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J.D. Mellberg Financial3067 W Ina RoadTucson, AZ 85741

Index annuities provide the guarantees of fixed annuities combined with the opportunity to earn interest based on potential market index gains—without directly participating in the market. This exciting family of “hybrid” annuities offers enhanced benefits, including guaranteed* income that may increase every year (with purchase of rider**).

How An Exciting Family of“Hybrid” Index Annuities Works

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Table of Contents

How Index Annuities Work ------------------------------------------------------------------------------ A Closer Look at the Guarantees* and Liquidity of Index Annuities --------------------

Income That You Can Turn On or Off as Needed ------------------------------------------ Crediting Methods and Cap Rates ------------------------------------------------------------

Income Riders** -------------------------------------------------------------------------------------- Illustrating a Family of Index Annuities -------------------------------------------------------- Withdrawal Percentages ---------------------------------------------------------------------------- How a Fixed Index Annuity Might Save You $100,000 or More ----------------------------How This New Family of “Hybrid” Index Annuities May Provide You with More Income per Premium Dollar than Other Fixed Annuities -------------------------------------- Comparing Annuities: The Big Picture ---------------------------------------------------------- With a Nonvariable Annuity, Your Principal Is Protected ----------------------------------Do You Feel Your Retirement Is Well Funded? -----------------------------------------------------Why Government and Corporate Employees Are Coming to Love Annuities -------------We Can Help Find the Right Annuity for You: The Services Offered by J. D. Mellberg Financial --------------------------------------------------------------------------------

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Index annuities provide the guarantees of fixed annuities, combined with the opportunity to earn interest based on potential market index gains—without directly participating in the market. This exciting family of “hybrid” index annuities offers enhanced benefits, including guaranteed* income that may increase every year (with purchase of a rider**).

* Annuities are contracts between you and an insurance company. Annuity product guarantees rely on the financial strength and claims-paying ability of the issuing insurer.

**Annuity riders may be available for an additional annual premium that may provide additional benefits and income guarantees. This report is meant to provide general information on issues that many people consider in making the decision as to whether or not they should buy annuities; and if they do decide to buy, which types of annuities and which annuity benefits and additional riders will best suit their goals and needs. This information is not designed to be a recommendation to buy any specific financial product or service. Joshua Mellberg is an independent Registered Investment Advisor in the state of Arizona and insurance licensed in all 50 states. All employees of J.D. Mellberg Financial have the appropriate licenses for the products they offer.

If you are unable to access any article referenced above, please call 1-877-801-9860 to request a copy.

1 . 877 . 801 . 9860 J.D. Mellberg Financial | copyright 2013. all rights reserveD Page | 2

How Index Annuities Work

In this report, we will explain to you how index annuities work. We will also introduce you to a family of index annuities that offers a new combination of features and benefits. We will also address how annuities may supplement or enhance your retirement income, even if you have a pension or 401(k) plan in place.

Index annuities offer an interest payment (or interest crediting), which is based on a percentage of the gains of a major stock market index such as the S&P 500®. Index annuities give you the potential for upside increases in value with limited or no downside. One of the most attractive benefits of index annuities is that there is no risk to principal when the stock market declines.

The annuity premiums (the funds that insurance companies collect from clients) are used to purchase government bonds, highest-grade corporate bonds, and A-rated real estate to deliver income to the insurance company that is considered to be conservative and relatively consistent over time. These conservative bonds, along with high-quality industrial and commercial real estate help keep your annuity principal safe, because it is not affected negatively by stock market volatility.

The insurance company uses the interest payments and real estate revenue to support their interest rate guarantee* to policyholders. No matter how far the stock market might decline to the downside, the insurance company and its clients (including you and your family members who own annuities) are not affected, because the insurance company has not placed annuity premiums in individual stocks or mutual funds.

This protection from downside losses distinguishes index annuities from variable annuities. With variable annuities, insurance companies do use funds received from clients to buy individual stocks and to invest in mutual-fund-type investments, which are called “subaccounts.” For this reason, variable annuities may lose a portion of their principal due to stock market losses during a time period when index annuities have no losses to principal.

This guarantee* of no loss of principal comes with certain limitations. As you have probably already learned in life, there are very few guarantees that are unconditional and everlasting. Whether you buy a new television, a car, or almost anything else, the guarantee that comes with it is likely to have a number of limitations and exclusions.

Let’s take a look at the limitations on the guarantees offered by index annuities.


A Closer Look at the Guarantees* and Liquidity of Index Annuities

If you take an early withdrawal from your annuity (a withdrawal that is more than 10% of the principal amount each year), this withdrawal could affect some of the guarantees. You may or may not find this to be restrictive. For example, if you have $200,000 in an annuity, you could, in many cases, withdraw 10% per year ($20,000) without any penalties and without affecting the annuity guarantees. How is that for liquidity?

Please note that withdrawals outside of the annuitization structure can reduce the death benefits of the contract. You should also be aware that taxable amounts (on earnings from the principal) withdrawn prior to age 59½ may be subject to a 10% IRS penalty in addition to ordinary income tax. Most annuities also have a surrender period for the first five to 15 years of ownership; early withdrawal will deplete your principal by the amount of the surrender charge still in force. Withdrawals and/or a full surrender of your index annuity contract during the surrender charge period may be subject to withdrawal charges and market value adjustments.

Over the course of ten years, you could withdraw virtually all your annuity without paying surrender charges. Most of our clients, however, have no intention of doing so. They would much rather enjoy the annuity’s income stream for the maximum amount possible, which is guaranteed* for life, no matter how long they may live! Even if you lived to be 120 or older, your annuity would continue to pay you all the income it promised,* each and every year! How many other savings or investment vehicles can you think of that offer this benefit?

Income That You Can Turn On or Off as Needed

Blended or linked annuities are also called “‘hybrid’ index annuities.” This is the term we coined to describe this family of annuities, and it has become very popular. Therefore, we will call them “hybrid” index annuities in this report. “Hybrid” index annuities may offer more benefits and more enhanced benefits than certain other annuities through the purchase of newer types of riders.** They also offer features that can allow the “hybrid” index annuity to act something like a “personal pension,” providing a lifetime income stream in retirement.

This special family of annuities can also give you better control over your money—you can get to your money if needed, and can start receiving payments if and when you want to receive them. You can turn on and turn off your annuity income stream at will.


You know why you would want to turn the income on, but why might you want to temporarily turn the income off? Let’s say that you received an inheritance, sold a piece of real estate, or took some money out of your stock market investments. You might very well have all the income you need for that year. You currently have no need for the extra income your annuity provides. Why not let your gains stay in your annuity, so that they can potentially grow even more?

Please note that when we write of “gains” in your annuity, we are not speaking of stock market gains. These are gains in interest credited to your principal. The amount of interest you receive is based on index activity in the stock market. Gains are attributed via a formula that is established in the insurance company contract. Different insurance companies use different interest rate crediting formulas. There are a variety of methods and formulas available, as we will discuss in detail in the next section. The crediting method to be used is disclosed before you purchase an annuity. Whichever crediting method is used, your index annuity will pay you guaranteed* income for life—all index annuities do. However, “hybrid” index annuities also offer riders** that can provide guaranteed,* ever-increasing income for life.

