2018 gmc lump sum pension offer white...

2018 GMC Lump Sum Pension Offer White Paper

General Motors Company announced a plan to reduce its pension liability by offering a lump-sum buyout option to salaried retirees. Employees who worked at all salary levels of the Company are included. If you are an eligible retiree from GMC, some example options of your pension buyout offer may include the following: (note these are only examples - actual offers may differ)

1. One-time lump-sum payment 2. Continue with current monthly benefit payable by GMC. 55% Joint & Survivor Monthly

Pension Benefit 3. Change current monthly benefit payable by GMC to Single Life Monthly payment 4. Change current monthly benefit payable by GMC to 65% Joint & Survivor Monthly Pension

Benefit. 5. Change current monthly benefit payable GMC to 75% Joint & Survivor

Monthly Pension Benefit

The purpose of this white paper is to provide a brief overview of each of your options. This white paper is not intended as advice specific to your buyout offer, is not intended to be comprehensive and is not intended as investment advice. This white paper is not approved by GMC, it is our opinion. We urge all individuals presented with this buyout to seek several opinions with financial professionals and/or company representatives to ensure you make an informed decision.

We have outlined this white paper to focus on particular benefits that we think should be addressed when considering your options for this buyout.

Protection A pension plan covered by the Pension Benefit Guarantee Corporation (PBGC) guarantees that income will continue even if the company fails (http://www.pbgc.gov). For 2012, the maximum guaranteed amount is $4,653.41 per month ($55,840.92 per year) for workers who begin receiving payments from PBGC at age 65.

An annuity is backed by the insurance company that issues it. If the insurer fails and becomes financially unable to meet its obligations the Michigan Life & Health Insurance Guaranty Association may become involved (http://www.milifega.org). The purpose of this association is to protect Michigan policyholders, within limits, in the unlikely event that a member insurer becomes financially unable to meet its obligations. You should contact the association for answers to specific questions.

A fixed annuity – whether immediate or deferred – is an insurance product and not an investment; therefore, it is not subject to stock market volatility. In other words, the account value and any income stream being withdrawn from a fixed immediate annuity cannot be lost if the stock market goes down. Since investments are “in” the stock market, they can result in a loss of principal and previous gains. However, they also have more opportunity for growth than fixed annuities.

Foguth Financial Group | www.foguthfinancial.com (844) 4-FOGUTH | [email protected] | Text "RETIRE" to 797979

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Control of Your Money An immediate annuity or pension essentially uses an asset to buy an income stream. You pay the premium and in turn, receive an income stream for the time period you choose. If your goal is to receive a steady income for as long as you live – and you don’t anticipate you’ll need the asset in the future– then it may make sense; however, you lose the flexibility that comes with owning the asset. With a fixed indexed annuity or an investment, you do not lose all liquidity and flexibility.

Inflation Protection Neither a traditional pension nor an immediate annuity provides for increases in future payments if the cost of living increases. Inflation may potentially deplete the buying power of a fixed income over time.

The stock market is viewed by some as a way to keep up with inflation but that may not always work. If you would have invested in the S&P 500 index in 2000, your annualized return – including reinvested dividends – would have been 1.7%.* By contrast, the Consumer Price Index over the same period rose at an annualized rate of 2.4%.**

You need to consider all options but some indexed annuities offer income withdrawal options that will increase if the Consumer Price Index increases.

* Vanguard 500 Index Fund Admiral Shares (VFIAX) Start date 11/13/2000 End Date 5/31/2012. Return shown is before deducting management fees and ignores any taxes

** Consumer Price Index for All Urban Consumers: All Items. http://www.research.stlouisfed.org/fred2/series/CPIAUCSL/downloaddata?cid=9

Guaranteed Income for Life The pension, immediate annuity, and fixed indexed annuity with a lifetime income rider benefit all guarantees that the income will last for a set period of time, with lifetime being one option. All may guarantee a joint benefit where the income lasts as long as either the husband or wife lives, but depending on the contract, the survivor’s income varies.

