life’s better when we’re connected tm taking control of your retirement defining and pursuing...
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Life’s better when we’re connectedTM
Taking control of your retirementDefining and pursuing the life you want
National Taiwan University Alumni Association
November 15th, 2014
Life’s better when we’re connected®
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Variable annuities are long-term investments designed to help meet retirement needs. A variable annuity is a contractual agreement where a client makes payments to an insurance company, which, in turn, agrees to pay out an income stream or a lump sum amount at a later date. Variable annuities typically offer (1) tax-deferred treatment of earnings; (2) a death benefit; and (3) annuity payout options that can provide guaranteed income for life. Variable annuity contract values will fluctuate and are subject to market risk including the possible loss of principal. There are contract limitations, fees and charges associated with variable annuities which include, but are not limited to mortality and expense risk charges, sales and surrender charges, administrative fees, charges for optional benefits as well as charges for the underlying investment options. Early withdrawals may be subject to surrender charges, and taxed as ordinary income, and in addition, if taken prior to age 59 1/2 an additional 10% federal tax may apply. Withdrawals reduce annuity contract benefit, values and optional guarantees in any amount that may be more than the actual withdrawal. Past performance should not be a representation of future performance.
Variable annuities are sold by prospectus only. Your Merrill Lynch financial advisor can provide you with more information, including a current prospectus. The current contract prospectus and underlying fund prospectuses contain more complete details on the investment objectives, risks, fees, charges and expenses, as well as other information about the contract and the underlying portfolios which should be carefully considered. Please read the prospectuses carefully before investing.
Guaranteed Minimum Withdrawal Benefit (GMWB) Rider: A GMWB rider is an optional benefit that typically must be elected at issue if the owner(s)/annuitant(s) are within the age specifications as set forth in the contract rider and prospectus. GMWB riders are available for an additional charge (could be applied to the contract value or benefit base) and may be irrevocable once elected. GMWB riders guarantee a client can withdraw an annual amount (typically 4% to 7%) of their guaranteed protection amount (GMWB Base) for a certain period or for a lifetime (Lifetime GMWB). Lifetime GMWB riders may guarantee withdrawals for one or two lives (typically spouses).
Typically the GMWB Base equals contributions made under the contract. The GMWB Base may accumulate at a minimum rate of growth of 5-7% for a specified period or until the first withdrawal, if sooner. Clients may also have the option to “step-up” the GMWB Base to the contract value after a specified waiting period (typically one year). The step-ups could also be automatic in some designs (typically on each contract anniversary). If the step-up occurs, terms, conditions and charges in effect at the time of the step-up may apply. Withdrawals that exceed the annual withdrawal limit may incur applicable surrender charges, negatively affect the GMWB Base, and reduce the contract value and death benefit. Typically any portion of the annual withdrawal limit not withdrawn during a contract year may not be carried over to the next contract year. Typically clients must allocate assets within specified investment options as set forth in the contract rider and prospectus. GMWB riders typically cannot be elected concurrently with any other living benefits.
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For non-qualified and stand-alone qualified annuity contracts, annuitization must occur by the annuitant’s age 95 and at that date any Guaranteed Minimum Death Benefit (“GMDB”) will no longer apply. Clients should contact the issuing insurance company prior to the maturity date to discuss options including changing the annuitant, if permitted by the annuity contract. For custodially held qualified contracts, annuitization at age 95 may not be required.
The material presented at this seminar should be regarded as educational Social Security information only and is not intended to provide specific advice. If you have questions regarding your particular situation, please contact your legal or tax advisor.
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. Neither Merrill Lynch nor its financial advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.
All annuity contract and rider guarantees, including optional benefits and any fixed subaccount crediting rates or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.
by the claims-paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.
Merrill Lynch makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a registered broker-dealer and member SIPC, and other subsidiaries of Bank of America Corporation (“BofA”). Merrill Lynch Life Agency Inc. (“MLLA”) is a licensed insurance agency and a wholly owned subsidiary of BofA.