There is an extra charge for riders. However, many people have decided that the extra charge is well worth the cost for the benefits they could receive. For that reason, several types of riders have become very popular, including the inflation rider. Just as its name implies, this rider offers a hedge against inflation. Since we are unlikely to experience a year with no inflation, a “hybrid” index annuity with an inflation rider** will pay out a guaranteed,* ever-increasing income each year to help overcome the lessening spending power of your principal.

Please note that once you decide to turn on the income stream from your annuity, the income withdrawal percentage is locked in for life. The income withdrawal percentage can usually not be increased. However, there are cases in which your income can be increased if you need long-term medical or nursing care, provided you have purchased an inflation rider** or a confinement benefit rider.** (Please note that the confinement benefit rider may not require confinement to a nursing home to pay a higher level of interest. Under the terms and conditions of many confinement benefit riders, if you require long-term medical care or nursing care that you can receive in your home, you can still receive a higher rate of interest from your annuity. You need to carefully read the annuity contract and any riders you are considering to ensure that the benefits you want are provided.)

Another benefit offered by many index annuities is specific control over how your money is paid out. You have an option for income payments made to yourself and/or another individual for a guaranteed period of time. (For example, you might want income payments to be made for 20 years to one of your children or to a favorite charity.) Some parents are concerned that


if they leave a great deal of money to their children in lump sums, the children (even adult children) might misuse it. Additionally, a child may need special care, or work in a high-satisfaction but low-income career. The fact that the annuity can space out cash distributions to help support that child over 20 years (or another selected period of time) gives these parents greater peace of mind.

Crediting Methods and Cap Rates

We believe it is important to choose an annuity that locks in increases in value as often as possible. In annuity parlance, this is called “ratcheting” or “ratcheting up.”

Think of two different annuities where one ratchets every year and the other ratchets every two years. The longer it takes to lock in increases, the higher the probability of losing any increases due to market volatility. If your annuity ratchets every year, you will be able to lock in increases every year in which the stock market goes up. In a down year, you will not lose money. Thus, over each and every year, your annuity can only move in one direction: UP. If it does not go up in value, it will maintain its current level. No matter what the stock market does, your annuity will not decline in value during any year if you have an annual lock-in of the highest value.

Compare this to an annuity that ratchets every two years. Let’s say that in the first year the stock market goes up 15%. In the second year, the stock market declines by 16%. If your annuity only ratchets every two years, you would show no increase for this two-year period. However, with a one-year ratchet, you would have locked in increases for the first year and you would not have lost a penny of your annuity’s value during the second year.

The growth of your annuity will be based on the index to which it is tied. Some of the most commonly used indices are the S&P 500, the Dow Jones Industrial Average, and the NASDAQ 100. Once a product is identified that is tied to an index you want, there may also be options for the crediting strategy you want to use. From our research, we have concluded that there are two crediting methods that are the most successful.

1. Annual point-to-point: This crediting strategy resets annually and compounds, but will not outperform the index in a big up year because of rate caps. Just as its name implies, a “rate cap” places an upper limit on just how high a percentage the annuity’s return can be in a given year. This is the trade-off for nonexposure to the stock market—receiving the benefit of the annuity never losing money, no matter how much


the stock market might decline. In figure 1, the annual point-to-point rate cap is 8%, which means that this is the highest interest rate the annuity will pay during a given year, regardless of how high the stock market might rise.

Some retirees wonder, “How will I feel if the stock market has a spectacular year and I only make 8%?” Obviously, if the stock market rises by 10% and you receive 8% interest in your annuity, you probably won’t be too concerned. After all, you would have only missed 2% and you didn’t have to deal with all the volatility of the stock market over the course of a year. But as you know, the stock market does have some strong positive years during almost every decade. For example, in 2003, the S&P rose 28.69% and in 2009, it rose 26.46%. The 1990s had several years with even stronger gains. What concerns more retirees is the possibility that the stock market might have a very strong year and they might miss a good portion of the gains.

Figure 1 shows a hypothetical example of S&P 500 returns during a year where the starting value is 1,000. As you can see, the index gains 24.70%, but the investor only gains 8% because of rate caps.

Figure 1

Month Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecJanTotalReturn

ActualReturn

S&P 500GainLoss

1,0535.30%

1,031

-2.10%

1,0441.23%

1,1231.70%

1,104

-1.20%

1,1187.10%

1,1141.90%

1,1571.10%

1,1943.17%

1,2091.30%

1,2221.10%

1,2472.03% =24.70% =8.00%

Based on stock market history, this is the kind of return you might realistically expect to occur at least once every decade. Even during the Great Depression there were some very strong up years. For example, the S&P gained 53.99% in 1933, 47.67% in 1935, and 33.92% in 1936. (http://www.istockanalyst.com/article/viewarticle/articleid/2803347.)

Please bear in mind that annualized gains of 24.7% are very rare. The good news is that with a “hybrid” index annuity, you do not need to have the stock market rise anywhere near this much to benefit. In fact, during almost any year in which the stock market rises, your index annuity should benefit.

The stock market tends to rise about 10% in the average year (i.e., it rises on average less than 1% per month). The well-known and highly respected research of Ibbotson Associates has found that from 1925 to 2004, small stocks returned on average 12.7% per year, and large stocks returned on average 10.4% per year.


There are some highly respected investment managers, such as Bill Gross of PIMCO, who believe that both stock and bond returns are likely to be below normal in the next few years. Bill Gross, whose firm manages approximately $1 trillion in assets, has spoken and written extensively about what PIMCO calls the “new normal”—an extended period of time during which most asset classes will have subnormal returns. (Gross, William H. (Jan 2012.) Towards the Paranormal. Insights. http://www.pimco.com/EN/Insights/Pages/Towards-

the-Paranormal-Jan-2012.aspx.) Therefore, it may not be realistic to assume stock market returns will match their historic returns of about 10% per year. However, during those years and during almost all years in which the stock market rises, your hybrid income annuity should increase in value.

The annual point-to-point crediting method could get you 80% of this average gain (8% crediting, based an annual 10% return) with none of the downside risk of the stock market. As previously noted, the stock market will not go up 10% every year. In years during which the stock market has returns that are near its average return, the annual point-to-point crediting method could match or outperform the monthly point-to-point crediting method

2. Monthly point-to-point: The risk with the monthly point-to-point crediting method is that several months of bad performance can wipe out many months of gains. The cap or limit on gains is a monthly cap, but your gains are usually not locked in until the end of the year.

Figure 2 shows an example of this crediting strategy using a 2.5% monthly cap rate with a maximum 30% annual gain (2.5% x 12 months). To make a fair comparison between the annual point-to-point and the monthly point-to-point crediting methods, we used the same monthly S&P performance data. You will notice that in January, the S&P rose 5.30%, but the annuity was credited with only 2.50% interest because of the monthly rate cap.

For the protection of your principal, index annuities do not directly participate in individual stocks or the stock market. Rather, your annuity is credited with an interest rate based on the percentage gain in a stock market index or bond index. Index annuities are not insured by the FDIC, but do have other protections, which we will discuss later in this report.


