creating a retirement paycheck client use

14-1555-01

Creating aRetirement Paycheck

The Northwestern Mutual Life Insurance Company (Northwestern Mutual) Milwaukee, WI

Firstname LastnameTitle

City, StateDate

Issuer: The Northwestern Mutual Life Insurance Company, 720 E. Wisconsin Ave., Milwaukee, WI 53202-4797Principal Underwriter: Northwestern Mutual Investment Services, LLC, a wholly-owned company ofThe Northwestern Mutual Life Insurance Company 611 E. Wisconsin Avenue, Suite 300, Milwaukee, WI 53202-4797(866) 664-7737, member NASD and SIPC. Not for use in NC, MS, OK, OR.

The Northwestern Mutual Life Insurance Company (Northwestern Mutual) , Milwaukee, WI 14-1555-01 (0707)

Disclosures The Northwestern Mutual Financial Network is the sales and distribution arm of The Northwestern Mutual Life

Insurance Company, its subsidiaries and affiliates. Issuer: The Northwestern Mutual Life Insurance Company, 720 E. Wisconsin Ave., Milwaukee, WI 53202-4797 Principal Underwriter: Northwestern Mutual Investment Services, LLC, a wholly-owned company of The

Northwestern Mutual Life Insurance Company 611 E. Wisconsin Avenue, Suite 300, Milwaukee, WI 53202-4797, (866) 664-7737, member NASD and SIPC.

No investment strategy can guarantee a profit or protect against loss. The performance of variable funds is not guaranteed.

Withdrawals taken from an annuity before age 59 ½ may be subject to a 10% IRS early withdrawal penalty. Income plans are backed solely by the claims-paying ability of the issuer. Variable Annuities are sold by prospectus only. You should carefully consider the

investment objectives, risks, expenses and charges of the investment company before they invest. A Northwestern Mutual Investment Services Registered Representative can provide clients with a contract and fund prospectus that will contain the information noted above, and other important information that clients should read carefully before they invest or send money.

To be used with form number RR.V.A.FR.(0803), RR.V.B.FR.(0803), RR.V.A.BK.(0803), RR.V.B.BK.(0803), RR.V.A.BK.NGF.(0803), RR.V.B.BK.NGF.(0803), RR.V.B.MSNST.(0704), RR.V.A.FR.(0704), RR.V.B.FR.(0704), RR.V.A.BK.(0704), RR.V.B.BK.(0704), RR.V.B.MSNST.(0704), RR.V.A.FR.NGF.(0704), RR.V.B.FR.NGF.(0704), RR.V.A.BK.NGF.(0704), RR.V.B.BK.NGF.(0704), RR.V.B.MSNST.NGF.(0704), RR.V.A.BK.(0805), RR.V.B.BK.(0805), RR.V.A.FR.(0805), RR.V.B.FR.(0805), RR.V.B.MSNST.(0805), RR.V.A.BK.NGF.(0805), RR.V.B.BK.NGF.(0805), RR.V.A.FR.NGF.(0805), RR.V.B.FR.NGF.(0805), RR.V.B.MSNST.NGF.(0805), RR.V.C.NE.(1106), RR.V.A.FB.(1106), RR.V.A.FB.NGF.(1106), or state equivalent. Not all contracts available in all states.


Retirement Concerns

Source: National Association for Variable Annuities 2005 survey of 1001 respondents. Margin of error +/- 3%.

28%

24%

18%

16%9%

5%

High Health Care costsInability to maintain standard of living

Decline in Social Security paymentsInflation

Don't Know

Running out of money


Longevity RiskRetirees need to plan for longer life expectancies

AgeCouple(Both age 65)

Source: Annuity 2000 Mortality Table; Ibbotson Associates

85 90

Female Age 65

Male Age 65

Lifespans

92

Age

Age

85

85

88

90 92 100

90 100

100

95

94 95

95 97

50% chance 25% chance

50% chance 25 % chance

50% chance of one survivor

25% chance of one survivor


The impact of inflationRising prices eating away at your purchasing power

Income

2010

Assumes 3.5% annual inflation rate. Actual results may vary. Source: Federal Reserve Banks, 2007.