Investment products offered through MLPF&S and insurance and annuity products offered through MLLA:
© 2014 Bank of America Corporation. All rights reserved. | AR9NBN7F | 324104PM-0814
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
Are Not Deposits Are Not Insured By Any Federal Government Agency
Are Not a Condition to Any Banking Service or Activity
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THEN NOW
Baby Boomers
Accumulation Decumulation
As Boomers entered the workforce:Government and employers promise to cover costs of retirement and healthcare for life
As Boomers prepare for retirement:Individual responsibility and self-reliance
Understanding the shifting dynamics
Source: “Approaching 65: A Survey of Baby Boomers Turning 65 Years Old" Aarp.com (2010) Available at http://assets.aarp.org/rgcenter/general/approaching-65.pdf
Baby Boomers
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The top financial worries for retirement reflect the new realities
Source: Americans’ Perspectives on New Retirement Realities and the Longevity Bonus Study, 2013
Lack of Company Pension
Lack of Social Security
Healthcare Expenses
Outliving My Money
Lack of Personal Savings
52%
34%
4%
6%
3%
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What is the financial turning point and why is it so important?
What are the basics of a sound retirement portfolio?
How can Merrill Lynch help you take control of your retirement ?
Today’s discussion
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ACCUMULATION DECUMULATIONTRANSITION
Your life is a series of financial turning points
Goals?• Travel• Relocate• Volunteer• Time with family
Sources of Income?• Social Security• Pension• 401(k)• Annuities
Turning Point
College Tuition
Marriage
Children
Home Purchase
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Longevity Risk
Inflation Risk
Market Risk: Sequence of Returns
Uncertainties abound
Retirement Risks?
Turning Point
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58%
81% 31%
Living longer: A double-edged sword
65 75 85AGE 95
The Society of Actuaries, 2000 Mortality Table
Turning Point
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Inflation risk
All Items
Admission to movies, theaters & concerts
Food Away from Home
Prescription Drugs
Airline fare
Medical Care
Housing, Fuel & Utilities
Hospital Services
2.4%
2.3%
2.9%
3.0%
3.1%
3.5%
4.0%
6.1%
Source: U.S. Bureau of Labor Statistics, Table 26 , Average Annual Inflation for 2004 -2013 and Americans’ Perspectives on New Retirement Realities and the Longevity Bonus Study
Average Annual Inflation Rates: 2004 – 2013
Turning Point
6.1%
3.5%
3.0%
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AccumulationNo Withdrawals
DecumulationWithdrawing $50,000 a Year
24%
18%
14%
12%
8%
6%
4%
-6%
-8%
-20%
-20%
-8%
-6%
4%
6%
8%
12%
14%
18%
24%$1 million
after 10 years
$1,538,846 $1,538,846
24%
18%
14%
12%
8%
6%
4%
-6%
-8%
-20%
-20%
-8%
-6%
4%
6%
8%
12%
14%
18%
24%
$1,074,455 $630,178
Source: Merrill Lynch Insured SolutionsThese charts are illustrative only. They do not reflect the return of any particular investment. Investment returns will vary. This is not based on actual performance.
Market risk: Sequence of returns Turning Point
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Manage risk yourself Transfer risk to an insurance company
Strategies to address risk
Asset allocation and portfolio diversification do not assure a profit or protect against a loss in declining markets. All contract guarantees. including optional benefits, are based on the claims-paying ability of the issuing insurance company.
Set aside extra retirement savings Purchase long-term
care insuranceManage assets to keep
up with inflationPurchase an annuity with
guaranteed lifetime incomeControl retirement spending
Turning Point
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Understanding your retirement goalsand setting priorities
Help pursue mypassions and interests
Help my moneylast in retirement
DiscretionaryImportant
Dining out, travel,a grandchild’s education
Essential Healthcare, Housing, Food, Clothing, Gas
Retirement Portfolio
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Aligning your portfolio to your goals and priorities
Systematic withdrawal plan
Market-Linked Investments
Bond Laddering
Sustainable IncomePredictable Income from Social Security and Pensions
Guaranteed1 Income from Annuities
Retirement Portfolio
Discretionary
Important
Essential
1All annuity contract and rider guarantees, including optional benefits and any fixed subaccount crediting rates or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.