Figure 2

Month Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecJanTotalReturn

S&P 500PositiveNegative

5.30%2.50%

-2.10%

-2.10%

1.23%1.23%

1.70%1.70%

-1.20%

-1.20%

7.10%2.50%

1.90%1.90%

1.10%1.10%

3.17%2.50%

1.30%1.30%

1.10%1.10%

2.03%2.03% =14.56%

As you can see, the sum of the gains and losses determine the percent credited to the account. In this case, given the same performance data, the monthly point-to-point method outperformed the annual point-to-point method (14.56% interest paid vs 8% interest paid).

There are a number of other crediting methods which we would be happy to explain to you. Before you select an annuity, we will provide you with guidance on what your best options might be at that time.

Remember that no one can precisely predict what the stock market will do tomorrow, next month, or next year. For this reason, you may wish to diversify your crediting methods and purchase two annuities—one with the annual point-to-point crediting method, and one with the monthly point-to-point crediting method. Then, if the stock market experienced one of those rare, very high return years, the monthly crediting annuity could do extremely well. However, if the stock market had more of an average year with steady (but relatively low) monthly gains, the annual crediting annuity could give you a higher return.

By diversifying between two crediting methods, you may avoid the challenge of trying to guess how the stock market will behave over the next year. No matter what the stock market does, as long as it rises in value, you should enjoy an increase in value. And, if it falls, you will not lose any money—all of your principal and gains from prior years will be protected!

Income Riders**

Some of the primary benefits of income riders are:

· The ability to retain access to the initial purchase value of your annuity

· The ability to turn the annuity’s income stream on or off as desired

· The ability to withdraw a portion of your annuity’s value every year without penalty.


In many cases, you can withdraw about 10% of the value of your annuity each year without paying an early withdrawal fee or a surrender charge. Withdrawals will, however, reduce the policy value and death benefit. Additionally, most annuities have a surrender period for the first five to 15 years of ownership; early withdrawal will deplete your principal by the amount of the surrender charge still in force. If you are under the age of 59½, you may have to pay a fee to the IRS for early withdrawals from your annuity.

In the past, when an annuity account was annuitized (the income stream was started), the client lost control of the money in exchange for the guarantee* of receiving regular income payments from the insurance company. (The income stream could have been for a predetermined number of years, or for life.) When the retiree passed away, some contracts also stipulated that all payments stopped. If there was money still left in the account, it stayed with the company and did not go to heirs or beneficiaries of the annuitant. While annuities like that can still be purchased, a newer generation of fixed index annuities offers enhanced benefits that many retirees desire.

With some of the new “hybrid” index annuities, you do not lose control of your money. Instead, you now have the ability to turn on income payments when you want them and to turn them off when they are not needed. By turning off the income payments, you could significantly reduce your taxes. Then, whenever you desire, you can turn the income payments back on. (See each annuity contract for specific features and limitations.) Depending on the length of time the income stream is turned off—as well as the features, benefits, and riders of your annuity, when you turn on income payments again later in life—those income payments could be bigger than ever!

With almost all index annuities, you now have the ability to have your annuity cover the lifespan of two people. After you pass away, your annuity could continue to make income payments to your spouse for as long as he/she lives. And if your index annuity also has an income rider,** you and your spouse might both have the ability to turn on or turn off the income stream as desired. When one of you passes away, the surviving spouse might be able to retain this ability to turn income on or off whenever needed. The exact features and benefits of income riders differ among insurance companies offering these annuities. If this benefit is important to you and your spouse, make sure you read the annuity contract and rider language before you buy the annuity to make sure the income rider will have the benefit you want.

We are happy to answer any questions you have about the exact benefits offered. When you work with us, we will show you annuities that allow the owner to receive a guaranteed income stream and have the ability to take out a large sum of money if an unexpected need arises. If you take out a large sum, this may reduce future income rider withdrawals. A very


large withdrawal could result in a termination of the rider and all future income withdrawal amounts. But that can be prevented. We will show you how to avoid, and how to get the maximum possible benefits from your annuity.

Let’s say that a medical emergency arises for yourself or a loved one that is not covered by insurance or Medicare. With some of the newer annuities, you could take out money to insure that the best medical care can be obtained in a timely fashion. You can also make a large withdrawal for a “happy emergency.” For example, your daughter finds out she is expecting twins. You could take out money to help her furnish the new babies’ room or start a college fund! Depending on the amount of money you withdraw, your future income stream could be reduced. However, the choice will be yours: YOU will have control of YOUR money and will be able to use it in the manner YOU want to use it! And, you will still continue to receive a guaranteed* income stream based on the new value of the annuity.

The payout amount for index annuity income is determined by a growth factor based on the client’s age and income account value (which is not the accumulation value). This growth factor will vary among insurance companies and the different annuities each company offers. It is important to comparison shop to find a growth factor that might best help you reach your goals.

The growth factor of any annuity might be affected by the purchase of an income rider.** An index annuity might credit your income account with 4% to 8.2% annual growth, depending on the insurance company and the annuity selected. At J.D. Mellberg Financial, we are skilled in finding suitable annuities for our clients—those that offer the highest annual growth crediting and other benefits you may desire.

Please note that with a basic index annuity, before your income stream starts, your account value may not grow if the stock market is flat or has a negative return. Your annuity will not lose value, but it will also not grow in value during these times.

With an income rider, your annuity may have the ability to continue to grow in value as long as income is not taken. In the tables and charts we present, you will see the term “Income Account Value.” This term refers to the dollar amount upon which your guaranteed income payments will be based, whether the annuity illustrated is a basic index annuity or an index annuity with an income rider. Please keep in mind that the income account value is used to calculate income and is not the same as the accumulation value. Since the account is growing every year income that is deferred, the longer you wait to turn on the income, the higher your income payout will be.

When you purchase an income rider,** the dollar amounts in your income account value will grow every year prior to the payout phase—even if the stock market declines in value!


Figure 3 shows the performance of a “hybrid” index annuity versus the S&P 500 for the period of 2000 – 2012. As you can see, the S&P 500 has been volatile over the last 12 years. Investing $100,000 in the index would have lost an investor $5,884 during the time period shown.

If you had invested the same $100,000 in some of the available mutual funds, you would have lost even more money, as many mutual funds did not match the performance of the S&P 500 over the past decade. (http://www.ici.org/pdf/2011_factbook.pdf, http://math.scu.edu/~dostrov/StocksForStudents.pdf, and http://money.msn.com/mutual-fund/.)

Figure 3

This chart was produced by researchers at the office of J.D. Mellberg Financial.

As figure 3 shows, instead of losing money over this recent decade, your “hybrid” index annuity with an income rider** would have significantly increased in value. The income account value would have been increasing up to an annual rate of 8.20%, compounded. The account value of your annuity increased during positive stock market years and stayed level (did not lose money!) during negative stock market years.


Illustrating a Family of Index Annuities

Now that you know how an index annuity works, let’s take a look at a family of “hybrid” index annuities that we find to be very interesting.

Figure 4 shows the income available from one “hybrid” index annuity for a 70-year-old person who places $100,000 in the annuity. The calculation shown reflects an 8% return on the accumulation value before the income stream begins.

There is a range on the returns different annuities pay on their income account values. The 8.0% in this example is one of the highest returns currently available. (This return may or may not be available when you decide to buy an annuity.) The income account value is growing at a compounding rate, and grows to $317,217 in 15 years. Keep in mind that the income account value is only used for the calculation of income and is not the same as the accumulation value for purposes of withdrawals and death benefit.

