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14-1555-01
Creating aRetirement Paycheck
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) Milwaukee, WI
Firstname LastnameTitle
City, StateDate
Issuer: The Northwestern Mutual Life Insurance Company, 720 E. Wisconsin Ave., Milwaukee, WI 53202-4797Principal Underwriter: Northwestern Mutual Investment Services, LLC, a wholly-owned company ofThe Northwestern Mutual Life Insurance Company 611 E. Wisconsin Avenue, Suite 300, Milwaukee, WI 53202-4797(866) 664-7737, member NASD and SIPC. Not for use in NC, MS, OK, OR.
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Disclosures The Northwestern Mutual Financial Network is the sales and distribution arm of The Northwestern Mutual Life
Insurance Company, its subsidiaries and affiliates. Issuer: The Northwestern Mutual Life Insurance Company, 720 E. Wisconsin Ave., Milwaukee, WI 53202-4797 Principal Underwriter: Northwestern Mutual Investment Services, LLC, a wholly-owned company of The
Northwestern Mutual Life Insurance Company 611 E. Wisconsin Avenue, Suite 300, Milwaukee, WI 53202-4797, (866) 664-7737, member NASD and SIPC.
No investment strategy can guarantee a profit or protect against loss. The performance of variable funds is not guaranteed.
Withdrawals taken from an annuity before age 59 ½ may be subject to a 10% IRS early withdrawal penalty. Income plans are backed solely by the claims-paying ability of the issuer. Variable Annuities are sold by prospectus only. You should carefully consider the
investment objectives, risks, expenses and charges of the investment company before they invest. A Northwestern Mutual Investment Services Registered Representative can provide clients with a contract and fund prospectus that will contain the information noted above, and other important information that clients should read carefully before they invest or send money.
To be used with form number RR.V.A.FR.(0803), RR.V.B.FR.(0803), RR.V.A.BK.(0803), RR.V.B.BK.(0803), RR.V.A.BK.NGF.(0803), RR.V.B.BK.NGF.(0803), RR.V.B.MSNST.(0704), RR.V.A.FR.(0704), RR.V.B.FR.(0704), RR.V.A.BK.(0704), RR.V.B.BK.(0704), RR.V.B.MSNST.(0704), RR.V.A.FR.NGF.(0704), RR.V.B.FR.NGF.(0704), RR.V.A.BK.NGF.(0704), RR.V.B.BK.NGF.(0704), RR.V.B.MSNST.NGF.(0704), RR.V.A.BK.(0805), RR.V.B.BK.(0805), RR.V.A.FR.(0805), RR.V.B.FR.(0805), RR.V.B.MSNST.(0805), RR.V.A.BK.NGF.(0805), RR.V.B.BK.NGF.(0805), RR.V.A.FR.NGF.(0805), RR.V.B.FR.NGF.(0805), RR.V.B.MSNST.NGF.(0805), RR.V.C.NE.(1106), RR.V.A.FB.(1106), RR.V.A.FB.NGF.(1106), or state equivalent. Not all contracts available in all states.
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Retirement Concerns
Source: National Association for Variable Annuities 2005 survey of 1001 respondents. Margin of error +/- 3%.
28%
24%
18%
16%9%
5%
High Health Care costsInability to maintain standard of living
Decline in Social Security paymentsInflation
Don't Know
Running out of money
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Longevity RiskRetirees need to plan for longer life expectancies
AgeCouple(Both age 65)
Source: Annuity 2000 Mortality Table; Ibbotson Associates
85 90
Female Age 65
Male Age 65
Lifespans
92
Age
Age
85
85
88
90 92 100
90 100
100
95
94 95
95 97
50% chance 25% chance
50% chance 25 % chance
50% chance of one survivor
25% chance of one survivor
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
The impact of inflationRising prices eating away at your purchasing power
Income
2010
Assumes 3.5% annual inflation rate. Actual results may vary. Source: Federal Reserve Banks, 2007.
