RIC Rider
Content
Guaranteed Lifetime Withdrawal Benefit
(May vary by state) MS230030-01/08
WRL Retirement Income Choice
Variable Annuities offered by:
Western Reserve Life Assurance Co. of Ohio
Common Retirement Challenges
A successful retirement requires careful planning and some good fortune. The financial decisions you make today can come back to help you or hurt you tomorrow. And while everyone hopes for good fortune—in the form of health and strong market performance, among other things— you can’t just cross your fingers and hope for the best. Protecting your income from risk and overcoming financial challenges are requirements for a successful retirement.
Here are five risks you may face along your retirement path:
1. Longevity risk. Retirees Should Plan for a Long Retirement. Probability of a 65-year-old living to
various ages.
100% Male Female 75
78 81 86
At least one spouse
50
85
88
91
25
91
93
96
65
70
75
80
85
90
95
100
105
Most people underestimate how long they are likely to live. Too often, people base their financial planning upon their life expectancy, which is the average age at which someone is expected to die. In the United States, the median life expectancy of a 65-year-old man and woman is 85 and 88, respectively. What people do not always realize is that this is the median. Half of the population will live longer, often much longer than their life expectancy. The fact that you are working with a financial advisor means that your expected mortality is likely to be older than the population at large due to better health care, nutrition, etc. This chart represents copyrighted materials which are the property of Morningstar, Inc. (used with permission), based on data from Annuity 2000 Mortality Tables.
2. Inflation risk.
Returns Before and After Inflation, 1926-2006.
12% 10.4% 10 8 6 4 2.3% 2 0 0.7% Stocks Bonds Cash 7.2% 5.4% 3.7% Before Inflation After Inflation
Past performance is no guarantee of future results. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. This chart represents copyrighted materials which are the property of Morningstar, Inc. (used with permission).
This image illustrates the compound annual returns of three asset classes before and after considering the effects of inflation. Over the past 81 years, inflation has dramatically reduced the returns of stocks, bonds, and cash. The first bars for each asset class represent the nominal, or unadjusted, returns of each asset class. Nominal returns do not consider inflation. It is often the rate of return that you might think of when discussing the returns on investments. The second bars illustrate the real, or inflation-adjusted, returns of each asset class. Real returns reflect purchasing power. Stocks are represented by the Standard & Poor's 500®. Bonds are represented by the 20-year U.S. Government bond, cash by the U.S. 30-day Treasury bill, and inflation by the Consumer Price Index. Government bonds and Treasury bills are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes.
1
Common Retirement Challenges
3. Withdrawal Rates risk.
Sustainable Withdrawal Rates Vary Over Time, Rolling 30-year periods, 1946-2006.
12% 75% stocks/25% bonds 50% stocks/50% bonds 10 25% stocks/75% bonds
8
6
4 1946 1975 1951 1980 1956 1985 1961 1990 1966 1995 1971 2000 1976 2005
This image shows the historical maximum sustainable inflation-adjusted withdrawal rate over rolling 30-year periods for three hypothetical stock and bond portfolios from 1946–2006. As shown, the amount that could have been withdrawn over each 30year period varied greatly. For example, the 75% stock/25% bond portfolio was able to provide a higher maximum sustainable withdrawal rate for those who retired in the late 1940s to the mid–1950s. The same portfolio, however, provided a much lower maximum sustainable withdrawal rate to those who retired in the late 1960s and early 1970s. This is due to the negative stock market returns that occurred in the early years of retirement. Stocks in this example are represented by the Standard & Poor’s 500®. Bonds are represented by the five-year U.S. Government bond, and fees from Morningstar. All withdrawal rates are represented by an inflation-adjusted percentage of the starting portfolio balance that, if withdrawn in each of the 30 years of the hypothetical retirement horizon, would have resulted in an ending portfolio balance of $0. Annual fees of 0.94% for stocks and 0.82% for bonds were assumed. Government bonds and Treasury bills are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes. An investment cannot be made directly in an index. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. This chart represents copyrighted materials which are the property of Morningstar, Inc. (used with permission).
Variable annuities are long-term financial vehicles designed for retirement purposes. They offer three main features: • Tax-deferred treatment of earnings. • Guaranteed lifetime payout options. • Guaranteed death benefit options.
Variable annuities also offer a choice of investment options, called subaccounts, that allow you to participate in the bond and stock markets. Since these markets can move up and down, performance is called “variable.” Underlying investment portfolios are subject to market fluctuation, investment risk, and possible loss of principal. WRL variable annuities’ range of fees and charges include 1.25%-1.70% Mortality and Expense Risk fee and Administrative charges (M&E&A), 0%-9% surrender charges, $30 annual fee, and subaccount fees. Please consider variable annuity investment objectives, risks, charges, and expenses carefully before investing. The contract and underlying fund prospectus contain this and other information about the annuity. Please call 1-800-525-6205 to obtain a prospectus and read it carefully before investing.
All guarantees are based on the claims-paying ability of WRL. 2
Common Retirement Challenges
4. Poor Investment Performance risk.
Market Downturns and Recovery Times, 1926-2006.
Downturn 34 mos 6 mos 7 mos 9/29–6/32 7/32–1/45 6/46–11/46 12/46–10/49 Recovery 151 mos 35 mos 5 mos Downturn 21 mos 14 mos 20 mos 1/73–9/74 10/74–6/76 1/77–2/78 3/78–7/78 12/80–7/82 8/82–10/82 Recovery 21 mos 5 mos 3 mos
8/56–2/57
3/57–7/57
5 mos
8/57–12/57 1/58–7/58
7 mos 10 mos
3 mos
9/87–11/87 12/87–5/89 7/90–10/90 11/90–2/91
18 mos
6 mos 8 mos 19 mos
1/62–6/62 7/62–4/63 2/66–9/66 10/66–3/67
5 mos
4 mos 3 mos
6 mos
2 mos
7/98–8/98 9/98–11/98 10/00–9/02 10/02–10/06
1/68–7/70 7/70–3/71
9 mos
25 mos
49 mos
A historic account of past downturns and recoveries can present a better picture of potential market performance. It is evident that stocks are prone to sudden declines in value. These declines seem to happen at random, and there are many different reasons offered for stock market crashes and bear markets. Sometimes stocks recover their value quickly, while other times the decline lasts for quite a while. The recovery period may be painfully long. Often, the decline is preceded by a period of high returns, which lulls investors into a false sense of security. Because no one can predict market declines with certainty, a diversified portfolio is the best solution for a long-term investor who is concerned about both return and risk. Returns and principal invested in stocks are not guaranteed. Large stocks are represented by the Standard & Poor’s 500®. Downturns in this example are defined by a time period when the stock market value declined by 10% or more from its peak, while the recovery period indicates the number of months from the trough of downturn to the market’s previous peak. The data assumes reinvestment of all income and does not account for taxes or transaction costs. Returns and principal invested in stocks are not guaranteed. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. This chart represents copyrighted materials which are the property of Morningstar, Inc. (used with permission).
5. Health Care risk.
Types of Personal Health Care Expenditures, 1960-2004
1,600 All personal health care expenditures1 Hospital care expenditures2 1,280
Amount in billions
Physician services expenditures Nursing home expenditures3
960
Prescription drug expenditures
640
320
0 1960
1
1970
1980
1990
1995
2000
2002
2003
2004
Includes all expenditures for specified health services and supplies other than expenses for program administration, net cost of private health insurance, and government public health activities. 2Includes expenditures for hospital-based nursing home and home health agency care. 3Includes expenditures for care in freestanding nursing homes. Expenditures for care in hospitalbased nursing homes are included with hospital care. Source: “Health, United States, 2006,” U.S. Department of Health and Human Service, 11/2006
3
A Possible Retirement Solution
Rather than relying on good fortune to address your retirement risks and challenges, you can manage them before and during your retirement with a variable annuity issued by Western Reserve Life Assurance Co. of Ohio (WRL) and the optional Retirement Income Choice rider.
Even better, you can custom-fit the Retirement Income Choice rider for your situation. Consider these questions to decide how.
Do you want to start taking withdrawals now or later? Turn to page
5 for more information. 8 for more information. 9 for more information. 11 for more information. 12 for more information.