2015 2020 2025 2030

$1,000

$800

$600

$400

$200

$0


Changing LandscapeWhat was it like to retire in 1984? Almost 65% of retirement income came from Social Security Other retirement income was largely guaranteed by an employer

DB plans from high quality employers covered about 40% of householdsDC plans covered only 22% of households

Healthcare expenses were largely covered by employee retirement health plans Life expectancy at age 65 was 14.4 years for males and 18.6 years for females – longer longevity was not a major issue as most costs were covered by social security and DB plans

Retirement income needs guaranteed for shorter

life expectancies

What was it like to retire in 2005? Social Security provides less than 40% of retirement income (and is likely to drop further) Responsibility for other retirement income has shifted to individuals

DB plans only cover 19% of households - and many are under distress from under-funding and corporate bankruptciesDC plans cover 55% of households - but 50% of households headed by a 45-55 year-old have saved less than $50K in retirement assets

Out-of pocket healthcare expenses are growing at 2-3x inflation, with growing shift toward individual risk sharing (e.g., HSAs) 65 yr old female - 33% chance of living to 91 and a man 25% – most people don’t realize the impact of life expectancy on their retirement assets

Increasing individual responsibilitywith an uncertain outcomeSource: LIMRA International, 2005; SSA.gov


Retiree Challenges

No more paycheck Identifying income sources Transition from saving to spending Drawing down investment assets Possible tax law considerations Investment risk & inflation Health and long-term care concerns


Feeling of a difficult adjustment

Marriage Parenting Retirement

Source: LIMRA International, 2006 - based on an American demographics poll of men and women between ages 55-75.

14%

58%

28%


Many people don’t have an income plan for retirement

11%78%

11%

No PlanEstablished Plan Before RetirementEstablished Plan When Retired

Source: LIMRA International, 2005. Sample: Consumers aged 50 to 75 with $50,000 or more in household investable assets.


Where will retirement income come from? Income generating investments (stocks, bonds or

mutual funds) Systematic Withdrawals (taking periodic withdrawals from

an investment) Social Security (Will it or won’t it be available?)

Qualified Plans (e.g. 401(k) and pension plans)

Alternative investments (e.g. business income, real estate income)

Annuities (e.g. immediate and fixed/variable deferred)


Hypothetical value of $500,000 invested at year-end 1972. Portfolio: 50% large company stocks, 50% intermediate-term bonds. Assumes reinvestment of income and no transaction costs or taxes.

Annual inflation-adjusted withdrawal as a % of initial portfolio wealth

5% withdrawal rate

$100,000

$300,000

$500,000

$600,000

$0

$400,000

$200,000

1976 1980 1984 19961988 19921972

6% withdrawal rate7% withdrawal rate8% withdrawal rate9% withdrawal rate

Systematic Withdrawals


Immediate Annuity

Sold by life insurance companies Lump sum buys an income stream Any guarantees are backed solely by the

claims-paying ability of the issuer


Immediate fixed annuity payments

AgeAssumes a 65-year-old male living in Illinois and a $1,000,000 premium. Estimated annual payments are $78,588 adjusted for inflation of 3.1%. Quote obtained from WebAnnuities.com.

Payment stream in real dollars from a $1,000,000 premium fixed annuity

65 70 75 80 85 90 95 100

Fixed annuity paymentsFixed annuity payments (after inflation)

Ann

ual p

aym

ent

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

This is a hypothetical example used for illustrative purposes and is not intended to represent the actual performance of a particular investment. The annuity income guarantee is based on the claims-paying ability of the insurance company that issued the annuity.


Deferred Annuity (long-term investment) Sold by life insurance companies Lump sum or series of deposits Fixed or variable Any guarantees are backed solely by the

claims-paying ability of the issuer Fees and expenses vary from issuer to

issuer


Deferred Variable Annuityfees and expenses that can apply:

Mortality and expense fee (on-going asset-based)

Portfolio fee (on-going asset based)

Contract fee (can be ongoing or waived at a specific contract value)

Additional benefits and riders (ongoing asset based)

Sales load (one-time, asset-based)– if a sales load is paid withdrawal charges do not apply and mortality and expense

fees are lower

Withdrawal charges (these apply if a sales load is not paid)– can expire after a number of years– some contracts waive these under certain circumstances– some contracts have a withdrawal charge free corridor


Deferred Annuity (long-term investment) Two phases

– Deferral – (savings) period of time when contract values accumulate

Tax-deferred growth – Income – (annuitization) contract values are

put into an income plan

Withdrawals from an annuity may be subject to ordinary income tax and a 10% IRS early withdrawal penalty if taken before age 59 ½. All guarantees in an annuity are backed solely by the claims-paying ability of the issuer.


Benefits of risk sharing

Mortality risk shared among large group Payout based on mortality of multiple lives Healthy survivors benefit from shared risk Shared risk produces higher individual

payout


Annuity distribution options

Specified period Life only Life with

certain periodJoint & Survivor

Life

Annuitization

Income alternatives

Lump sum Systematic withdrawal

All guarantees in an annuity are backed solely by the claims-paying ability of the issuer.


