www.elmannuity.com: New Website Educates Individuals on Value of Fixed Annuities in Strengthening Retirement Portfolios; Offers Access to Innovative Fixed Annuities.Research Shows Retirees and Near-Retirees Can Benefit from Fixed Annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. But Most Do Not Own, Know About or Understand Fixed Annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. Products Large Employers Influence ELM's Design of Products and Consumer Access to Annuity Education and Purchase Assistance WASHINGTON -- ELM Income Group(sm,) Inc., independent insurance agents, announced today the launch of its new website, www.elmannuity.com. The new website helps individuals learn about the value of fixed annuities in retirement income planning, helps them review the ELM fixed annuity products, and helps them purchase products from the customer service centers of the insurers providing the products. The ELM purchase process lowers marketing costs, which generally works to increase the competitiveness of the interest rates and income payments offered by the ELM fixed annuities. After discussion with large employers representing hundreds of thousands of employees and retirees, ELM has designed two new fixed annuity products, available to the general public. These were developed in conjunction with two major insurance companies, Principal Life Insurance Company, a member of the Principal Financial Group[R] for the fixed income annuity, and Nationwide Life Insurance Company, a member of Nationwide Financial[R], for the indexed annuity. All of this was done in response to published findings by prominent economists, academicians and financial analysts (see appendix) indicating that retirement income plans with fixed annuities have a higher probability of allowing retirees to maintain a stable standard of living in retirement than do plans without such annuities. "Research shows that fixed annuities are important for retirees, so it is unfortunate that most retirees do not know, understand or appreciate fixed annuities," said Chris O'Flinn, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of ELM Income Group, Inc. "In addition," he added, "the array of annuities now in the marketplace can be confusing with their wide range of complex product features. We set out to improve this situation by working with the insurers to create innovative products that are now available to everyone. Secondly, we established a website that, among other features, educates users about the research on fixed annuities. In the process, we leveraged the insights of employee benefits professionals at large companies." In meetings and discussions with benefits professionals at many large employers, ELM Income Group(sm) learned of their desire to see improvements in the fixed annuity products generally available. The enhancements that most interested the large employers included better pricing, simpler designs, inflation protection, and flexibility for the buyer. They wanted fixed annuity products with both asset protection features and growth potential for individuals near and in retirement. Finally, they wanted a simple, no-hassle, low- cost sales and education process. ELM, in turn, conveyed these messages to the insurance industry and asked for responses. Nationwide Life Insurance Company and Principal Life Insurance Company were then selected to develop the products in response to this market research. Nationwide Life Insurance Company and Principal Life Insurance Company are committed to innovative solutions that serve the retirement marketplace. Each product's guarantees and protections are subject to the claims-paying ability of the issuing insurance company. What helps to set ELM's website apart from other sites is: 1) www.elmannuity.com offers education and a purchase process that lowers marketing costs and generally increases the competitiveness of the interest rates and income payments offered by the ELM fixed annuities. 2) www.elmannuity.com is open to the public at large. There is no need for the site user to be part of an organization or a group, or to register with a group to gain access to the site. 3) www.elmannuity.com. summarizes the research that has been done by prominent economists on purchasing fixed annuities for a retirement income portfolio, and references the work so it can be read by everyone. The site also provides a glossary A term used by Microsoft Word and adopted by other word processors for the list of shorthand, keyboard macros created by a particular user. See glossaries in this publication and The Computer Glossary. of terms to help individuals better understand what they are seeing and hearing in a variety of media, and also provides a decision guide to help prepare them for discussions with the insurers' customer service centers. 