Using Dollar Cost Averaging to Take Advantage Of

Issue 1 Vol 11 | Spring 2020

IRI Insured Retirement Institute myIRIonline.org

In This Issue: USING DOLLAR COST AVERAGING Using Dollar Cost TO TAKE ADVANTAGE OF MARKET Averaging to Take Advantage of Market VOLATILITY Volatility 1

By Tim Seifert Finding Confidence in SVP and Head of Annuity Sales, Chaotic Times Lincoln Financial Distributors 4

IRI Fast Facts The ongoing COVID-19 pandemic and resulting economic repercussions have changed every 6 element of our daily lives and the way we plan for the future. Among top concerns during this time, including physical wellness and financial security, investors are navigating extreme Stay Secure When market volatility and the potential long-term impact it will have on their retirement savings. Working from Home Research from the Alliance for Lifetime Income shows that more than half of Americans are concerned they may need to delay retirement due to the current volatile market,1 and 7 Lincoln has found that half are interested in exploring protected lifetime income solutions.2 Maintaining Perspective in Times of Financial Volatility

SECURE Act Gives Annuities a Boost 11

1 Spring 2020 | myIRIonline.org Continued from page 1

More than ever, investors are turning to their financial professional’s Unlike a single investment, this strategy of easing into the market counsel to help protect their nest eggs and position them for the can help protect against risk. Given the current circumstances, future – especially if their retirement years are in view. Some clients DCA presents enhanced opportunity for investors to boost their may feel spooked, agonizing whether to participate in market retirement savings, particularly when leveraging a variable annuity risk in exchange for potential growth or go to cash but miss the that combines the power of DCA with an interest rate as high as 8%.3 upside potential of a rebound that they may need to reach their With a systematic DCA strategy, clients will be able to make the long-term goals. most of their investment dollars by smoothing out fluctuating share Advisors can help clients feel confident about their investment prices over time. Because DCA involves continuous investment decisions amidst the crisis by guiding them through the emotional regardless of changing price levels, clients can consider their highs and lows of the turbulent market, and providing tax- ability to continue purchasing through periods at all price levels. efficient options that involve a simple, disciplined approach This steady investment pace requires discipline by clients during to investing. periods of market volatility, which may require an advisor’s ongoing LEVERAGING DOLLAR COST AVERAGING DURING guidance. MARKET VOLATILITY PROTECTING RETIREMENT INCOME AND GROWING One way to help clients see the potential of market movement INVESTMENT DOLLARS and keep them steady during the crisis is to explain the value of DCA can be an especially effective strategy within annuity allocations dollar cost averaging (DCA). This strategy is a simple, disciplined for investors looking to increase their protected lifetime income. and proven approach where investors follow a regular investment Using a DCA approach within an annuity contract that features schedule over time, regardless of market conditions. Clients will an optional living benefit rider allows clients to take advantage of buy more assets when the market is low and prices decline, like guaranteed interest payments while their money is invested over in current conditions, and buy fewer assets when the market is time, in addition to managing fluctuating market prices. yielding higher prices — generally resulting in a lower average cost per share. Here’s an example that illustrates how this concept allows for growth of annuity investment dollars when coupled with a DCA program.

Monthly guaranteed cumulative interest earned

$1,941 Total interest $1,833 earned This example illustrates the $1,610 total interest earned assuming st earned tere a $100,000 investment into e in ativ $1,288 an annuity contract with DCA, Cumul assuming an 8% guaranteed $848 interest rate over a six-month $337 period. The 8% guaranteed interest rate that clients would receive over the six-month period is in addition to the Monthly interest annuity’s crediting rate.

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 $337 $511 $440 $322 $223 $108