2015 2020 2025 2030
$1,000
$800
$600
$400
$200
$0
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Changing LandscapeWhat was it like to retire in 1984? Almost 65% of retirement income came from Social Security Other retirement income was largely guaranteed by an employer
DB plans from high quality employers covered about 40% of householdsDC plans covered only 22% of households
Healthcare expenses were largely covered by employee retirement health plans Life expectancy at age 65 was 14.4 years for males and 18.6 years for females – longer longevity was not a major issue as most costs were covered by social security and DB plans
Retirement income needs guaranteed for shorter
life expectancies
What was it like to retire in 2005? Social Security provides less than 40% of retirement income (and is likely to drop further) Responsibility for other retirement income has shifted to individuals
DB plans only cover 19% of households - and many are under distress from under-funding and corporate bankruptciesDC plans cover 55% of households - but 50% of households headed by a 45-55 year-old have saved less than $50K in retirement assets
Out-of pocket healthcare expenses are growing at 2-3x inflation, with growing shift toward individual risk sharing (e.g., HSAs) 65 yr old female - 33% chance of living to 91 and a man 25% – most people don’t realize the impact of life expectancy on their retirement assets
Increasing individual responsibilitywith an uncertain outcomeSource: LIMRA International, 2005; SSA.gov
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Retiree Challenges
No more paycheck Identifying income sources Transition from saving to spending Drawing down investment assets Possible tax law considerations Investment risk & inflation Health and long-term care concerns
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Feeling of a difficult adjustment
Marriage Parenting Retirement
Source: LIMRA International, 2006 - based on an American demographics poll of men and women between ages 55-75.
14%
58%
28%
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Many people don’t have an income plan for retirement
11%78%
11%
No PlanEstablished Plan Before RetirementEstablished Plan When Retired
Source: LIMRA International, 2005. Sample: Consumers aged 50 to 75 with $50,000 or more in household investable assets.
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Where will retirement income come from? Income generating investments (stocks, bonds or
mutual funds) Systematic Withdrawals (taking periodic withdrawals from
an investment) Social Security (Will it or won’t it be available?)
Qualified Plans (e.g. 401(k) and pension plans)
Alternative investments (e.g. business income, real estate income)
Annuities (e.g. immediate and fixed/variable deferred)
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Hypothetical value of $500,000 invested at year-end 1972. Portfolio: 50% large company stocks, 50% intermediate-term bonds. Assumes reinvestment of income and no transaction costs or taxes.
Annual inflation-adjusted withdrawal as a % of initial portfolio wealth
5% withdrawal rate
$100,000
$300,000
$500,000
$600,000
$0
$400,000
$200,000
1976 1980 1984 19961988 19921972
6% withdrawal rate7% withdrawal rate8% withdrawal rate9% withdrawal rate
Systematic Withdrawals
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Immediate Annuity
Sold by life insurance companies Lump sum buys an income stream Any guarantees are backed solely by the
claims-paying ability of the issuer
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Immediate fixed annuity payments
AgeAssumes a 65-year-old male living in Illinois and a $1,000,000 premium. Estimated annual payments are $78,588 adjusted for inflation of 3.1%. Quote obtained from WebAnnuities.com.
Payment stream in real dollars from a $1,000,000 premium fixed annuity
65 70 75 80 85 90 95 100
Fixed annuity paymentsFixed annuity payments (after inflation)
Ann
ual p
aym
ent
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
This is a hypothetical example used for illustrative purposes and is not intended to represent the actual performance of a particular investment. The annuity income guarantee is based on the claims-paying ability of the insurance company that issued the annuity.
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Deferred Annuity (long-term investment) Sold by life insurance companies Lump sum or series of deposits Fixed or variable Any guarantees are backed solely by the
claims-paying ability of the issuer Fees and expenses vary from issuer to
issuer
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Deferred Variable Annuityfees and expenses that can apply:
Mortality and expense fee (on-going asset-based)
Portfolio fee (on-going asset based)
Contract fee (can be ongoing or waived at a specific contract value)
Additional benefits and riders (ongoing asset based)
Sales load (one-time, asset-based)– if a sales load is paid withdrawal charges do not apply and mortality and expense
fees are lower
Withdrawal charges (these apply if a sales load is not paid)– can expire after a number of years– some contracts waive these under certain circumstances– some contracts have a withdrawal charge free corridor
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Deferred Annuity (long-term investment) Two phases
– Deferral – (savings) period of time when contract values accumulate
Tax-deferred growth – Income – (annuitization) contract values are
put into an income plan
Withdrawals from an annuity may be subject to ordinary income tax and a 10% IRS early withdrawal penalty if taken before age 59 ½. All guarantees in an annuity are backed solely by the claims-paying ability of the issuer.
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Benefits of risk sharing
Mortality risk shared among large group Payout based on mortality of multiple lives Healthy survivors benefit from shared risk Shared risk produces higher individual
payout
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Annuity distribution options
Specified period Life only Life with
certain periodJoint & Survivor
Life
Annuitization
Income alternatives
Lump sum Systematic withdrawal
All guarantees in an annuity are backed solely by the claims-paying ability of the issuer.
