© 2008 Morningstar, Inc. All rights reserved. 3/1/2008 LCN Role of Immediate Annuities in Retirement

Retirees Should Plan for a Long Retirement Probability of a 65-year-old living to various ages Source: Annuity 2000 Mortality Tables. © 2008 Morningstar, Inc. All rights reserved. 3/1/ % 65 years old Male Female At least one spouse

Personal Savings Expected to Play a Larger Role in Retirement Survey of retirement income sources Source: Employee Benefit Research Institute, 2007 Retirement Confidence Survey. Data presented in 2007 Retirement Confidence Survey may not total 100 due to rounding and/or missing categories. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 Today’s workers (Expected sources of retirement income) Today’s retirees (Actual sources of income) Social Security Pension plans Personal savings/other 40% 21% 37% 71% 14% 13%

Potential Shortfall: The Risk of High Withdrawal Rates Annual inflation-adjusted withdrawal as a % of initial portfolio wealth Past performance is no guarantee of future results. Hypothetical value of $500,000 invested at the beginning of Portfolio: 50% large stocks/50% intermediate-term bonds. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 $500k % 6% 7%8% 9%Withdrawal rate:

What is an Immediate Payout Annuity? © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 An insurance product designed to protect against outliving one’s assets  Payable for the life of annuitant or over a specified period Fixed payout annuity  A series of payments fixed in amount Variable payout annuity  A series of variable payments based on the investment performance of a separate account

Inflation Affects Immediate Fixed Annuity Payments Payment stream in real dollars from a $1,000,000 premium fixed annuity Assumes a 65-year-old male living in Illinois and a $1,000,000 premium. Estimated annual payments are $80,640 adjusted for inflation of 3.1%. Quote obtained from This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Past performance is no guarantee of future results. © 2008 Morningstar, Inc. All rights reserved. 3/1/ $100k Annual payment 65 years old Fixed annuity payments (after inflation) Fixed annuity payments

Discussion of Simulation Criteria and Methodology © 2008 Morningstar, Inc. All rights reserved. 3/1/2008  Many of the following images were created using parametric simulation. This model estimates the range of possible outcomes based on a set of assumptions including arithmetic mean (return), standard deviation (risk), and correlation for a set of asset classes. The inputs used herein are the historical 1926–2007 figures. The risk and return of each asset class, cross-correlation, and annual average inflation over this time period follow. Stocks: risk 20.0%, return 12.3%; Bonds: risk 5.7%, return 5.5%; Correlation 0.04; Inflation: return 3.1%.  Note that other investments not considered may have characteristics similar or superior to those being analyzed. Each simulation produces 35 randomly selected return estimates consistent with the characteristics of the portfolio to estimate the return distribution over a 35-year period. Each simulation is run 5,000 times, to give 5,000 possible 35-year scenarios. A limitation of the simulation model is that it assumes that the distribution of returns is normal. Should actual returns not follow this pattern, results may vary.

Interpreting Confidence Levels in Simulation This table is intended to help interpret 50%, 75%, and 90% confidence levels illustrated in the following images. © 2008 Morningstar, Inc. All rights reserved. 3/1/ % 75% 90% (More conservative) 50% 75% 90% 25% 10% 50% Confidence levelChance of exceeding Chance of falling short

Simulation Can Illustrate the Probability of Achieving Outcomes A visual interpretation of confidence levels in simulation IMPORTANT: Projections generated by Morningstar regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary over time and with each simulation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. 3/1/2008 $10 mil 1 mil 100k 10k 65 Years old % confidence level 75% confidence level 90% confidence level

Simulated Immediate Variable Annuity Payments Inflation-adjusted payments with life only payout option IMPORTANT: Projections generated by Morningstar regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary over time and with each simulation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. 3/1/ $80k Annual payment 65 years old % confidence level 75% confidence level 90% confidence level

Simulated Immediate Variable Annuity Term Payments Inflation-adjusted payments with 15-year payout option IMPORTANT: Projections generated by Morningstar regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary over time and with each simulation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. 3/1/2008 $100k Annual withdrawal payment (real dollars) years old % confidence level 75% confidence level 90% confidence level

Simulation of Systematic Withdrawals and Annuitization Income level with 50% systematic withdrawal and 50% immediate variable annuitization IMPORTANT: Projections generated by Morningstar regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary over time and with each simulation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. 3/1/ % confidence level 75% confidence level 90% confidence level $100k Annual payment 65 years old

Sample Allocations With and Without Immediate Payout Annuities Moderate bequest desire These allocations will be used in many of the following illustrations. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Past performance is no guarantee of future results. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 Traditional portfolios Annuitized portfolios ConservativeModerate Aggressive ConservativeModerate Aggressive 10% 90% 40% 60% 100% 2% 8% 24% 66% 46% 13% 27% 14% 28% 72% Stocks Bonds Fixed annuities Variable annuities 46%

$60k 100k 10 $1 mil 65 years old Retirement Portfolios Without Payout Annuities Simulated probabilities for a moderate risk traditional portfolio IMPORTANT: Projections generated by Morningstar regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary over time and with each simulation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. 3/1/ % confidence level 75% confidence level 90% confidence level Wealth (today’s dollars) Income (today’s dollars)

Retirement Portfolios With Immediate Payout Annuities Simulated probabilities for a moderate risk annuitized portfolio IMPORTANT: Projections generated by Morningstar regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary over time and with each simulation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. 3/1/ $60k 100k 10 $1 mil 65 years old Wealth (today’s dollars) Income (today’s dollars) 50% confidence level 75% confidence level 90% confidence level

Immediate Annuities May Lessen Income Gap Percent of target income met assuming 5% withdrawal rate (90% confidence level) IMPORTANT: Projections generated by Morningstar regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary over time and with each simulation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. 3/1/2008 With annuitiesW Aggressive risk profile Moderate Conservative No annuities Aggressive risk profile Moderate Conservative Age Age % 79% 100% 0% 100% 44% 100% 26% 24% 20% 23% 20% 17% 23% 17% 14% Since both the withdrawal rate and the results are in percentage terms, the results illustrated apply to any beginning portfolio value and income need. For example, a starting portfolio of $1 million with 5% initial withdrawal (=$50,000) is expected to produce 26% of its income target by age 90, if annuitized into an aggressive portfolio.

Assessing Suitability of Immediate Annuities in an Asset Allocation © 2008 Morningstar, Inc. All rights reserved. 3/1/2008 Immediate annuities FactorReason Age increases Higher wealth consumption Increased subjective survival (a perception of better than average health) Greater apprehension about turning over money to purchase annuity Greater bequest (a desire to leave an estate) Higher fees Greater wealth More sources of guaranteed income (Social Security, pensions) Mortality credit Preference to consume wealth Long personal life expectancy requires portfolio protection Decision to annuitize is irreversible or permanent Want to leave more to heirs Fees reduce returns Wealthy less likely to need income guarantees Smaller income gaps (less need for guaranteed sources of income from other sources) Less suitableMore suitable