Good Morning/Afternoon. I’m [name/title/company]. I’d like to welcome you and thank you for joining us this [morning/afternoon/evening]. Today our discussion is going to center around risk and retirement. Every person in this room has a unique and personal understanding of each of these terms—risk and retirement. But all of you have the same question on your mind. [click]
What You Should Know about Retirement Risks A Solution to Help Secure Your Retirement FA Name: FA Title: Date:
Key Questions about Retirement Will I have enough to fund the retirement I envision? 1. Will my income last, no matter how long I live? 2. How do I make the transition from saving to spending? 3. If something happens to me, will my loved ones have enough income? 4. Can I afford to retire early? 5.
The New Retirement Era Who pays for your retirement? Note: For Illustrative Purposes Only. 401(k), 403(b) Personal Savings Social Security Employer Pension Personal Savings Social Security Employer Pension THEN NOW
Retirement Timeline: Key Considerations Your saving needs in retirement depend on the age at which you retire. Some key considerations must be addressed, whether you plan to retire at 65 or sooner. * Source: Employee Benefit Research Institute: 2006 Retirement Confidence Survey. <ul><li>How much will I need? </li></ul><ul><li>Have I saved enough? </li></ul><ul><li>Health care, housing costs </li></ul><ul><li>Lifestyle and retirement goals </li></ul><ul><li>Longevity Risk </li></ul><ul><li>Inflation Risk </li></ul><ul><li>Investment Risk: Sequence of returns </li></ul>The average age of today’s retiree is 62.* The earlier you retire, the greater your exposure to retirement risk. The average worker expects to retire at age 65.* Pre-Retirement Issues Post-Retirement Issues
Longevity Risk “ If I’d known I was going to live this long, I’d have taken better care of myself.” Eubie Blake, 1883–1983 Jazz Pianist, Composer Taking Your Chances . . . Age 65: Probability of Living to Age 90 Source: Society of Actuaries, 2006. Figures rounded to nearest whole.
Inflation Risk Source: National Association of Realtors, 2008; National Association of Automobile Dealers, 2007. Spend More. Get Less. $28,559 Comparing Costs Today with Those of 25 Years Ago $217,600 $67,800 $17,648 Median Price of an Existing Single-Family Home Average Price of a New Car 1982 2007 1982 2007
Inflation Risk Note: This is a hypothetical illustration and does not represent the performance of any specific investment vehicle. Average inflation rates used do not reflect actual rates. Purchasing Power of $1,000 Length of Retirement in Years $0 $200 $400 $600 $800 $1,000 10 15 20 25 30 $552 $412 $308 $231 2% 3% 4% 5% Average Rate of Inflation
Inflation Risk Note: Data on premium increases reflect total health insurance premiums for a family of four. Historical estimates of workers’ earnings have been updated to reflect new industry classifications (NAICS). Sources: Kaiser/HRET Survey of Employer-Sponsored Health Benefits:1999–2007; KPMG Survey of Employer-Sponsored Health Benefits: 1993, 1996; The Health Insurance Association of America (HIAA): 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1988–2007; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April): 1988–2007. Health Care Costs Outpace Inflation 1999 – 2007 Its Impact on Health Care Expenses 1999 2001 2002 2000 2003 2004 2005 2006 2007
Investment Risk: Timing Is Everything Hypothetical illustration assumes same sequence of returns over subsequent 10-year period. Source: Ibbotson, 2008. Investment risk can be most damaging to your portfolio early in retirement. Retirement begins here Value of portfolio after 10 years with annual withdrawals of $60,000, adjusted for 3% inflation Value of portfolio after 10 years Size of invested portfolio Average annual return of S&P 500 ® $834,340 $1,777,172 $1 million 7.2%
Investment Risk: What If That Decline Happened Earlier? Hypothetical illustration assumes same sequence of returns over subsequent 10-year period. Source: Ibbotson, 2008. The sequence of returns can be most damaging to your portfolio early in retirement. Return After 10 years: $275,238 After 13 years: $0 1 st Decade in Retirement 2 nd Decade in Retirement Retirement begins here Retirement Year Based on our earlier longevity stats, you and/or your spouse would run out of money in 12 years. Under the same withdrawals, value of portfolio after 12 years Value of portfolio after 10 years, with annual withdrawals of $60,000, adjusted for 3% inflation $0 $275,238
Managing Retirement Risks Note: All guarantees are backed by the claims-paying ability of the issuing insurance company. Securing Income in the New Retirement Era Retirement Risk Retirement Risk-Management Strategy Investment Protect retirement income against market downturns and the effects of the sequence-of-returns risk by providing guaranteed income Inflation Shift asset allocation to benefit from the growth potential of equities while providing downside protection Longevity Ensure that retirement income can sustain lifestyle needs despite increases in the cost of living, and that it will last a lifetime
Managing Retirement Risks: Variable Annuities <ul><li>Variable annuities offer long-term solutions that can help mitigate retirement risks. </li></ul><ul><li>They provide the flexibility of participating in the market’s growth potential and the security of guaranteed income. </li></ul>Other features: Potential to grow your money faster through tax-deferral Protection against longevity risk by providing guaranteed lifetime income* Death benefit protection for your heirs* Optional benefits: Living benefit options, available at an additional fee, to help provide predictable levels of income protection, regardless of market conditions* * Guarantees are based on the claims-paying ability of the issuing insurance company and are not based on the investment portfolios.