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Systematic withdrawal plan
Age Male Female Couple
55 3.0% 2.9% 2.8%
60 3.3% 3.2% 3.0%
65 3.7% 3.5% 3.4%
70 4.2% 4.0% 3.8%
75 4.8% 4.6% 4.4%
80 5.6% 5.4% 5.2%
Retirement Portfolio
95% confidence level
Annual withdrawal1
1Hypothetical illustration based on IMG research. Adjusted for inflation.Capital market assumptions used in analysis as of July 2011 are as follows: U.S. Stocks is based on the S&P 500 Index – expected return 9.5%, expected volatility 18.0%, expected fees 1.5%. U.S. Bonds is based on Ibbotson U.S. Intermediate Government Bond Index – expected return 5.3%, expected volatility 6.1%, expected fees 1.5%. U.S. Cash is based on 1 month Treasury Bills – expected return 3.0%, expected volatility .9%, expected fees .5%.
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Bond Laddering
As the bonds mature, money is reinvested on the long-end to maintain the maturity
structure
13 years
12 years
11 years
3 years
2 years
1 year1-year bond
2-year bond
3-year bond
10-year bond
10-year bond
10-year bond
Continue to reinvest as
bond matures
Continue to reinvest as
bond maturesContinue to
reinvest as bond
matures
Retirement Portfolio
1-yr bond matures; reinvest in 10-yr bond
2-yr bond matures; reinvest in 10-yr bond
3-yr bond matures; reinvest in 10-yr bond
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Market-Linked Investments Retirement Portfolio
Market-Linked Investments
Downside risk protection
Solid upside potential
• Capital preservation and downside protection
• Growth potential
• Enhanced diversification
Benefits• May underperform bonds
• Don’t pay dividends
• Can lose value if not held to maturity
• Payments are subject to the credit risk of the issuer
Considerations
Market-Linked Investments may not be suitable for all investors. Since Market- Linked Investments have varying payout characteristics, risks and rewards, you need to understand the characteristics of each specific investment, as well as those of the linked asset.
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Market Index Target-Term Securities (MITTS)
Market-Linked Investments that offer downside protection if held to maturity.
Hypothetical information is not a projection of future returns. S&P 500 return does not include dividends.
If the S&P 500 falls 30%, you still get back your principal.
If the S&P 500 rises 30%,
MITTS return 30%
If the S&P 500 rises 70%, MITTS return 50%
Retirement Portfolio
30%
70%
-30%
30%
50%
0%
Scenario 1 Scenario 2 Scenario 3
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You make a payment to
insurance company
You receive an income stream or lump sum
Tax-deferred accumulation of earnings Guaranteed
death benefit
Guaranteed lifetime income for essential goals
Annuities Retirement Portfolio
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By applying principal from those who die early to those who die later, an insurance company is able to offer more income to each investor and guarantee that money for life.
How can annuities achieve higher income levels?
Survivorship Credits
“Annuities are an instrument uniquely suited to hedging the risk
of outliving one’s wealth.”
Merrill Lynch Investment Management & Guidance
Retirement Portfolio
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Variable Annuity + Living Benefit
Fixed Indexed Annuity + Living Benefit
Income Annuity
Level of Lifetime Income
Understanding the trade-offs to find the right annuity for you
Trade-Offs
Investment flexibility
and
Asset control
Liquidity ✔ ✔
Possible investment upside ✔ ✔ (capped)
Possible income upside ✔
Guaranteed lifetime income ✔ ✔ ✔
Retirement Portfolio
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4.2%
1Hypothetical illustration based on IMG research. Adjusted for inflationCapital market assumptions used in analysis as of July 2011 are as follows: U.S. Stocks is based on the S&P 500 Index – expected return 9.5%, expected volatility 18.0%, expected fees 1.5%. U.S. Bonds is based on Ibbotson U.S. Intermediate Government Bond Index – expected return 5.3%, expected volatility 6.1%, expected fees 1.5%. U.S. Cash is based on 1 month Treasury Bills – expected return 3.0%, expected volatility .9%, expected fees .5%.
