The Best Worst-case Scenario

by Butch Boley Annuity Sales Consultant

As children, many of us learned the art of skipping stones. Looking at a peaceful body of water, you would select a stone with a flattened surface and see just how far and how many times you could skip the stone before it sank in the water. Similarly, many retirees and pre-retirees are looking to position their assets in a way to maximize income in their golden years and lengthen the amount of time in which they’ll receive it. If you’re searching for “just the right stone” to help clients enjoy the retirement they deserve, consider looking for a laddered annuity solution in combination with an income rider. THE FACTS

· Female client, age 54

· Recently widowed

· Received a $3 million death benefit

· In search of a lifetime income solution THE GOAL Determine how to develop a solution that would provide the client with $15,000 of income per month for the rest of her life. While doing so, it would important to take taxes and inflation into consideration and provide a “worst-case scenario” that still meets this objective. THE COURSE OF ACTION When the client lost her husband at such a young age, she was concerned about how she would maintain the lifestyle she had grown accustomed to during their time together. She received a $3 million death benefit, but was worried about turning that asset into a guaranteed income stream for life. She contacted her financial services professional for options. Knowing that the client had no children or close relatives to consider from a legacy planning perspective, the agent was confident that he could provide a solution. However, when he brought up her income goal, he knew he should bring in Creative Marketing’s expertise for assistance. The agent explained that his client was looking for roughly $15,000 of income per month for life using the death benefit she recently received. Creative Marketing immediately went to work creating a laddered annuity payout solution using our LAPS program. We mentioned to the agent that in order to keep the client happy, we should work from a standpoint of considering only minimum guarantees to ensure the solution wouldn’t fall short of her expectations at any given time, and that a $12,000 monthly income would be the highest payout we could guarantee. THE SOLUTION In order to maximize the value of her asset, we chose an American Equity SPIA for leg one of the laddered solution. This set-up would provide the client with $12,000 of income per month for the first five years with almost no tax implications because the asset was non-qualified and would experience minimal growth. In the second leg, we could guarantee roughly the same by taking advantage of NWL’s Ultra Future features, including a 10% first-year premium bonus, a 5×5 annuitization option and the highest annuitization factors in the policy compared to similar carrier offerings. Then, the real challenge came into play. How would we be able to provide a similar payout after the first 10 years while minimizing the client’s tax burden and taking into account possible inflation increases? By setting up the third leg of the payout system in Aviva’s Income Preferred Bonus in combination with the Income Edge Plus Lifetime Income Rider, the client would earn a premium bonus upfront and the asset would earn 6.7% in the income account while she was taking income during the first two legs. Using only the income rider guarantee, this would provide the client with roughly $15,000 of income per month for the rest of her life. Although the third leg would grow tax deferred for 10 years, she could still expect her $12,000 monthly income after paying the taxes due upon each withdrawal at this rate. THE RESULT For the client: Using a creative solution to a common problem, the client would be able to travel, spend time volunteering and live out the remainder of her life comfortably. She was impressed with how close the guaranteed numbers met her objective, and pleased with the fact that she could potentially have even more income from any market upside we might experience. For the agent:

The agent felt confident that the solution presented went above and beyond client expectations. He also learned a great deal about laddering annuities as an income for future cases he might design. By taking a laddered approach to providing income, you can help your clients skip from one product to another and maximize the value of the solution at the same time. Contact your Annuity Sales Consultant for more on our LAPS program, including a sample illustration. FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 12259 - 2012/4/5 | 01943 097312

Aviva Income Preferred Bonus Fixed Indexed Annuity [IA10B (09/09)] or state variation] and the Income Edge Plus [form AIRW (02/08) or state variation], an optional Rider for which an annual premium is charged, is issued by Aviva Life and Annuity Company, West Des Moines, IA. Product features, limitations and availability vary by state.

The NWL® Ultra Future (01-1137-04 and state variations) is issued by National Western Life Insurance Company, Austin, Texas. Product not approved in all states. See Policy for complete information and Policy benefits and limitations. Certain limitations and exclusions apply.

Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Agents may not give tax, legal, accounting or investment advice. Individuals should consult with a professional specializing in these areas regarding the applicability of this information to his/her situation.

The Internal Revenue Code already provides tax deferral to IRAs, so there is no additional tax benefit obtained by funding an IRA with an annuity; consider the other benefits provided by an annuity, such as lifetime income and a death benefit. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged.