Alternative to the GLWBRetirement Income Solutions

This presentation contains scenarios with many assumptions on rates of return. No rate of return assumption can predict what may actually happen to a client’s market value. Subject to any

applicable Death, Maturity and Guaranteed Minimum Withdrawal Benefit guarantees, any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value. The purpose of the scenarios

is to illustrate and compare different investment strategies to generate retirement income.

Retirement Income

Principal risks

– Longevity

– Inflation

– Market risk

Clients are looking for:

– Income for life

– Possibility to increase income (growth potential)

– Guarantees

Options to address what the client wants.

“Bundled” approach

Guaranteed Life Withdrawal Benefit

(GLWB)

“Build-your-own” combination

Life annuity + seg fund portfolio

Same rules for everybody. Adapt combination to meet each client’s needs.

Your clients have a choice!

GLWB Option• Combination of life annuity features and seg funds

bundled in one product

• Lifetime income

• Growth potential through resets every 3 years only. – In order for reset or “step-up” to occur, market value of

GLWB portfolio must be higher than the Guaranteed Withdrawal Benefit Base (GWB base).

– How likely?

GLWB Option• Typically, the guaranteed annual income amount is now

4% of the GWB base if started at age 65, for one individual.

• Companies offer the GLWB before age 65 but for a reduced income (i.e. 3.5% of the GWB base at age 60).

• Growth can be achieved through resets every 3 years.

• Resets are applied if the market value of the investment is higher than the GWB base.

GLWB Option• For market value to remain equal to GWB base, net

annual rate of return must be equal to the rate of withdrawal – in this case, 4%.

• If the MER (including the GLWB fee) is 3.0% to 3.5%, this translates into an 7.0% to 7.5% gross annual return necessary to keep market value equal to GWB base.

• At that rate, market value only remains equal to GWB base: no growth to income.

Build your own Combo

• Use a life annuity to cover the guaranteed income for life portion (available before age 65 if needed).

• Possible to add a guarantee period for estate planning purposes.

• Balance of portfolio invested in one or a mix of seg funds suitable to client’s objectives.

Build your own combo

Portfolio

Life annuity

Guaranteed lifetime income

Segregated funds

Maximum flexibility to:• increase monthly income;

• make lump sum withdrawal;• accumulate for estate.

Scenario A• Male turns 65 on Dec. 1st, 2012.

• Invested premium on Dec. 31st, 2012: $400,000

• Net annual return on seg fund (in GLWB and Combo illustrations): 4.00%

• GLWB annual income: 4.00% of GWB base = $16,000 ($1,333.33 monthly)

GLWBIn this scenario:• Lifetime monthly income of $1,333.33.• No increase in income since market value never exceeds GWB

base.

0

1 0 0

2 0 0

3 0 0

4 0 0

5 0 0

($00

0)

6 5 6 8 7 1 7 4 7 7 8 0 8 3 8 6 8 9

A g e

G W B B a s eM a r k e t V a l u e

Build your own Combo

*Interest rate on life annuity: 3.00%. Premium required to generate a lifetime monthly income of $1,333.33 for a 65-year-old male.

Life Annuity Guarantee Period

Premium

Life Annuity* Seg Funds

No guarantee period $248,591.15 $151,408.85

10-year guarantee period $256,643.54 $143,356.46

20-year guarantee period $284,330.20 $115,669.80

25-year guarantee period $305,570.59 $94,429.41

Build your own comboBuild your own comboPortfolio

$400,000

Life annuity with 20-year guarantee period

$284,330.20

Guaranteed lifetime income of

$1,333.33 per month

Segregated funds

$115,669.80

Maximum flexibility to:• increase monthly income;

• make lump sum withdrawal;• accumulate for estate.

Build your own Combo

In this scenario:• Client can increase total income by 2.5% every year

until age 97.

• Client can increase total income by 2.0% every year and have approximately $77,000 left in the seg fund portfolio at age 100.

AgeOn

Jan. 1st

Total Monthly Income

GLWB

Combo

2.0% increase 2.5% increase

65 $1,333.33 $1,333.33 $1,333.33

68 $1,333.33 $1,414.94 $1,435.85

71 $1,333.33 $1,501.55 $1,546.25

74 $1,333.33 $1,593.45 $1,665.15

77 $1,333.33 $1,690.98 $1,793.18

80 $1,333.33 $1,794.49 $1,931.06

83 $1,333.33 $1,904.32 $2,079.54

86 $1,333.33 $2,020.88 $2,239.44

89 $1,333.33 $2,144.58 $2,411.63

Income Comparison for ScenarioIncome Comparison for ScenarioAnnual net rate of return on seg funds: 4.00%Annual net rate of return on seg funds: 4.00%

What happens in the same scenario if the annual rate of return is

6.00%?