Does your income plan include automatic step-up and upgrade opportunities? Turn to page
Does your income plan include you, or you and your spouse? Turn to page
Are you concerned about increased healthcare expenses? Turn to page
Is providing a legacy for your beneficiaries important? Turn to page
RMD Friendliness
With Retirement Income Choice, you can take out either your annual withdrawal amount or your Required Minimum Distribution (RMD), whichever is greater, and the amount upon which your withdrawals are calculated (Withdrawal Base) will not be reduced. This can give you access to even more guaranteed income, just when you may need it most. Note that the RMD allowed under the rider is calculated for the current rider year using the value of the annuity only and not on any other tax-qualified investments you own.
This brochure uses “annuitant” and “owner” interchangeably to refer to “annuitant” for the rider. Guarantees are based on the claims-paying ability of WRL. 4
Do you want to start taking withdrawals now or later?
Withdrawals and Growth
The Retirement Income Choice base rider provides guaranteed withdrawals for life based on your Withdrawal Base (WB) regardless of how the market performs or how long you live. A growth component allows your WB to increase before you start taking withdrawals.
Additionally:
• Withdrawal percentages range from 5%-7% and are based on your age when you take your first withdrawal. • Rider withdrawals are guaranteed, even if the policy value falls to zero. • Your WB will be reduced if you withdraw more than your rider withdrawal amount (excess withdrawal). • Rider withdrawals will cease if excess withdrawals reduce the WB to zero.
Withdrawal Benefit
Attained Age 59-69 70-79 80+ Annual Withdrawal % 5% 6% 7%
If you’re not old enough to take guaranteed rider withdrawals right away, or you choose not to take withdrawals immediately, you’ll enjoy the Retirement Income Choice growth component. This can help increase your WB before you start taking withdrawals. Here’s how it works: • Your WB will grow at a rate of 5% compounded each year for up to 10 years unless you take a withdrawal. • If you decide to take a withdrawal, you will not receive the 5% growth for that rider year. • Your WB and the amount of future rider withdrawals will increase each year that growth is applied. • You can extend your period of guaranteed growth through rider upgrades within 30 days following each fifth year rider anniversary. • The 5% growth rate only applies to the WB and not to the policy value, death benefit, or other optional benefits. Guarantees are based on the claims-paying ability of WRL.
Important Information
The annuitant must wait until the rider anniversary after turning 59 to begin rider withdrawals. If the rider is purchased prior to age 59, however, the rider fee will still apply. Withdrawals in excess of the rider withdrawal amount or prior to age 59 will result in a decrease in the dollar amount of withdrawals available under the rider. Withdrawals may be subject to surrender charges. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 591⁄2, a 10% federal tax penalty may apply. The WB is equal to the policy value when the rider is added, plus any additional premiums, and less any adjustments for excess withdrawals after the rider is added. If the rider is added in the first policy year, the WB does not include any premium enhancements, if applicable. After the first rider year, the WB may be increased by the automatic step-up feature or the rider growth percentage. If you ever withdraw more than your rider withdrawal amount in a given rider year (excess withdrawal), your rider withdrawal amount will be reduced because it will be based on a lower WB.
What You Need To Know
Retirement Income Choice withdrawals reduce the policy value, death benefits, and other annuity values. If the rider is structured as joint life, the withdrawal percentage will be based on the younger of the annuitant or the annuitant’s spouse at the time of the first withdrawal. The rider may be added anytime between ages 0-85 and terminated within 30 days following each fifth rider anniversary. Investment Options with this rider are limited. The Rider Death Benefit (RDB) on the rider date equals the policy value, minus any premium enhancement if the rider is added in the first policy year. After the rider date, the RDB is equal to the rider death benefit on the rider date plus any additional premium payments, less any adjustments for withdrawals. The RDB does not reset due to the automatic step-up. Withdrawals up to the rider withdrawal amount will reduce the RDB on a dollar-for-dollar basis. Withdrawals in excess of the rider withdrawal amount will reduce the RDB by the greater of the dollar amount of the excess withdrawal or a pro-rata amount. Excess withdrawals may eliminate the additional death benefit available with the Retirement Income Choice Rider.
5
Do you want to start taking withdrawals now or later?
Income Now
The examples below assume an owner age 73 when the policy is purchased who immediately begins taking 6% annual withdrawals. They show how you will continue to receive guaranteed withdrawals for life, in both down and up markets. These charts are for illustrative purposes only and do not represent any specific annuity or depict the performance of any actual subaccount.
Hypothetical Example in a Down Market
Policy Value WB Withdrawals Initial Premium Cumulative Withdrawals
for life 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93
Age When Withdrawal Is Taken
Withdrawals of 6% of the WB remain consistent through the life of the owner. This example is intended to show how Retirement Income Choice can work in down markets.
Hypothetical Example in an Up Market
Policy Value WB WB Step-ups Manual Upgrade Withdrawals Initial Premium Withdrawals after first step-up Withdrawals after second step-up Withdrawals after manual upgrade Withdrawals after third step-up Cumulative Withdrawals
7% Withdrawals
Manual Upgrade/Purchase of new rider
6% Withdrawals
for life 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93
Age When Withdrawal Is Taken
In this example, the owner begins taking withdrawals of 6% of the WB immediately. At the end of the first, third and eleventh rider years the policy value is greater than the then-current WB, and the WB is stepped up. It also shows in the tenth year a manual upgrade to capture the growth and to increase the withdrawals to 7% of the WB. When you upgrade, the current rider will terminate and a new rider with its own terms and conditions, including the fee and growth rate, which may be higher or lower than your current rider will be issued. This example is intended to show how Retirement Income Choice, including the automatic step-up and manual upgrades, can work in up markets.
6
Do you want to start taking withdrawals now or later?
Income Later
The examples below assume an owner is age 63 when the policy is purchased. They show how the growth component of Retirement Income Choice works in both down and up markets. The charts are for illustrative purposes only and do not represent any specific annuity or depict the performance of any actual subaccounts.
Hypothetical Example in a Down Market
Policy Value WB Withdrawals
wth Gro WB 5%
Cumulative Withdrawals
Initial Premium
for life 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83
Age When Withdrawal Is Taken
This example is intended to show how Retirement Income Choice’s growth component can increase the withdrawal amount each year, even when the policy value has decreased. In order to take full advantage of the growth component, this example assumes no withdrawals in rider years 1-10, and a current rider growth rate of 5%. If withdrawals had taken place during those years, no growth in the WB would have occurred. In this example, the owner begins taking withdrawals of 6% of the WB after rider year 10.
Hypothetical Example in an Up Market
Policy Value WB WB Step-ups Withdrawals Withdrawals after step-up Cumulative Withdrawals
wth Gro WB 5%
Initial Premium
for life 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83
Age When Withdrawal Is Taken
This example is intended to show how the growth component and automatic step-up features of Retirement Income Choice can increase the WB. In order to take full advantage of the growth component, this example assumes no withdrawals in rider years 1-10, a current rider growth rate of 5%, and increases in the WB due to automatic step-ups. If withdrawals had taken place during those years, no growth in the WB would have occurred. In this example, the owner’s withdrawals begin at age 73 and are based on 6% of the WB.
7
Does your income plan include automatic step-up and upgrade opportunities?
Automatic Step-Ups and Manual Upgrade Opportunities
With Retirement Income Choice, you can enjoy automatic step-ups and manual upgrades to take advantage of market returns and withdrawal percentage increases.
Automatic Step-Ups
On each rider anniversary, the Withdrawal Base (WB) will be set to equal the greatest of the policy value, the highest rider month anniversary (rider monthiversary), or the WB with the 5% compounded growth, if applicable. When the WB is increased to the policy value or the highest rider month anniversary, it is called an automatic step-up. With the automatic step-up you don’t have to keep track of each of these values, and your WB will be adjusted to reflect the highest of these amounts. Note that automatic step-ups affect the WB only and do not affect policy value or other rider values. The rider fee percentage may increase after the first five rider years with an automatic step-up. You have 30-days after the rider anniversary to reject an automatic step-up, and retain the right to all future automatic step-ups if you reject one. The maximum rider fee allowed is 0.75% higher than the initial fee. In the first example below, the WB was reset in four different rider years due to automatic step-ups. This would provide the annuitant with a larger annual withdrawal amount when they began taking withdrawals. In this example, they were able to step-up again in years 11 and 12, which helped to increase the WB even after their 10 years of guaranteed 5% growth were over.