Spring 2020 | myIRIonline.org 2 Using a DCA strategy within a client’s annuity allocations gives contain both investment and insurance components and have fees the opportunity to invest in underlying investment options on a and charges, including mortality and expense, administrative, and regular basis, locking in guaranteed interest payments via a living advisory fees. Optional features are available for an additional benefit rider as they invest over a set period of time. Doing so may charge. The annuity’s value fluctuates with the market value of result in an annual yield that may outpace market interest rates the underlying investment options, and all assets accumulate tax- and help accelerate savings for future income. deferred. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59½, may be subject to an additional This simple, methodical approach can provide clients with a boost 10% federal tax. Withdrawals will reduce the death benefit and to their retirement savings to help them reach their retirement cash surrender value. income goals, despite a downward trending market. Additionally, while DCA is an effective way to initially get clients into the market, Investors are advised to consider the investment objectives, risks, it’s important to keep an eye on your client’s overall portfolio and and charges and expenses of the variable annuity and its underlying rebalance as necessary. An annuity allows this activity to occur investment options carefully before investing. The applicable in a tax-deferred environment. prospectuses for the variable annuity and its underlying investment options contain this and other important information. Please call SOLUTIONS FOR A BRIGHT TOMORROW 888 868 2583 for free prospectuses. Read them carefully before In times of crisis, clients can feel empowered by knowledge and investing or sending money. Products and features are subject solutions. DCA is an option that can help clients navigate their to state availability. concerns regarding current unstable market conditions by easing Lincoln Investor Advantage® variable annuities (contract forms them into the markets steadily over time. When describing this 30070-A, 30070-B and state variations) are issued by The Lincoln strategy to clients, advisors can help them feel more comfortable National Life Insurance Company, Fort Wayne, IN, and distributed investing in the market by employing an annuity with a DCA by Lincoln Financial Distributors, Inc., a broker-dealer. The Lincoln program. While DCA cannot guarantee a profit or protect from National Life Insurance Company does not solicit business in the a loss in a declining market, it offers a strategic approach to state of New York, nor is it authorized to do so. counterbalancing the turmoil. Contracts sold in New York (contract forms 30070-A-NY and 30070- By Tim Seifert, Head of Annuity Sales for Lincoln Financial Distributors. B-NY) are issued by Lincoln Life & Annuity Company of New York, Lincoln is currently offering investors a DCA option through its Syracuse, NY, and distributed by Lincoln Financial Distributors, Investor Advantage annuity, offering an 8%, six-month fixed rate Inc., a broker-dealer. special through June 30, 2020. All contract and rider guarantees, including those for optional LCN-3076361-050720 benefits, fixed subaccount crediting rates, or annuity payout rates, Lincoln Financial Group® affiliates, their distributors, and their are subject to the claims-paying ability of the issuing insurance respective employees, representatives, and/or insurance agents company. They are not backed by the broker dealer or insurance do not provide tax, accounting, or legal advice. Please consult an agency from which this annuity is purchased, or any affiliates of independent advisor as to any tax, accounting, or legal statements those entities other than the issuing company affiliates, and none made herein. makes any representations or guarantees regarding the claims- Variable annuities are long-term investment products designed paying ability of the issuer. for retirement purposes and are subject to market fluctuation, There is no additional tax-deferral benefit for an annuity contract investment risk, and possible loss of principal. Variable annuities purchased in an IRA or other tax-qualified plan.

1 Source: Alliance for Lifetime Income: 2020 Retirement Reset Survey 2 Source: Phoenix Marketing International / Lincoln Financial Group, Affluent Market Study, 2020 3 Lincoln Investor Advantage® offered at 8%, six-month fixed rate special through June 30, 2020.

3 Spring 2020 | myIRIonline.org FINDING CONFIDENCE IN CHAOTIC TIMES Annuities as an income strategy for beleaguered investors

Where do we go from here? That’s the big good news is many of those investors are stocks in April of 2007, prior to the Great question on everyone’s minds — individual also revisiting their retirement plans, looking Recession.1 More than a decade after the investors and many professionals included. for stability among uncertainty. Now is the financial sector meltdown that left many After COVID-19 emerged, panic entered the time when financial professionals can bring pockets empty, only 55% of Americans had market and the ensuing selloff that took all of their tools to the table and help clients returned to owning stocks in 2018. regain some sense of control over their place in late February and March was a rude The emotional impact of stock market crashes financial futures. For those seeking retirement awakening from the euphoria of a historically can have lasting effects on an investor’s income, annuities with living benefits may long bull market. outlook. With that in mind, let’s consider offer welcome diversification and a boost of The rush for liquidity was dizzying, and what’s happening today. confidence through guarantees.* most asset classes were not spared in the “Net trading activity in 401(k) saving plans The strategy may be particularly attractive short term. Record highs quickly gave way was higher in the last week of February than ® following an event that will likely make many to staggering new lows with the S&P 500 all of the combined activity in the fourth investors more conservative. Over the past 15 posting more than a 30% loss, leaving quarter of 2019,” wrote CNBC’s Lorie Konish years, there has been a sizeable shift in the many wondering if we were heading to a on March 6.2 By February 24 of this year, the percentage of Americans who own stocks, 2008-level trough. S&P 500 had only slid 4.3% from its previous even though the last 10 years brought record- For the average investor, fear isn’t easily shook highs, and already retirement savers began setting gains to equity indices. According and many are still looking at the markets seeking safe havens with all inflows going to to a Gallup poll, 65% of Americans owned wondering when the storm will pass. The bond funds, stable value funds, and money market funds.

Spring 2020 | myIRIonline.org 4 With COVID-19 fears lingering among investors, to customize their approach toward gaining recently well-performing commodity like the year ahead brings much uncertainty. Are income. Once an investor has decided income gold, an annuity could be an attractive way we in a bear market rally waiting to test new is the goal, any growth can be set aside and to add some certainty to their retirement in lows, or has the market properly priced in the the true value of the living benefit, available a time where markets’ near future is murky. loss of demand for the rest of 2020? Hopes for an additional cost, can take the stage. As always, the client’s financial situation for a V-shaped recovery seem to be slimming, Withdrawal base guarantees offer certainty, and goals are a big part of the equation, but but will it be an L-, W-, or U-shaped recovery? but the current market conditions may lead the type of annuity needs to be right, too. Those questions are hard to answer at the to even larger growth of the withdrawal If income is the objective, a Transamerica moment, particularly as more troubling data base*** in a relatively short amount of time. variable annuity with a living benefit like continues to come forward. Following the 2008 intra-year low of 49%, Retirement Income Choice® 1.6 might work. By late April, 80 companies had withdrawn the market returned 23% in 2009.6 With an Open architecture allows its withdrawal base full-year financial forecasts, leaving analysts annuity providing guarantees, the conservative to grow at what could be record market less guidance for setting price targets.3 Not investor can potentially still gain the benefit returns, lock in that growth, and then offer a surprisingly, job-loss claims have skyrocketed of equity exposure while transferring risk to guaranteed withdrawal rate when the client and the Congressional Budget Office is the insurance company. is ready to take income. projecting unemployment will hit 16% by Obviously, it’s always important to remember Again, it’s an income play in a time where Q3 2020, ultimately settling at an average an investor’s plan and be sure an annuity income could be hard to generate for years 11.4% for the year.4 and optional benefits — or any financial or to come. Even if equity prices rise to near For investors nearing retirement, the situation insurance product, for that matter — meets peak levels by year’s end, interest rates presents a unique challenge. They’re trying to a clearly defined need within the plan. Some are likely to remain low for the foreseeable shift from accumulating assets to generating of the market’s best days follow its worst future. Following the 2008 crash, interest income in an environment where many ones, and you should consider the timing rates didn’t begin to rise until 2015.7 companies have cut dividends and yield is of adding any instrument and its associated The economy needs time to stabilize. hard to find due to rising bond prices and low fees with regard to whether the objective The Federal Reserve will likely ensure interest rates. And, again, many investors is principal growth, income, or something money remains cheap so that investment are in a state of despair about using equities else. It’s never a one-size-fits-all approach. is encouraged. For businesses seeking to at all. These investors might want to hear about a strategy that guarantees income while providing the opportunity to increase that income and combat inflation. "Some of the market’s best days follow its worst Demand for fixed index annuities is expected to ratchet up this year because investors ones, and you should consider the timing of may appreciate the ability to participate adding any instrument and its associated fees in market gains, as the market rebounds, with regard to whether the objective is principal but be guaranteed a floor under foot to protect against losses.5 If market volatility growth, income, or something else." continues, this type of strategy could give the conservative investor more confidence about remaining invested, allowing them to skip the weekly or monthly gut punch As we discussed earlier, some clients may re-establish themselves, that’s good news. some people experience with large swings have already moved to cash and debt before For retirees trying to generate income, it’s in account value.** the major declines took place. For the correct not as welcome. investor, particularly a conservative one who A similar case can be made for variable Securing guaranteed income may make a large has maintained purchasing power through annuities. If income is the primary objective, difference in the timing of when someone cash reserves, certain bond funds, or a variable annuities often offer a wider array of living benefit options that allow an investor Continued on page 6

5 Spring 2020 | myIRIonline.org Continued from page 5 is able to retire. Entering retirement when **Fixed index annuities are not a security and by Transamerica Capital, Inc. 1801 California planned is often as important to retirees are not an investment in the stock market St., Suite 5200, Denver CO 80202, FINRA as making their assets last. Americans are or in the indexes. Index account interest is member. References to Transamerica may living longer than they used to and running based on the index performance. There is pertain to one or all of these companies. out of money in retirement is a big fear for no guarantee that the index interest rate Variable annuities are long term, tax-deferred about half of them.8 Couple that with a turn will be greater than zero percent or that the vehicles designed for retirement purposes toward conservative investing, and annuity insurance company will declare an interest and are subject to investment risk, including purchases begin to match risk tolerance rate greater than the guaranteed minimum possible loss of principal. Variable annuities even closer. interest rate. are sold by prospectus. Before investing, your clients should consider investment With the markets looking like they do and ***The withdrawal base does not establish objective, risks, charges and expenses. emotions running on overdrive, now could be or guarantee the policy value, surrender This and other information is contained in the ideal time to diversify a portion of assets value, minimum death benefit, or return for the prospectus. Please encourage them to into an income-generating strategy that an investment option. read it carefully before investing. For more provides guarantees and allows retirement Transamerica annuities are issued in all about Transamerica variable annuities and investors to feel like they’ve stepped off the states except New York by Transamerica Retirement Income Choice 1.6, please go to rollercoaster. Life Insurance Company, Cedar Rapids, Iowa transamerica.com. All policies, riders, and *All guarantees are based on the claims-paying and in New York by Transamerica Financial forms may vary by state and may not be ability of the issuing insurance company. Life Insurance Company, Harrison, N.Y. available in all states. RGMB 37 0809, RGMB Annuities are underwritten and distributed 38 0809, RGMB 37 0809 (IS)(FL), RGMB 38 0809 (IS)(FL), other versions also available, RGMB 37 0718 (AJ)(OR), RGMB 37 0718 (AS) (OR), RGMB 37 0718 (IJ)(OR), RGMB 37 0718 (IS)(OR), RGMB 38 0718 (AJ)(OR), RGMB 38 0718 (AS)(OR), RGMB 38 0718 (IJ)(OR), RGMB 38 0718 (IS)(OR); RGMB 37 0514R (IS)(NY), RGMB 37 0514R (AS)(NY), RGMB 37 0514R (IJ)(NY), RGMB 37 0514R (AJ)(NY) 256085 05/20 ©Transamerica 2020