The current offer from GMC may allow you to make a one-time change to your pension survivorship percentage. Immediate annuity options typically provide a survivor benefit that is equal to 50% or 75% of the initial income (of course, the larger the income percentage guaranteed to the surviving spouse the smaller the initial income received). The fixed indexed annuity lifetime benefit provides a survivor benefit potentially equal to 100% of the initial income.

Investments in mutual funds, stocks and the like do not guarantee an income for life.

Guaranteed lifetime income on an annuity is available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged.

Liquidity A pension or immediate annuity is not liquid. The asset is simply converted into an income stream for the time period you select.

A fixed indexed annuity offers liquid options, but there are penalties for early withdrawal above annual penalty free withdrawal or if you cash in the annuity before the end of your contract’s surrender period Investments are typically liquid, although there may be a fee to sell the investments. However, because of the volatility in the market, the amount received may be more or less than the original lump sum.


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http://www.research.stlouisfed.org/fred2/series/CPIAUCSL/downloaddata?cid=9

Legacy for Heirs Beyond Spouse A pension or immediate annuity income ends or is reduced with the death of the spouse. A lump sum placed in a fixed indexed annuity or investment may still have value after the retiree and spouse pass on. A few indexed annuities offer an enhanced death benefit, in excess of the cash value of the account if withdraws are not reducing the amount.

Annual Management Fees Although there are costs associated with every financial alternative, fixed annuities do not charge a traditional annual management fee. However, the optional riders they offer may have a charge.

Benefit Reduction at Triggering of Social Security Retirees receiving a pension from defined benefit plans may experience a reduction of pension payment at the time they trigger social security.

An income stream from an asset classified as an IRA does not experience any reduction in benefit at the time social security is triggered.

A Fixed Indexed Annuity as a Lump-Sum Distribution Alternative

Many pension plans will offer the alternative of receiving a lump-sum distribution instead of pension payments. Receiving a lump sum distribution means the retiree is responsible for his or her retirement income payments and there are countless ways to do this. Our white paper is not intended to cover all of the possible choices out there. A retiree needs to sit down with someone they trust and go over their options. What this will try to do is offer an explanation why we think someone would pick a fixed indexed annuity for all or part of their lump-sum distribution.

Preserve Flexibility Remember, with an immediate annuity or pension you essentially use an asset to buy an income stream. You pay the premium and in turn, receive an income stream for the time period you choose. If your goal is to receive a steady income for as long as you live – and you don’t anticipate you’ll need the asset in the future – then it may makes sense. However, you lose the flexibility that comes with owning the asset. A fixed indexed annuity allows for access to your money, should the need arise, while also providing certain guarantees that protect the principal from market risk, and still provide income options.

Fixed Indexed Annuities Fixed annuities are issued by insurance companies. In a fixed annuity, the account value is guaranteed not to be lost due to stock market fluctuations. Annuities typically credit interest in two different ways. The first is using a fixed rate strategy—you receive the rate for the length of stated period of time. The other way to credit interest is using an indexed approach, meaning interest credits are based on the performance of an external market index. If the external index performs well, you participate in a portion of that upswing, giving you the potential to earn more than the fixed rate option. As a hypothetical example, maybe you’d put $400,000 into the fixed indexed annuity with $200,000 in the fixed rate strategy, crediting say, 1%, and the rest in the index crediting strategy. Let’s say the index increases 16% over the next two years. At the end of 2 years the annuity would have earned $2,000 in the fixed rate option ($200,000 times 1%) and potentially $32,000 in the indexed strategy side.($200,000 times 16%) for a total of $34,000. The upside potential linked to the index crediting strategy chosen is potentially $32,000 because it costs the insurance company to provide that index interest potential.


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Keep in mind though, that there are limitations on the upside potential of fixed indexed annuities, known as a modifiers, which are typically seen in the form of an interest rate cap, participation rate, or yield spread. When applied, these can affect the total outcome of your retirement accounts.

Depending on the annuity you purchase, you will have a choice of crediting methods to choose from, which are formulas that explain how interest is calculated on your policy. Once interest is credited to your policy, it cannot be lost due to market fluctuations. Neither initial premium nor any earned interest can be diminished by market volatility after it is credited to a policy.