Rider Month Anniversary Component of Automatic Step-Ups
The rider month anniversary component of automatic step-ups provides you the opportunity to take advantage of an increased policy value throughout the policy year. For each of the twelve months following a rider anniversary, WRL will record the policy value on each rider month anniversary (i.e. if the policy is purchased on January 15th, WRL will record the policy value on the 15th of each month for the next twelve months). On the rider anniversary date, WRL will take the highest monthly value and use it in the automatic step-up calculation. This component is not considered in rider years when an excess withdrawal has been taken. In the second example below, Retirement Income Choice was purchased in January. The policy value was recorded every month thereafter on the same date the rider was purchased. In this scenario, the highest monthly policy value occurred in July. In addition, the July amount was larger than the WB accumulated at 5% guaranteed growth. At the end of the rider year, the WB would automatically step up to the value it reached in July. This chart assumes no withdrawals are taken during the rider year.
th Grow WB 5%
Initial Rider Year WB Value
Initial Premium
63
64
65
66
67
68
69
70
71 WB
72
73
74
75
76
77
78
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Age of Owner Policy Value WB Step-ups
Policy Value Policy Value on rider month anniversary Highest monthly Policy Value at end of rider year
Policy Value at end of rider year 5% Growth at end of rider year
Manual Upgrades
Retirement Income Choice allows you to manually upgrade the rider during the 30-day window following each fifth year rider anniversary. Manually upgrading the rider provides the opportunity to take advantage of: • Withdrawal Percentage Increases. Withdrawals from the new rider are based on your age, or if the joint life option is chosen, the younger of you or your spouse, at the time of first withdrawal. If you upgrade your rider and have moved into the next attained age level, you are eligible to receive the higher annual withdrawal percentage. • Additional Growth Period. If you upgrade your rider, your period of compounded annual growth on your new WB will be extended for another 10 years unless you take a withdrawal. When you manually upgrade, a new rider will be issued with a new rider date. The rider fee and growth rate may be higher or lower than the current rider. The maximum age for manual upgrades is 85. 8
Does your income plan include you, or you and your spouse?
Choose: Single Life
Deciding the best way to structure your family’s income needs can provide you peace of mind and flexibility when it comes to retirement. Retirement Income Choice gives you the opportunity to enjoy your annuity withdrawals two ways: based on your life only, or including both you and your spouse. To decide which structure is right for you, see the examples below.
The Retirement Income Choice Single Life Option offers:
• A guaranteed income stream based on one life. • Guaranteed withdrawals until the death of the annuitant, regardless of subaccount performance. • A fee structure that is based on one life. • Spousal beneficiaries have the choice to continue the annuity policy but the existing Retirement Income Choice rider is terminated. The spouse can purchase a new rider subject to current rider fees and conditions should they meet age qualifications. The rider withdrawals will be based on the policy value at the time the spouse purchases a new rider.
Retirement Income Choice and the Single Life Option in a Down Market
Withdrawals During Annuitant’s Life Initial Premium
Death of Annuitant
Withdrawals During Spousal Beneficiary’s Life
Policy Value WB Initial WB for New Rider Withdrawals Cumulative Withdrawals Withdrawals after death of annuitant Cumulative Withdrawals after death of annuitant
for life
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88
Age When Withdrawal Is Taken
Retirement Income Choice and the Single Life Option in an Up Market
Withdrawals During Annuitant’s Life
of Annuitant Death
Withdrawals During Spousal Beneficiary’s Life
Policy Value WB WB Step-ups Initial WB for New Rider Initial Withdrawals Withdrawals after first step-up Withdrawals after second step-up Withdrawals after third step-up Withdrawals after fourth step-up Cumulative Withdrawals before death of annuitant Cumulative Withdrawals after death of annuitant for life
Initial Premium
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
Age When Withdrawal Is Taken
The charts above illustrate how structuring the rider can affect the withdrawals that are available for you or your spouse and assume an age of 73 when withdrawals begin. They are for illustrative purposes only and do not depict any specific annuity or the performance of any actual subaccount. Both charts assume the spouse continues the policy and purchases a new Retirement Income Choice rider with the same terms and conditions. All guarantees are based on the claims-paying ability of WRL. For Civil Union Partners or other similar relationships, please contact a qualified tax advisor prior to purchasing.
9
Does your income plan include you, or you and your spouse?
Choose: Joint Life
The Retirement Income Choice Joint Life Option offers:
• A guaranteed income stream for both spouses’ lives. • The ability to use the joint life option with qualified monies. • Guaranteed withdrawals until the death of the annuitant and the annuitant’s spouse, regardless of subaccount performance. • Continued rider withdrawals for the surviving spouse. • Withdrawals based on the younger of you or your spouse. • A fee structure that is based on two lives.
Retirement Income Choice and the Joint Life Option in a Down Market
Withdrawals During Annuitant’s Life Initial Premium
Death of Annuitant
Withdrawals During Remaining Spouse’s Life
Policy Value WB Withdrawals Cumulative Withdrawals
for life 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88
Age When Withdrawal Is Taken
Retirement Income Choice and the Joint Life Option in an Up Market
Withdrawals During Annuitant’s Life
Death of Annuitant
Withdrawals During Remaining Spouse’s Life
Policy Value WB WB Step-ups Withdrawals Withdrawals after first step-up Withdrawals after second step-up Withdrawals after third step-up Cumulative Withdrawals
Initial Premium
for life 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88
Age When Withdrawal Is Taken
The charts above illustrate how structuring the rider can affect the withdrawals available for you or your spouse and assume an age of 73 when withdrawals begin. They are for illustrative purposes only and do not depict any specific annuity or the performance of any actual subaccount. Both charts assume the spouse continues the policy.
10
Are you concerned about increased healthcare expenses?
Choose: Income Enhancement Benefit
The Income Enhancement Benefit will double your withdrawal percentage if you, the annuitant (or, if the joint life option is elected, your spouse) were confined in a facility as defined in the rider for 180 of the last 365 days. This benefit may not be added if you are already residing in such a facility. The rider must be in place for one-year prior to receiving this benefit, and the one-year waiting period and 180-day elimination period may occur simultaneously.
Attained Age 59-69 70-79 80+
Annual Withdrawal % 5% 6% 7%
Annual Withdrawal % with Income Enhancement Benefit 10% 12% 14%
Hypothetical Example
Initial WB: $100,000 Retirement Income Choice Withdrawal Amount: $6,000 (Based on owner/annuitant age 70-79 at the time of first withdrawal) Retirement Income Choice Withdrawal Amount with Income Enhancement Benefit: $12,000 (Based on owner/annuitant age 70-79 at the time of first withdrawal)
In this example, joint owners aged 73 begin taking withdrawals under Retirement Income Choice with the Joint Life and Income Enhancement options. After one and a half years, the husband enters a facility as defined by the rider, and stays there for five and a half years. After the required 180-day elimination period, their annual withdrawals are doubled. The husband passes away and the withdrawals return to their previous level. Another one and a half years later, the wife enters a facility and stays for two and a half years. Again, after the 180-day elimination period, withdrawals are doubled. She leaves the facility, and the withdrawals once again return to their original level.
Policy Value Withdrawals Income Enhancement Withdrawals
Initial Premium
for life 1 2 3 4 5 6 7 Rider Year 8 9 10 11 12 13
The example is for illustrative purposes only and does not depict any specific annuity or the performance of any actual subaccount. It is intended to show how Retirement Income Choice can increase your withdrawal amounts in cases of admission to a facility as defined in the rider.
11
Is providing a legacy for your beneficiaries important?