1 "How the Financial Crisis Still Affects Investors,” Barron’s, September 2018 5 "Annuities Take Center Stage,” Investment News, April 2020 2 "You might be Tempted to Move to Safer 401(k) assets amid coronavirus 6 "Standard and Poor’s, FactSet, J.P. Morgan Asset Management." Used with market swings. What to know before you shift your money,” CNBC, March permission. 2020 7 “Open Market Operation,” Board of Governors of the Federal Reserve System, 3 "Why Next Earnings Season Will be Worse,” Barron’s, April 2020 March 2020. 4 "CBO’s Current Projections of Output, Employment, and Interest Rates and 8 "Almost Half of Americans Fear Running Out of Money in Retirement,” a Preliminary Look at Federal Deficits for 2020 and 2021,” Congressional AARP, May 2019 Budget Office, April 2020

Spring 2020 | myIRIonline.org 6 IRI FAST FACTS

FEE-BASED ANNUITIES' CHOPPY RISE Sales of qualified fee-based variable annuities fell as non-qualified sales rose, with a trend of overall modest growth in fee-based sales continuing. Quarterly Fee-Based Variable Annuity Sales Q12003-Q42019 Quaterly Fee-Based Variable Annuity SalesQualiﬁed versus Non-Qualiﬁed Q12003-Q42019: Qualified versus Non-Qualified

1.6

1.4

1.2

1.0

0.8

Sales in $Billions 0.6

0.4

0.2

- 3/1/03 7/1/03 3/1/05 7/1/05 3/1/06 7/1/06 3/1/07 7/1/07 3/1/08 7/1/08 3/1/09 7/1/09 3/1/11 7/1/11 3/1/13 7/1/13 3/1/15 7/1/15 3/1/16 7/1/16 3/1/17 7/1/17 3/1/18 7/1/18 3/1/19 7/1/19 3/1/04 7/1/04 3/1/10 7/1/10 3/1/12 7/1/12 3/1/14 7/1/14 11/1/03 11/1/05 11/1/06 11/1/07 11/1/08 11/1/09 11/1/11 11/1/13 11/1/15 11/1/16 11/1/17 11/1/18 11/1/19 11/1/04 11/1/10 11/1/12 11/1/14

Qualiﬁed Non-Qualiﬁed Source: Morningstar, Inc.

7 Spring 2020 | myIRIonline.org Work-from-home resources Cybersecurity tips

STAY SECURE WHEN WORKING FROM HOME

We understand there are new challenges you’re facing today as you work from home, including increased cybersecurity risks. To help you protect your network, our Threat Intelligence Advisory team would like to share these insights and tips to avoid cyber risks.

OVERVIEW OPPORTUNISTIC ATTACKS The COVID-19 pandemic, and the resulting pivot to a work- The volume of coronavirus-themed phishing and social engineering from-home (WFH) environment for many of us, provides campaigns, designed to manipulate people into divulging confidential an attractive opportunity for cyber threats to occur. behavior, has increased steadily from initial reports observed early thisyear. Nationwide® has observed phishing attacks — fraudulent The attacks can be placed into three main categories: emails that come from seemingly legitimate sources used to persuade you to reveal sensitive personal information Email scams delivering malware and fake — that leverage the fear, uncertainty and doubt associated mobile apps with the virus threat. We anticipate these attacks will continue for the foreseeable future. The sale of fake or counterfeit goods offering deals on medical supplies, etc.

