Presentation on theme: "Hi, my name is [presenter] with Forethought Life Insurance Company."— Presentation transcript:
1 Hi, my name is [presenter] with Forethought Life Insurance Company. Today we’ll be talking about some of the myths and truths regarding fixed index annuities.
2 You may be wondering… What is a fixed index annuity? An insurance productOffers protection against losses from market volatilityAccumulates interest on tax-deferred basis in one of two waysFixed rate – specific, consistent percent of interest credited each periodIndex-based – interest crediting tied, in part, to the performance of one or more market indices (e.g., S&P 500®)You may have wondered whether an annuity makes sense for you and, if so, what type of annuity makes sense for you.There are a few types of annuities available, but today we are discussing a specific type – a fixed index annuity, which we refer to here as an FIA. This is not an argument for or against purchasing an annuity, and we aren’t promoting a specific company’s product. The goal of this presentation is to provide you with more information about this product, which could be a part of your retirement plan, so that you can have a more informed conversation with your financial advisor.There are common misconceptions about this type of annuity, which we will go over today. To begin, let’s define what an FIA actually is and what it does.[Review slide] (no need to read the disclosures)Taxable distributions (and certain deemed distributions) are subject to ordinary income taxes, and if made prior to 59½, may also be subject to a 10% federal income tax penalty. Early surrender charges and market value adjustments may also apply.Indices are typically unmanaged and not available for direct investment.“Standard & Poor’s®”, “S&P®”, “Standard & Poor’s 500™” and “S&P 500®” are trademarks of Standard & Poor’s Financial Services LLC and have been licensed for use by Forethought Life Insurance Company. Fixed index annuities are not endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s does not make any representation regarding the advisability of purchasing a fixed index annuity contract.
3 You may be wondering… What kind of client typically purchases a fixed index annuity? Always discuss retirement planning with your financial advisorFIAs are not for everyoneGenerally, FIAs are typically for people who are:Unwilling to risk market lossesInterested in a product with more growth potential than traditional deposit productsUncomfortable with stock market volatilityDeciding whether you should purchase a fixed index annuity requires careful consideration of your individual financial goals and situation.Annuities are not a “one size fits all” product. Remember to always discuss your financial planning with a financial advisor, who can make recommendations about what may be best for you based on your age, goals, retirement needs, and other factors.Your advisor may suggest an FIA after evaluating your specific situation.[Review slide]Traditional deposit products may be FDIC insured. FIAs are not FDIC insured and are based on the claims-paying ability of the issuing company.
4 You may be wondering… Are FIAs substitutes for equity investing? Simply Speaking…No, FIAs are not replacements for equity investingEquity investments are invested in the stock market; FIAs are notThey may be considered a more conservative alternative to equitiesFIAs use interest crediting methods that can be tied to an equity index to provide greater crediting potentialYou may be wondering whether an FIA is a substitute for equity investing.The answer is no, FIAs are not substitutes for equity investing. An important distinction between an equity investment and an FIA is that FIAs are not invested in individual stocks or other equities invested directly in the stock market. Instead, an FIA is linked, in part, to the performance of an index as a whole.FIAs receive interest credit based on positive index performance, while providing protection when index performance is negative.[Review chart to show where FIAs fall on the risk/return spectrum]
5 You may be wondering… Do FIAs only work in certain market conditions? Simply Speaking…No, in fact they are well-suited to fluctuating market conditions because:They link interest crediting potential to market upswingsThey provide protection against losses when the market is downThe following chart compares a hypothetical FIA product with annual crediting periods against the S&P 500® returns adjusted for inflation[Review slide]The chart compares a hypothetical FIA product against the S&P 500 returns adjusted for inflation. It shows that in positive years of the index the FIA steps up to lock in the new value, but in years of no increase or a decrease the value has a 0% floor and is protected against the market loss.FIAs are designed to shield your money from losses, so you don’t need to “bounce back” from market downturns. The index value at the end of one crediting period becomes the starting value of the next crediting period, so you continue to earn interest on your contract value without having to recover from a prior year’s market loss, if any.[Reference chart to show FIA reset value against S&P value (adjusted for inflation).]Index past performance is not indicative of future results. The hypothetical performance of the fixed index annuity, as illustrated, assumes a $1,000 initial investment, a cap of 5% (using an annual Point-to-Point with cap crediting method) in years of positive index return and assumes no withdrawals or surrender charges during period shown. This hypothetical example is for illustrative purposes only and not intended to show the performance of any specific product.“Standard & Poor’s®”, “S&P®”, “Standard & Poor’s 500™” and “S&P 500®”are trademarks of Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) and have been licensed for use by Forethought Life Insurance Company. Fixed index annuities are not endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s does not make any representation regarding the advisability of purchasing a fixed index annuity contract.