Choose: Additional Rider Death Benefit
You know that by selecting the Joint Life option, you and your spouse will receive guaranteed lifetime withdrawals. But if you desire extra protection for your beneficiaries, the Retirement Income Choice death benefit option may help by providing beneficiaries the greater of the: • Variable annuity policy value. • Base policy death benefit or Guaranteed Minimum Death Benefit, if applicable. • Rider Death Benefit (RDB). The RDB on the rider date equals the policy value, minus any premium enhancement if the rider is added in the first policy year. After the rider date, the RDB is equal to the rider death benefit on the rider date, plus any additional premium payments, less any adjustments for withdrawals. The RDB does not reset due to the automatic step-up. The chart below shows how Retirement Income Choice automatic step-ups can increase withdrawals and the amount you could leave your loved ones. In this illustration, a single owner purchases an annuity with the Return of Premium death benefit option and the rider at age 73 with a WB of $100,000 and begins taking annual withdrawals equal to 6% of the WB, or $6,000. • When the owner is 74 the WB is stepped-up to $100,500 for withdrawals equal to $6,030. • The WB steps up four more times to reach a WB of $102,525, and the annual withdrawal amount increases to $6,152. • The owner passes away at age 85 after receiving a cumulative withdrawal amount of $73,362. The death benefit is calculated by looking at the greater of the policy value, the base policy Return of Premium death benefit, and the RDB.
Policy Value Original policy value = Policy value at time of death =
Includes withdrawals taken and market depreciation of policy value.
Policy Death Benefit $100,000 $0 Original policy value = Return of Premium at time of death = $100,000 $2,512
Rider Death Benefit Original policy value = Withdrawal totals = RDB= $100,000 $73,362 $26,638
Includes withdrawals calculated as both gross (dollar-for-dollar) and adjusted partial withdrawals (pro-rata).
The RDB may increase with a manual upgrade, but not with an automatic step-up.
$100,500
$101,003
$101,508
$102,015
$102,525
$150,000 $125,000 $100,000 $75,000 $50,000 $25,000 0 73
Policy Value (Ending Value of $0) Step-ups RDB (Ending Value of $26,638) Return of Premium Death Benefit (Ending Value of $2,512) Withdrawals Policy Value With a consistent annual rate of return of -4.26% net (0% gross)
74
75
76
77
78
79
80
81
82
83
84
85
Age When Withdrawal Is Taken
This chart is for illustrative purposes only and does not depict any specific annuity or the performance of any actual subaccount. It reflects a M&E&A of 1.50%, average subaccount expense of the designated investment options of 1.15%, and Retirement Income Choice fee of 0.85% of the WB for year 1-5 and 1.60% thereafter. It assumes an annual rate of return of 7.35% net (10.00% gross) for policy years 1-5 and -14.05% net (-11.40% gross) thereafter, for an overall return of -4.26% net and 0% gross. The illustration assumes the owner does not reject any automatic step-ups. The range of M&E&A fees for the Return of Premium death benefit option are 1.30%-1.50%. If a different death benefit option was illustrated, results would be different. The Return of Premium death benefit pays the beneficiary all premiums paid, less any adjusted partial withdrawals. If at the time of withdrawal the policy value is less than the death benefit value, the adjusted partial withdrawal will be greater than the amount withdrawn. 12
Simplify: Investment Options
Diversifying your investments across multiple asset classes and equity styles may help reduce the risks of inflation and market volatility—two factors that may inhibit the growth of your portfolio. Of course, asset allocation does not ensure a profit or guarantee against a loss. With Retirement Income Choice, you can choose between a variety of subaccounts, including: • Transamerica Balanced • Transamerica Money Market • Transamerica US Government Securities In addition, you can select from four asset allocation subaccounts that feature Strategic Allocation by Morningstar Associates.
10% Cash 5% Cash
• PIMCO Total Return • The Fixed Account
35% Stocks 55% Bonds 45% Bonds
50% Stocks
Conservative
Moderate
5% Emerging Markets Stocks and Bonds
5% Cash
25% Bonds 70% Stocks
30% U.S. Bonds
65% Int’l Stocks
Moderate Growth
International Moderate Growth Fund
The Morningstar Associates asset allocation process is as follows:
• Design the portfolios. • Select the investment options. • Monitor for style drift and stock overlap. The allocations shown above are approximate target allocations and are subject to change. Morningstar Associates, LLC, a registered investment advisor and wholly owned subsidiary of Morningstar, Inc., serves as portfolio construction manager to the asset allocation portfolios. Morningstar Associates is not acting in the capacity of an advisor to individual investors. The Morningstar name and logo are registered marks of Morningstar, Inc. All other marks are the property of their respective owners. • Balance portfolios with daily net cash flow. • Conduct occasional rebalancing as necessary.
13
Rider Fees and Options
How much does Retirement Income Choice cost?
With Retirement Income Choice, you can choose the right combination of features to suit your needs. Even better, you’ll only pay for the options you need, and won’t pay for the ones you don’t.
Retirement Income Choice Retirement Income Choice – Base Rider: This rider offers guaranteed growth and withdrawals. You can enjoy guaranteed lifetime withdrawals based on your age, and current 5% compounded growth on the WB each year for up to 10 years. The growth would not apply in rider years withdrawals are taken. See pages 5 through 6 for more information about these benefits. Income Enhancement Benefit: For an additional fee, this benefit will double the withdrawal percentage you are currently receiving if you (or, if the joint life option is selected, your spouse) were to be confined in a facility as defined in the rider for 180 days of the last 365 days. This benefit may not be added if you are already residing in such a facility, and must be in place for one year prior to receiving benefits. The oneyear waiting period and 180-day elimination period may occur simultaneously. Turn to page 11 for more information. Death Benefit: An additional death benefit is available with Retirement Income Choice that will pay the greater of the Rider Death Benefit, the base policy death benefit, or the Guaranteed Minimum Death Benefit, if applicable. If the joint life option is selected, this benefit will pay out upon the later of you or your spouse's death. Turn to page 12 for more information. Total Current Annual Rider Cost:
Single Life
Joint Life
0.60%
0.90%
+0.15%
+0.30%
+0.25%
+0.20%
The rider fee cannot change for the first five years, and the maximum rider fee percentage allowed is 0.75% higher than the initial percentage.
Withdrawal Benefit
Attained Age 59-69 70-79 80+ Annual Withdrawal % 5% 6% 7% The table to the left shows the withdrawal percentages for each age range. The longer you wait to begin withdrawals, the higher your annual withdrawal percentage may be. Note that if the rider is structured with the joint life option, the withdrawal percentage will be based on the age of the younger of you or your spouse. Also, the withdrawal percentage may not change once withdrawals have started, unless the rider is upgraded.
All guarantees are based on the claims-paying ability of WRL.
14
Guaranteed Lifetime Withdrawal Benefit
Variable annuities are subject to investment risk, including possible loss of principal. Due to fluctuating market conditions, at the time of distribution, your annuity value may be more or less than the total of all premium payments. This material may be used only when preceded or accompanied by a current prospectus. The prospectus has complete information including fees and expenses. Please read it carefully before investing or sending money.
Variable Annuities offered by: Western Reserve Life Assurance Co. of Ohio Home Office: Columbus, Ohio Administrative Office Address: P.O. Box 5068 Clearwater, Florida 33758-5068 Underwriter and Distributor: Transamerica Capital, Inc., Member FINRA www.westernreserve.com Customer Service: 1-800-851-9777
Please consider variable annuity investment objectives, risks, charges, and expenses carefully before investing. The contract and underlying fund prospectus contain this and other information about the annuity. Please call 1-800-525-6205 to obtain a prospectus and read it carefully before investing.
Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 591⁄2, a 10% federal income tax penalty may apply. All policies, riders, and forms may vary by state, and may not be available in all states. RGMB 28 0108, RGMB 30 0108, RGMB 28 0108 (IS)(FL), RGMB 30 0108 (IS)(FL), other versions also available, RGMB 28 0108 (IS)(OR), RGMB 28 0108 (IJ)(OR), RGMB 28 0108 (AS)(OR), RGMB 28 0108 (AJ)(OR), RGMB 30 0108 (IS)(OR), RGMB 30 0108 (IJ)(OR), RGMB 30 0108 (AS)(OR), RGMB 30 0108 (AJ)(OR)
MS230030-01/08
(May vary by state) MS230030-01/08
WRL Retirement Income Choice
Variable Annuities offered by:
Western Reserve Life Assurance Co. of Ohio
Common Retirement Challenges
A successful retirement requires careful planning and some good fortune. The financial decisions you make today can come back to help you or hurt you tomorrow. And while everyone hopes for good fortune—in the form of health and strong market performance, among other things— you can’t just cross your fingers and hope for the best. Protecting your income from risk and overcoming financial challenges are requirements for a successful retirement.