Social media misinformation designed to create panic

Spring 2020 | myIRIonline.org 8 Remote support scams, particularly the fake IT support variety, may TIPS FOR SECURING HOME NETWORKS AND IOT DEVICES also increase as scammers lean on the knowledge that people not Secure your home wireless (Wi-Fi) network accustomed to working remotely could be encountering system Be sure to change the default admin password, enable issues as part of their WFH transition. WPA2 encryption and use a strong password for your EXPANSION OF ATTACK SURFACE Wi-Fi network. An “attack surface” is the total number of points an unauthorized Be aware of all devices connected to your home network user could exploit to gain access to your system. Adversaries may This could include smart thermostats, gaming consoles, be able to take advantage of an expanded attack surface made baby monitors, TVs, appliances and possibly even your car. possible by the WFH environment. These may include: Make sure they are protected with a strong password and • Unsecured “internet of things” (IOT) devices such as security have had all system updates applied. systems, thermostats and electronic appliances • Unpatched home computers Keep your operating system and your applications patched and up to date • Phishing campaigns directed against personal email accounts Whether you’re using Windows or macOS, making sure to The significant increase in the number of people doing more work update your software regularly is important. If automatic via web browsers opens your business to the risk of browser- updates are an option, be sure to enable them. based attacks via malicious plug-ins and web-based exploit kits. Additionally, scammers may look to ramp up identity attacks Make sure each of your accounts has a separate, unique because their malicious network traffic and signaling stands a password better chance of staying hidden among the expected increase Also consider using a password manager to securely store in legitimate remote traffic. your passwords. OUR RECOMMENDATIONS WE’RE HERE FOR YOU To address the increased risks associated with working from Nationwide is committed to providing you with the support and home, we recommend continuing to practice good security resources you need as we navigate today’s challenging economic and habits enforced on your office network, particularly around market conditions together. We appreciate your partnership and the social engineering scams and phishing attacks. Unfortunately, opportunity to work with you. these good security habits don’t always carry over from the office, as we tend to let our guard down at home (i.e., writing down passwords, leaving sensitive information lying around or leaving devices unlocked).

RESOURCES https://www.sans.org/security-awareness-training/resources/smart-home-devices https://threatpost.com/working-from-home-covid-19s-constellation-of-security-challenges/153720 https://www.sentinelone.com/blog/covid-19-outbreak-employees-working-from-home-its-time-to-prepare

This article is not to be considered legal or technical advice. Your network and processes are unique and you should consult your own legal and information security advisors for assistance. Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2020 Nationwide NFM-19435AO (04/20)

9 Spring 2020 | myIRIonline.org INVESTOR EDUCATION | 2020 MAINTAINING PERSPECTIVE IN TIMES OF FINANCIAL VOLATILITY

The coronavirus (COVID-19) has changed the way we live and work. It has also inspired significant market fluctuations. This checklist below can help you focus on what’s likely to have the greatest impact on your financial success: maintaining a longer-term perspective, being thoughtful about portfolio allocation, understanding risk exposures and minimizing costs and taxes.

Don’t forget your Try to maintain perspective by focusing on your long-term investment long-term financial objectives rather than worrying about short-term market fluctuations. goals: Emotional decisions are often not the wisest. KEY TAKEAWAYS Revisit your risk If short-term market moves are getting the better of you, perhaps its • Behavioral biases, tolerance: time to revisit your risk tolerance with your financial professional. This especially in volatile exercise may inspire you to stay the course, or to trim additional risk times, may inspire from you portfolios. investors to focus on short-term returns rather Reaffirm (or write) An Investment Policy Statement (IPS) can help determine than long-term goals your Investment the appropriate allocations and the guidelines for effective • Financial professionals Policy Statement: implementation. Make sure you and your financial professional have can play a critical role clearly defined your objectives, so that you can keep them in mind in helping maintain during emotional times of market fluctuations. perspective and avoid Review your cash Do you have immediate liquidity needs? If not, you may be in a strong costly mistakes needs: position to ride out short-term market shocks.

Stay diversified: Portfolio diversification, in line with your objectives and risk tolerance, can help mitigate volatility and potentially produce more consistent outcomes. This material has been distributed for informational purposes only and should not Rebalance regularly: Meet with your financial professional to ensure your asset be considered as investment allocations are aligned with your long-term targets. Regular portfolio advice or a recommendation rebalancing instills a disciplined approach to decision making and of any particular security, sometimes inspires investors to take actions that may be emotionally strategy or investment product. PIMCO does not uncomfortable but financially productive. provide legal or tax advice. Please consult your tax and/ Consider tactical Every investor is different. For some bouts of market volatility there may or legal counsel for specific shifts: be an opportunity to buy equities. Others may look to add hard duration tax or legal questions and through core and long-duration strategies as a way to add resiliency to concerns. their portfolio. Check in with your advisor to review strategies.

Consider tax Consider talking with your financial professional about mitigating tax planning strategies: implications now instead waiting until year-end.