Taking a closer look at figure 4, you can see that if the annuity owner decides to turn on income stream at age 73, he/she will have a withdrawal percentage of 6.30%. The longer he/she waits to turn on income stream, the higher the withdrawal percentage will be.

Please note that unless otherwise stated, all examples shown are hypothetical; they are based upon facts and figures currently available. However, the features and benefits of any annuity can be changed by the issuing insurance company based upon changes in interest rates, stock market returns, and other economic variables.

Depending upon the annuity you select and when you decide to buy it, the returns and income stream of your annuity may vary from the returns and income streams shown in the examples provided here.


Figure 4

End of Year Age

Income Account Value

(compounds at 8%/yr)Withdrawal Percentage Income

Home Healthcare Doubler

Issue 70 $100,000 6.00% $6,000 $12,0001 71 $108,000 6.10% $6,588 $13,1762 72 $116,640 6.20% $7,232 $14,4633 73 $125,971 6.30% $7,936 $15,8724 74 $136,049 6.40% $8,707 $17,4145 75 $146,933 6.50% $9,551 $19,1016 76 $158,687 6.60% $10,473 $20,9477 77 $171,382 6.70% $11,483 $22,9658 78 $185,093 6.80% $12,586 $25,1739 79 $199,900 6.90% $13,793 $27,586

10 80 $215,892 7.00% $15,112 $30,22511 81 $233,164 7.10% $16,555 $33,10912 82 $251,817 7.20% $18,131 $36,26213 83 $271,962 7.30% $19,853 $39,70714 84 $293,719 7.40% $21,735 $43,47015 85 $317,217 7.50% $23,791 $47,583


Another annuity rider available for an extra charge with some contracts is the long-term care doubler.** For example, in year 5 of this annuity, when the owner is 75 years old, the guaranteed* annual income is $9,551 no matter what the stock market does. However, if he/she is confined (cannot perform some of your activities of daily living), the annual income will DOUBLE to $19,101.


There are certain conditions that must be met in order for the long-term care doubler to be triggered. Most long-term care riders** use “activities of daily living” (ADLs) that a person is not able to perform unassisted, to determine if a person qualifies for the doubling of annual income. The annuity policy you will receive will have a specific list of ADLs that are considered, but some general examples are:

· Bathing

· Eating

· Dressing

· Walking

· Taking medications

· Getting in/out of beds/chairs

Withdrawal Percentages

Earlier in this report, we discussed having an annuity that locks in increases as often as possible. This same idea can be applied to withdrawal percentages and income.

In most cases, you will benefit from owning an annuity that requires less time to increase your withdrawal percentages.

Consider an example where the product features for two annuities are exactly the same, with the exception of how often withdrawal percentages increase. One increases the withdrawal percentage annually, and the other increases the withdrawal percentage once every 10 years. Which annuity might be more suitable for you?

While the payout amounts are the same on both annuities for certain ages, the income amounts are higher for the years in which the withdrawal percentages show annual increase. Therefore, you will likely want to select the annuity that increases withdrawal percentages annually (if that annuity has the other features and benefits you want).

Please note that you do NOT have to be unable to perform all of these activities. Depending on the annuity policy selected, you may only need to be unable to perform two or three of the activities unassisted on the list to receive up to a doubling of your annual income.


Figure 5 contains examples of the different payout amounts we have seen for annuities.

Figure 5

AnnuityPayout %at Age 60

Payout %at Age 65

Payout %at Age 70

Payout %at Age 75

Payout %at Age 80

Payout %at Age 85

Payout %at Age 90

A 5 5 6 6 7 7 7B 5 5.5 6 6.5 7 7.5 7.5C* 5* 5.5* 6* 6.5* 7* 7.5* 8*

*Compounds annually. 5% at age 60, 5.1% at 61, 5.2% at 62, etc. up to 8% at 90.

A retiree may want to take income at a “step-up age.” (This may be referred to in the annuity contract as an “optional reset” age.) There is no difference in payout for regular step-up ages between the annuities shown. If two people with any of these annuities wanted to start their income at age 70, the payout would be 6% per year. However, if the retirees wanted to turn on their income at odd ages—years other than those identified as step-up ages— there could be a big difference among the three annuities. Annuity C increases the payout amount annually. If a retiree wanted to turn on his/her income at a interim age, he/she might benefit by selecting Annuity C, gaining thousands of dollars of income over the retirement years.

There might be other differences between these three annuities that would lead you to select one over the other two. Even though each of them might have the same payout rate, one annuity might have additional benefits that make it more attractive to you.

How a Fixed Index Annuity Might Save You $100,000 or More

Let’s take a closer look at how a “hybrid” index annuity might help you save a significant amount of money.

Figure 6 illustrates that Annuity A offers:

· A withdrawal percentage that increases every year

· One of the highest bonuses in the insurance industry

· One of the highest available income account value growth rates


This combination of benefits in one annuity may be worthy of your consideration. Of course, you need to remember that bonus annuities may carry higher fees and charges than annuities without the bonus feature, and may not pay the bonuses in case of early withdrawal.

For this case study, we will use a hypothetical example (as we do throughout this report). “John Adams” is a 55-year-old client who wants $3,000 of monthly income, ($36,000 annually), beginning with payouts in 10 years at age 65. John’s goal for this annuity is to provide that $36,000 per year to supplement his social security.

John shared his objective for the annuity with his regular insurance agent, who told John that he would need to pay a $402,044.24 premium for a standard index annuity to achieve this income goal. While John did have that amount to spend on an annuity, he was a little disappointed that an annuity would require that sum of money to produce what he needed. He contacted us.

We spoke with John at length about all of his goals and dreams for retirement. We also went over his finances and his tax situation. (We do a thorough interview like this to make sure that an annuity is appropriate and suitable for someone before we recommend any annuity or any other financial product or service.) We determined that an annuity was a suitable way for John to reach his objective. Then we used all of the data collected to help him find an annuity that might best help him.

In this case, we found Annuity A as illustrated in figure 6. John’s insurance agent had found a standard index annuity, labeled Annuity B.

This example includes all fees, but it does not include taxes, as the tax rate for different individuals reading this report could vary significantly. In addition, your tax rate could vary from year to year in retirement depending upon whether you had outside employment (either full- or part-time), you sold stocks, bonds, or real estate during the tax year, and whether or not you had gains or losses on those sales.

Bear in mind that you do not have to pay taxes on a return of principal; you only have to pay taxes on those portions of annuity payments that represent interest received. When we refer to “income” here and throughout this report, we are referring to pretax income. You should consult with your CPA or tax advisor to determine what taxes you might owe on the income you receive.

During years in which you let your annuity’s value grow and do not take any distributions, you will not have to pay any taxes. Your annuity is what is known as a tax-deferred vehicle.