Here are five risks you may face along your retirement path:
1. Longevity risk. Retirees Should Plan for a Long Retirement. Probability of a 65-year-old living to
various ages.
100% Male Female 75
78 81 86
At least one spouse
50
85
88
91
25
91
93
96
65
70
75
80
85
90
95
100
105
Most people underestimate how long they are likely to live. Too often, people base their financial planning upon their life expectancy, which is the average age at which someone is expected to die. In the United States, the median life expectancy of a 65-year-old man and woman is 85 and 88, respectively. What people do not always realize is that this is the median. Half of the population will live longer, often much longer than their life expectancy. The fact that you are working with a financial advisor means that your expected mortality is likely to be older than the population at large due to better health care, nutrition, etc. This chart represents copyrighted materials which are the property of Morningstar, Inc. (used with permission), based on data from Annuity 2000 Mortality Tables.
2. Inflation risk.
Returns Before and After Inflation, 1926-2006.
12% 10.4% 10 8 6 4 2.3% 2 0 0.7% Stocks Bonds Cash 7.2% 5.4% 3.7% Before Inflation After Inflation
Past performance is no guarantee of future results. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. This chart represents copyrighted materials which are the property of Morningstar, Inc. (used with permission).
This image illustrates the compound annual returns of three asset classes before and after considering the effects of inflation. Over the past 81 years, inflation has dramatically reduced the returns of stocks, bonds, and cash. The first bars for each asset class represent the nominal, or unadjusted, returns of each asset class. Nominal returns do not consider inflation. It is often the rate of return that you might think of when discussing the returns on investments. The second bars illustrate the real, or inflation-adjusted, returns of each asset class. Real returns reflect purchasing power. Stocks are represented by the Standard & Poor's 500®. Bonds are represented by the 20-year U.S. Government bond, cash by the U.S. 30-day Treasury bill, and inflation by the Consumer Price Index. Government bonds and Treasury bills are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes.
1
Common Retirement Challenges
3. Withdrawal Rates risk.
Sustainable Withdrawal Rates Vary Over Time, Rolling 30-year periods, 1946-2006.
12% 75% stocks/25% bonds 50% stocks/50% bonds 10 25% stocks/75% bonds
8
6
4 1946 1975 1951 1980 1956 1985 1961 1990 1966 1995 1971 2000 1976 2005
This image shows the historical maximum sustainable inflation-adjusted withdrawal rate over rolling 30-year periods for three hypothetical stock and bond portfolios from 1946–2006. As shown, the amount that could have been withdrawn over each 30year period varied greatly. For example, the 75% stock/25% bond portfolio was able to provide a higher maximum sustainable withdrawal rate for those who retired in the late 1940s to the mid–1950s. The same portfolio, however, provided a much lower maximum sustainable withdrawal rate to those who retired in the late 1960s and early 1970s. This is due to the negative stock market returns that occurred in the early years of retirement. Stocks in this example are represented by the Standard & Poor’s 500®. Bonds are represented by the five-year U.S. Government bond, and fees from Morningstar. All withdrawal rates are represented by an inflation-adjusted percentage of the starting portfolio balance that, if withdrawn in each of the 30 years of the hypothetical retirement horizon, would have resulted in an ending portfolio balance of $0. Annual fees of 0.94% for stocks and 0.82% for bonds were assumed. Government bonds and Treasury bills are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes. An investment cannot be made directly in an index. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. This chart represents copyrighted materials which are the property of Morningstar, Inc. (used with permission).
Variable annuities are long-term financial vehicles designed for retirement purposes. They offer three main features: • Tax-deferred treatment of earnings. • Guaranteed lifetime payout options. • Guaranteed death benefit options.
Variable annuities also offer a choice of investment options, called subaccounts, that allow you to participate in the bond and stock markets. Since these markets can move up and down, performance is called “variable.” Underlying investment portfolios are subject to market fluctuation, investment risk, and possible loss of principal. WRL variable annuities’ range of fees and charges include 1.25%-1.70% Mortality and Expense Risk fee and Administrative charges (M&E&A), 0%-9% surrender charges, $30 annual fee, and subaccount fees. Please consider variable annuity investment objectives, risks, charges, and expenses carefully before investing. The contract and underlying fund prospectus contain this and other information about the annuity. Please call 1-800-525-6205 to obtain a prospectus and read it carefully before investing.
All guarantees are based on the claims-paying ability of WRL. 2
Common Retirement Challenges
4. Poor Investment Performance risk.
Market Downturns and Recovery Times, 1926-2006.
Downturn 34 mos 6 mos 7 mos 9/29–6/32 7/32–1/45 6/46–11/46 12/46–10/49 Recovery 151 mos 35 mos 5 mos Downturn 21 mos 14 mos 20 mos 1/73–9/74 10/74–6/76 1/77–2/78 3/78–7/78 12/80–7/82 8/82–10/82 Recovery 21 mos 5 mos 3 mos
8/56–2/57
3/57–7/57
5 mos
8/57–12/57 1/58–7/58
7 mos 10 mos
3 mos
9/87–11/87 12/87–5/89 7/90–10/90 11/90–2/91
18 mos
6 mos 8 mos 19 mos
1/62–6/62 7/62–4/63 2/66–9/66 10/66–3/67
5 mos
4 mos 3 mos
6 mos
2 mos
7/98–8/98 9/98–11/98 10/00–9/02 10/02–10/06
1/68–7/70 7/70–3/71
9 mos
25 mos
49 mos
A historic account of past downturns and recoveries can present a better picture of potential market performance. It is evident that stocks are prone to sudden declines in value. These declines seem to happen at random, and there are many different reasons offered for stock market crashes and bear markets. Sometimes stocks recover their value quickly, while other times the decline lasts for quite a while. The recovery period may be painfully long. Often, the decline is preceded by a period of high returns, which lulls investors into a false sense of security. Because no one can predict market declines with certainty, a diversified portfolio is the best solution for a long-term investor who is concerned about both return and risk. Returns and principal invested in stocks are not guaranteed. Large stocks are represented by the Standard & Poor’s 500®. Downturns in this example are defined by a time period when the stock market value declined by 10% or more from its peak, while the recovery period indicates the number of months from the trough of downturn to the market’s previous peak. The data assumes reinvestment of all income and does not account for taxes or transaction costs. Returns and principal invested in stocks are not guaranteed. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. This chart represents copyrighted materials which are the property of Morningstar, Inc. (used with permission).
5. Health Care risk.
Types of Personal Health Care Expenditures, 1960-2004
1,600 All personal health care expenditures1 Hospital care expenditures2 1,280
Amount in billions
Physician services expenditures Nursing home expenditures3
960
Prescription drug expenditures
640
320
0 1960
1
1970
1980
1990
1995
2000
2002
2003
2004
Includes all expenditures for specified health services and supplies other than expenses for program administration, net cost of private health insurance, and government public health activities. 2Includes expenditures for hospital-based nursing home and home health agency care. 3Includes expenditures for care in freestanding nursing homes. Expenditures for care in hospitalbased nursing homes are included with hospital care. Source: “Health, United States, 2006,” U.S. Department of Health and Human Service, 11/2006
3
A Possible Retirement Solution
Rather than relying on good fortune to address your retirement risks and challenges, you can manage them before and during your retirement with a variable annuity issued by Western Reserve Life Assurance Co. of Ohio (WRL) and the optional Retirement Income Choice rider.
Even better, you can custom-fit the Retirement Income Choice rider for your situation. Consider these questions to decide how.
Do you want to start taking withdrawals now or later? Turn to page
5 for more information. 8 for more information. 9 for more information. 11 for more information. 12 for more information.
