MassMutual RetireEase Choice Annuity Review
Secure your future – with guaranteed lifetime income
A MassMutual RetireEase Choice deferred income annuity (RetireEase Choice) can help you establish a guaranteed future income stream that begins at a time you choose, and lasts a lifetime. What’s more, you’ll have the peace of mind that comes from knowing exactly how much that guaranteed income will be.
What does retirement mean to you?
Is it a traditional dream of completely escaping the daily grind to kick back and enjoy life more? Or maybe you love your work and wouldn’t dream of giving it up entirely – but you would like to transition some of the ‘heavy lifting’ to others. On the other hand, the idea of a traditional retirement may not resonate with you at all. Maybe your dream is all about freedom – of having the option to work or not – without worrying about having the money you’ll need.
No matter what your goals are for the next stage of your life, you’ve probably spent a lifetime working hard and accumulating a variety of assets. The challenge now becomes how to make the transition from accumulating assets to distributing income. And the closer you get to retirement, the more questions you may have, starting with:
1. What’s the most efficient way to convert assets into income?
2. How can I effectively manage risk?
3. How can I make the most of the assets I have?
Taking responsibility for your own financial well-being during retirement has never been more important, as traditional sources of predictable income, like defined benefit pension plans, become increasingly rare. And whatever the future of Social Security, it was never intended to replace 100% of your pre-retirement income. In the midst of so much that is uncertain, making decisions that will help secure your future may seem daunting.
Managing the transition – from asset accumulation to income distribution
One way to manage this transition, and the uncertainty that can accompany it, is by taking charge of the things you can. Having a clear vision of what you’d like your retirement to be is the first step in bringing your dreams closer to reality.
At the same time, it’s also important to be aware of the potential challenges that can undermine even the best strategies. If you are aware of these challenges ahead of time, you may find yourself better equipped to deal with them.
Challenges you may face in retirement
Understanding some of the financial challenges you may face in retirement is an important starting point for planning. Challenges such as longevity, inflation, health care costs, investment performance and excessive withdrawals can impact the quality of your retirement.
The possibility of outliving your assets
Advances in medicine and technology are allowing people to live longer – and that translates into extended retirements and a bigger strain on savings. Living a long life is wonderful, but it could put you at risk of running out of income.
Health Care Cost Risk
The risk that health care expenses may derail your retirement income
Although the growth of health care costs has slowed, these costs are still increasing faster than the overall rate of inflation. There is no way to predict what future health care costs will be; even if growth continues to be moderate, it’s important to factor health care costs into your retirement income planning.
A reduction in purchasing power over time
Inflation refers to the general rise in prices of goods and services. Even low inflation reduces your purchasing power over time because as prices rise, a dollar buys less.
In 2013, for example, it cost $234.48 to match the buying power of $100 in 1983.
Inflation can put more pressure on your retirement portfolio because more money will need to be withdrawn from your portfolio to maintain your standard of living.
A reduction in portfolio value due to a flat or down market
Investment losses early in retirement can reduce a portfolio’s value and its overall sustainability. Depending on how your portfolio’s assets are allocated, you may end up drawing down your money faster than you originally expected.
The risk of withdrawing too much money too quickly
This can place stress on your retirement portfolio, and increase the withdrawal rate required to maintain your desired income. To avoid depleting your portfolio, you might need to decrease your withdrawal rate, make lifestyle modifications – or both.
Probability of meeting income needs
The following table shows how different withdrawal rates, combined with various portfolio allocations, can affect the chance of meeting retirement income needs over a 25-year period. For example, if you were invested 100% in bonds and used a 5% withdrawal rate, you would have a 32% chance of meeting your income needs over a 25-year retirement. As the chart illustrates, the higher the withdrawal rate, the more likely it is that your money will run out.
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A different kind of planning
In fact, making the transition from asset accumulation to income distribution requires a different kind of planning. Your financial professional can help you to clarify your retirement goals, assess the assets you have, estimate your retirement expenses and identify any income gaps. This information can be used to tailor a plan that reflects your risk tolerance, time horizon and unique situation.