4) www.elmannuity.com does not complete any annuity sales. Instead, potential buyers will purchase the products from customer service centers at the insurance companies. This gives individuals access to additional education and personal assistance to help them achieve a secure foundation for their retirement income planning. About ELM Income Group(sm), Inc. ELM Income Group(sm), Inc. based in Washington, D.C., is an independent insurance agency that markets fixed annuity products it helped to design, through a new website: www.elmannuity.com. ELM was created by two former officers of large corporations, each with an extensive background in benefits and applied actuarial science Actuarial science applies mathematical and statistical methods to finance and insurance, particularly to risk assessment. Actuaries are professionals who are qualified in this field through examinations and experience. . Their goal is to help retirees achieve a secure financial foundation by increasing their ownership of fixed annuities. To achieve this, ELM encourages employers and independent financial advisors to help raise awareness of the ELM website. ELM also summarizes on their website independent research that describes why fixed annuities are potentially helpful to retirees. The ELM website describes in detail the ELM fixed annuity products and facilitates the sale of the products through toll free telephone lines, maintained by the issuing insurance company customer service centers. About Nationwide Financial([R]) Nationwide Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , Inc. (NYSE NYSE See: New York Stock Exchange : NFS (Network File System) The file sharing protocol in a Unix network. This de facto Unix standard, which is widely known as a "distributed file system," was developed by Sun. See file sharing protocol and WebNFS. NFS - Network File System ), a publicly traded company publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. based in Columbus, Ohio Columbus is the capital and the largest city of the American state of Ohio. Named for explorer Christopher Columbus, the city was founded in 1812 at the confluence of the Scioto and Olentangy rivers, and assumed the functions of state capital in 1816. , provides a variety of financial services that help consumers invest1 and protect their long-term assets Long-Term Assets 1. Reported on the balance sheet, it's the value of a company's property, equipment and other capital assets, less depreciation. 2. A stock, bond or other asset that you plan on holding in your portfolio for a lengthy period of time. , and offers retirement plans and services through both public- and private-sector employers. It's part of the Nationwide group of companies, which offers diversified insurance and financial services. The group is led by Nationwide Mutual Insurance Company Nationwide Mutual Insurance Company & Affiliated Companies is a group of large U.S. insurance and financial services companies based in Columbus, Ohio. History Beginnings as Farm Bureau Mutual , which is ranked No. 98 on the Fortune 100 based on 2005 revenue.2 For more information, visit www.nationwide.com. Guarantees and protections are subject to the claims-paying ability of the issuing insurance companies. ELM(sm) Index Annuity is issued by Nationwide Life Insurance Company, Columbus, Ohio, a member of Nationwide Financial([R]). Please note, the index annuity does not directly participate in any stock or equity investments and actual interest credits may be less than the return of the linked index. If part or all of the contract is withdrawn before the expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created of any applicable withdrawal fee period, early withdrawal fees may cause the owner to receive less than the amount they originally deposited into the annuity. Nationwide does not control any third-party findings or research and is not responsible for their comments or findings. Views and opinions are those of the stated individuals and do not necessarily represent the opinions of Nationwide. 1 Nationwide Investment Services Corporation, member NASD NASD See: National Association of Securities Dealers NASD See National Association of Securities Dealers (NASD). . In MI only: Nationwide Investment Svcs. Corporation. 2 Fortune Magazine, April 2006 About the Principal Financial Group The Principal Financial Group([R])(The Principal ([R]))3 is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies and national network of financial professionals. A member of the Fortune 500, the Principal Financial Group has $215.0 billion in assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. 4and serves some 16.4 million customers worldwide from offices in Asia, Australia, Europe, Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. and the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Principal Financial Group, Inc. is traded on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. under the ticker symbol Ticker Symbol An arrangement of characters (usually letters) representing a particular security listed on an exchange or otherwise traded publicly. When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities which investors PFG PFG Principal Financial Group PFG Performance Food Group (Richmond, VA) PFG Pinnacle Financial Group PFG Plasma Flood Gun PFG Planning for Growth PFG Pasty Faced Geek PFG Perfluoroguanidine . For more information, visit www.principal.com. 3. The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group. 