PAEIVC_67446 CMR2020-0511-1179329

Spring 2020 | myIRIonline.org 10 INVESTOR EDUCATION | 2020

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11 Spring 2020 | myIRIonline.org SECURE ACT GIVES ANNUITIES A BOOST But Concerns Remain With Qualified Annuities Under the New 10 Year Stretch Provisions

By Jamie Hopkins Managing Director of Carson Coaching and Finance Professor of Practice at Creighton University Heider College of Business

The world has changed so much in the last say physical health takes increasing priority. lifetime income and retirement income year. But, at the same time a lot of things Fifty-three percent of respondents say they plans in place from consumers. Second, remain the same. For planners, insurance are increasing their prioritization of their the creation of a fiduciary safe harbor for agents, and advisors, the goal remains the finances and 28 percent say their retirement annuities in retirement plans. And thirdly, same: take care of our client’s needs and is taking increasing priority. The reality is and most importantly, a new wrinkle and goals. That being said, the coronavirus that goals and needs, especially in the short concern that has arisen with regards to (COVID-19) pandemic has upended daily life term have shifted. Americans are looking qualified annuities in retirement accounts across the country and Americans remain for safety, liquidity, and fixed income in an after the SECURE Act’s passage. focused on safety for themselves, their increasingly challenging environment. When you try to put everything that is going families and their retirement plans. In fact, In general, this article will focus on three on together for clients, with Covid-19, market new data from New York Life and Morning main themes. First, a rising desire to see volatility, plummeting interest rates, and Consult found that 57 percent of Americans

Spring 2020 | myIRIonline.org 12 constant legal changes, it can feel extremely daunting. Specifically, when you look at retirement income planning, it can be a "Sixty-two percent of people say they are more complex arena where academics, theory, interested in a product with a predetermined practice, products and people collide. I often payout that does not change, regardless of how describe income planning as trying to hit a moving target in the wind. The target is each the market is doing and 56 percent say they are individual’s goals for retirement – what they more interested in a product that allows them want to do and how they want to spend their to benefit from stock market growth, while also money. It moves because you can’t predict how long a person will be in retirement – it providing a floor for how much you could lose." could be one year, or it could 40 years. And the wind? External factors like the markets, laws and other more macro-level events that fluctuate. found that individuals who had a retirement For instance, the fiduciary must still Lately, there has been a lot of external income analysis completed by their advisor review whether an insurance company can influence with COVID-19 and the resulting felt more value for the fee they paid their meet its financial obligations, consider market volatility. A retiree during this time advisor and more secure about their own the costs of the annuity contracts, and might wish to have some level of secure retirement preparedness. Income planning conclude that at the time of the selection, income in retirement rather than check their is important to client goals and needs, the insurer is able to carry out its promised retirement portfolio each day. This is where especially in this challenging environment. obligations. The fiduciary will be deemed to understand the financial capability of bond ladders and annuities come into play. Let’s start by reviewing the new law. Congress the insurer if they: And if the SECURE Act, which was passed passed the SECURE Act during the final at the end of 2019, has the impact many days of 2019. Think of the SECURE Act as • obtain written representation from the anticipate, investors can expect to see more enacting three key changes for retirement insurer that it is licensed to offer the and more annuities showing up in their 401(k) income planning. First, it gives annuities a big contracts plans over time. boost. Second, it encourages small business • have not had their license revoked or owners to set up retirement plans. And third, Annuities generate income in a retirement suspended for the last seven years plan by creating a floor of income that the it significantly changes the distribution rules • file appropriate documents with the state individual cannot outlive and that is not around IRAs. regulatory department impacted by the ups and downs of the daily When it came to annuities and the SECURE markets. Act, most articles and analysis has focused • maintain appropriate state-mandated minimums in all states where they do For many in this environment seeking safety, on Section 204 of the SECURE Act, which business financial products like annuities can become created a Fiduciary Safe Harbor Provision for more attractive. The same New York Life study the Selection of Lifetime Income Providers • are not under a supervisory operating discussed earlier found that among people inside of qualified retirement plans like 401(k) structure who are likely to seek financial advice, 62 plans. The goal of this provision was to lessen • undergo a financial assessment by the percent of people say they are more interested the liability of a plan fiduciary when selecting insurance commissioner at least once in a product with a predetermined payout an insurance company to provide annuities every five years. that does not change, regardless of how as investment options inside of the plan. the market is doing and 56 percent say they Reducing this liability and providing a The insurance company must agree to are more interested in a product that allows simplified vetting process for plan fiduciaries notify the fiduciary of any changes to the them to benefit from stock market growth, is one way to introduce more annuities into aforementioned provisions. while also providing a floor for how much retirement plans. The fiduciary must follow you could lose. Additionally, in a recently a number of steps in the vetting process to Continued on page 14 published survey by Carson Coaching, it was receive the safe harbor.