Figure 6

End of Year AgeIncome Account

Value (8%)WithdrawalPercentage Income

Income AccountValue (6%)

WithdrawalPercentage Income

Issue 55 $303,177 4.50% $13,643 $402,044 4.00% $16,0821 56 $327,431 4.60% $15,062 $426,167 4.00% $17,0472 57 $353,626 4.70% $16,620 $451,737 4.00% $18,0693 58 $381,916 4.80% $18,332 $478,841 4.00% $19,1544 59 $412,469 4.90% $20,211 $507,572 4.00% $20,3035 60 $445,466 5.00% $22,273 $538,026 5.00% $26,9016 61 $481,104 5.10% $24,536 $570,307 5.00% $28,5157 62 $519,592 5.20% $27,019 $604,526 5.00% $30,2268 63 $561,159 5.30% $29,741 $640,797 5.00% $32,0409 64 $606,053 5.40% $32,727 $679,245 5.00% $33,962

10 65 $654,536 5.50% $36,000 $720,000 5.00% $36,00011 66 $706,899 5.60% $39,586 $763,200 5.00% $38,16012 67 $763,451 5.70% $43,517 $808,992 5.00% $40,45013 68 $824,527 5.80% $47,823 $857,532 5.00% $42,87714 69 $890,490 5.90% $52,539 $908,983 5.00% $45,44915 70 $961,729 6.00% $57,704 $963,522 6.00% $57,811

Account Details Annuity A Annuity B"Hybrid" Index Annuity Standard Index Annuity

Premium $303,176.99 $402,044.24Income Account Growth 8.00% 6.00%


To enjoy a $36,000 income in year 10, Annuity A only required John Adams to pay $303,176.99 in a lump-sum premium. Annuity B required John to pay $402,044.24 to receive the same income in year 10. In other words, Annuity A could cost $98,867.25 less, and provide the same benefits as the other annuity in year 10 of the contract. In ten years, the income would be identical. Would you want to pay 25% more than necessary?

As the table shows, Annuity A credits the income account value at the rate of 8% per year prior to beginning the payout phase, while Annuity B credits the income account value at the rate of only 6% per year. Annuity A also gives a higher withdrawal percentage than does Annuity B. As you can see, the withdrawal percentage for Annuity A starts at 4.5% per year, while the withdrawal percentage for Annuity B is only 4% per year.

Notice that in year 10 of Annuity B, John would receive $36,000 in income for his $402,044.24 premium. That is a payment of 8.95% on the money he originally placed in the standard index annuity. With Annuity A, he could hypothetically receive $36,000 in


income for the lesser premium of $303,176.99. The “hybrid” index annuity, then, gives him a payment of 11.87% on the money in his original premium.

At J.D. Mellberg Financial, we examine more than 200 different annuities each year in our search for the ones we believe fit with the best retirement income strategies available. At this time, the annuity illustrated here as Annuity A (a “hybrid” index annuity) generally outperforms other annuities in the income account value increase and the withdrawal percentage guaranteed* by the insurance company. The lower initial annuity premium, higher crediting rate in the income account growth, and higher withdrawal percentage in Annuity A have the possibility of translating into more money in your pocket.

By placing money in a “hybrid” index annuity, you can feel more confident that you could be receiving one of the highest income streams currently available from an annuity. This is true regardless of the premium amount of this index annuity; it offers you the possibility of maximizing your income stream for each premium dollar placed in the annuity.


How This New Family of “Hybrid” Index Annuities May Provide You with More Income per Premium Dollar

than Other Fixed Annuities

John Adams opted to buy the “hybrid” index annuity (A) for a lesser amount to provide the income he wanted. But what if he had decided to put the whole $402,000 into Annuity A with its higher return? Figure 7 shows the outcome.

Figure 7





Issue 55 $402,044 4.50% $18,092 $402,044 4.00% $16,0821 56 $434,208 4.60% $19,974 $426,167 4.00% $17,0472 57 $468,944 4.70% $22,040 $451,737 4.00% $18,0693 58 $506,450 4.80% $24,310 $478,841 4.00% $19,1544 59 $546,977 4.90% $26,802 $507,572 4.00% $20,3035 60 $590,735 5.00% $29,537 $538,026 5.00% $26,9016 61 $637,994 5.10% $32,538 $570,307 5.00% $28,5157 62 $689,033 5.20% $35,830 $604,526 5.00% $30,2268 63 $744,156 5.30% $39,440 $640,797 5.00% $32,0409 64 $803,688 5.40% $43,399 $679,245 5.00% $33,962

10 65 $667,983 5.50% $47,739 $720,000 5.00% $36,00011 66 $937,422 5.60% $52,496 $763,200 5.00% $38,16012 67 $1,012,416 5.70% $57,708 $808,992 5.00% $40,45013 68 $1,093,409 5.80% $63,418 $857,532 5.00% $42,87714 69 $1,180,882 5.90% $69,972 $908,983 5.00% $45,44915 70 $1,275,352 6.00% $76,521 $963,522 6.00% $57,811

Account Details Annuity BAnnuity A"Hybrid" Index Annuity Standard Index Annuity

8.00%$402,044.24

6.00%Income Account GrowthPremium $402,044.24


As figure 6 shows, Annuity B still yields $36,000 in year 10. But the same amount of premium in Annuity A yields $47,739 in year 10. That’s $11,739 more for the same amount of premium.


This increase in income does not necessarily have to be a one-time event. Rather, there is a possibility that your income could be higher in most succeeding years, depending on when you turn on your guaranteed* income stream!

To enjoy a guaranteed* increasing income every year requires the purchase of an inflation or similar rider,** which is available for an extra cost. However, the example above includes the cost for the rider. That is, the $402,044.24 you place in the annuity provides all of the benefits described above. There is nothing else to buy or pay for, as this is an all-inclusive, one-time premium. You will never receive another bill for this annuity, and you do not have to pay any annual fee to continue to receive all the benefits this fixed index annuity offers.

For all of the above reasons, regardless of the amount of money you have with which to purchase an annuity, you may want to seriously consider using some of your assets to purchase a “hybrid” index annuity.

Comparing Annuities: The Big Picture

We have had many people from around the country contact us to get second opinions on annuities they are considering purchasing. Many of the people who call or email us believed they have found the “best” annuity after comparing a few different ones. They frequently bring in annuities that offer features that seem very appealing—maybe a large bonus, or no rate caps, or a high level of income account growth. They are likely to ask, “Can you beat this?”

In some cases, they have found these annuities while shopping on the Internet. In other cases, a neighborhood insurance agent presented a few annuities for their consideration. However people locate annuities, the bottom line on how helpful they will be is evaluation, and comparisons between annuities are complex. There are many factors to consider. In this section, we will examine an annuity on which a preretiree asked for a second opinion—an annuity that had income account growth credited at 10% per year. Please note that we will be discussing two annuities that are different from the ones presented in figures 6 and 7.

“Jane Robinson” is a 55-year-old client. She wants an annuity that produces immediate income. She has $100,000 to place in the annuity. As you can see in figure 8, Annuity P offers a 10% income account growth and Annuity Q offers a 6% income account growth.

In this case, Jane Robinson inquired if we could beat the 10% income account growth in Annuity P. After doing our research, we presented Annuity Q, which “only” has 6% income


account growth. Why would we suggest an annuity with lower income account growth? See for yourself.