This analysis and planning starts with the understanding that to retire confidently, you’ll need a diversified retirement portfolio that provides:
1. A future predictable income stream that is secure – no matter what happens in the market.
2. Access - a source of liquid and safe assets for those times when life changes and you need flexibility; and
3. Growth opportunities - so you can accumulate the assets you’ll need to sustain your lifestyle throughout retirement.
RetireEase Choice is specifically designed to help address your future Predictable Income needs. This is the income you’ll need to cover the necessary expenses we all have. Such expenses include, but are not limited to, housing, utilities, taxes, fuel, food and health care.
The final determination of expenses that qualify as “necessary” is up to you, but no matter what you include as a necessity, you’ll need a secure source of predictable income to pay for it.
Secure your future – with predictable, guaranteed income
RetireEase Choice is a flexible premium deferred income annuity that can provide a predictable, guaranteed income stream for as long as you live.
Key benefits and features include:
1. Flexible purchase payments - Establish your future income stream with a single purchase payment or multiple purchase payments over time.
2. A variety of annuity options – Options provide guaranteed lifetime income for one life or two, and many provide beneficiary protection. There are also joint and survivor life annuity options that can be converted to the corresponding single life annuity options, if one annuitant dies before annuity payments begin.
3. Annuity date adjustment – Because loss of a job, serious health issues and other factors can derail even the most carefully planned retirement strategy, the contract permits a one-time change to the annuity date for many annuity options.
4. Death benefit provisions – In most cases, if death occurs prior to the annuity date, any purchase payment(s) you’ve made will be paid to the beneficiary
5. Annuity payment acceleration – Owner(s) of non-qualified contracts with a monthly annuity payment frequency can opt to receive three or six monthly annuity payments in a lump sum through a temporary change in annuity payment frequency.
6. MassMutual Inflation Protector – This optional benefit can help offset the effects of inflation on your annuity payments’ purchasing power.
RetireEase Choice – a different kind of annuity
RetireEase Choice offers a way to convert your purchase payment(s) into a guaranteed income stream that begins in the future and lasts a lifetime. It differs from traditional deferred annuities in two significant ways:
1. It does not provide liquidity; there is no contract value or withdrawal provision. The only time that distributions are made from your contract is when annuity payments are made or a death benefit is paid.
2. It can guarantee a higher future income amount at the time you make your purchase payment(s). Because there is no contract value or liquidity, and your guaranteed income is paid to you over your lifetime, MassMutual can use longer-duration, higher yielding assets to support that guaranteed income.
The deferral period begins on the date your contract is issued, and ends on the date that your annuity payments begin (the annuity date).
Having the ability to secure future income with certainty may help you worry less about having the income you’ll need throughout your retirement. This peace of mind may mean that other assets can be used to:
1. Provide a source of liquid assets for emergencies;
2. Cover discretionary spending;
3. Pursue growth opportunities; or
4. Provide a legacy for your heirs.
Your financial professional can help you evaluate the implications of exchanging liquidity for certainty as you decide whether RetireEase Choice should be part of your retirement portfolio.
Customize your income stream with a variety of choices
Fund your annuity contract
RetireEase Choice allows you to establish your future income stream with a single purchase payment, or with multiple purchase payments over time.4 After a minimum initial payment of $10,000, the minimum for any subsequent payment is $500. Your initial minimum purchase payment must result in an annuity payment of at least $100.
Each purchase payment is credited with annuity rates that are in effect at the time each purchase payment is made.
Making multiple purchase payments effectively spreads interest rate risk over time – similar to the principles of dollar cost averaging.
All income purchased will be combined into a single guaranteed income stream that starts on the annuity date you select.
Choose an annuity date
When you choose your annuity date at the time you purchase your contract, you are choosing the date that your deferral period ends and annuity payments begin. In addition to determining when your future income stream will begin, the length of the deferral period also affects the amount of your income. A longer deferral period will result in higher annuity payments.
The annuity date you choose must be at least 13 full months after the date your contract is issued. The maximum amount of time that your annuity date can be deferred is determined as follows:
1. The annuity date may be deferred until the earlier of 30 years from the issue date or when any annuitant reaches age 90.
