Average Annual Income: The average annual income generated across a 30 year retirement period. 2 Standard Deviation of Average Annual Income: The standard deviation of annual income across a 30 year retirement period. 3 Capital Growth: For a $100,000 investment, the accumulated account balance at the end of a 30 year retirement period.

Hypothetical Income Class Performance

Client’s Objective

Metric 1st 2nd 3rd 4th

Average Annual Income1

Insured Fixed Income

Traditional Fixed Income

Insured Equity Income

Traditional Equity Income

Standard Deviation of

Annual Income2



Traditional Equity Income


Capital Growth3 Traditional Equity Income




More Income

More Income Stability

More Capital Growth


Not all income is alike

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Payout rates as of 7/31/2014, Life with Cash Refund Option. This example is for illustrative purposes only. Payout rates are subject to change and may vary

depending on premium amount, age, gender, and income options selected. Source: New York Life actuarial analysis. Graphical representation based on an

example introduced by Dr. David Blake. For professional use only. Not to be distributed to the general public.

Income annuities aren’t derailed by interest rates

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1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

NYL GLI Payout Rate for 75 year-old male, Cash Refund payout

option

7% Decline

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

10-Year Treasury Rate

26% Decline

For illustrative purposes only.


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Guarantees matter


Because Guarantees Make People Happier

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Source: “What Makes a Successful Retirement?” Research Magazine. 2014.

Retirees get more satisfaction from each

dollar of Social Security and pension income than

they do from other sources of income.


Because Nobody Wants to Worry

37

Source: Market Strategies International: Cogent™ Wealth Reports, Investor Brandscape ™, 2013.

13,036

14,810

Dow Jones Industrial Average (9/1/12 – 9/1/13)

“Though the Dow increased nearly 2,000 points from September 2012 to the same period in 2013, investors’ willingness to take on more risk exposure remains virtually unchanged.”


Because Retirees Want Them

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Source: Ipsos/New York Life survey of retirees, 2014

35% of current retirees are interested in converting a portion of their assets into a pension-like stream of income


Use a simple decision tree to guide client to a potential solution.


May be appropriate for Worriers May be appropriate for Generation More May be Appropriate for What Ifs

Thank you!


New York Life annuities are issued by New York Life Insurance and Annuity Corporation (NYLIAC), a Delaware corporation, a wholly-

owned subsidiary of New York Life Insurance Company, 51 Madison Ave, New York, NY 10010. All guarantees are dependent on the

claims-paying ability of the issuer. Products available in jurisdictions where approved. New York Life Clear Income Fixed Annuity is not

available in New York.

Appendix


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• Portfolio Size: $1,000,000 • Annual withdrawal equal to 3.5% of the initial investment and adjusted each year for a 3% inflation • Asset Classes: large company stocks (S&P 500), Bonds (Citigroup Long-Term High-Grade Corporate Bond

Index) • Guaranteed Lifetime Income Annuity (GLI) • Method: 500 Monte Carlo Simulations for each possible asset mix for the three asset classes. For Legacy

Potential, the simulation is based on the life expectancy of the 50th percentile of an individual at the client’s age. For Income Risk, the simulation is based on life expectancy at the 75th percentile. Source for life expectancy: Society of Actuaries Annuity 2000 Mortality Tables.

• Returns: • Stocks (historical returns) 12.1% • Bonds (historical returns) 6.4% • Annuity: Income payments are based upon payout rates for New York Life’s life-only payout option for a

Male Age 65 in effect on 10/05/2015 receiving monthly payments based on an initial premium of $100,000 of greater.

• Although the returns are historical they are run through simulations, so that the results of the simulation relate to probabilities, not projections of future results, which are limited by the fact that past performance offers no guarantee of future results. The simulations do not account for materials factors related to the client’s investment profile, nor do they account for material factors which could affect the results shown, such as how recommendations are implemented in reality, the costs of investing, and taxes. The historical returns reflect a period of steady growth in the US economy, a long term trend which is not guaranteed to continue in the future.

Assumptions for Efficient Income Frontier Example


Assumptions for Income Class Example

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Traditional equity income (today, typically stocks) are large company stocks as defined by Ibbotson’s SBBI 2012 Classic Yearbook. * Average annual income is based on the sum of the dividends paid over each 30-year period, divided by 30. The standard deviation of annual income is based on the dividends paid over each 30-year period. The capital growth is based on the value of a $100,000 investment after 30 years, after spending dividend income.

Traditional fixed income (today, typically bonds) are long-term government bonds as defined by Ibbotson’s SBBI 2012 Classic Yearbook. Average annual income is based on the sum of income generated by coupons and scheduled changes in price (premium/discount bonds moving towards par) over each 30-year period, divided by 30. The standard deviation of annual income is based on the income generated by coupons and scheduled changes in price (premium/discount bonds moving towards par) over each 30-year period. The capital growth is based on the value of a $100,000 investment after 30 years, after spending coupon income and scheduled changes in price (premium/discount bonds moving towards par).

Insured fixed lifetime income (today, traditionally SPIAs) are based on hypothetical historical prices created using actuarial methods, which combine historical 10-Year Treasury interest rates and mortality rates from the Annuity 2000 mortality table, based on a 70-year-old couple. Average annual income is based on the sum of income received over the 30 year period, divided by 30. The standard deviation of annual income is based on the income received over the 30 year period. SPIAs have no capital growth.

Insured equity lifetime income (today, traditionally VAs with GLBs) is a hypothetical income-producing product that has the following attributes: An investment account invested 70% in stocks and 30% in bonds (as defined above), rebalanced annually, with fees of 2.25%. Income starts at 5% of the initial investment and permanently steps up if and when the account value exceeds the “benefit base”, which is the previous high-water mark of the end-of-year account balance. An additional fee of 1.05% of the benefit base is also charged against the account value. Average annual income is based on the sum of income received over the 30 year period, divided by 30. The standard deviation of annual income is based on income received over the 30 year period. The capital growth is based on the value of a $100,000 investment after 30 years, after withdrawing the specified income from the account.

*Ibbotson SBBI Classic Yearbook is a publication generally used by valuation professionals which provides a compilation of public data for stocks, bonds, bills and inflation.


Average Annual Income – Hypothetical Performance

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Traditional Fixed Income, Insured Fixed Income, and Insured Equity Income have all taken turns at the top of the average annual income metric, with Traditional Equity Income significantly underperforming.

Rank by Average Annual Income (Over 30 Year Periods Shown)

Because of the purely hypothetical nature of the information presented based on certain assumptions, it does not represent any specific product; no client actually had, or could have had, the results and income characteristics shown for a specified period. This is based on historical data as described on the “Assumptions” page. Past performance is no guarantee of future results.


Standard Deviation of Annual Income – Hypothetical Performance

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With zero standard deviation, Insured Fixed Income significantly outperformed other income classes.

Rank by Standard Deviation of Annual Income (Over 30 Year Periods Shown)

Because of the purely hypothetical nature of the information presented based on certain assumptions, it does not represent any specific product; no client actually had, or could have had, the results and income characteristics shown for a specified period. This is based on historical data as described on the “Assumptions” page. Past performance is no guarantee of future results. For professional use only. Not to be distributed to the general public.

Capital Growth – Hypothetical Performance

46

Traditional Equity Income significantly outperformed other income classes in terms of capital growth.

Rank by Capital Growth (Over 30 Year Periods Shown)

Because of the purely hypothetical nature of the information presented based on certain assumptions, it does not represent any specific product; no client actually had, or could have had, the results and income characteristics shown for a specified period. This is based on historical data as described on the “Assumptions” page. Past performance is no guarantee of future results.


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