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Variable Annuity Investing

Variable Annuity Investing. Securities offered through Lincoln Financial Advisors Corp., a broker/dealer, 1300 S. Clinton Street, Fort Wayne, IN 46802-3506, Phone 800-454-6265.

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Variable Annuity Investing

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  1. Variable Annuity Investing Securities offered through Lincoln Financial Advisors Corp., a broker/dealer,1300 S. Clinton Street, Fort Wayne, IN 46802-3506, Phone 800-454-6265. Insurance offered through Lincoln affiliates and other fine companies.Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. CRN200510-1003478

  2. How long can you expect to live in retirement? Life expectancy for men and women 30 Men Women 25 20 Years 15 10 5 0 55 60 65 70 75 80 85 Age Source: Actuarial Tables—Life Expectancy - Treasury Regulations 1.72-9.

  3. Sources of retirement income 2.5% Earned income Pension Social Security Investment income Other 18.9% 38.4% 19.8% 20.4% Pension includes all defined benefit and defined contribution plans. Estimates are not guaranteed.

  4. After inflation 7.2% 2.3% 0.7% Returns before and after inflation 1926–2004 12% 10.4% Before inflation 10% 8% Compound annual return 6% 5.4% 3.7% 4% 2% 0% Stocks Bonds Cash Assumes reinvestment of income and no transaction costs or taxes. This index performance does not reflect the different fees and charges associated with variable annuities. If it did, the performance would be lower than cited above.

  5. After taxes Inflation 8.0% 3.7% 3.0% 2.1% Returns before and after taxes 1926–2004 12% Before taxes 10.4% 10% 8% Compound annual return 5.5% 6% 3.7% 4% 2% 0% Stocks Stocks after Taxes Bonds Bonds after Taxes Cash Cash after Taxes Inflation This index performance does not reflect the different fees and charges associated with variable annuities. If it did, the performance would be lower than cited above.

  6. 9% withdrawal rate 8% withdrawal rate 7% withdrawal rate 6% withdrawal rate Potential shortfall: The risk of high withdrawal rates Annual inflation-adjusted withdrawal as a % of initial portfolio wealth $600,000 $500,000 5% withdrawal rate $400,000 $300,000 $200,000 $100,000 $0 1972 1976 1980 1984 1988 1992 1996 Hypothetical value of $500,000 invested at year-end 1972. Portfolio: 50% large company stocks, 50% intermediate-term bonds. Assumes reinvestment of income and no transaction costs or taxes. This index performance does not reflect the different fees and charges associated with variable annuities. If it did, the performance would be lower than cited above.

  7. Why consider a variable annuity? • Building retirement assets • Tax-deferred accumulation • Choice of investment options • Guaranteed death benefit options • Income payments you cannot outlive

  8. Power of compounding Hypothetical investment in stocks $150,000 Year-end 1984–2004 Total amount invested $124,550 Compounded value at year-end 2004 $100,000 Year-end 1994–2004 $60,906 $50,000 $40,000 $20,000 $0 Investor A 10 $2,000 Investor B 10 $4,000 Years contributing: Annual amount contributed: This index performance does not reflect the different fees and charges associated with variable annuities. If it did, the performance would be lower than cited above.

  9. Value of tax-deferred account Benefits of deferring taxes $250,000 Value of taxable account $200,000 $150,000 End value after taxes $100,000 $50,000 $0 5 10 15 20 25 30 35 40 45 Years to retirement Hypothetical value of $10,000 invested in large company stocks. This hypothetical example is for an investor in the 25% bracket using the 2004 tax code. Assumes an 8% annual total return. Estimates are not guaranteed. The above illustration does not reflect mortality and expense risk charges, sales charges, management fees, contract administrative charges, and distribution charges that are typically associated with investing in a variable annuity. If these charges were taken into account, they would reduce the level of performance.

  10. Average return 12.7% 10.4% 5.4% 5.4% 3.7% Asset class returns Highs and lows: 1926–2004 142.9% 150% Highest annual return Lowest annual return 100% 54.0% 40.4% 50% 29.1% 14.7% Annual ranges of return 0% 0.0% -5.1% -9.2% -50% -43.3% -58.0% -100% Long-term government bonds Intrmd.-term government bonds Treasury bills Small company stocks Large company stocks Each bar shows the range of annual total returns for each asset class over the period 1926–2004. This index performance does not reflect the different fees and charges associated with variable annuities. If it did, the performance would be lower than cited above.

  11. Beneficiary protection Illustration of highest anniversary value step-up Current value GMDB annual step-up · Anniversary mark · Initial investment · · · · Year 1 2 3 4 5

  12. How to receive your annuity distributions Contract type Contribution method Payout alternatives Annuitization options Variable annuity Flexible premiums Payout alternatives Lump sum Systematic withdrawal Annuitization Term certain Life only Life only with term certain Joint life and survivor Variable annuitization

  13. 25% chance 50% chance Simulated portfolio withdrawals (no annuities) Probabilities of how long a $500,000 portfolio might pay a $50,000 annual need $60,000 $50,000 $40,000 10% chance Annual withdrawal/payment (real $) $30,000 $20,000 $10,000 $0 65 70 75 80 85 90 95 100 Age Results may vary over time and each time the simulation is run. IMPORTANT: The projections or other information generated by Ibbotson Associates regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. No transaction costs or taxes are assumed. This index performance does not reflect the different fees and charges associated with variable annuities. If it did, the performance would be lower than cited above.

  14. Simulated variable annuity life payments Payment probabilities with life payout option $45,000 $40,000 $35,000 50% chance $30,000 $25,000 Annual withdrawal/payment (real $) 25% chance $20,000 $15,000 10% chance $10,000 $5,000 $0 65 70 75 80 85 90 95 100 Age Results may vary over time and each time the simulation is run. IMPORTANT: The projections or other information generated by Ibbotson Associates regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

  15. Simulated variable annuity term payments Payment probabilities with 15-year payout option $60,000 $50,000 $40,000 50% chance Annual withdrawal/payment (real $) $30,000 25% chance 10% chance $20,000 $10,000 $0 65 70 75 80 85 90 95 100 Age Results may vary over time and each time the simulation is run. IMPORTANT: The projections or other information generated by Ibbotson Associates regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

  16. Additional features of variable annuities • Dollar cost averaging • Asset allocation • Automatic portfolio rebalancing

  17. Dollar cost averaging Units Price/unit $40.00 50 Number of units Price Average share price DCA price 40 $30.00 30 $22.50 $21.05 $20.00 20 $10.00 10 $0 0 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Hypothetical illustration of a $600 quarterly investment.

  18. What is asset allocation? Asset allocation is the process of combining asset classes such as stocks, bonds, and cash in a portfolio in order to meet your goals. Stocks Bonds Cash

  19. 75% 72% 58% 55% 45% 42% 28% 25% Importance of rebalancing 1984–2004 100% Target asset mix: 50% stocks/50% bonds Stock allocation Bond allocation 80% 60% 50% 50% Portfolio weightings 40% 20% 0% 1984 1989 1994 1999 2004 Assumes reinvestment of income and no transaction costs or taxes. Stocks: 50% large and 50% small company stocks. Bonds: intermediate-term government bonds. This index performance does not reflect the different fees and charges associated with variable annuities. If it did, the performance would be lower than cited above.

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