Does your income plan include automatic step-up and upgrade opportunities? Turn to page
Does your income plan include you, or you and your spouse? Turn to page
Are you concerned about increased healthcare expenses? Turn to page
Is providing a legacy for your beneficiaries important? Turn to page
RMD Friendliness
With Retirement Income Choice, you can take out either your annual withdrawal amount or your Required Minimum Distribution (RMD), whichever is greater, and the amount upon which your withdrawals are calculated (Withdrawal Base) will not be reduced. This can give you access to even more guaranteed income, just when you may need it most. Note that the RMD allowed under the rider is calculated for the current rider year using the value of the annuity only and not on any other tax-qualified investments you own.
This brochure uses “annuitant” and “owner” interchangeably to refer to “annuitant” for the rider. Guarantees are based on the claims-paying ability of WRL. 4
Do you want to start taking withdrawals now or later?
Withdrawals and Growth
The Retirement Income Choice base rider provides guaranteed withdrawals for life based on your Withdrawal Base (WB) regardless of how the market performs or how long you live. A growth component allows your WB to increase before you start taking withdrawals.
Additionally:
• Withdrawal percentages range from 5%-7% and are based on your age when you take your first withdrawal. • Rider withdrawals are guaranteed, even if the policy value falls to zero. • Your WB will be reduced if you withdraw more than your rider withdrawal amount (excess withdrawal). • Rider withdrawals will cease if excess withdrawals reduce the WB to zero.
Withdrawal Benefit
Attained Age 59-69 70-79 80+ Annual Withdrawal % 5% 6% 7%
If you’re not old enough to take guaranteed rider withdrawals right away, or you choose not to take withdrawals immediately, you’ll enjoy the Retirement Income Choice growth component. This can help increase your WB before you start taking withdrawals. Here’s how it works: • Your WB will grow at a rate of 5% compounded each year for up to 10 years unless you take a withdrawal. • If you decide to take a withdrawal, you will not receive the 5% growth for that rider year. • Your WB and the amount of future rider withdrawals will increase each year that growth is applied. • You can extend your period of guaranteed growth through rider upgrades within 30 days following each fifth year rider anniversary. • The 5% growth rate only applies to the WB and not to the policy value, death benefit, or other optional benefits. Guarantees are based on the claims-paying ability of WRL.
Important Information
The annuitant must wait until the rider anniversary after turning 59 to begin rider withdrawals. If the rider is purchased prior to age 59, however, the rider fee will still apply. Withdrawals in excess of the rider withdrawal amount or prior to age 59 will result in a decrease in the dollar amount of withdrawals available under the rider. Withdrawals may be subject to surrender charges. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 591⁄2, a 10% federal tax penalty may apply. The WB is equal to the policy value when the rider is added, plus any additional premiums, and less any adjustments for excess withdrawals after the rider is added. If the rider is added in the first policy year, the WB does not include any premium enhancements, if applicable. After the first rider year, the WB may be increased by the automatic step-up feature or the rider growth percentage. If you ever withdraw more than your rider withdrawal amount in a given rider year (excess withdrawal), your rider withdrawal amount will be reduced because it will be based on a lower WB.
What You Need To Know
Retirement Income Choice withdrawals reduce the policy value, death benefits, and other annuity values. If the rider is structured as joint life, the withdrawal percentage will be based on the younger of the annuitant or the annuitant’s spouse at the time of the first withdrawal. The rider may be added anytime between ages 0-85 and terminated within 30 days following each fifth rider anniversary. Investment Options with this rider are limited. The Rider Death Benefit (RDB) on the rider date equals the policy value, minus any premium enhancement if the rider is added in the first policy year. After the rider date, the RDB is equal to the rider death benefit on the rider date plus any additional premium payments, less any adjustments for withdrawals. The RDB does not reset due to the automatic step-up. Withdrawals up to the rider withdrawal amount will reduce the RDB on a dollar-for-dollar basis. Withdrawals in excess of the rider withdrawal amount will reduce the RDB by the greater of the dollar amount of the excess withdrawal or a pro-rata amount. Excess withdrawals may eliminate the additional death benefit available with the Retirement Income Choice Rider.
5
Do you want to start taking withdrawals now or later?
Income Now
The examples below assume an owner age 73 when the policy is purchased who immediately begins taking 6% annual withdrawals. They show how you will continue to receive guaranteed withdrawals for life, in both down and up markets. These charts are for illustrative purposes only and do not represent any specific annuity or depict the performance of any actual subaccount.
Hypothetical Example in a Down Market
Policy Value WB Withdrawals Initial Premium Cumulative Withdrawals
for life 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93
Age When Withdrawal Is Taken
Withdrawals of 6% of the WB remain consistent through the life of the owner. This example is intended to show how Retirement Income Choice can work in down markets.
Hypothetical Example in an Up Market
Policy Value WB WB Step-ups Manual Upgrade Withdrawals Initial Premium Withdrawals after first step-up Withdrawals after second step-up Withdrawals after manual upgrade Withdrawals after third step-up Cumulative Withdrawals
7% Withdrawals
Manual Upgrade/Purchase of new rider
6% Withdrawals
for life 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93
Age When Withdrawal Is Taken
In this example, the owner begins taking withdrawals of 6% of the WB immediately. At the end of the first, third and eleventh rider years the policy value is greater than the then-current WB, and the WB is stepped up. It also shows in the tenth year a manual upgrade to capture the growth and to increase the withdrawals to 7% of the WB. When you upgrade, the current rider will terminate and a new rider with its own terms and conditions, including the fee and growth rate, which may be higher or lower than your current rider will be issued. This example is intended to show how Retirement Income Choice, including the automatic step-up and manual upgrades, can work in up markets.
6
Do you want to start taking withdrawals now or later?
Income Later
The examples below assume an owner is age 63 when the policy is purchased. They show how the growth component of Retirement Income Choice works in both down and up markets. The charts are for illustrative purposes only and do not represent any specific annuity or depict the performance of any actual subaccounts.
Hypothetical Example in a Down Market
Policy Value WB Withdrawals
wth Gro WB 5%
Cumulative Withdrawals
Initial Premium
for life 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83
Age When Withdrawal Is Taken
This example is intended to show how Retirement Income Choice’s growth component can increase the withdrawal amount each year, even when the policy value has decreased. In order to take full advantage of the growth component, this example assumes no withdrawals in rider years 1-10, and a current rider growth rate of 5%. If withdrawals had taken place during those years, no growth in the WB would have occurred. In this example, the owner begins taking withdrawals of 6% of the WB after rider year 10.
Hypothetical Example in an Up Market
Policy Value WB WB Step-ups Withdrawals Withdrawals after step-up Cumulative Withdrawals
wth Gro WB 5%
Initial Premium
for life 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83
Age When Withdrawal Is Taken
This example is intended to show how the growth component and automatic step-up features of Retirement Income Choice can increase the WB. In order to take full advantage of the growth component, this example assumes no withdrawals in rider years 1-10, a current rider growth rate of 5%, and increases in the WB due to automatic step-ups. If withdrawals had taken place during those years, no growth in the WB would have occurred. In this example, the owner’s withdrawals begin at age 73 and are based on 6% of the WB.
7
Does your income plan include automatic step-up and upgrade opportunities?
Automatic Step-Ups and Manual Upgrade Opportunities
With Retirement Income Choice, you can enjoy automatic step-ups and manual upgrades to take advantage of market returns and withdrawal percentage increases.
Automatic Step-Ups
On each rider anniversary, the Withdrawal Base (WB) will be set to equal the greatest of the policy value, the highest rider month anniversary (rider monthiversary), or the WB with the 5% compounded growth, if applicable. When the WB is increased to the policy value or the highest rider month anniversary, it is called an automatic step-up. With the automatic step-up you don’t have to keep track of each of these values, and your WB will be adjusted to reflect the highest of these amounts. Note that automatic step-ups affect the WB only and do not affect policy value or other rider values. The rider fee percentage may increase after the first five rider years with an automatic step-up. You have 30-days after the rider anniversary to reject an automatic step-up, and retain the right to all future automatic step-ups if you reject one. The maximum rider fee allowed is 0.75% higher than the initial fee. In the first example below, the WB was reset in four different rider years due to automatic step-ups. This would provide the annuitant with a larger annual withdrawal amount when they began taking withdrawals. In this example, they were able to step-up again in years 11 and 12, which helped to increase the WB even after their 10 years of guaranteed 5% growth were over.