13 Spring 2020 | myIRIonline.org Continued from page 13

were fixed and irrevocable. Certain other products were then subject to the 10-year term. While I use December 20, 2019, there are some uncertainties around the right dates here, especially with some potential look back and free look provisions at the state level. In other words, if you bought an income annuity prior to December 20, 2019, in an IRA, that qualified income annuity is exempt from the 10-year period if it was irrevocable in the manner that the annuity would pay out. It also appears that a joint and survivor annuity for life to the beneficiary as the beneficiary of the IRA would have been exempt. It also means these types of qualified income annuity products sold on or after December 20, 2019 are not exempt. Here are two simple examples where this issue might arise: Will this new safe harbor provision open INCOME FOR LIFE? the flood gates, and lead to all 401(k) plans • A financial professional sells a qualified The fiduciary safe harbor provision is the soon adding annuities to their investment income annuity to a married couple in good news for annuities in the SECURE Act. options? The answer I got when I spoke to 2020 in the husband’s IRA. The annuity The bad news? Well that might be found in Dylan Huang, Senior Vice President and is a deferred income annuity that will a small but significant tax provision in the Head of Retail Annuities at New York Life, pay income to life for the husband and SECURE Act that is cause for concern. This surprised me. then continue payments for life to the provision removes the lifetime stretch for surviving spouse as beneficiary of the He said that he did not see the SECURE many beneficiaries of inherited retirement IRA. However, the wife is 15 years younger Act’s provision as “opening the flood gates” accounts and requires that accounts be than the husband. A few years later, they because many 401(k) plans and participants distributed within 10 years after the year divorce and the IRA and beneficiary is were not yet ready for the conversation. of death of the owner. The issue? Many never changed. The surviving ex-spouse qualified income annuities being sold Huang stressed a very important point now has no exception to the 10-year today are presented as allowing payments when it comes to adding annuities inside distribution rule but the annuity promised longer than 10 years after the death of of retirement plans: “The value proposition to pay for life. the owner. of income annuities as part of a retirement • A father bought an annuity in his IRA that income plan is a very strong one, but annuities Drafters of the bill were somewhat aware of pays out for life and then 20 years. However, need to be used inside of a retirement this potential issue and built a provision into the beneficiary is a non-minor child of the income plan and not in silos.” Ultimately, the bill that grandfathers certain existing IRA owner. The initially expected 20-year the introduction of annuities into employer annuities under the old lifetime stretch period won’t adhere to the new 10 year sponsored retirement accounts will take provisions as long as they were qualified stretch. Or simpler, a joint lifetime annuity time and education. However, in the long income annuity products sold before December with a non-minor child of the IRA owner run it could be a significant game changer 20, 2019 (prior to enactment of the SECURE as the beneficiary. in providing individuals with more access to Act) where the income annuity payments annuities through a workplace retirement plan.

Spring 2020 | myIRIonline.org 14 IMPACT ON FINANCIAL PROFESSIONALS WHAT CAN BE DONE a SECURE Act issue with the 10 year payout and the upfront expectation to get income At the same time financial professionals In the immediate term, insurance companies for life to the survivor. This is something that continue to promote the value of guaranteed and IRI members should work together to get could easily become an issue in the future lifetime income, they also continue to the right education and information into the if sold today. As Mr. Mettler pointed out, it’s highlight lifetime payments for annuity hands of their agents and the end consumer not clear all of the carriers would issue the owners and beneficiaries. We know that to inform them that not all contracts will pay contracts, but the quotes are showing up in for certain products, this won’t be the out to beneficiaries for longer than 10 years. Cannex for all of them. case – putting financial professionals in Here are some questions that financial a difficult position. So where do carriers sit today? Many of the professionals can ask: carriers I’ve spoken with are well-aware of and Here’s why: Most contracts of this nature • Was the income annuity contract sold on preparing for the issue. According to Dylan have commutation or endorsement clauses or after December 21, 2019? Huang, Senior Vice President and Head of or language about legal changes that occur Retail Annuities at New York Life, “In order to that give the insurance company the right • Is the annuity a qualified annuity in an ensure financial professionals and consumers to modify the contract to adhere to current IRA or qualified plan? understand how the provisions in the SECURE law. Income annuities sold after 2019 could • Is the beneficiary an eligible designated Act might impact their retirement plans, we be modified to adhere to current law and beneficiary? began offering resources on the SECURE commutation clauses could be used to fix Act and its implications – including on the contracts that do not adhere to the 10-year • Is the joint annuitant a non-spouse? 10-year stretch provision and the impact on rule. Insurance companies may look to do • Does the contract pay for life to a beneficiary? non-eligible designated beneficiaries – to our a present value analysis and calculation of • Does the contract pay for a term longer agents and third-party advisor partners early the benefit and offer it as a lump sum or than 10 years to the beneficiary? this year. We have also included a summary in a 10-year payment in order to comply of SECURE Act policy impacts in all of our with current law. There were modifications • Is the beneficiary more than 10 years annuity policy delivery kits since January.” occurring before the SECURE Act in order younger than owner? to help annuity distributions to comply with Guaranteed income has always been an Is there a real issue here? Well, I spoke to applicable beneficiary rules. important component of Americans’ retirement Gary Mettler, an annuity expert and CFP® planning, but it becomes even more critical Insurance companies are afforded the professional, and he is very concerned about in the current environment when other flexibility within annuity contracts to make the complexity of the issues. Mr. Mettler sources of retirement income are under these adjustments, but the beneficiary wants to see insurance carriers get ahead stress. Financial professionals play a key might not receive the same benefit that was of this issue as soon as possible to explain role in helping retirees ensure guaranteed promised originally by the agent who placed how they plan to modify the contracts to income is part of their plans and we must the contract – putting financial professionals comply with the SECURE Act. Recently, in continue to set them up for success. However, in the position of promising a benefit that May 2020, Mr. Mettler ran a Cannex report without more certainty around how these the consumer may not ultimately receive and finding all 20 carriers quoted in the report contracts will be modified, it puts fiduciaries the consumer purchasing a product they do were showing a quote for selling a qualified and insurance agents in a tough spot with not fully understand. Today, professionals joint and survivor single premium immediate clients as their messaging might not align across the industry are not being equally annuities with a 100% joint survivor option with what the carrier eventually does with equipped with the right tools to express where the age difference is 15 years. This is the contract in order to comply with the new the details of how these policies might play a clear situation where if a divorce occurred provisions of the SECURE Act. out with the SECURE Act changes in place. before the death of the owner, there could be