Figure 8





Issue 55 $100,000 3.00% $3,000 $100,000 4.00% $4,0001 56 $110,000 3.00% $3,300 $106,000 4.00% $4,2402 57 $121,000 3.00% $3,630 $112,360 4.00% $4,4943 58 $133,100 3.00% $3,993 $119,102 4.00% $4,7644 59 $146,410 3.00% $4,392 $126,248 4.00% $5,0505 60 $161,051 4.00% $6,442 $133,823 6.00% $8,0296 61 $177,156 4.00% $7,086 $141,852 6.00% $8,5117 62 $194,872 4.00% $7,795 $150,363 6.00% $9,0228 63 $214,359 4.00% $8,574 $159,385 6.00% $9,5639 64 $235,795 4.00% $9,432 $168,948 6.00% $10,137

10 65 $259,374 5.00% $12,969 $179,085 8.00% $14,327

Account Details Annuity P Annuity QStandard Index Annuity "Hybrid" Index Annuity

Premium $100,000.00 $100,000.00Income Account Growth 10.00% 6.00%


Despite the fact that Annuity P offers a higher income account growth, Annuity Q, could produce more income from the very first year the contract was in place and for every year thereafter. Whereas Annuity P paid $3,000 (3%) income in the first year, Annuity Q paid $4,000 (4%) in income that year, which is 33% more than Annuity P, starting from the very first year ($1,000 increase / $3,000 = +33%).

As you can see, Annuity Q pays a higher level of interest each and every year than Annuity P. In the 10th year, Jane Robinson would receive an additional $1,358 from Annuity Q than she would from Annuity P. Annuity Q offers a 10.47% increase in income in year 10 as compared to Annuity P ($1,358/ $12,969 = +10.47%). Please note that this 10.47% is larger than the 10% income account growth that Annuity P offered.

How is it possible that an annuity that credits a lower level of income account growth could produce more income than an annuity that offers a higher level of income account growth? The answer is in all of the other features and benefits offered by the two different annuities.


What other factors can lead to an annuity with a lower income account growth producing more income than an annuity with a higher income account growth?

The annuity that produces more income might have offered:

· A higher bonus

· No rate caps

· A higher crediting method

· Lower fees and expenses

· Or a combination of these benefits with other benefits

When researching annuities, we focus our attention in two areas:

1. Finding the products that can best help our clients reach their individual financial goals. Since financial goals are as varied as our clients, we recommend different annuities to different people.

2. Finding the most suitable products that produce the highest income for our clients for the time period desired.

As you learned in Jane Robinson’s case, finding an annuity with the highest possible income account growth might not guarantee that you enjoy the highest level of income in retirement. The same is true for annuity bonuses. Finding an annuity that offers a large bonus does not ensure that you will be receiving the highest level of income in retirement. Additionally, remember that bonus annuities may carry higher fees than annuities without the bonus feature, and may not pay the bonuses in case of early withdrawal.

Many factors need to be considered when comparing one annuity to another. It is often difficult to make an “apples to apples” comparison between different annuities because insurance companies offer so many different features and benefits on various annuities. Some of these features and benefits may also change over time. As you can see in figure 8, the withdrawal percentages for both Annuity P and Annuity Q change over time. Other features, such as surrender charges, also change over time.

(An annuity that has higher surrender charges than another annuity in the early years may have much lower surrender charges in later years, or may end the surrender charges sooner than the other annuity.)


If you would like some help in objectively evaluating different annuities, to find the annuity or annuities that might best help you reach your financial goals, we invite you to call our office. We have full-time professionals on our staff who devote all of their energies to thoroughly researching all of the features and benefits available on different annuities. We will not recommend an annuity to you on the simplistic basis that it has the biggest bonus or the highest income account growth. We only recommend annuities after carefully and thoroughly analyzing all of the features and benefits of those annuities to make sure that the combination of features and benefits offered will have a high probability of helping you reach your financial goals in retirement.

With a Nonvariable Annuity, Your Principal Is Protected

When you purchase stocks, bonds, mutual funds, real estate, gold, silver, or most other investments, your principal is usually not protected. The values of your investment can gain or lose value at almost any time (including loss of principal).

When you purchase an immediate, fixed, or index annuity, your principal usually is protected as long as you do not withdraw too much of its value at an early date.

Most variable annuities, by contrast, do not protect your principal unless you purchase a special rider at an additional cost. Please note that these riders are not available on all variable annuities.

As you know, most annuities do have some type of surrender charges or early withdrawal penalties. Normally, these charges decrease steadily over time and eventually disappear. A surrender charge does not mean that you cannot access your money in the early years of your contract. Most of the annuities discussed in this report allow you to withdraw about 10% annually without penalty. (Before 59½, there is an IRS penalty for withdrawals over 10%.) When the contract allows this, you can withdraw that 10% from your annuity each and every year for any reason whatsoever, and you do not have to explain or justify to the insurance company why you want the withdrawal. The process is very simple and you should have your money relatively quickly.

If you withdraw more than the prescribed amount during the penalty phase of your annuity, there may be a surrender charge. Once the surrender charge period is over, you can usually withdraw as much money as you would like from your annuity without any penalty. Any withdrawal of interest may incur tax liabilities, of course, and reduce the amount or length of annual annuity income; or it may reduce the death benefit. Withdrawal of principal is untaxed.


We previously mentioned that the principal in variable annuities is usually not protected unless you purchase a rider.** A primary benefit of nonvariable annuities (such as index annuities) is that you cannot lose your principal no matter how much the stock market declines in any year.* This makes index annuity funds more protected than mutual funds, 401(k) plans, or variable annuities that do not have a guarantee* of principal protection. With index annuities, protection of principal is built in to the base contract. You do not have to buy a rider to receive principal protection with an index annuity.

Once they understand just how protected index annuities are, some retirees wonder, “How financially secure is the insurance company that is guaranteeing* my annuity?”

If you have an annuity with an insurance company, you have several sources backing up and protecting your capital.

Assets of the insurance company: Insurance companies are some of the most highly regulated companies in America. They are subject to strict capital reserve requirements to help ensure that they will have the money to pay their claims and their contractual commitments, such as annuity payouts. Insurance companies tend to purchase highly rated and conservative investments, such as high-quality bonds and commercial real estate. (http://www.massachusetts.edu/treasurer/fundamentals.html and http://www.time.com/time/business/article/0,8599,1849023,00.html.)

Protection from creditors: By law, the assets of insurance company policyholders cannot be attached by creditors of the insurance company. The assets of policyholders (your assets in an annuity) are held in segregated accounts that are beyond the reach of creditors. If an insurance company is sued and loses, the plaintiff cannot go after your annuity assets.

Strong reserves: Insurance companies must have $1 in reserve for every $1 promised to policyholders for payouts (promised to owners of contracts).

Surplus capital: Some insurance companies have more than $1 in reserve for every $1 promised to policyholders. They have surplus capital. Many of the “hybrid” index annuities we recommend are issued by insurance companies that have surplus capital.

Reinsurance: Not only are client assets held by an insurance company protected from creditors, backed by the strongest and most conservative investments, and supported with dollar-for-dollar reserves, many are also backed by reinsurance. Reinsurance is an extra level of protection whereby multi-billion-dollar reinsurance firms guarantee* a percentage of the reserves of the issuing insurance company.


You might think that all of these protections are excessive. Yet it is these layers of protection that have helped keep the vast majority of insurance companies strong and financially sound for several hundred years.

A word about insurance company ratings: Many people have confidence in insurance company industry “ratings,” which typically measure financial stability from one viewpoint or another. However these ratings can change very quickly, as we saw when AIG, Hartford, Lincoln, and a number of insurance companies were downgraded in 2008.