Rider Month Anniversary Component of Automatic Step-Ups
The rider month anniversary component of automatic step-ups provides you the opportunity to take advantage of an increased policy value throughout the policy year. For each of the twelve months following a rider anniversary, WRL will record the policy value on each rider month anniversary (i.e. if the policy is purchased on January 15th, WRL will record the policy value on the 15th of each month for the next twelve months). On the rider anniversary date, WRL will take the highest monthly value and use it in the automatic step-up calculation. This component is not considered in rider years when an excess withdrawal has been taken. In the second example below, Retirement Income Choice was purchased in January. The policy value was recorded every month thereafter on the same date the rider was purchased. In this scenario, the highest monthly policy value occurred in July. In addition, the July amount was larger than the WB accumulated at 5% guaranteed growth. At the end of the rider year, the WB would automatically step up to the value it reached in July. This chart assumes no withdrawals are taken during the rider year.
th Grow WB 5%
Initial Rider Year WB Value
Initial Premium
63
64
65
66
67
68
69
70
71 WB
72
73
74
75
76
77
78
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Age of Owner Policy Value WB Step-ups
Policy Value Policy Value on rider month anniversary Highest monthly Policy Value at end of rider year
Policy Value at end of rider year 5% Growth at end of rider year
Manual Upgrades
Retirement Income Choice allows you to manually upgrade the rider during the 30-day window following each fifth year rider anniversary. Manually upgrading the rider provides the opportunity to take advantage of: • Withdrawal Percentage Increases. Withdrawals from the new rider are based on your age, or if the joint life option is chosen, the younger of you or your spouse, at the time of first withdrawal. If you upgrade your rider and have moved into the next attained age level, you are eligible to receive the higher annual withdrawal percentage. • Additional Growth Period. If you upgrade your rider, your period of compounded annual growth on your new WB will be extended for another 10 years unless you take a withdrawal. When you manually upgrade, a new rider will be issued with a new rider date. The rider fee and growth rate may be higher or lower than the current rider. The maximum age for manual upgrades is 85. 8
Does your income plan include you, or you and your spouse?
Choose: Single Life
Deciding the best way to structure your family’s income needs can provide you peace of mind and flexibility when it comes to retirement. Retirement Income Choice gives you the opportunity to enjoy your annuity withdrawals two ways: based on your life only, or including both you and your spouse. To decide which structure is right for you, see the examples below.
The Retirement Income Choice Single Life Option offers:
• A guaranteed income stream based on one life. • Guaranteed withdrawals until the death of the annuitant, regardless of subaccount performance. • A fee structure that is based on one life. • Spousal beneficiaries have the choice to continue the annuity policy but the existing Retirement Income Choice rider is terminated. The spouse can purchase a new rider subject to current rider fees and conditions should they meet age qualifications. The rider withdrawals will be based on the policy value at the time the spouse purchases a new rider.
Retirement Income Choice and the Single Life Option in a Down Market
Withdrawals During Annuitant’s Life Initial Premium
Death of Annuitant
Withdrawals During Spousal Beneficiary’s Life
Policy Value WB Initial WB for New Rider Withdrawals Cumulative Withdrawals Withdrawals after death of annuitant Cumulative Withdrawals after death of annuitant
for life
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88
Age When Withdrawal Is Taken
Retirement Income Choice and the Single Life Option in an Up Market
Withdrawals During Annuitant’s Life
of Annuitant Death
Withdrawals During Spousal Beneficiary’s Life
Policy Value WB WB Step-ups Initial WB for New Rider Initial Withdrawals Withdrawals after first step-up Withdrawals after second step-up Withdrawals after third step-up Withdrawals after fourth step-up Cumulative Withdrawals before death of annuitant Cumulative Withdrawals after death of annuitant for life
Initial Premium
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
Age When Withdrawal Is Taken
The charts above illustrate how structuring the rider can affect the withdrawals that are available for you or your spouse and assume an age of 73 when withdrawals begin. They are for illustrative purposes only and do not depict any specific annuity or the performance of any actual subaccount. Both charts assume the spouse continues the policy and purchases a new Retirement Income Choice rider with the same terms and conditions. All guarantees are based on the claims-paying ability of WRL. For Civil Union Partners or other similar relationships, please contact a qualified tax advisor prior to purchasing.
9
Does your income plan include you, or you and your spouse?
Choose: Joint Life
The Retirement Income Choice Joint Life Option offers:
• A guaranteed income stream for both spouses’ lives. • The ability to use the joint life option with qualified monies. • Guaranteed withdrawals until the death of the annuitant and the annuitant’s spouse, regardless of subaccount performance. • Continued rider withdrawals for the surviving spouse. • Withdrawals based on the younger of you or your spouse. • A fee structure that is based on two lives.
Retirement Income Choice and the Joint Life Option in a Down Market
Withdrawals During Annuitant’s Life Initial Premium
Death of Annuitant
Withdrawals During Remaining Spouse’s Life
Policy Value WB Withdrawals Cumulative Withdrawals
for life 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88
Age When Withdrawal Is Taken
Retirement Income Choice and the Joint Life Option in an Up Market
Withdrawals During Annuitant’s Life
Death of Annuitant
Withdrawals During Remaining Spouse’s Life
Policy Value WB WB Step-ups Withdrawals Withdrawals after first step-up Withdrawals after second step-up Withdrawals after third step-up Cumulative Withdrawals
Initial Premium
for life 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88
Age When Withdrawal Is Taken
The charts above illustrate how structuring the rider can affect the withdrawals available for you or your spouse and assume an age of 73 when withdrawals begin. They are for illustrative purposes only and do not depict any specific annuity or the performance of any actual subaccount. Both charts assume the spouse continues the policy.
10
Are you concerned about increased healthcare expenses?
Choose: Income Enhancement Benefit
The Income Enhancement Benefit will double your withdrawal percentage if you, the annuitant (or, if the joint life option is elected, your spouse) were confined in a facility as defined in the rider for 180 of the last 365 days. This benefit may not be added if you are already residing in such a facility. The rider must be in place for one-year prior to receiving this benefit, and the one-year waiting period and 180-day elimination period may occur simultaneously.
Attained Age 59-69 70-79 80+
Annual Withdrawal % 5% 6% 7%
Annual Withdrawal % with Income Enhancement Benefit 10% 12% 14%
Hypothetical Example
Initial WB: $100,000 Retirement Income Choice Withdrawal Amount: $6,000 (Based on owner/annuitant age 70-79 at the time of first withdrawal) Retirement Income Choice Withdrawal Amount with Income Enhancement Benefit: $12,000 (Based on owner/annuitant age 70-79 at the time of first withdrawal)
In this example, joint owners aged 73 begin taking withdrawals under Retirement Income Choice with the Joint Life and Income Enhancement options. After one and a half years, the husband enters a facility as defined by the rider, and stays there for five and a half years. After the required 180-day elimination period, their annual withdrawals are doubled. The husband passes away and the withdrawals return to their previous level. Another one and a half years later, the wife enters a facility and stays for two and a half years. Again, after the 180-day elimination period, withdrawals are doubled. She leaves the facility, and the withdrawals once again return to their original level.
Policy Value Withdrawals Income Enhancement Withdrawals
Initial Premium
for life 1 2 3 4 5 6 7 Rider Year 8 9 10 11 12 13
The example is for illustrative purposes only and does not depict any specific annuity or the performance of any actual subaccount. It is intended to show how Retirement Income Choice can increase your withdrawal amounts in cases of admission to a facility as defined in the rider.
11
Is providing a legacy for your beneficiaries important?