What if index didn’t go up or went down? You can’t be charged more in interest fees more than you earn, so you simply wouldn’t earn any interest for those two years. If no net interest was earned, the annuity balance would still show $400,000, and you would start the next period fresh ready to try again.

A couple of key points: This is a fixed annuity and not an investment; you don’t receive dividends, you earn interest. Another point is there are penalties for early withdrawal. This is why you need to make sure your liquidity needs are taken into consideration.

An indexed annuity protects both principal and credited interest from direct downside market risk. Although all indexed annuities have penalties if you surrender the annuity early, with almost every annuity the penalties only last for the contract term.

Lifetime Benefits Every deferred annuity can be turned into an immediate annuity that provides a lifetime income, but many indexed annuities offer another way to get a lifetime income that allows you to keep control and guarantees the income will increase if you wait to receive it.

Going back to the $400,000 hypothetical example, if you were age 65, and had purchased the optional income rider, it would allow you to withdraw a set percent—in this case 5% -- ($20,000 annually) – for as long as you live. However, what if you didn’t need an income yet?

An annuity optional living benefit rider that might provide $20,000 at age 65 might pay $28,078 if the

income doesn’t begin until age 70.

In an annuity with a lifetime income rider, your income benefit base grows at a guaranteed amount during deferral. That percentage of growth is stated at the time your purchase the annuity, and typically last for a set period of 10 to 20 years. The income payment you receive is based on the age you are when you trigger the income rider withdrawals, and begin to take your guaranteed income stream. In the above example, if you were 65 years old, your benefit base value would be $400,000. Based on age 65, when you triggered the withdrawals, you would have received 5% of $400,000, or $20,000 annually for the rest of your life. However, if you waited until age 70 to trigger that benefit, your income factor would be 5.5%, and your benefit base would have continued to grow for the additional five years you deferred your income payments. This means your lifetime income amount at age 70 would have been $28,078 per year annually for the rest of your life.

Surviving Spouse The example assumes an income for just one lifetime, and you can arrange it so that upon death whatever the remaining balance is will be paid out to the beneficiary. However, you can often set it up as a joint income that lasts as long as either spouse lives. The surviving spouse doesn’t get half or three- quarters of the initial amount – the surviving spouse gets 100% of the annuity income. However, many


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fixed indexed annuities pay a half percent less if it’s a joint income (in this example a joint income might pay 5% at age 70 or $25,525 each year).

Inflation Protection Normally the income is set when the withdrawals begin and does not change unless the index performs quite well. However, a few indexed annuities offer an alternative where the income you receive is linked to changes in the Consumer Price Index. This means the income will increase in every year there is inflation. To cover this cost, the initial payout percentage is often a percent lower than the normal payout you’d receive – perhaps 4½% instead of 5½% in the example above or $22,973 instead of $28,078).

There is a cost for this lifetime income protection, but for most indexed annuities, the cost is under 1% a year. A final point is there are a wide variety of indexed annuities available and every lifetime income benefit is slightly different from another; it is important to read and understand the brochures and disclosures provided.

To Sum Up Fixed indexed annuities offer upside growth potential with protection against market-related principal loss and income options to meet your specific needs. How do you know if a fixed indexed annuity is right? You should consider what your goals are for the money you may put into the annuity. You need to think about how much risk you're willing to take with the money.

As with any financial decision, you must carefully consider your own personal situation and how you feel about the choices available. A financial professional can assist you in determining the annuity that will best meet your needs. Fixed indexed annuities can add certainty to an uncertain world.

To further compare your pension buyout options, please contact:

Foguth Financial Group (844) 4-FOGUTH

[email protected]

Text “RETIRE” to 797979

Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market Indices do not include dividends paid on the underlying stocks, and therefore do not reflect the total return of the underlying stocks; neither an Index nor any market-indexed annuity is comparable to a direct investment in the equity markets. Clients who purchase indexed annuities are not directly investing in a stock market index. Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. The examples provided are hypothetical; actual results may vary.19210 234142

For educational purposes only, we do not provide investment, tax or legal advice. Information from sources believed accurate, but is not warranted. Past performance is not an indication of future results


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2018 gmc lump sum pension offer white...

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