Types of annuity income streams

Fixed income plan– Guaranteed payment amount – Lifetime or specified period

Variable income plan– Payments fluctuate – Variable payments are based on the

investment performance of separate account– Lifetime or specified period

Any guarantees in an annuity are backed solely by the claims-paying ability of the issuer.


20 Year Inflation Adjusted Payout Variable and Fixed Annuities: 1975-1995

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

Variable Monthly BenefitVariable Monthly Benefit

Fixed Monthly BenefitFixed Monthly Benefit

25/75 Variable/Fixed25/75 Variable/Fixed

Monthly Benefit Annuitizing $1,000,000 in 1975 at age 65

Immediate annuity rates are lifetime rates based on a 65 year old male with zero years certain. Past performance does not guarantee future results. No investment strategy can guarantee a profit or protect against a loss. Hypothetical example used for illustrative purposes only and does not represent the performance of any investment product or strategy. Does not reflect fees, expenses or taxes.


Immediate annuity rates are lifetime rates based on a 65 year old male with zero years certain. Past performance does not guarantee future results. No investment strategy can guarantee a profit or protect against a loss. Hypothetical example used for illustrative purposes only and does not represent the performance of any investment product or strategy. Does not reflect fees, expenses or taxes.

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

Age

65

Age

70

Age

75

Age

80

Age

85

Variable Monthly BenefitFixed Monthly Benefit25/75 Variable/Fixed

20 Year Inflation Adjusted Payout Variable and Fixed Annuities: 1965-1985

Monthly Benefit Annuitizing $1,000,000 in 1965 at age 65


Combining fixed and variable income plans can: Potentially increase payments over time Ease the volatility of overall income Fluctuate monthly Mitigate interest rate risk

No single product was designed to meet all financial needs. Evaluate a client's financial needs, goals and position, risk tolerance, and time horizon


Norm Weston:A hypothetical case study


Norm is age 70, widowed

Has $1.5 million of liquid assets Goal of $75,000 of income in addition to his

Social Security and defined benefit income Norm’s is concerned about:

– Inflation– outliving his income

Norm is a ‘balanced’ investor Norm owns life, health, and long-term care

insurance

No single product was designed to meet all financial needs. Evaluate your financial needs, goals and position, risk tolerance, and time horizon.


After careful consideration of Norm’s goals, time horizon, investment risk tolerance, and personal circumstances

Divide assets as follows:– 50% - $756,708 for immediate annuity– 17% - $250,000 variable income plan– 33% - $493,292 mutual funds– 100% - total

This is a hypothetical example used for illustrative purposes and is not intended to represent the actual performance of a particular investment. Any guarantee in an annuity is backed solely on the claims-paying ability of the issuer. This is one possible solution. This solution may not besuitable for everyone. Evaluate your financial needs, goals, risk tolerance, and time horizon.

One approach for Norm to consider


Immediate annuity generates $5,000 per month for life* (addresses longevity risk)

Variable income plan will provide an initial monthly payment of $1,397 with the potential for increase and an inflation hedge** (addresses inflation risk)

Balanced portfolio of mutual funds provides flexibility (flexibility and liquidity)

*Based on Northwestern Mutual Single Premium Immediate Annuity life income plan with 10 yr certain period, for interest rates in effect on 5/19/05. Rates change weekly.**Based on rates as of 5/19/05 for a 3.5% AIR. Subsequent payments will be dependent on the sub-account performance.

Any guarantee in an annuity is based solely on the claims-paying ability of the issuer.

What does this do for Norm?


No single product was designed to meet all financial needs. Evaluate a client's financial needs, goals and position, risk tolerance, and time horizon.

Single Premium Immediate Annuity payments are based on life income plan with 10 yr certain period, for interest rates in effect on 5/19/05. Rates change weekly. Variable Income Plan payments are based on rates as of 5/19/05 for a 3.5% AIR historical performance of the Balanced sub-account for the variable income plan illustration. The variable income plan data is not an illustration of future performance, but a representation of past performance.

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

Variable Payments

Fixed Payments

A hypothetical case studyA look at potential income


‘What if’ questions for Norm

Had a spouse? Was more concerned about inflation than

outliving his income? Was in poor health and not concerned about

outliving his income? Was uncomfortable with a monthly income that

fluctuates? Did nothing?


Summary

Today’s retirees face challenges previous retirees did not

Many people do not have a retirement income plan

Learning about retirement income alternatives available can help people prepare for retirement


Thank you!

creating a retirement paycheck client use

Documents