Managing Retirement Risks: Variable Annuities <ul><li>Access upside potential of equities </li></ul><ul><li>Protect appreciated assets by locking in gains to increase retirement income potential </li></ul><ul><li>Protect against inflationary risks </li></ul><ul><li>Protect value of retirement assets </li></ul><ul><li>Provide predictable level of retirement income </li></ul><ul><li>Provide assurance of lifetime income stream </li></ul><ul><li>Healthy male and female </li></ul><ul><li>Both age 65, living to age 90 </li></ul><ul><li>Taxable accounts = $1,000,000 </li></ul><ul><li>Social Security = $25,000 annually </li></ul><ul><li>Allocates a portion of total taxable assets to VA = $250,000 (25% x $1,000,000) </li></ul><ul><li>Elect optional living benefit* </li></ul>Variable annuities can provide lifetime income, with options that help to protect retirement assets. Retirement Income Protection In an UP Market In a DOWN Market * Optional living benefits are available at an additional cost.
Preparing for the New Retirement Era Variable annuities provide steady income for retirement and are a potential solution to mitigating retirement risks. Providing Income for Retirement The earlier you retire, the greater your exposure to retirement risk. The age at which you retire determines how much income you’ll need in retirement. Timing Your Retirement By choosing an asset allocation with a higher proportion of stocks to bonds, you can generate higher returns and offset inflation. Of course, you are taking on more risk as well. Asset Allocation Longevity, inflation and investment risks are the leading causes of retirement income shortfall. Understand and Manage the Risks The reduction in Social Security and pension benefits means that your personal savings will have to provide the bulk of your retirement income. Paying for Retirement
Why Work with Morgan Stanley? We periodically evaluate and recommend potential solutions to address your situation. We help you develop a thorough understanding of your financial goals. We help you review and analyze your current financial situation. We draw upon the intellectual strength and global resources of Morgan Stanley to help you create individually tailored investment solutions. We work with you to implement your customized strategy, including personalized benefits and services, to ensure that your financial needs continue to be met. Ongoing Commitment Tailor Solutions Develop Understanding Conduct Analysis Implement and Deliver
Thank You Rev 04/08 Contact your Morgan Stanley Financial Advisor for help in determining if a variable annuity is a suitable strategy for you for asset accumulation, and income generation. GP08-00214P-N04/08
Disclosures <ul><li>Your Morgan Stanley Financial Advisor can give you the prospectus for any variable annuity in which you are considering investing. Please consider the investment objectives, risks, charges and expenses of a variable annuity carefully before investing. The variable annuity's prospectus contains this and other information about the variable annuity. Please read it carefully before investing. </li></ul><ul><ul><li>Withdrawals or distributions may be subject to surrender charges and will reduce the guaranteed benefits and contract value. </li></ul></ul><ul><ul><li>Withdrawals of taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may be subject to an additional 10% federal income tax penalty. </li></ul></ul><ul><ul><li>Early withdrawals will reduce the death benefit and cash surrender value. </li></ul></ul><ul><ul><li>All guarantees are subject to the claims-paying ability of the issuing insurance company. </li></ul></ul><ul><ul><li>Variable annuities are subject to market risk, will fluctuate in value, and can lose money. </li></ul></ul><ul><ul><li>Optional riders are available for an additional cost. Some riders must be elected at purchase. Please see the prospectus for more details. </li></ul></ul><ul><ul><li>If investing in a variable annuity through a tax-advantaged retirement plan, such as an IRA, there is no additional tax advantage. Under these circumstances, purchasing a variable annuity should only be considered for its other features, such as lifetime income payments and death benefit protection. </li></ul></ul><ul><ul><li>Morgan Stanley does not render advice on tax and tax-accounting matters to its clients. This material was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. </li></ul></ul><ul><ul><li>Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. </li></ul></ul>