What Is A FIxed Deferred Annuity?
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What Is A FIxed Deferred Annuity?

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A Power Point presentation on how Fleur De Lis Financial/Mass Mutual can help you save for retirement in a conservative way, if you looking for safe investments, secure retirements, take a look at ...

A Power Point presentation on how Fleur De Lis Financial/Mass Mutual can help you save for retirement in a conservative way, if you looking for safe investments, secure retirements, take a look at this presentation.

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  • Good morning/afternoon/evening everyone. What I would like to do today is talk to you about Fixed Annuities and their rising popularity.
  • Today’s agenda includes – read slide.
  • Yes, fixed annuities are on the rise again as the variable markets possibly entering bear territory we have seen a dramatic increase in “flight to quality” for investors. This is a chart that illustrates fixed annuity sales from 2003 through the first quarter of 2008. There has been a dramatic increase in fixed annuity sales during the first quarter of 2008 when compared to the 1 st quarter of 2007. In fact, fixed annuity sales have seen a 31% during this time with a total of $21,3 billion in sales.
  • One of the reasons for the increase in sales may be due to the fact that investors can now be rewarded for “going long”, that is receiving a higher yield for longer term fixed investments. Let’s take a look at the treasury yield curve as an example. Approximately one year ago – July 11, 2007, represented by the green line, there was a flat curve, meaning the yield on a 3 month or 30 year investment were equal. Not the sort of incentive clients are looking for to invest their money on a longer term basis. More recently, June 11, 2008 and July 11, 2008, represented by the red and blue lines respectively, the yield curve has returned to a more normal slope. This type of curve gives investors a reason to place their money in longer term investments, like fixed annuities. Producers now have a better story for their clients.
  • Now let’s translate that into fixed annuities and 1 year CD rates. This chart compares the rates for fixed annuities with a 1 st year enhanced rate against one year CDs. As you can see from June of 2007 through the end of the year, both the fixed annuity rate and the one year CD rate are virtually equal. However, beginning in 2008 the annuity base rate has remained steady with the CD rate entering a steep decline illustrating that there is now a reward for your clients to “go long”.
  • Guaranteed Returns Both fixed annuities and CDs are considered low risk investments because they guarantee a positive rate of return. Conservative investors enjoy the peace of mind this feature helps bring to their savings. FDIC Insured CDs are generally backed by banks and are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) per depositor. Fixed annuities are guaranteed by the issuing insurance companies, but are not insured by the government. Free Withdrawals Many fixed annuities allow for a contract owner to withdraw a certain percentage of their account value, usually around 10% on an annual basis, free of any annuity charges (tax penalties may apply). Amounts withdrawn in excess of this percentage are typically subject to surrender charges or adjustments, which cease after a certain amount of time. These charges generally decline year by year and will expire at the end of a certain number of years. CDs, on the other hand, charge an interest penalty if funds are withdrawn prior to maturity. Therefore an investor will have to wait until the CD matures if he or she would like to avoid early withdrawal charges.
  • Choice of Investment Period Compared to fixed annuities, CDs typically offer a choice of shorter investment terms, such as 90 or 180 days, but also offer 1 year and multiple year durations. Investment terms for fixed annuities typically range between 1 and 10 years. Additionally, some fixed annuities do not limit the investment period, which allows the contract owner the flexibility to keep the assets accumulating until needed. Provides Income CDs are designed as a savings vehicle and do not provide an income stream. However, interest from CDs can be used as income upon maturity. Fixed annuities are designed to provide retirement savings and income. Most fixed annuities offer a choice of methods to receive income, one of which usually guarantees an income stream for life. Payment of lifetime income is contingent upon the claims-paying ability of the issuing company or companies. Tax Deferral Earned interest in CDs are taxable for the current year on an annual basis. Earnings in a fixed annuity are tax deferred until they are withdrawn, allowing your investment to take full advantage of the impact of compounding interest. Liquidated earnings are subject to ordinary income tax and may be subject to a surrender charge. If taken prior to age 591⁄2, a 10% federal income tax penalty may apply. Annuities do not provide any additional tax advantage when used to fund a qualified plan.
  • Now let’s discuss the potential benefits tax-deferral may have for your fixed annuity clients. This chart illustrates the increasing benefit tax-deferral offers over CDs during a 10, 20 and 30 year investment period. Go through the assumptions and numbers.
  • Like every investment, fixed annuities are not appropriate for everyone. However there are certain situations when a fixed annuity may be an appropriate product for investors. Fixed annuities may be appropriate for clients who: Are over age 59½ and seeking income - Clients who are over age 59½ may avoid the early withdrawal penalty and as stated earlier, fixed annuities can provide a steady stream of income. Own a low yielding taxable account earmarked for retirement - The rate of return for a tax-deferred fixed annuity may be greater than a low yielding taxable account. Are willing to extend investment horizon for a potentially higher rate - Fixed annuities are long-term investments used for retirement and may provide a good match for clients who can handle a longer term investment. Value tax deferral – the tax-deferred feature of a fixed annuity may have appeal for these types of clients. Desire a level of liquidity – Portions of a fixed annuity’s cash value may be removed each year without surrender charges. Concerned about return of principal – fixed annuities offer a guaranteed return of principal. Guaranteed are based on the claims-paying ability of the issuing company. Seek to diversify equity exposure – Fixed annuities may provide a level of diversification for clients with equity exposure and may add a level of stability to their overall portfolio.
  • Now let’s talk about where fixed annuity sales may come from. A recent Lipper report compared the net flow of assets from May of 2008 to June of 2008 and found that over $72 billion dollars (net) left money market funds for that time period. With the yield curve reverting back to a more normal slope it appears investors have found the incentive they need to move their assets out of shorter term investments. Also, over $900 billion dollars are held in CDs as of the 1 st quarter of 2008 with over 77% of those assets being held by people age 55 and older. This may represent a significant business opportunity for many producers. There is also potential for more fixed annuity sales as over $4,400 billion dollars are in stocks with over 68% owned by people are 55 and older. Stocks may see an outflow of assets as the combination of volatile markets and people nearing retirement have investors seeking safer opportunities with their assets.
  • It is important to understand that Odyssey and Odyssey Plus have distinct features from one another. Please refer to the appropriate product guide prior to making any recommendations as some of these benefits may apply only to one product. Tax deferral – Money inside the contract grows free from current income taxes. Due to tax-deferral a fixed annuity may generate a higher return on your client’s money, as we will see in the upcoming slide. Principal Protection –offers protection of investors’ principal regardless of how the stock market performs. An important feature for clients who are concerned about losing their assets. Guaranteed Returns –guaranteed minimum interest rate, meaning your client’s money can never go down, only up. First year enhanced rate –offer an enhanced rate in the first year of the contract. Typically 1% above the current interest rate. Two Year Interest Rate Guarantee – To avoid a significant drop in rates after the first year, a two year interest rate guarantee is available. Guaranteed lifetime income – creates a stream of income that cannot be outlived. Guarantees are based on the claims-paying ability of the issuing company. Liquidity – Surrender Charge Free Withdrawals – Clients typically have access to a portion of their contract value each year without a surrender charge. Death Benefit –beneficiaries receive the contract value upon death.
  • MassMutual’s ratings truly are a differentiator for our clients.
  • In order to support your sales efforts, we have created a client approved one-pager illustrating the many benefits of fixed annuities. It focuses on benefit based solutions and may be a conversation starter that leads to more fixed annuity sales. Also available as a companion piece is the Odyssey and Odyssey Plus product comparison brochure which compares and contrasts each product, allowing your client to choose the most appropriate product for their specific needs.