2. In addition, for traditional, custodial and SEP* IRAs, the annuity date may be deferred only until the April 1st of the calendar year following the calendar year in which the contract owner/annuitant attains age 70½, to meet Required Minimum Distribution (RMD) rules.
Decide on an annuity payment frequency
When you purchase your contract, you may elect to receive income monthly, quarterly, semi-annually or annually. The election you make cannot be changed.
Annuity option guarantees
Cash Refund Guarantee – Upon the death of the last surviving annuitant, if the total of all annuity payments made is less than the purchase payment(s) made, the beneficiary will receive the difference in a lump sum. If the total of all annuity payments made is equal to or greater than the purchase payment(s), the contract will terminate.
Installment Refund Guarantee – Upon the death of the last surviving annuitant, if the total of all annuity payments is less than the purchase payment(s) made, MassMutual will continue to make annuity payments in the same amount and at the same frequency then in effect, until the annuity payments made equal the purchase payment(s).
The beneficiary(ies) may elect instead to receive the present value of any remaining annuity payments in a lump sum. If the total of all annuity payments made is equal to or greater than the purchase payment(s), the contract will terminate.
Period Certain Guarantee – If the annuitant(s) die before the end of the Period Certain, annuity payments will continue to be paid to the beneficiary in the same amount and at the same frequency then in effect until the end of the Period Certain. The beneficiary(ies) may instead elect to receive the present value of any remaining annuity payments in a lump sum. If the annuitant (or last surviving annuitant) dies after the end of the Period Certain, the contract will terminate.
Convertible or non-convertible joint annuity options?
If you need income for yourself and a spouse, you are likely to consider a RetireEase Choice joint life annuity option. When, however, does a convertible joint life annuity option make sense – and why?
Both convertible and non-convertible joint and survivor annuity options provide guaranteed lifetime income. Both allow you to choose the annuity date, payment frequency and any death benefit applicable on or after the annuity date.
Convertible joint and survivor annuity options differ from their non-convertible counterparts in the way future income is guaranteed, and in the choices available if one annuitant dies during the deferral period (before annuity payments begin).
1. Convertible joint life annuity options are only available to spousal annuitants.
2. The decision to elect a convertible joint and survivor life annuity option must be made at the time you purchase your contract.
3. If the contract is converted to a single life option, the owner can make additional purchase payments, subject to normal contract rules, unless the contract remains in force as a beneficiary IRA.
4. Annuity payment reduction and MassMutual Inflation Protector are not available with any convertible joint and survivor life annuity option.
5. The Period Certain for the convertible joint and survivor annuity option is limited to 10 years.
One guarantee – two different ways
When you elect a convertible joint and survivor annuity option, future income guarantees are based on two different payout assumptions:
1. As a joint and survivor payout – This is the income amount payable if both annuitants are alive on the annuity date; and
2. As a corresponding single life annuity payout – These are the income amounts that will be payable if only one annuitant is alive on the annuity date and the contract is converted to the corresponding single life annuity option.
More ways to secure your future, today
The main advantage of a convertible joint life annuity option is that it facilitates planning today, while keeping more options open in the future. Remember, your future income is being guaranteed on both a joint life basis and on an individual life basis for you and your spouse.
This means that when your contract is issued, and whenever you make any additional purchase payments, you will know the exact amount of your guaranteed future income, whether both annuitants are alive or only one survives. The tradeoff for these additional guarantees is that a convertible joint and survivor annuity payout generally will be lower than the payout provided by its non-convertible counterpart.
The difference in the income amount provided by convertible and non-convertible annuity options is most affected by the ages of the annuitants, the length of the deferral period and the guarantee options you elect. Your financial professional can provide you with quotes for different income guarantee scenarios.
This information can help you determine whether the lower payout provided by convertible joint and survivor options, (assuming both annuitants are alive on the annuity date) is an acceptable trade-off for the ability to convert to the single life option if an annuitant dies prior to the annuity date.
If only one annuitant is alive on the annuity date, the ability to convert to a single life annuity option can be a financial advantage because of the generally higher payouts provided by single life options vs. joint and survivor options.
Although it’s impossible to predict how your life may change, knowing that you have more than one option available to you may help you feel more secure in planning for your future.
