1. An Educational Guide for Individuals
Manage market
uncertainty in retirement…
With a bear market income strategy annuity can help you to implement your own bear market
One way to generate a stream of income during retirement income strategy in years following a poor equity market return.
is to use a systematic withdrawal program to automatically To understand the potential value of using a deferred fixed
withdraw money from your retirement portfolio. If you’re annuity to create a bear market income strategy, we’ll consider
considering this approach, but are concerned about the impact two hypothetical 60 year-old investors: Jack and Judy. Both
of market uncertainty on your retirement income, you may plan to retire at age 67. Each has a $500,000 retirement port-
want to consider making a fixed deferred annuity part of your folio that they are counting on to generate $25,000 in annual
retirement portfolio. In addition to adding an element of stabil- income during their retirement. Let’s compare their strategies.
ity and predictable growth to your portfolio, a fixed deferred
Compare the strategies
Jack’s Traditional Income Strategy Judy’s Bear Market Income Strategy
• Portfolio allocation: • Portfolio allocation:
––60% equities ––60% equities
––40% bonds ––20% bonds
• roportional annual withdrawals regardless of
P –– 0% MassMutual Odyssey SelectSM fixed deferred annuity with
2
performance ($15,000 from equity/$10,000 from bonds) 7-year surrender charge period (which will have ended by the
time Judy makes her first withdrawal from the contract)
• roportional annual withdrawals following positive equity
P
performance years ($15,000 from equities/$10,000 from bonds)
• 25,000 withdrawal from MassMutual Odyssey SelectSM
$
following negative equity performance years
Not FDIC/NCUA Insured Not A Bank Deposit Not Bank Guaranteed
Not Insured By Any Federal Government Agency
2. Income strategy comparison
Jack’s Judy’s
Traditional Bear Market
Income Income Strategy
Strategy
MassMutual
Bond Equity Equity Bond Equity Bond
Age Odyssey Select
Returns % Returns % Withdrawals Withdrawals Withdrawals Withdrawals
Withdrawals
60 4.72 11.03
61 6.20 -8.42
62 5.57 3.98
63 3.27 14.30
64 3.41 18.95
65 8.71 -14.78
66 12.34 -26.45
67 6.94 37.30 $15,000 $10,000 $25,000
68 4.86 23.70 $15,000 $10,000 $15,000 $10,000
69 6.70 -7.26 $15,000 $10,000 $15,000 $10,000
70 9.02 6.57 $15,000 $10,000 $25,000
71 13.29 18.60 $15,000 $10,000 $15,000 $10,000
72 12.52 32.13 $15,000 $10,000 $15,000 $10,000
73 8.92 -4.91 $15,000 $10,000 $15,000 $10,000
74 3.83 21.11 $15,000 $10,000 $25,000
75 3.79 22.37 $15,000 $10,000 $15,000 $10,000
76 3.95 6.11 $15,000 $10,000 $15,000 $10,000
77 3.80 32.03 $15,000 $10,000 $15,000 $10,000
78 1.10 18.55 $15,000 $10,000 $15,000 $10,000
79 4.43 5.22 $15,000 $10,000 $15,000 $10,000
80 4.42 16.82 $15,000 $10,000 $15,000 $10,000
81 4.65 31.53 $15,000 $10,000 $15,000 $10,000
82 6.11 -3.11 $15,000 $10,000 $15,000 $10,000
83 3.06 30.40 $15,000 $10,000 $25,000
84 2.90 7.61 $15,000 $10,000 $15,000 $10,000
85 2.75 10.06 $15,000 $10,000 $15,000 $10,000
86 2.67 1.32 $15,000 $10,000 $15,000 $10,000
87 2.54 37.53 $15,000 $10,000 $15,000 $10,000
88 3.32 22.95 $15,000 $10,000 $15,000 $10,000
89 1.70 33.35 $15,000 $10,000 $15,000 $10,000
Total Income $575,000 Total Income $575,000
This chart compares Jack’s and Judy’s approach to managing their retirement income. Equity returns (represented by the Standard Poor’s 500® Index) show
those times when Judy would rely on her MassMutual Odyssey Select contract for withdrawals. Jack essentially takes a passive approach to withdrawals,
while Judy actively manages the source of each year’s withdrawals, based upon the prior year’s market performance. For example, when Judy is 71 years old,
equities had a positive return. So in the following year, Judy made proportional withdrawals from her equity and bond portfolios, just as Jack did. At age 73,
on the other hand, equities posted a negative return, so in the following year, Judy withdrew income from her MassMutual Odyssey Select contract.
3. Could managing withdrawals make a difference?
If we follow Jack and Judy over a 30-year period, we can Of course, this strategy doesn’t guarantee a better result.
see that both have achieved their income goals and have But, by not withdrawing money from the equity portion of
grown their retirement portfolios. Jack’s portfolio (from the portfolio after a market decline, more money is left to
which he made proportional withdrawals) generated recover and compound over time in those years when the
$6.2 million in total assets. Judy’s portfolio (from which market produces positive returns.
she made proportional withdrawals and used MassMutual
Odyssey Select to implement a bear market income strategy)
generated over $6.9 million in total assets – three-quarters of
a million dollars more in assets than Jack’s portfolio.
Total accumulated values
Accumulated
Values
rket $6,986,760
$7 million
Bear Ma
onal $6,236,228
$6 million
Proport
$5 million
$4 million
$3 million
$2 million
$1 million
$500,000
$0
Years
Jack Judy
(Traditional Income Strategy (Bear Market Income Strategy)
Hypothetical Example Assumptions:
Accumulated
• Equities are represented by the SP 500 Index, a list of securities frequently used as a measure of U.S. stock market performance. Bonds are represented
Values
by the Barclays Capital Aggregate Bond Index, an unmanaged index of fixed-rate investment-grade securities with at least one year to maturity. The
indices’ $5 million
returns represent the 30-year historical period from 1968 through 1997 to show a period where negative equity returns were experienced in the
year of retirement.
Bea
$4 million
• MassMutual Odyssey Select fixed annuity assumes the following interest rates: (Rates are effective as of 9/1/2010 and are subject to change.) Pro
––Year 1 enhanced rate: 2.50%
$3 million
––Year 2 base rate: 2.00%
––Years 3 – 30 renewal rate: 2.00%
$2 million
Hypothetical examples are for illustrative purposes only. Indices are unmanaged and do not represent the performance of any MassMutual product.
Indices are not available for direct investment. Past performance is not indicative of future results.
$1 million
$500,000
0
Years