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Case Study (1)

phyllis

Brief Description
Phyllis is 60, a single mom and grandmother. Her children are grown, college and wedding expenses are paid, and she is looking to move into full retirement by age 70. Her current annual income is approximately $80,000 and she would like to work half-time starting now. She lives in Connecticut, and is in excellent health. Phyllis would like to leave a small legacy, but wants to support her current lifestyle. Based on the results of a risk tolerance questionnaire, she is in the moderate risk profile.

Financial Data. (figures are approximate and rounded)
Phyllis expects to downsize her primary residence, move into a rental property, and realize about $150,000 after taxes on the sale. She works for herself, and has only a small IRA ($100,000). Her current personal retirement savings are $200,000, invested in CDs and mutual funds. Her projected Social Security monthly income benefit at the normal retirement age of 66 will be $2,560.

S2I Plan Tested with Phyllis

1. Defer Social Security benefit claim until age 70 and increase her benefit by 32% to $3,380 per month, as a result.

2. Purchase guaranteed monthly income until age 70 from personal retirement assets to fill in a portion of the gap from reduction in income from half-time work.

3. Invest balance of personal retirement assets (plus net proceeds from sale of house) in a tax deferred, No-Load Variable Annuity. Leave funds in CDs for emergency.

4. Defer taking Rollover IRA distributions until age 70 and turn her IRA into a source of lifetime income in staged purchases of guaranteed monthly income. Last purchase provides lifetime income.

5. Meet periodically to review budget and make any additional purchase(s) of guaranteed monthly income to complement the other income sources.

Results (under average return assumptions)

phyllischart


Under these assumptions, and the S2I planning method, the Plan creates dependable, spendable income for Phyllis and leaves some savings to meet other contingencies, and possibly leave a legacy. The Plan will enable Phyllis to protect her nest egg, while providing increasing income.

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Disclosures & Assumptions — Case Studies

Background

Plans for Retirement Income (Plan) illustrated as Case Studies on the Golden Retirement Advisors (GRA) website, are based on hypothetical Clients. These hypothetical Client assumptions are used with the Savings2Income (S2I) planning method developed by Golden Retirement, LLC, and licensed for use by GRA, a Registered Investment Advisor (RIA). In addition, the S2I planning method uses other assumptions involving certain economic parameters which are reviewed and revised periodically. While GRA believes that these assumptions (see Assumptions below) are reasonable and reflect current and historical information, neither the S2I planning method nor GRA can actually predict the future and neither can guarantee that the prior experience of these economic parameters will continue in the future.

 GRA is an advisor, and as such, you should be aware that pursuant to IRS Circular 230, an advisor must notify a Client that the information contained in a Plan is not intended to (and cannot) be used by anyone to avoid IRS penalties. The Plan reflects the operations of both tax-qualified retirement accounts and certain annuity contracts. A Client should seek tax advice based on his/her particular situation from an independent tax advisor. As such, please note that any tax-related information provided by GRA and the S2I planning method, is not intended as, and should not be construed as, legal, tax, or investment advice. The tax information the S2I planning method provides is necessarily incomplete, and the tax laws and regulations are subject to change. Therefore, GRA does not guarantee this information and is not liable for the accuracy or completeness of any tax information provided, or any results or outcome resulting from the use of this information.

GRA, under applicable state securities law, can offer individualized investment advice, and respond to any personal questions about a Client’s particular investing situation. Please feel free to consult with GRA or any other financial advisor for assistance and guidance on specific questions or solutions that might be implemented.

Note that any investment or annuity products listed herein (including Variable Annuities, Fixed Payout Annuities, and Rollover IRA accounts) are generic, theoretical product solutions not indicative of any returns, past or present. No investment or annuity products listed are a solicitation to purchase or invest in any particular product. These Plans were constructed on an educational basis to help visitors to the website make informed decisions with a financial professional.

GRA assists in the development of customized Plans based on a Client’s specific situation and requirements.

Disclosures

Simplified assumptions may be made which may or may not account for specific details applicable to a theoretical Client’s specific situation. Also note that these projections extend far into the future, typically over twenty years. There is no proven methodology to successfully project assumptions such as market returns, interest rates, and annuity purchase rates (APR) in parallel this far into the future. The S2I planning method utilized by GRA does not attempt to do so, and therefore utilizes methods such as extending a single specified interest rate for the duration of the plan, and deterministic returns, i.e., annual simple and/or compound interest on model portfolios, shown here are not indicative of any real returns past, present or future. As a general rule, always check with a financial professional before purchasing or investing in any kind of investment or annuity product.

