Printer Friendly 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 But Most Do Not Own, Know About or Understand Fixed Annuity 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, 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 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) 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) 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) 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 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) 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: ELM was created by two former officers of large corporations, each with an extensive background in benefits and applied actuarial science. 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, Inc. (NYSE: NFS), a publicly traded company based in Columbus, Ohio, provides a variety of financial services that help consumers invest1 and protect their long-term assets, 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, which is ranked No. 98 on the Fortune 100 based on 2005 revenue.2 For more information, visit 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 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. 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 management4and serves some 16.4 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit

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.



Employee Benefit Research Institute (EBRI)

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 would consider adequate).

A weakness of replacement rate models is that some important retirement risks are not taken into account, including investment risk, longevity and the risk of potentially catastrophic health care costs. Taking these risks and inflation into account and using a Monte Carlo 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

e 2000 January Issue - Article 7

Meeting the Needs of Retirees: A Different Twist on Asset Allocation

by John Rekenthaler, CFA

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 of an immediate annuity purchase and the factors that should be considered.

e 2004 March Issue

Determining Withdrawal Rates Using Historical Data

by William P. Bengen, CFP

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 their savings. This paper is actually a reprint 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 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 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 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 and health assessments.
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