Income Comparison for ScenarioAnnual net rate of return on seg funds: 6.00%

AgeOn

Jan. 1st

Total Monthly Income

GLWB

Combo*

2.5% increase 3.0% increase

65 $1,333.33 $1,333.33 $1,333.33

68 $1,419.07 $1,435.85 $1,456.97

71 $1,509.42 $1,546.25 $1,592.07

74 $1,605.53 $1,665.15 $1,739.69

77 $1,707.76 $1,793.18 $1,901.01

80 $1,816.49 $1,931.06 $2,077.28

83 $1,932.15 $2,079.54 $2,269.91

86 $2,055.18 $2,239.44 $2,480.39

89 $2,186.03 $2,411.63 $2,710.39

*With a 2.5% increase in income, the market value of the seg fund portfolio at age 100 is approximately $257,000. With the 3% increase in income, the market value of the seg fund portfolio at age 100 is approximately $78,000.

What happens in the same scenario if the annual rate of return is

3.00%?

Income Comparison for ScenarioAnnual rate of return on seg funds: 3.00%

AgeOn

Jan. 1st

Total Monthly Income

GLWB

Combo*

2.0% increase

65 $1,333.33 $1,333.33

68 $1,333.33 $1,414.94

71 $1,333.33 $1,501.55

74 $1,333.33 $1,593.45

77 $1,333.33 $1,690.98

80 $1,333.33 $1,794.49

83 $1,333.33 $1,904.32

86 $1,333.33 $2,020.88

89 $1,333.33 $2,144.58

*The market value of the seg fund portfolio at age 99 is approximately $3,000.

Let’s assume that the annual rate of return for the first 3 years is 6.00%.For the following years, the rate of

return is 3.00%.

GLWB• Market value after 3 years is higher than the GWB base.• Reset results in higher lifetime guaranteed income: $1,419.07

(6.43% higher than initial income amount).

1 5 0

2 0 0

2 5 0

3 0 0

3 5 0

4 0 0

4 5 0

5 0 0

($00

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G W B B a s eM a r k e t V a l u e

Build your own Combo• Client can increase total income by 2.5% every year for

the first 3 years to bring monthly income to $1,435.85.

• Withdraw lump-sum ($21,251.90) to buy life annuity.* Both life annuity monthly income total $1,435.85 guaranteed for life.

• Even with the lower return on the seg funds (i.e. 3% annually), client could still increase total income by 2% each year until age 94.

*Interest rate on life annuity: 3.00%. Includes 17-year guarantee period to coincide with the end of the guarantee period on the first life annuity.

Income Comparison for ScenarioAnnual rate of return on seg funds: 6.00% first 3 years;

3.00% following years

AgeOn

Jan. 1st

Total Monthly Income

GLWB

Combo

2.5% increase first 3 years; 2% increase subsequently

65 $1,333.33 $1,333.33

68 $1,419.07 $1,435.85

71 $1,419.07 $1,523.74

74 $1,419.07 $1,617.00

77 $1,419.07 $1,715.97

80 $1,419.07 $1,821.01

83 $1,419.07 $1,932.47

86 $1,419.07 $2,050.75

89 $1,419.07 $2,176.27

GLWB “Build-your-own” Combo

Guaranteed income for life Yes Yes

Increasing income

Only if market value is higher than the GWB base amount. Reset

available every 3 years only.

At the discretion of the client, anytime, for any amount, until no money

left in seg funds.

Impact on guaranteed lifetime income if excess withdrawal is made

Yes No

Asset allocation of seg funds

In most cases, limits to equity exposure. No restrictions

Retirement Income

What about pre-retirement?

GLWB• Most contracts offer a bonus (3.5% to 5% of GWB base) for years

when no withdrawals are made.

• The bonus is added to the GWB base, not the market value.

• Any withdrawals made before the lifetime withdrawal phase will lower the GWB base, thus lowering the eventual lifetime guaranteed income.

• To benefit from the increase in the GWB base, client must remain in GLWB contract during the lifetime withdrawal phase.

• If client cancels the GLWB contract, he leaves with the market value, not the GWB base.

• Resets still apply every 3 years if market value is higher than current GWB base.

Some clients prefer guarantees.

Some clients prefer flexibility.

What do your clients prefer?

Advantages of building your own combo to generate retirement income

• Flexibility without affecting guaranteed income from life annuity.– Increase your total income as you wish;– Make lump sum withdrawal if needed (i.e. emergency);– Save for beneficiaries.

• Maximum flexibility in asset allocation strategy for seg funds.