Bigger is not necessarily better when it comes to insurance companies. AIG was once the 18th largest corporation in the world, and owned a number of financially strong insurance companies, and it nearly failed. Therefore, when assessing the financial health of any insurance company, you need to look at many variables beside the size of the company.

At J.D. Mellberg Financial, we have developed a number of measures of financial health that we apply to every insurance company before we do business with them. These measurements go beyond the scope of this report; however, we will be happy to discuss them with you in a phone call, in a meeting over the Internet, or in a face-to-face strategy session.


Do You Feel Your Retirement Is Well Funded?

For many decades, a pension from a large Fortune 500 company often guaranteed a comfortable retirement. More recently, however, with the bankruptcy of several major corporations, people planning now for the future may realize that having a pension with a big company is no guarantee that you will have a comfortable retirement.

Some long-term employees and executives of such big companies have seen their pension incomes significantly reduced. In some cases, they are receiving only 10 cents or 20 cents of every dollar that was initially promised to them. A record-breaking number of failed pension programs have been turned over to the government-run Pension Benefit Guarantee Corporation (PBGC). As a government entity, the PBGC pays on pensions when possible, but payments are often only a portion of the amount originally expected by the pensioners. (http://www.gao.gov/new.items/he00199t.pdf, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/75xx/doc7520/93doc02.pdf, http://www.pbgc.gov/docs/guaranteelimits.pdf and http://www.soa.org/library/newsletters/the-actuary-magazine/2009/june/act-2009-vol6-iss3-enderle.aspx.)

If you are age 60, the maximum monthly pension that the PBGC pays is $2,925, even if you had worked for and expected a much larger pension. Americans whose pension plans have gotten into trouble may be surprised by how little they receive from the PGBC. (http://www.pbgc.gov/wr/large/delphi/salary/what-is-the-maximum-guaranteeable-benefit-limit---delphi-salary-video-transcript.html, http://www.pbgc.gov/ docs/smallbusinessguide.pdf and http://www.pbgc.gov/docs/smallbusinessguide.pdf.) Many retirees who thought they had a “guaranteed” retirement of a certain amount have had to alter their lifestyles or continue working to cover expenses.

Employees of some small and mid-size companies have long been more responsible for their own retirement savings than employees of large companies. Many small companies do not have any type of pension plans or 401(k) programs. However, we have found that employees of small companies, just like employees of larger companies, tend to have a large portion of

Some companies that have gone bankrupt:

· General Motors

· Chrysler

· United Airlines

· Delta Airlines

· Northwest Airlines

· U.S. Airways

· Lehman Brothers

· Bear Stearns

· Washington Mutual

· K-Mart

· Circuit City


retirement savings in stocks and mutual funds. Employees managing their own retirement savings who have those savings in the markets are likely to have suffered significant losses over the past twelve years. The S&P 500:

· Lost 10.14% in 2000

· Lost 13.04% in 2001

· Lost 23.37% in 2002

· Lost 38.49% in 2008

(http://www.1stock1.com/1stock1_141.htm.)

If a person has a retirement program at all today, it is likely to be a 401(k) or a similar program. These types of retirement savings plans are largely unprotected from stock market volatility. In addition, many Americans approaching retirement do not have much money saved. A lot of what they do have saved for retirement is often allocated to stocks, mutual funds, real estate, or other unprotected investments. If retirement security is important to you and if you would like to have some of your retirement savings in principal-protected vehicles, our insurance-licensed agents who specialize in retirement income planning can help you.

Our goal is to help as many Americans as possible enjoy greater retirement security. The exciting “hybrid” index annuity may be part of a good strategy for you. As you have seen, this index annuity offers a high level of guaranteed* income benefits and protection of principal.

No matter what the stock market does, no matter what financial challenges your employer faces, and no matter what your pension plan or 401(k) does, when you own this annuity, you will have greater assurance that your retirement money will last as long as you do.*


Why Government Employees and Corporate Employees

Are Coming to Love Annuities

If you are one of the more than 10 million government workers in our country, you may want to pay special attention to this part of the report. You will learn why more and more government workers and retirees are now turning to the trusted annuities industry to potentially add more income and help provide more stability to their retirement incomes.

A government pension has always been considered the “gold standard” in pension programs. For many years, government pensions moved in just one direction: they went UP in value. When the stock market had down years, government employees and retirees did not suffer; they got every penny promised to them. Now, many government employees who thought they had a solid retirement program are learning otherwise. Due to budgetary strains, some states are making reduced contributions to pension plans or are not fully funding those plans. (http://www.kellogg.northwestern.edu/ News_Articles/2010/municipal-pension-systems.aspx and http://www.ncpa.org/pdfs/st329.pdf.) In addition, cost of living increases to cope with inflation are being reduced or eliminated (http://slge.org/wp-content/uploads/2012/04/S-L-Govt-Workforce-2012_12-195_web.pdf and http://www.cbsnews.com/8301-505244_162-57443654/judge-nj-doesnt-have-to-pay-colas-for-retirees/.) Government pension plans are also being threatened by a growing nationwide movement to reduce pensions to government employees. (https://www.capitalresearch.org/2012/02/the-battle-for-california-pension-reform-and-paycheck-protection-seek-voter-approval-in-november-the-battle-for-california-pension-reform-and-paycheck-protection-seek-voter-approval-in-november/, http://www.nytimes.com/2010/08/07/your-money/07money.html and http://topics.nytimes.com/topics/reference/timestopics/ subjects/o/organized_labor/index.html.)

To more fully inform you on the important changes being proposed for government pensions, we will share one example with you. (We could provide many more from across the country.) The Little Hoover Commission is a highly respected, objective, bipartisan, independent agency that promotes efficiency in government. In February 2011, the commission released a comprehensive report on the severe problems faced by California’s massive government pension programs. California, which has the largest population of any state, is currently facing a $24 billion deficit—the largest state deficit in United States history—and a significant portion of this deficit is due to the rapidly rising costs of pensions paid to retired government workers. (http://www.lhc.ca.gov/studies/204/Report204.pdf, http://articles.latimes.com/2011/apr/08/local/la-me-boosted-pensions-20110408 and http://www.economist.com/node/17248984.)


Some government employers have abandoned pension plans and have instituted 401(k) programs for their workers. Many other government employers are considering making this move—not because they want to, but because of fiscal necessity. (http://www.nola.com/politics/index.ssf/2012/06/everyone_a_winner_as_2012_legi.html, http://articles.latimes.com/2012/jun/07/local/la-me-pensions-20120607 and http://www.pennlive.com/editorials/index.ssf/2012/06/gov_walkers_big_win_could_fuel.html.)