Savings2Income (S2I) Planning Method

The S2I planning method utilized by GRA provides for a full range of options for converting savings to income, including the timing and amount of the conversions, and the form of Fixed Payout Annuity as the source of the Guaranteed Income. This enables GRA to help a Client create a customized Plan that reflects personal circumstances and resources, in particular, other sources of retirement income such as Social Security and any pension plan benefits.

Under the S2I planning method, conversions to a Fixed Payout Annuity are assumed to occur every 5th year, until a final secure income age is reached. Forms of annuity utilized are annuity certain from five to twenty years, and life annuities with and without a refund feature. The S2I annuity conversion process is based on a specified percentage of projected account value being applied to purchase the form of annuity chosen. The conversion at the secure income age is typically set at less than 100% of the account value, leaving a residual account value; however, for the Variable Annuity, all assets have to be distributed by age 90. Overall, the S2I planning method involves the build-up of Guaranteed Income over time and the purchase of Guaranteed Income for life at the secure income age.

Assumptions

The projections and other planning information presented in a Plan regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Economic parameters will be reset periodically. A Client working with a financial professional should update the Plan on an on-going basis, either as part of a re-planning process, or as requested by the Client, at a particular point in time.

Plan Specific Assumptions

  • • All taxable Personal Retirement Savings are invested in a No-Load Variable Annuity. In practice, there may be an allocation to a short-term investment account, or to a money market fund within the No-Load Variable Annuity.

    • Any distributions from a Rollover IRA Account to purchase Guaranteed Income under Fixed Payout Annuities (FPA) are handled as tax-free rollovers. Any such fixed payments are assumed to satisfy the required minimum distribution rules.

    • Personal Retirement Savings are first exchanged to an FPA at the income start age customized to each Client.

    • Any Roth IRA Account remains invested and maintained as an intergenerational wealth transfer vehicle.

    • The Client in each Case Study is assumed to require increasing income, given rising health care costs, inflation expectations, etc.


Investment Return Assumptions

Investment Model Portfolios: Investment return assumptions (net of management fees) are based on one of three potential Client risk profiles: Aggressive (9% return), Moderate (7% return), or Conservative (5% return), for both the Rollover IRA and No-Load Variable Annuity accounts. These estimates are based on long term return assumptions for the major asset classes assumed, the model portfolio associated with a Client risk profile, and reasonable assumptions of the fees for an account between $100,000 and $500,000. See above for any limitations on these assumptions. Investment performance is not guaranteed.

Purchase Rates for Fixed Payout Annuities: We assume the certain annuity purchases reflect assumed annuity crediting rates based on current interest rates, adjusted for longer term historical market conditions and reasonable assumptions for future projected income. Any representation of an annuity payout amount or valuation is not a solicitation to purchase an annuity nor is it a guarantee of a given rate. Instead they are constructed to help investors make informed decisions about annuity purchases.

The following interest rate assumptions are made for annuities with certain, or fixed period, payouts: 5 Year: 0.5%, 10 Year: 1%, 15 Year: 2%, and 20 Year: 3%. We also assume life and life refund annuity purchases are calculated using standard immediate annuity mortality assumptions (a2000 Mortality Tables with typical loadings and mortality improvement) and fixed interest rates. To the extent that the actual pricing in the future will likely vary from these basic interest rate and/or mortality assumptions, any of the Plans that involve the purchase of an annuity would be more or less favorable.

Note that these are theoretical annuity prices (unless a specific insurance company is designated in the Plan) and in no way reflect actual market rates. Actual annuity products will vary by the economic environment and the specific provider of any such annuity product. The rates shown above are not a guarantee or solicitation for an actual annuity product, and are not representative of any returns past, present or future. As a general rule, it is recommended that a Client speak with a financial professional before making any annuity purchase.

Federal Tax Rate Assumption

The S2I planning method assumes that current federal tax law applies. The S2I planning method does not, however, reflect the effects of the Medicare taxes on both earned and unearned income starting in 2013.

Other factors that we urge Clients/Prospects to keep in mind include:

  • 1. The Alternative Minimum Tax which could increase the Client’s effective tax rate.
  • 2. Other income sources or deductions might move the Client into a lower or higher tax bracket.
    3. Other transactions that the Client might initiate could impact his/her tax rate.
    4. . Future tax law changes might impact tax rates, deductions and other parameters