What Is A FIxed Deferred Annuity? What Is A FIxed Deferred Annuity? Presentation Transcript

  • Fixed Annuities Flight to Quality Retirement Income Strategies For Producer Use Only. Not For Use With The Public. 1109 RI01253 810 Not Insured By Any Federal Government Agency May Lose Value Not Bank Guaranteed Not A Bank Deposit Not FDIC/NCUA Insured
    • Fixed Annuities Rise Again
    • Rewards for Going Long
    • Fixed Annuities vs. CDs
    • Case for Tax-Deferral
    • Reasons Why a Fixed Annuity May Be Appropriate
    • Where and Who the Assets Can Come From
    • Benefits of MassMutual Odyssey ® and MassMutual Odyssey Plus SM
    • Marketing Support
    Agenda
  • Fixed Annuities Rise Again
    • 31% Increase –
    • 1 st Quarter 2008 vs.
    • 1 st Quarter 2007
    • $21.3 Billion –
    • 1 st Quarter 2008
    Fixed Annuity Sales Source: LIMRA U.S. Individual Annuities Industry Highlights, 1 st Quarter 2008
  • Rewards for Going Long Treasury Yield Curve (as of July 11, 2008) July 11, 2007 June 11, 2008 July 11, 2008 Source: Financial Services Daily, July 14, 2008
    • July 11, 2007 –
    • Flat Curve
    • June 11, 2008 – Normal Curve
    Yield
  • Rewards for Going Long
    • 2007 - 1 Yr CD &
    • Annuity Base Rate Virtually Equal
    • 2008 – Annuity
    • Base Rate Steady
    • 2008 – 1 Year CD
    • Steep Decline
    1-Year CD Rates versus Fixed Annuity Rates (with 1 st year Enhanced Rate) Midmonth averages Source: Kehrer-Jackson National RateWatch July 2008 Yield
  • Fixed Annuities vs. CDs 1 Guarantees are based on the claims-paying ability of the issuing company. 2 Liquidated earnings are subject to income tax and may be subject to a surrender charge. If taken prior to age 59½ a 10% federal income tax penalty may apply. CDs Fixed Annuities CDs – charge an interest penalty if funds are withdrawn prior to maturity Fixed Annuities – allow withdrawals for a certain percentage of account value free of any surrender charges; Amounts in excess are typically subject to surrender charges Generally, No Generally, Yes 2 Free Withdrawals CDs – insured up to $250,000 by the (FDIC) and (NCUA) per depositor Fixed Annuities – guaranteed by the issuing insurance companies; Not insured by the government Yes No FDIC Insured
    • Both are low risk investments
    • Both guarantee 1 a positive rate of return
    Yes Yes Guaranteed Rate of Return 1
  • Fixed Annuities vs. CDs 1 There is no additional tax deferral provided when a variable annuity contract is used to fund a tax-qualified retirement plan. Investors should only buy a variable annuity contract for the insurance features offered by the contract such as lifetime income payments and death benefit protection. CDs Fixed Annuities CDs - interest earned is taxable for the current year on an annual basis Fixed Annuities - earnings are tax deferred until they are withdrawn No Yes Tax Deferral 1 CDs - designed as a savings vehicle and generally do not provide an income stream Fixed Annuities - designed to provide retirement savings and income Generally, No Yes Provides Income CDs - typically offer a choice of shorter investment terms such as 90 or 180 days, but also offer 1 year and multiple year durations. Fixed Annuities - typically range between 1 and 10 years Yes Yes Choice of Investment Period
  • Case for Tax-Deferral Assumptions: $100,000 initial investment, 5% annual rate of return, 28% tax bracket This hypothetical example is intended to illustrate the advantages of tax-deferral. It does not represent the performance of any particular product. Surrender charges are not included and had they been, results would be lower. Please consider your client’s personal investment horizon and income tax bracket, both current and anticipated, when helping them make an investment decision as these may further reduce the results of the comparison. Liquidated earnings are subject to income tax, and if taken prior to age 59½ may be subject to a 10% federal income tax penalty. A CD is a short- or medium-term debt instrument offered by banks. CDs earn interest and are FDIC insured up to $250,000 Fixed Annuity (before taxes) CD Fixed Annuity (after taxes) Tax-deferred vs. Currently Taxable