80%
Achievable Spending Rate
Probability of Success
Couple, both age 65What if an 80% chance of
success isn’t good enough?
Hypothetical example: Systematic withdrawal plan1 Retirement Portfolio
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95%
4.2%
3.4%
1Hypothetical illustration based on IMG research. Adjusted for inflation.
80%
Achievable Spending Rate
Probability of Success
Couple, both age 65
What if a 3.4% withdrawal rate isn’t enough income?
Hypothetical example: The trade-off between spending and probability of success1
X
X
Retirement Portfolio
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95%
4.2%
3.4%
Guaranteed Lifetime Income1
4.5%
80%
Achievable Spending Rate
Probability of Success
Couple, both age 65
Hypothetical example: An annuity can produce more income and higher confidence
XX
X X1 All annuity contract and rider guarantees, including optional benefits and any fixed subaccount crediting rates or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any
representations or guarantees regarding the claims-paying ability of the issuing insurance company. Hypothetical illustration assuming a variable annuity with a guaranteed minimum withdrawal benefit of 4.5% and assumes no excess withdrawals. Withdrawals reduce annuity contract benefits, values and optional guarantees in an account that may be more than the actual withdrawal. Annuity withdrawal is not adjusted for inflation , but could increase if the annuity’s investments perform well. Optional benefits are available at an additional cost. It is possible to lose money in a variable annuity purchased with an optional protection rider. Optional riders may be irrevocable and expire without use.
“Allocating a portion of a retirement portfolio to an
annuity can reduce a retiree’s risk of running out of money and
increase his or her potential lifetime income.“
Merrill Lynch Investment Management & Guidance
Retirement Portfolio
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Projected Income
$122,600
Annual Income Target
$105,000
Hypothetical Case study Retirement Portfolio
Discretionary$15,000
Important
Essential$60,000
$30,000
Income Sources
Predictable / Guaranteed
Non-Guaranteed
Social Security and Pension $43,000
$700,000 Variable Annuity (4.5% GLWB)
$31,500
$500,000 Laddered Bond Portfolio (3.5%)
$17,500
$900,000 Systematic WP (3.4% draw-down)
$30,600
TOTAL $74,500 $48,100
• Mark (63) and Emily (62), married and both planning to retire in 5 years
• $2.1 million in assets
• Ultra-conservative investors and risk averse; worried about inflation
• Projected annual income need: $105,000
For illustrative purposes only. Does not represent an actual investment.
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Comparing different types of income sources
Does it address the risks?• Longevity?• Inflation?• Market?
Is it flexible enough to meet your needs?• How liquid is it?• What is the growth potential?• What are the costs?• Is the income guaranteed or predictable?
Retirement Portfolio
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A guided approach that is tailored to your unique goals
How can Merrill Lynch help?
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How can Merrill Lynch help?Education, insights and resources to help you clarify your goals and make informed choices
Globalresearch
Investment guidance
Investment options
Planning and investment tools
• Merrill Lynch financial advisor
• Merrill Lynch and Bank of America Financial Specialists
• Collaboration with your current advisors
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Next steps
Discuss and prioritize your goals
Estimate your expenses and identify sources of income in
retirement
Discuss aligning goals to income sources
based on your priorities
Merrill Lynch can help
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What is the Financial Turning Point and why is it so important?
What are the basics of a sound retirement portfolio?
How can Merrill Lynch help you take control of your retirement ?
Today’s discussion
Life’s better when we’re connected®