For Producer or Broker/Dealer Use Only. Not for Public Distribution.
A 2nd White paper commissioned by MetLife
• First paper: “Retirement Income and the Sensitive
Sequence of Returns”
• Second paper: “Retirement Income: The Role of Product
Allocation in Sustaining Retirement Income”
• Moshe A. Milevsky, Ph.D.
– Associate Professor of Finance at the Schulich School of
Business at York University
– Executive Director of The IFID Centre and CEO of the QWeMA
Group, Inc., in Toronto, Canada.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
2
What we’ll be discussing
• Asset allocation vs. product allocation
• Why product allocation?
• Clients’ financial challenges and goals
• The products that can help them insure against risks
• How to decide on a product allocation strategy
• Hypothetical case studies
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
3
In retirement, product allocation matters most
Pre-retirement
Retirement
R.O.A.
(Return on Assets)
R.O.I.
(Reliability of
Income)
VS
Asset allocation
matters most!
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Products
matter most!
4
Why use a product allocation strategy?
To help:
• Reduce risks
• Maximize income
• Sustain income throughout lifetime
• Maintain some liquidity
• Satisfy legacy needs
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
5
Transitioning to retirement…
The challenges, the goals
The Challenges
• Longevity Risk
• Inflation Risk
• Sequence of Returns Risk
The Goals
• Liquidity
• Staying the Course
• Legacy Planning
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
6
Longevity Risk
Couple: both age 65, have a
50% chance
of at least one person living to age 92
Male: age 65,
50%
chance
has a
of living
to age 85
Source: Annuity 2000 Mortality Table, Society of Actuaries
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Female: age 65,
50%
chance
has a
of living
to age 88
Inflation Risk
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
8
Sequence of Returns Risk
These examples are hypothetical and are for illustrative purposes only. It is not meant to represent performance of any particular investment. These examples are meant to
demonstrate the impact of the sequence of returns, assuming annual withdrawals of $50,000 (initially 5% of the account value). Withdrawal charges would apply if withdrawals
exceed the contract’s annual free withdrawal amount. If the taxpayer has not attained age 591/2 at the time of the distribution, the portion of the withdrawals that is subject to income
tax may also be subject to a 10% Federal income tax penalty. These hypothetical illustrations do not take into account premium taxes. These examples do not take into account any
fees or charges that may be associated with a particular product.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
9
Insuring against risks…achieving goals
SWPs from
Traditional
Investments
Variable
Annuities
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Income
Annuities
10
A Product Spectrum
Aggressive
Real Estate Investment Trusts
International Stocks
U.S. Stocks
Mutual Funds
Managed Platforms
Variable Annuities
Indexed Annuities
Bonds
Fixed Annuities
Conservative
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Cash
11
SWPs from traditional investments
• Several investment choices
• No guarantees
• Investments tend to be very
liquid
• No protection against
market declines
• Investor has control of
withdrawals
• No incentive to stay the
course
• Easy for investor to change
things
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
12
VAs with Guaranteed Living Benefits
• Provide guaranteed income
for life
• Liquidity somewhat restricted;
some withdrawals allowed.
• Offers step-ups or minimum
percentage increases and a
diversified mix of investment
options, including equities
• Offer protection from market
declines
• Help investors stay the course
Optional living benefit riders are available for an additional annual charge and are subject to state, broker/dealer and product availability. See prospectus
for complete details. Guarantees apply to certain insurance and annuity products, including optional benefits, (not securities, variable or investment
advisory products) and are subject to product terms, exclusions and limitations and the insurer’s claims-paying ability and financial strength.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
13
Income Annuities
• Pays out steady, generally
fixed income for life
• Payments are guaranteed
regardless of market declines
• Payments are generally fixed
therefore don’t keep up with
inflation
• Investor doesn’t have control
• Payout rate is fixed and initial
payment is irreversible
All guarantees are based on the claims-paying ability and financial strength of the issuing insurance company.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
14
Comparing effectiveness in managing risks
Moshe A. Milevsky, Ph.D.: “Retirement Income: The Role of Product Allocation in Sustaining Retirement Income”
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
15
Comparing effectiveness in achieving goals
Moshe A. Milevsky, Ph.D.: “Retirement Income: The Role of Product Allocation in Sustaining Retirement Income”
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
16
Annuity Benefits may outweigh the costs
• Income annuities tend to have the least amount of out of
pocket costs
• SWPs from Traditional investments (stocks, bonds, etc.)
vary in cost
• Variable Annuities with living benefits have higher costs to
account for their guarantees and protection features
– Income Benefits
– Death Benefits
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
17
Clients need all three!