Here is something you may not know unless you live in California or one of the other states facing major economic problems: the deficits in California have led to the closure of libraries, fire stations, and public parks, as well as to significant reductions in services being offered to students, the poor, the ill, the infirm, and senior citizens. Similar types of cutbacks are taking place in other states running deficits such as Nevada, New Jersey, Wisconsin, and Texas. (http://online.wsj.com/article/SB10001424052970203363504577187404227466474.html, http://www.nationalaffairs.com/publications/detail/the-trouble-with-public-sector-unions, http://qctimes.com/news/national/california-pension-cuts-may-have-ripple-effect/article_4180a960-b1fb-5438-80e5-fbc9981baad6.html, http://articles.latimes.com/2010/mar/24/local/la-me-library-cuts24-2010mar24, http://www.utsandiego.com/news/2010/jan/27/city-to-cut-services-at-13-fire-stations/, http://www.nytimes.com/2011/06/07/us/07parks.html, http://www.sltrib.com/sltrib/outdoors/52484550-117/budget-cuts-looking-park.html.csp, http://online.wsj.com/article/SB10001424052702304065704577426711584372308.html, http://www.cbpp.org/cms/?fa=view&id=3569 and http://www.pennlive.com/midstate/index.ssf/2012/02/gov_tom_corbett_seeks_big_chan.html.)

The LA Times article about the Little Hoover Commission reports that California’s $24 billion deficit pales in comparison to the $240 billion shortfall in public pension plans in California. They have promised more than the amount of money available to pay these pensions. This figure was estimated by the ten largest public employee pension plans in the state. Some government reform experts say the shortfall is actually much worse, especially when you factor in the promise of free medical care for life that was made to government employees. (http://articles.latimes.com/2011/feb/26/opinion/la-ed-pensions-20110226.)

Across the nation, proposals are being drafted to reform government pensions in an attempt to avoid the bankruptcy of cities, towns, and counties. (http://www.nytimes.com/2012/05/01/us/providence-mayor-moves-financial-woes-to-fore.html, http://www.bloomberg.com/news/2011-08-02/central-falls-bankruptcy-driven-by-pensions-casts-shadow-over-rhode-island.html, http://www.washingtonpost.com/business/economy/vallejo-calif-once-bankrupt-is-now-a-model-for-cities-in-an-age-of-austerity/2012/05/23/gJQAjLKglU_story.html, http://online.wsj.com/article/SB10001424052702303830204577449520757569232.html and http://www.reuters.com/article/2012/03/05/us-usa-jefferersoncounty-ruling-idUSTRE8240QD20120305.)

The bottom line appears to be that states, counties, and cities simply cannot afford to pay government pensions as they have promised. Even the government employee unions appear to recognize this economic situation and are now going along with the moves to reform


pensions. (http://mccrearyrecord.com/x318747847/Public-workers-in-fiscal-political-bulls-eye, http://www.ci.royal-oak.mi.us/portal/content/police-officers-agree-pay-cuts-and-other-concessions, http://www.ci.royal-oak.mi.us/portal/content/police-officers-agree-pay-cuts-and-other-concessions and http://online.wsj.com/article/SB10001424052702304821304577438452821346064.html.)

In 2010, faced with record-breaking deficits, government entities laid off thousands of employees. (http://online.wsj.com/article/SB10001424052970203513604577142394232057240.html, http://articles.latimes.com/2010/oct/23/business/la-fi-1023-caljobs-20101023, http://lifeinc.today.msnbc.msn.com/_news/2012/04/06/11039018-government-job-losses-dragging-down-growth?lite and http://www.washingtonpost.com/business/economy/threat-from-mounting-public-job-losses-tested-obamas-economic-strategy/2012/04/29/gIQAhJpMqT_story.html). Faced with losing their jobs or accepting pension reform, a number of government workers and unions of government employees are agreeing to reductions in pension benefits. Some pension experts believe that further reductions in government pensions are inevitable. (http://www.popcouncil.org/pdfs/wp/185.pdf, http://news.yahoo.com/2-california-cities-vote-public-pension-cuts-081344939.html, http://www.publicceo.com/2012/04/gao-study-highlights-trends-in-pension-reform-challenges-nationwide/, http://www.governing.com/columns/public-money/col-COLA-freezes-government-public-pension-reform-third-rail.html and http://www.chapman.com/media/news/media.907.pdf.)

If you were counting on receiving a government pension with annual cost of living increases, you may wish to read some of the above-cited articles, which are only a small sample of the numerous articles available on pension reform.

There may be several ways you could help make up the difference with annuity purchases. You could also make up for some of this shortfall by setting up an individual retirement account (IRA). Still another option is that you, your spouse, or both of you could work a few extra years, either full-time or part-time, to make up for any cutbacks in your pension benefits.

If you have any type of government job, you may want to take steps now to ensure that you and your spouse will have all of the guaranteed* income you need to live the retirement lifestyle you desire. We believe that a “hybrid” index annuity may be an excellent source of additional retirement income for government employees who are concerned about possible cuts and reductions in their pension benefits.

The increasing popularity of annuities: Hundreds of thousands of government employees, including school teachers, college instructors, and employees of nonprofit hospitals are already contributing to tax-sheltered annuities through their 403(b) programs. (These programs are already tax sheltered, so there are no additional tax advantages to be had by purchasing annuities within the programs.) They have come to love these 403(b) annuities and the protections they offer. We have found that as they attempt to plan for more financially


secure retirement, these government employees quickly grasp the benefits of adding “hybrid” index annuities to their retirement planning strategies.

With the rapidly spreading nationwide changes in pension plans, we believe that many nongovernment employees will be turning their attention to annuities. If you do not have a government job or if you work for a private company that only offers a 401(k) or a limited pension plan, you may also want to pay serious attention to the benefits and protections that today’s annuities can offer you and your spouse.


We Can Help Find the Right Annuity for You:

The Services Offered by J.D. Mellberg Financial

J.D. Mellberg Financial is one of the largest firms in America specializing in retirement income planning. We are registered to sell stocks, bonds, mutual funds, bond funds, real estate funds, commodity funds, or hedge funds; and many of our clients do own such investment products. While each of those can have their places in the portfolios of some retirees, they are not our focus, because most of them do not offer guaranteed* income. The reason people come to us from across the country is for retirement income planning. We specialize in strategies that offer guaranteed* income —income that cannot be taken away by stock market crashes, real estate losses, or cuts in pensions.

We are seeing an increasing number of government and corporate employees and retirees come to us for help in designing their retirement income strategies. Whether you work for the government or for a private company, we can potentially help you make up for the pension reductions that have been enacted and those that are being proposed. If you have a 401(k) plan or an IRA, we could help you receive a guaranteed* source of retirement income to supplement whatever money you might be able to withdraw from your 401(k) or IRA.

Some of the people who come to us for help in designing personal retirement income plans do not have any type of retirement plan.

Whatever your situation, the current retirement income products, such as the “hybrid” index annuity, allow us to help you craft a retirement income plan that might not just make up for any shortfall in your pension plan or 401(k), but that could help you enhance your retirement income. This level of financial security guaranteed* by your annuity holder that can never be altered by the actions of your employer or by changes in laws.

Many of our clients are concerned about possible reductions in social security payments. If that is a concern for you, we invite you to call us to discuss ways you could supplement your social security income and add to your retirement confidence.

Call us today if you want assistance in protecting your retirement nest egg, turning some of your savings into guaranteed* income for life, and living more of the retirement of YOUR dreams.

1-877-801-9860

J.D. Mellberg Financial3067 W Ina RoadTucson, AZ 85741

Index annuities provide the guarantees of fixed annuities combined with the opportunity to earn interest based on potential market index gains—without directly participating in the market. This exciting family of “hybrid” annuities offers enhanced benefits, including guaranteed* income that may increase every year (with purchase of rider**).

How An Exciting Family of“Hybrid” Index Annuities Works

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