4. As of September 30, 2006. APPENDIX RETIREMENT RESEARCH Employee Benefit Research Institute (EBRI EBRI Employee Benefit Research Institute EBRI Eccma Business Reporting Identifier EBRI Exclusive Buyers Realty Inc. (San Antonio, TX) ) e Issue Brief, September, 2006 Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates ELM Summary: The author is Jack VanDerhei, EBRI Fellow and Research Director of the EBRI Fellows Program. He notes that for decades "replacement rates" have been the primary rule of thumb measure used to estimate an adequate level of income during retirement. Replacement rate is annual retirement income divided by annual income just before retirement. For example, someone who retires from a job with $100,000 in salary and has $75,000 in retirement income has a replacement rate of 75% (which many financial planners Financial Planner A qualified investment professional who assists individuals and corporations meet their long-term financial objectives by analyzing the client's status and setting a program to achieve these goals. would consider adequate). A weakness of replacement rate models is that some important retirement risks are not taken into account, including investment risk, longevity longevity (lŏnjĕv`ĭtē), term denoting the length or duration of the life of an animal or plant, often used to indicate an unusually long life. and the risk of potentially catastrophic health care costs. Taking these risks and inflation into account and using a Monte Carlo Monte Carlo (môNtā` kärlō`), town (1982 pop. 13,150), principality of Monaco, on the Mediterranean Sea and the French Riviera. model, the study demonstrates that (1) an adequate replacement rate depends on the retiree's income level and the nature of the one's retirement assets, and (2) for most retiree groups, converting some retirement assets to an income annuity at retirement can lower the replacement rate needed to achieve a 90% probability of income adequacy. For example, the study illustrates one example where an 124% replacement ratio, half of which is provided by an annuity, can have a probability of adequacy, equal to replacement ratios of 148% to 180%, with no annuity purchase and various earnings assumptions (page 28). Journal of Financial Planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against e 2000 January Issue - Article 7 Meeting the Needs of Retirees: A Different Twist on Asset Allocation Asset Allocation The process of dividing a portfolio among major asset categories such as bonds, stocks or cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio. by John Rekenthaler, CFA (Computer Fraud and Abuse Act of 1986) Signed into law in 1986, the CFA was a significant step forward in criminalizing unauthorized access to computer systems and networks. The Act applies to "federal interest computers" that include any system used by the U.S. ELM Summary: In this early 2000 article, the author educates the financial planning community about the pitfalls of developing retirement income plans based on "average" investment returns. He uses historical charts to show that, for the retiree making withdrawals from assets, the sequence of the annual returns on those assets can be of greater importance than the average of those annual returns. The author makes the case that traditional asset allocation models, used to optimize accumulations while saving for retirement, do not work for allocating assets during retirement. In retirement, the asset allocation mix should recognize that a long time horizon, which is a friend of the young investor, is an enemy of the retiree who needs income from the portfolio for every year of retirement. Asset allocation models also need to consider that volatility in portfolio returns, which may average out for investors accumulating assets, will damage the level of withdrawals that a portfolio can sustain. The author (correctly) predicts that new asset allocation models will be developed for the asset "draw down" phase to account for the risks which are not present during the asset accumulation phase. e 2001 December Issue - Article 6 Making Retirement Income Last a Lifetime by John Ameriks, Ph.D., Robert Veres and Mark J. Warshawsky, Ph.D. ELM Summary: The authors explore the sustainability of alternative asset withdrawal plans using different asset allocation mixes during retirement. The probability of failure of various plans is examined for various model portfolios ranging from asset allocations that they label from conservative to aggressive. An historical chart illustrates that, regardless of the asset allocation strategy, the withdrawal rates that were sustainable for a full 30 years were between 3.50% and 5.00% per year adjusted for inflation. The aggressive portfolio sustained the higher withdrawal rates for the 30 year period. Looking specifically at a 4.50% inflation-adjusted withdrawal rate, historical analysis shows that, relative to the conservative portfolios, the more aggressive portfolios had a higher likelihood of sustaining income for a long withdrawal period. But even the aggressive portfolio showed a tendency to fail too frequently to be considered a stable withdrawal plan for a long retirement. Finally the authors examine whether the purchase of an immediate fixed annuity helps or hurts the sustainability of the withdrawal plans considered. Using both an historical analysis and a Monte Carlo analysis, their charts illustrate that for all time periods and for all investment portfolios in the study, the addition of the fixed annuity leads to better results. The authors also provide a "discussion" of the pros and cons pros and cons Noun, pl the advantages and disadvantages of a situation [Latin pro for + con(tra) against] of an immediate annuity immediate annuity An annuity that is purchased with a lump sum and that begins making payments one period after the purchase. Immediate annuities are most commonly purchased by people who have accumulated a sum of money and are ready for retirement. purchase and the factors that should be considered. e 2004 March Issue Determining Withdrawal Rates Using Historical Data by William P. Bengen, CFP 1. CFP - Constraint Functional Programming. 