SWPs from
Traditional
Investments
SWPs from
Traditional
Investments
Variable
Annuities
Variable
Annuities
Income
Annuities
Income
Annuities
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
18
Deciding on a product allocation for your client
Have your client fill out a
questionnaire – here is a sample
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
19
Product Allocation: Hypothetical Case Study #1
Meet Denise
• 62 years old.
• Ready to retire from her job.
• Plans to travel with her husband, who is already retired.
• Will receive inflation-adjusted defined benefit pension.
• Additional $1 million to invest.
• Needs an annual income of $55,000 (5.5%) and wants to leave a
portion to her beneficiaries.
This hypothetical case study is for illustrative purposes only and
should not be viewed as actual investment and/or insurance
recommendations.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
20
Denise’s retirement priorities
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
21
Denise’s hypothetical product allocation
The product allocation percentages are a result of using QWeMA proprietary methodology called Product Allocation for Retirement Income
(PRARI). These allocations are not to be considered investment or financial advice or recommendation for purchase of any MetLife product.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
22
Product Allocation: Hypothetical Case Study #2
Meet Ava
• 62 years old.
• Has an IRA account of $750,000 plus modest Social
Security payments.
• Would like an inflation-adjusted income of $39,000
per year upon retirement.
• Hopes to leave a portion of her assets to her son.
This hypothetical case study is for illustrative
purposes only and should not be viewed as actual
investment and/or insurance recommendations.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
23
Ava’s retirement priorities
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
24
Ava’s hypothetical product allocation
The product allocation percentages are a result of using QWeMA proprietary methodology called Product Allocation for Retirement Income
(PRARI). These allocations are not to be considered investment or financial advice or recommendation for purchase of any MetLife product.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
25
Product allocation may help sustain income
• All three product categories offer benefits:
– Protection against risks
– Help in achieving financial goals
• There are tradeoffs
• All three categories combined can help your clients sustain
retirement income
• Talk to your clients about their priorities
MetLife Sales Desk:
800-848-3854
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
26
Important Information
Prospectuses for variable annuities issued by a MetLife Investors insurance company and for the
investment portfolios offered thereunder, are available from MetLife Investors. The contract
prospectus contains information about the contract’s features, risks, charges and expenses. The
investment objectives, risks and policies of the investment options, as well as other information
about the investment options, are described in their respective prospectuses. Clients should read
the prospectuses and consider this information carefully before investing. Product availability and
features may vary by state. Please refer to the contract prospectus for more complete details
regarding the living and death benefits.
Variable annuities are long-term investments designed for retirement purposes. MetLife Investors variable
and fixed annuities have limitations, exclusions, charges, termination provisions and terms for keeping
them in force. There is no guarantee that any of the variable investment options in this product will meet
their stated goals or objectives. The account value is subject to market fluctuations and investment risk so
that, when withdrawn, it may be worth more or less than its original value. All contract and rider
guarantees, including optional benefits and any fixed account crediting rates or annuity payout rates, are
backed by the claims-paying ability and financial strength of the issuing insurance company.
MetLife Investors Fixed Annuities, like all annuities, are insurance products and are not insured by
the FDIC, the NCUSIF or any other government agency, nor are they guaranteed by, or the
obligation of, the financial institution that sells them.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Important Information
Withdrawals of taxable amounts are subject to ordinary income tax and if made before age
59½, may be subject to a 10% Federal income tax penalty. Withdrawals will reduce the living
and death benefits and account value. Withdrawals may be subject to withdrawal charges.
The information contained in this document is not intended to (and cannot) be used
by anyone to avoid IRS penalties. This document supports the promotion and
marketing of insurance or other financial products and services. Clients should seek
advice based on their particular circumstances from an independent tax advisor since
any discussion of taxes is for general informational purposes only and does not
purport to be complete or cover every situation.
MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this
document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is
subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer
may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and
tax advisors regarding your particular set of facts and circumstances.
Variable and fixed annuities are issued by MetLife Investors USA Insurance Company; Charlotte, NC 28277 and in New
York, only by First MetLife Investors Insurance Company, New York, NY 10166. All variable products are distributed by
MetLife Investors Distribution Company (member FINRA), New York, NY 10036.
• Not A Deposit • Not FDIC-Insured • Not Insured By Any Federal Government Agency
• Not Guaranteed By Any Bank Or Credit Union • May Go Down In Value
PEANUTS © 2014 Peanuts Worldwide LLC
BDVA8827
L0614379167[1114][xGU,MP,VI]
For Producer or Broker/Dealer Use Only. Not for Public Distribution.