Choose: Additional Rider Death Benefit
You know that by selecting the Joint Life option, you and your spouse will receive guaranteed lifetime withdrawals. But if you desire extra protection for your beneficiaries, the Retirement Income Choice death benefit option may help by providing beneficiaries the greater of the: • Variable annuity policy value. • Base policy death benefit or Guaranteed Minimum Death Benefit, if applicable. • Rider Death Benefit (RDB). The RDB on the rider date equals the policy value, minus any premium enhancement if the rider is added in the first policy year. After the rider date, the RDB is equal to the rider death benefit on the rider date, plus any additional premium payments, less any adjustments for withdrawals. The RDB does not reset due to the automatic step-up. The chart below shows how Retirement Income Choice automatic step-ups can increase withdrawals and the amount you could leave your loved ones. In this illustration, a single owner purchases an annuity with the Return of Premium death benefit option and the rider at age 73 with a WB of $100,000 and begins taking annual withdrawals equal to 6% of the WB, or $6,000. • When the owner is 74 the WB is stepped-up to $100,500 for withdrawals equal to $6,030. • The WB steps up four more times to reach a WB of $102,525, and the annual withdrawal amount increases to $6,152. • The owner passes away at age 85 after receiving a cumulative withdrawal amount of $73,362. The death benefit is calculated by looking at the greater of the policy value, the base policy Return of Premium death benefit, and the RDB.
Policy Value Original policy value = Policy value at time of death =
Includes withdrawals taken and market depreciation of policy value.
Policy Death Benefit $100,000 $0 Original policy value = Return of Premium at time of death = $100,000 $2,512
Rider Death Benefit Original policy value = Withdrawal totals = RDB= $100,000 $73,362 $26,638
Includes withdrawals calculated as both gross (dollar-for-dollar) and adjusted partial withdrawals (pro-rata).
The RDB may increase with a manual upgrade, but not with an automatic step-up.
$100,500
$101,003
$101,508
$102,015
$102,525
$150,000 $125,000 $100,000 $75,000 $50,000 $25,000 0 73
Policy Value (Ending Value of $0) Step-ups RDB (Ending Value of $26,638) Return of Premium Death Benefit (Ending Value of $2,512) Withdrawals Policy Value With a consistent annual rate of return of -4.26% net (0% gross)
74
75
76
77
78
79
80
81
82
83
84
85
Age When Withdrawal Is Taken
This chart is for illustrative purposes only and does not depict any specific annuity or the performance of any actual subaccount. It reflects a M&E&A of 1.50%, average subaccount expense of the designated investment options of 1.15%, and Retirement Income Choice fee of 0.85% of the WB for year 1-5 and 1.60% thereafter. It assumes an annual rate of return of 7.35% net (10.00% gross) for policy years 1-5 and -14.05% net (-11.40% gross) thereafter, for an overall return of -4.26% net and 0% gross. The illustration assumes the owner does not reject any automatic step-ups. The range of M&E&A fees for the Return of Premium death benefit option are 1.30%-1.50%. If a different death benefit option was illustrated, results would be different. The Return of Premium death benefit pays the beneficiary all premiums paid, less any adjusted partial withdrawals. If at the time of withdrawal the policy value is less than the death benefit value, the adjusted partial withdrawal will be greater than the amount withdrawn. 12
Simplify: Investment Options
Diversifying your investments across multiple asset classes and equity styles may help reduce the risks of inflation and market volatility—two factors that may inhibit the growth of your portfolio. Of course, asset allocation does not ensure a profit or guarantee against a loss. With Retirement Income Choice, you can choose between a variety of subaccounts, including: • Transamerica Balanced • Transamerica Money Market • Transamerica US Government Securities In addition, you can select from four asset allocation subaccounts that feature Strategic Allocation by Morningstar Associates.
10% Cash 5% Cash
• PIMCO Total Return • The Fixed Account
35% Stocks 55% Bonds 45% Bonds
50% Stocks
Conservative
Moderate
5% Emerging Markets Stocks and Bonds
5% Cash
25% Bonds 70% Stocks
30% U.S. Bonds
65% Int’l Stocks
Moderate Growth
International Moderate Growth Fund
The Morningstar Associates asset allocation process is as follows:
• Design the portfolios. • Select the investment options. • Monitor for style drift and stock overlap. The allocations shown above are approximate target allocations and are subject to change. Morningstar Associates, LLC, a registered investment advisor and wholly owned subsidiary of Morningstar, Inc., serves as portfolio construction manager to the asset allocation portfolios. Morningstar Associates is not acting in the capacity of an advisor to individual investors. The Morningstar name and logo are registered marks of Morningstar, Inc. All other marks are the property of their respective owners. • Balance portfolios with daily net cash flow. • Conduct occasional rebalancing as necessary.
13
Rider Fees and Options
How much does Retirement Income Choice cost?
With Retirement Income Choice, you can choose the right combination of features to suit your needs. Even better, you’ll only pay for the options you need, and won’t pay for the ones you don’t.
Retirement Income Choice Retirement Income Choice – Base Rider: This rider offers guaranteed growth and withdrawals. You can enjoy guaranteed lifetime withdrawals based on your age, and current 5% compounded growth on the WB each year for up to 10 years. The growth would not apply in rider years withdrawals are taken. See pages 5 through 6 for more information about these benefits. Income Enhancement Benefit: For an additional fee, this benefit will double the withdrawal percentage you are currently receiving if you (or, if the joint life option is selected, your spouse) were to be confined in a facility as defined in the rider for 180 days of the last 365 days. This benefit may not be added if you are already residing in such a facility, and must be in place for one year prior to receiving benefits. The oneyear waiting period and 180-day elimination period may occur simultaneously. Turn to page 11 for more information. Death Benefit: An additional death benefit is available with Retirement Income Choice that will pay the greater of the Rider Death Benefit, the base policy death benefit, or the Guaranteed Minimum Death Benefit, if applicable. If the joint life option is selected, this benefit will pay out upon the later of you or your spouse's death. Turn to page 12 for more information. Total Current Annual Rider Cost:
Single Life
Joint Life
0.60%
0.90%
+0.15%
+0.30%
+0.25%
+0.20%
The rider fee cannot change for the first five years, and the maximum rider fee percentage allowed is 0.75% higher than the initial percentage.
Withdrawal Benefit
Attained Age 59-69 70-79 80+ Annual Withdrawal % 5% 6% 7% The table to the left shows the withdrawal percentages for each age range. The longer you wait to begin withdrawals, the higher your annual withdrawal percentage may be. Note that if the rider is structured with the joint life option, the withdrawal percentage will be based on the age of the younger of you or your spouse. Also, the withdrawal percentage may not change once withdrawals have started, unless the rider is upgraded.
All guarantees are based on the claims-paying ability of WRL.
14
Guaranteed Lifetime Withdrawal Benefit
Variable annuities are subject to investment risk, including possible loss of principal. Due to fluctuating market conditions, at the time of distribution, your annuity value may be more or less than the total of all premium payments. This material may be used only when preceded or accompanied by a current prospectus. The prospectus has complete information including fees and expenses. Please read it carefully before investing or sending money.
Variable Annuities offered by: Western Reserve Life Assurance Co. of Ohio Home Office: Columbus, Ohio Administrative Office Address: P.O. Box 5068 Clearwater, Florida 33758-5068 Underwriter and Distributor: Transamerica Capital, Inc., Member FINRA www.westernreserve.com Customer Service: 1-800-851-9777
Please consider variable annuity investment objectives, risks, charges, and expenses carefully before investing. The contract and underlying fund prospectus contain this and other information about the annuity. Please call 1-800-525-6205 to obtain a prospectus and read it carefully before investing.
Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 591⁄2, a 10% federal income tax penalty may apply. All policies, riders, and forms may vary by state, and may not be available in all states. RGMB 28 0108, RGMB 30 0108, RGMB 28 0108 (IS)(FL), RGMB 30 0108 (IS)(FL), other versions also available, RGMB 28 0108 (IS)(OR), RGMB 28 0108 (IJ)(OR), RGMB 28 0108 (AS)(OR), RGMB 28 0108 (AJ)(OR), RGMB 30 0108 (IS)(OR), RGMB 30 0108 (IJ)(OR), RGMB 30 0108 (AS)(OR), RGMB 30 0108 (AJ)(OR)
MS230030-01/08