  • Reasons Why a Fixed Annuity May be Appropriate
    • Are over age 59½ seeking income
    • Own a low yielding taxable account earmarked for retirement
    • Are willing to extend investment horizon for a potentially higher rate
    • Value tax deferral 1,2
    • Desire a level of liquidity
    • Concerned about return of principal
    • Seek to diversify equity exposure
    Fixed Annuities may be appropriate for clients who: 1 There is no additional tax deferral provided when an annuity contract is used to fund a tax-qualified retirement plan. Investors should only buy an annuity contract for the insurance features offered by the contract such as lifetime income payments and death benefit protection. 2 Earnings are taxable as income when distributed and if w ithdrawn before age 591/2, may be subject to a 10% federal tax penalty.
  • Where & Who the Assets Can Come From 1 Lipper Research Series: Fund Flows Insight Report June 30, 2008 2 Source: Federal Reserve Flow of Funds Report (Z1); Mast Hill Consulting analysis, MassMutual Analysis, 1st Quarter 2008
    • -$72.3 Billion Net Flows for Money Market Funds 1
    • (May ’08 - June ’08)
    • $928.3 Billion in CDs 2
    • (as of 1 st Qtr ’08)
    • 77% owned by people age 55+ 2
      • (as of 1 st Qtr ’08)
  • Benefits of MassMutual Odyssey ® and Odyssey Plus SM
    • Tax-Deferred 1,2
    • Principal Protection 3
    • Guaranteed Rate of Return 3
    • First Year Enhanced Rate
    • Two Year Interest Rate Guarantee 3
    • Guaranteed Lifetime Income 3
    • Liquidity Feature 2
    • Death Benefit
    1 There is no additional tax deferral provided when a variable annuity contract is used to fund a tax-qualified retirement plan. Investors should only buy a variable annuity contract for the insurance features offered by the contract such as lifetime income payments and death benefit protection. 2 Earnings are taxable as income when distributed and if withdrawn before age 591/2, and may be subject to a 10% federal tax penalty. 3 Guarantees based on the claims-paying ability of the issuing company.
  • Corporate Strength – Ratings A.M. Best Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A++ (Superior - top Category of 15) Fitch Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AAA (Exceptionally Strong - top Category of 21) Moody’s Investor Services Inc. . . . . . . . . . . . . . . . . . . . . . . . . Aa2 (Excellent – third Category of 21) Standard & Poor’s Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AA+ (Extremely Strong – second Category of 21) Ratings are for Massachusetts Mutual Life Insurance Company and its subsidiary C.M. Life Insurance Company as of December 1, 2008 and are subject to change . Among The Highest In Any Industry
  • Marketing Support
    • Client-Approved Marketing Flyer
    • Talking Points
    • Order Number – AN6553
    • Odyssey and Odyssey Plus Product Comparison order number AN5501
  • & Answers Questions Thank You
  • MassMutual Odyssey® (Policy Form #: MUFA99 or MUFAC99) is a fixed deferred annuity contract issued by Massachusetts Mutual Life Insurance Company in New York and by C.M. Life Insurance Company in all other states. C.M. Life Insurance Company, 100 Bright Meadow Boulevard, Enfield, CT 06082, is non-admitted in New York and is a subsidiary of Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield, MA 01111-0001. MassMutual Odyssey PlusSM [Policy Form #: MG1, MG1(NC)] is a fixed deferred annuity contract with flexible purchase payments issued by Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield, MA 01111-0001. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
  • © 2008 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.