6 You may be wondering… How does money grow in an FIA? Simply Speaking…FIAs accrue interest through one or more crediting methodsThere are several methods, usually with a crediting period of one yearPopular methods include:Annual Point-to-Point with CapMonthly Point-to-Point with CapFixed RateAnnual Point-to-Point with CapMonthly Point-to-Point with CapAn interest crediting method is the way in which a fixed index annuity earns interest on the account value. There are several different kinds of crediting methods, but the most common are annual point-to-point with cap, monthly point-to-point with cap, and fixed rate.[Refer to graphs on slide; explain each]ANNUAL POINT-TO-POINT WITH CAPHow interest is credited: Index value at the start of the crediting period is compared to value at end of the period. Interest crediting reflects any positive movement of the index up to a “cap,” or maximum, while 0% interest is credited in years of negative index performance.MONTHLY POINT-TO-POINT WITH CAPHow interest is credited: Performance is tracked monthly, and interest is credited annually based on the sum of positive monthly index returns (subject to a monthly cap) and negative monthly index returns over a 12-month period to determine a percentage change.• If the resulting 12-month sum is positive, your contract is credited an equivalent rate of interest• If the resulting 12-month sum is negative, you receive 0% crediting for the yearFIXED RATEHow interest is credited: An annual interest rate is established at the start of the fixed rate guarantee period and credited daily. The interest rate is fixed during this period and not based on the performance of any equity index.For comparison, this chart shows different market scenarios that could occur in any given year, and the level of interest credit you would receive. The interest credit, however, is not based on index performance.Fixed RateThe insurance company that issues the FIA may change the fixed crediting rate or index-linked caps from period to period.
7 You may be wondering… Do FIAs have limited upside potential? Simply Speaking…FIAs may have caps on the upside as a trade off for downside protectionCaps vary by the interest crediting strategy you chooseIt is possible to see significant upside depending on:Index performanceChosen interest crediting methodFixed index annuities are designed to protect your principal from market loss, so they often do have caps on the upside as a tradeoff for that protection.REVIEW SLIDESource: Wharton Financial Institutions Center Personal Finance-“Real World Index Annuity Returns”, 12/27/2010The data above is derived from 19 FIA carriers and their associated products, comprising 172 contracts and 12 different credit rate structures. All results are based on copies of actual customer statements received with personal information blacked out, for each of the preceding five-year periods, requested on an annual basis since The return data reflect contract periods closest to 30 September with the exception of the period that uses a 2 January date. Therefore, not all returns key from the same date within the time periods cited and results reflect only one day out of each year within the time period. The returns reflect the results of products with term-end point, high water mark, and annual reset designs with and without crediting rate caps, and with and without averaging. The returns do reflect any fees charged and surrender charges. Annuitization was not required to receive these returns. All returns shown above are annualized rates of return and are not meant to be a proxy for index mutual fund returns.Past performance is no guarantee of future results and the chart is not intended to represent the performance of any specific FIA product.FIAs are designed for long-term retirement purposes with guarantees backed by the claims-paying ability of the issuing company.Indices are unmanaged and unavailable for direct investment.