Consider a death benefit
RetireEase Choice death benefit provisions are determined by whether death occurs before the annuity date or on or after the annuity date.
All annuity options, with the exception of the Single Life Annuity – No Death Benefit, provide a return of any purchase payments applied to the contract if death occurs prior to the annuity date. If death occurs on or after the annuity date, any death benefit is determined by the annuity option you choose.
Features that offer flexibility
RetireEase Choice includes features that can provide additional flexibility to your retirement income decisions. There is no additional cost for these features, but there are limitations specific to each one. Let’s take a closer look at these features.
Annuity date adjustment feature
Most RetireEase Choice annuity options permit a one-time change to the annuity date you choose when you purchase your contract. This feature allows you to accelerate or defer your annuity date within a 10-year window, up to five years before or five years after the original annuity date.
For example, let’s say that you select an annuity date that will trigger annuity payments when you reach age 65. You would be able to change the annuity date so that it occurs at any time between the ages of 60 and 70.
Please refer to page 20 for additional information on the Annuity Date Adjustment feature.
Keep in mind that if you change your annuity date, the new annuity date is irrevocable and your annuity payment will be recalculated.
1. Defer the annuity date – the annuity payment increases.
2. Accelerate the annuity date – the annuity payment decreases.
Your new annuity payment will be based on your originally scheduled annuity payment, the new annuity date, Moody’s Seasoned Baa Corporate Bond Yield rate at the time we receive the annuity date change request, the Annuity 2012 Mortality Table and an interest rate change adjustment set forth in your contract. This feature is not available with the following annuity options:
1. Life – No Death Benefit
2. Life – No Refund
3. Joint & Survivor Life – No Refund
4. Joint & Survivor Life – No Refund Convertible to Single Life – No Refund
Annuity payment acceleration
Once annuity payments have begun, owners of non-qualified contracts with a monthly payout frequency can elect to accelerate either three or six of their regularly scheduled annuity payments in a lump sum, through a temporary change in annuity payment frequency.
MassMutual must receive a written request for acceleration before the next scheduled annuity payment for which the acceleration should occur. You will receive a lump sum payment on the next regularly scheduled annuity payment date in an amount equal to that annuity payment, plus the next two (or five) regularly scheduled annuity payments. No additional annuity payments will be made until regularly scheduled monthly payments resume.
Regular annuity payments resume after the three- or six-month period ends. You may exercise this option a maximum of five times over the life of the contract. You must receive at least one regularly scheduled annuity payment before requesting another acceleration. Let’s look at an example of how this works.
On the 15th of each month, Bill receives an annuity payment of $1,000. Shortly after receiving his September 15th annuity payment, Bill decides that he wants to receive three months of annuity payments in a lump sum. He sends a written request to MassMutual, asking for this acceleration. Here’s how his annuity payment stream would look before, during and after the acceleration of Bill’s annuity payments.
Tax treatment of accelerated annuity payments
MassMutual reports any accelerated payments as annuity payments. Because deferred income annuities are relatively new to the market, the Internal Revenue Service (IRS) has not yet ruled on this tax treatment. If you have questions or concerns, be sure to talk with your tax advisor.
MassMutual Inflation Protector
MassMutual Inflation Protector is an optional feature that can help offset the effects of inflation on your annuity payment purchasing power. This feature automatically increases the amount of each payment by 1%, 2%, 3% or 4% on the annuity date anniversary each year.
If you choose to add this feature to your contract, you must elect it and the inflation percentage amount when your contract is issued. Once elected, this feature cannot be cancelled or changed. Please refer to page 21 of the Important Considerations section of this guide for additional information on MassMutual Inflation Protector. This feature is not available with joint and survivor life annuity options that are convertible to the corresponding single life annuity options.
MassMutual. We’ll help you get there.
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Founded in 1851, Massachusetts Mutual Life Insurance Company (MassMutual) is a leading mutual life insurance company and has a long history of financial strength and strong performance. Products are designed to help meet our customers’ financial needs at every stage of life and include life insurance, disability income insurance, long-term care insurance, retirement 401(k) plan services and annuities. Our financial professionals are dedicated to helping clients make good financial decisions – not just for today, but for the long term.