The information included herein is for informational purposes and is intended for use by advisors. Carson Partners offers investment advisory services through CWM, LLC, an SEC Registered Investment Advisor. Carson Coaching and CWM, LLC are separate but affiliated companies and wholly-owned subsidiaries of Carson Holdings, LLC. Carson Coaching does not provide advisory services.

15 Spring 2020 | myIRIonline.org Structured Capital Strategies® PLUS

Dual Direction Protection -10% Buffer

Segment Growth potential Opportunity to make money About Structured Capital Strategies® PLUS when the S&P 500® is both Structured Capital Strategies® PLUS is a tax-deferred variable up and down with predictable annuity that offers you a way to save for retirement with a Performance Cap Rate set straightforward path through the ups and downs of the when you invest. investment world. It’s designed to help you protect against some loss and take advantage of market upside that tracks Duration well-known benchmark indices, up to a performance cap. 6 Years

How the Dual Direction Segment works1 The Dual Direction Segment is an option for putting Structured Capital Strategies® Scenario 1: PLUS to work for you. It lets you lock in potential growth that tracks the S&P 500®, up Index Gain above Performance Cap to a cap that’s set up front. At the same time, the built-in downside buffer offers • Performance Cap Rate: 80% protection against some loss. The Dual Direction Segment offers some upside potential • Index Performance: +85% when the benchmark index goes down. Your investment will receive a positive return • Result: Your gain is +80% of the same percentage if the benchmark index shows a loss up to and inclusive of Segment Maturity Value: $180,000 -10% at maturity. If the benchmark index shows a loss of more than -10%, you can still Scenario 2: stay confident because you receive partial protection against loss up to -10%.2 Index Gain within Performance Cap • Performance Cap Rate: 80% Let’s look at a hypothetical example • Index Performance: +48% • Result: Your gain is +48% Assumptions: 80% Performance Cap Rate; $100,000 Initial Investment Segment Maturity Value: $148,000 Return % +85% Scenario 3: $180,000 Index Loss within Segment Buffer 80% 80% Performance Cap Rate • Level of Protection: -10% • Index Performance: -8% • Result: 8% Return. Since the loss is 60% within the Segment Buffer, your investment receives a positive return of +48% the same percentage, which is 8%. $148,000 Segment Maturity Value: $108,000 40% Scenario 4: Index Loss below Segment Buffer • Level of Protection: -10% 20% • Index Performance: -12% +8% • Result: -2% Return. Segment Buffer $108,000 absorbs first 10% of loss. 0% $100,000 Initial Investment Segment Maturity Value: $98,000 This example is a hypothetical intended for illustrative purposes only and is not indicative of actual market, index, investment or financial product performance. The example assumes the -5% optional Return of Premium Death Benefit is not elected. Please note that individuals cannot invest directly in an -8% index. Please note that due to spacing constraints, the index name in this document were abbreviated. The full index name is the S&P 500® Price Return Index. -10% -10% Segment Buffer 1 May not be available in all firms and jurisdictions. $98,000 2 If the negative return is in excess of the Segment 6-Year Segment Duration -12% Buffer, there is a risk of substantial loss of principal.