8 You may be wondering… Do FIAs require me to lock up my money for a long time? Simply Speaking…FIAs are meant for long-term savings purposesThere is a charge for early withdrawals, but with some flexibility:You can typically withdraw up to 10% of your money per year without a withdrawal charge (after the first contract year)Many FIAs provide full access to your money, free-of-charge if the contract owner:Becomes terminally illRequires nursing home care1[Review slide/withdrawal chart]You can surrender (terminate) the contract if you have not yet started the payout phase. A surrender fee schedule typically applies for a defined period – typically no more than 10 years. After that, all of the contract value is available without charge. Withdrawals may also reduce related benefits in an amount greater than the amount of the withdrawal. In addition, any withdrawals may be subject ordinary income tax and if taken prior to age 59 ½ are subject to a 10% federal income tax penalty.Any withdrawals may be subject to ordinary income tax and, if taken prior to age 59½, are subject to a 10% federal income tax penalty.1Some products refer to this as a surrender charge
9 You may be wondering… Why is tax deferral a benefit if I have to pay taxes on the interest I earn when I withdraw the money anyway?Simply Speaking…Federal income taxes are a certainty, but the timing of when you pay them may offer a financial advantagePurchasing an FIA allows you to postpone paying taxes on interestInterest compounds over timeWhen you withdraw money from your account in retirement, you may be in a lower tax bracket, which means you will pay less in taxesYou may have heard that tax deferral isn’t an advantage of a fixed index annuity, since everyone eventually has to pay federal income taxes on their interest.But saving money in a tax-deferred annuity IS an advantage because your money accumulates tax-free, compounding potential returns without the drain of taxes. Plus, when you need to withdraw the money, you have the potential to be taxed in a lower tax bracket if retired.As you can see, the difference in accumulation over time can be significant. In this case, after 30 years, tax deferral generated an additional $143,264 vs. the taxable approach. The net result is $339,180 after taxes upon full withdrawal, which is $50,250 greater than the taxable accumulation amount.[Review slide]The chart compares $100,000 in a tax-deferred product vs. a taxable product.1. Both receive an interest credit of 5% annually for 30 years.2. One is taxed annually at an assumed federal income tax rate of 28%.3. The other receives its interest credit on a tax-deferred basis.
10 You may be wondering… Do FIAs require you to take income payouts? Simply Speaking…NoYou have the opportunity to use your FIA to generate predictable income payments, but you don’t have toYour options include:Withdrawal of the contract valueKeep your money where it is, using the same crediting method or choosing a new oneAnnuitize and receive predictable incomeActivate a guaranteed lifetime payment benefitGuarantees are based on the claims-paying ability of the issuing insurance company and assume compliance with all benefit rules.Annuities are designed to provide you with a payout option. When you decide it’s time to take income, you can annuitize your account and begin receiving an established amount of money for a set period of time.With a fixed index annuity, however, you have other options. [Review options listed on slide]
11 Other questions to consider When do I plan to retire?When will I need income to supplement my retirement?What options do I have to protect my assets from market volatility?What role could an FIA play in my overall retirement income planning?Do I need income throughout my lifetime only, or my spouse’s as well?Why did my financial professional choose this particular FIA product for me?How often can I change the interest crediting methods on my contract?Can I use more than one method at a time?What factors should I consider in determining the surrender charge schedule that will work best for me?While there are costs associated with owning an FIA, consider the value for the benefits and guarantees you receive, including the benefit of tax deferral.Purchasing an FIA is an important decision, and your financial professional can provide you with a complete cost breakdown.You can then evaluate if the benefits of an FIA are worth it to you.Some important questions to consider are [Review slide]
12 Disclosures That wraps up today’s presentation. Thank you for coming. Guarantees are based on claims-paying ability of the issuing company and subject to compliance with benefit rules.Fixed index annuities are issued by Forethought Life Insurance Company.A fixed index annuity is intended for retirement or other long-term needs. It is intended for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. A fixed index annuity is not a registered security or stock market investment and does not directly participate in any stock or equity investments or index.Taxable distributions (including certain deemed distributions) are subject to ordinary income taxes, and if made prior to age 59½ , may also be subject to a 10% federal income tax penalty. Payments from IRAs are taxable in accordance with the normal rules surrounding taxation of payments from an IRA. Early surrender charges may also apply. Withdrawals may reduce any optional guaranteed amounts in an amount more than the actual withdrawal.This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult a tax or legal counsel for advice.Products and features are subject to state availability and variations.Forethought is Forethought Life Insurance Company and affiliates, subsidiaries of Global Atlantic Financial Group Limited.“Standard & Poor’s®,” “S&P®,” “S&P 500®,” “Standard & Poor’s 500,” and “500” are trademarks of The McGraw Hill Companies, Inc. and have been licensed for use by Forethought Life Insurance Company. Forethought Life’s fixed index annuities are not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing the product. Past performance of the S&P 500® is no guarantee of future results. Any examples utilizing the S&P 500® Index are for illustrative purposes only. The S&P 500® Index is a price index and does not reflect dividends paid by the stocks underlying the index.Indices are not available for direct investment.That wraps up today’s presentation. Thank you for coming.101225