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Types of annuity income streams
Fixed income plan– Guaranteed payment amount – Lifetime or specified period
Variable income plan– Payments fluctuate – Variable payments are based on the
investment performance of separate account– Lifetime or specified period
Any guarantees in an annuity are backed solely by the claims-paying ability of the issuer.
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
20 Year Inflation Adjusted Payout Variable and Fixed Annuities: 1975-1995
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
Variable Monthly BenefitVariable Monthly Benefit
Fixed Monthly BenefitFixed Monthly Benefit
25/75 Variable/Fixed25/75 Variable/Fixed
Monthly Benefit Annuitizing $1,000,000 in 1975 at age 65
Immediate annuity rates are lifetime rates based on a 65 year old male with zero years certain. Past performance does not guarantee future results. No investment strategy can guarantee a profit or protect against a loss. Hypothetical example used for illustrative purposes only and does not represent the performance of any investment product or strategy. Does not reflect fees, expenses or taxes.
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Immediate annuity rates are lifetime rates based on a 65 year old male with zero years certain. Past performance does not guarantee future results. No investment strategy can guarantee a profit or protect against a loss. Hypothetical example used for illustrative purposes only and does not represent the performance of any investment product or strategy. Does not reflect fees, expenses or taxes.
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
Age
65
Age
70
Age
75
Age
80
Age
85
Variable Monthly BenefitFixed Monthly Benefit25/75 Variable/Fixed
20 Year Inflation Adjusted Payout Variable and Fixed Annuities: 1965-1985
Monthly Benefit Annuitizing $1,000,000 in 1965 at age 65
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Combining fixed and variable income plans can: Potentially increase payments over time Ease the volatility of overall income Fluctuate monthly Mitigate interest rate risk
No single product was designed to meet all financial needs. Evaluate a client's financial needs, goals and position, risk tolerance, and time horizon
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Norm Weston:A hypothetical case study
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Norm is age 70, widowed
Has $1.5 million of liquid assets Goal of $75,000 of income in addition to his
Social Security and defined benefit income Norm’s is concerned about:
– Inflation– outliving his income
Norm is a ‘balanced’ investor Norm owns life, health, and long-term care
insurance
No single product was designed to meet all financial needs. Evaluate your financial needs, goals and position, risk tolerance, and time horizon.
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
After careful consideration of Norm’s goals, time horizon, investment risk tolerance, and personal circumstances
Divide assets as follows:– 50% - $756,708 for immediate annuity– 17% - $250,000 variable income plan– 33% - $493,292 mutual funds– 100% - total
This is a hypothetical example used for illustrative purposes and is not intended to represent the actual performance of a particular investment. Any guarantee in an annuity is backed solely on the claims-paying ability of the issuer. This is one possible solution. This solution may not besuitable for everyone. Evaluate your financial needs, goals, risk tolerance, and time horizon.
One approach for Norm to consider
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Immediate annuity generates $5,000 per month for life* (addresses longevity risk)
Variable income plan will provide an initial monthly payment of $1,397 with the potential for increase and an inflation hedge** (addresses inflation risk)
Balanced portfolio of mutual funds provides flexibility (flexibility and liquidity)
*Based on Northwestern Mutual Single Premium Immediate Annuity life income plan with 10 yr certain period, for interest rates in effect on 5/19/05. Rates change weekly.**Based on rates as of 5/19/05 for a 3.5% AIR. Subsequent payments will be dependent on the sub-account performance.
Any guarantee in an annuity is based solely on the claims-paying ability of the issuer.
What does this do for Norm?
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
No single product was designed to meet all financial needs. Evaluate a client's financial needs, goals and position, risk tolerance, and time horizon.
Single Premium Immediate Annuity payments are based on life income plan with 10 yr certain period, for interest rates in effect on 5/19/05. Rates change weekly. Variable Income Plan payments are based on rates as of 5/19/05 for a 3.5% AIR historical performance of the Balanced sub-account for the variable income plan illustration. The variable income plan data is not an illustration of future performance, but a representation of past performance.
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
Variable Payments
Fixed Payments
A hypothetical case studyA look at potential income
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
‘What if’ questions for Norm
Had a spouse? Was more concerned about inflation than
outliving his income? Was in poor health and not concerned about
outliving his income? Was uncomfortable with a monthly income that
fluctuates? Did nothing?
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Summary
Today’s retirees face challenges previous retirees did not
Many people do not have a retirement income plan
Learning about retirement income alternatives available can help people prepare for retirement
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)
Thank you!
The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)