2. CFP - Communicating Functional Processes. 3. CFP - Call For Papers (for a conference). ELM Summary: The author shows how to use historical performance data to determine "safe" withdrawal rates and asset allocations during retirement so that retirees do not outlive out·live tr.v. out·lived, out·liv·ing, out·lives 1. To live longer than: She outlived her son. 2. their savings. This paper is actually a reprint reprint An individually bound copy of an article in a journal or science communication of the author's 1994 landmark research on this subject. From the historical data, Bengen concludes that the maximum "safe" withdrawal rate is about 4% for the typical retiree of age 60-65 relying on a conventional portfolio of stocks and bonds. The 4% withdrawal rate is used to calculate the actual withdrawal dollar amount in the first year of retirement. This withdrawal amount (in dollars, not percentages) is then increased in each future year for actual inflation. Looking at the historical evidence, he characterizes 5% withdrawal rates (adjusted for actual inflation) as "risky" and 6% rates as "gambling." e 2003 June Issue Merging Asset Allocation and Longevity Insurance: An Optimal Perspective on Payout Annuities by Peng Chen, Ph.D., and Moshe A. Milevsky, Ph.D. ELM Summary: Chen is a vice president and director of research at Ibbotson Associates. Milevsky is an associate professor of finance at Schulich School of Business at York University York University, at North York, Ont., Canada; nondenominational; coeducational; founded 1959 as an affiliate of the Univ. of Toronto, became independent 1965. in Toronto, Canada. This article reviews the need for longevity insurance (i.e., income annuities) during retirement and establishes a framework to study the total asset and product allocation decision in retirement, which includes both conventional asset classes and immediate payout annuity products. The article summary states: "Modern portfolio theory Modern portfolio theory Principals underlying the analysis and evaluation of rational portfolio choices based on risk return trade-offs and efficient diversification. modern portfolio theory See portfolio theory. is widely accepted in the academic and finance industries as the primary tool for developing asset allocations. Its effectiveness is questionable, however, when dealing with asset allocations for individual investors in retirement, because it does not consider longevity risk and the portfolio's random time horizon." This article reviews the need for longevity insurance (i.e., income annuities) during retirement and establishes a framework to study the total asset and product allocation decision in retirement, which includes both conventional asset classes and immediate payout annuity products. "Retirees must make their own decisions on what products should be used to generate income in retirement. However, there are two important risks that must be considered when making these decisions: Financial market risk -- the volatility in the capital markets that causes portfolio values to fluctuate. If the market drops or negative corrections occur early during retirement, the portfolio may not be able to cushion the added stress of systematic withdrawals. This may make the portfolio unable to provide the necessary income for the desired lifestyle or it may simply run out of money too soon. Longevity risk -- the odds of outliving one's portfolio. Life expectancies Life Expectancy 1. The age until which a person is expected to live. 2. The remaining number of years an individual is expected to live, based on IRS issued life expectancy tables. have been increasing and retirees should be aware of the substantial chances for a long retirement and plan accordingly. This risk is further magnified for individuals taking advantage of early retirement offers or who have a family history of longevity. " The authors claim that an optimal asset/product allocation mix in a well-balanced retirement portfolio is derived from a two step process. First, a conventional asset allocation process is used to derive an optimal asset mix (without regard to longevity risk). And, then the product (i.e., income annuity) purchase decision is developed after considering the retiree's bequest motives A bequest motive seeks to provide an economic justification for the phenomenon of gratuitous, intergenerational transfers of wealth. In other words, to explain why people leave money behind when they die. and health assessments. |
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