Annuities

In Retirement Planning

For

Joe and June

My Mission

As a ChFC is to help people to do better in insurance, retirement and investment planning

Present Situation

Joe(Mid. 40s)

I.T. ManagerSalary at $35,000/m

June(Mid. 40s)Accountant

Salary at $30,000/m

Bob age 18 Bill age 14

Summary of Present Situation

1. Joe is an IT Manager at Salary of HK$35,000/m

2. June is an Accountant at Salary of HK$30,000/m

3. They own a resident in joint tenancy with $2,450,000 outstanding mortgage at floating rate of 2.5% and monthly repayment at $12,983

4. Joe has two mutual funds invested at current market value of $236,000

5. June has $100,000 fix deposit for interest accumulation

6. Their parents were passed away

7. The whole family have their own insurance policies

8. Education fund has been reserved

Basic Monthly Expenditures for the Lee’s Family in 2008/2009 - currentHousing Cost Monthly

Mortgage 12,983

Property (Rent & Rates) 1,300

Insurance 130

Utilities 1,500

Food, Household, etc

Food 3,000

Household 2,500

Telephone 400

Personal Care 1,000

Clothing 1,000

Child Expenses

Bob (Tuition fee & Traffic) 3,280

Bill (-ditto-) 5,400

Personal Expenses Monthly

Joe (Including Transportation) 3,500

June (-ditto-) 3,000

Public Discretionary

Entertainment 1,500

Gifts 200

Fees, books, etc 600

Vacations 2,500

Insurance

Life & Disability Insurance 5,645

Health Insurance 714

Mortgage Insurance 1,274

Education Fund 2,031

Basic Monthly Expenditures for the Lee’s Family in 2008/2009 - Current

Total Monthly Expense : HK$53,456

Monthly Surplus: HK$11,544

Basic Assumptions Agreed to Use in Planning

1. Checking A/C at $5,000

2. Joint Savings A/C with balance of $20,000 at 3% interest annually

3. Salary increments for both are expected 3% in annual increase

4. Expected 1% annual increase for rate, rent, utilities and maintenance on personal residence

5. Expected inflation rate of living expenses to be 3% per annum

6. Expected average annual return on MPF to be 6%

7. Expected average annual return on mutual funds to be 13%

8. Fixed deposit with current interest rate at 1.45% per annum

Client Objectives-To retire at Age 65

-To stay at the current house

-To remain the basic lifestyle after retirement

-Joe has no preference on investment tools

-June wants an product for providing guaranteed income during retirement years

Facts to Compute Lifestyle Expenses for Retirement

1. Desired retirement age at 65

2. Expense method to be used for retirement income need

3. Expense of food and household to be reduced by 50%

4. Personal expense to be reduced by 40% after retired

5. Personal expenses of Bob & Bill to be vanished

6. Expense of vacation to be reduced by 40% after the children’s grown up

7. Premium for Life and Critical Illness Benefit to be paid up by Age 65; Disability Insurance and Accidental Benefit to be expired at Age 65

8. Payment for Mortgage Insurance to be paid up by age 65

9. Premium for education funds for Bob & Bill to be paid up by their Age 18

10. Future retirement monthly income to be needed $28,649 at Age 65

Basic Monthly Expenditures for the Lee’s Family in 2028/2029- Onset of Retirement JourneyHousing Cost Monthly

Mortgage 0

Property Taxes 1,586

Insurance 130

Utilities 1,830

Food, Household, etc

Food 2,709

Household 2,258

Telephone 722

Personal Care 1,806

Clothing 1,806

Personal Expenses Monthly

Joe (Including Transportation) 3,793

June (-ditto-) 3,251

Public Discretionary

Entertainment 2,709

Gifts 361

Fees, books, etc 1,084

Vacations 2,709

Insurance

Life & Disability Insurance 0

Health Insurance 1,895

Mortgage Insurance 0

Education Fund 0

Basic Monthly Expenditures for the Lee’s Family in 2028/2029 – Onset of Retirement Journey

Total Monthly Expense : HK$28,649

Life Expectancy

For male at Age 79.5 and female at Age 85.6 according to 2006 statistic from Hong Kong Government

In reality, outlive of the table is very common

MPF

Funds Investment Surplus of Monthly Income

Sources of Income – MPF

MPF (@ 6% Growth) for Joe and June at Age 65

Joe HK$1,557,872

Jun HK$1,557,872

Total HK$3,115,744

Sources of Income – Funds Investment

Projected Amount :

HK$236,000 @ 13% annual return for 20 Years

(i.e. Up to Your age 65)

HK$2,719,449

Insurance to be kept in retirement Period

Joe & June

Permanent Life Protection (Estimated) Joe : HK$2,000,000

June : HK$1,000,000 Others Coverage benefit: Hospitalization & Surgical Benefit, Critical Illness Benefit

Choice of Annuity Products in Accumulation Period

1. Flexible Premium Deferred Fix Annuity

2. Flexible Premium Deferred Indexed Annuity

3. Flexible Premium Deferred Variable Annuity

Choice of Annuity Products in Accumulation Period

Flexible Premium Deferred Fix Annuity Features:

1) Guaranteed interest rate

2) Lowest risk out of others

3) Capital Guaranteed.

4) Life payment with 15/20/25 Years certain

Choice of Annuity Products in Accumulation Period

Flexible Premium Deferred Indexed Annuity Features:

Earning ties to outside index, expect higher return than fixed annuity.

Complicated products, not easy to understand

Choice of Annuity Products in Accumulation Period

Flexible Premium Deferred Variable Annuity

features:

1) Owner with choice of annuity fund

2) Owner assume the investment risks which is the highest out of the others

3) No Capital guaranteed.

Options available:

Under Fixed Annuity (1)1.1 Finance the full income with the fixed annuity1.2 Finance partial income with the fixed annuity1.3 Finance a minimum portion of income with the fixed annuityUnder Variable Annuity (3)3.1 Finance the full income with variable annuity3.2 Finance partial income variable annuity

Recommendation:

It is recommended to adopt 1.2

1. 50% of monthly retirement income sponsored by Fixed annuity with HK$10,000 per month contribution as from today

2. 50% of monthly retirement income sponsored by the lump sum fixed annuity whereas the amount generated from MPF account

Recommendation:

3) Addition of COLA to tackle the inflation risk by using the balance of fund amounted to HK$2,652,183 in the account.