Macquarie Lifetime Income Guarantee

Case Study 1
Bill and Mary need strong equity returns to meet their retirement income needs. Their financial advisor shows them how Macquarie Lifetime Income Guarantee can be used to access equity market returns, while providing some downside protection and diversifying away longevity risk.
Key FaCtS - Bill & Mary

Increase equity exposure without risking retirement income

Bill and Mary (aged 67 and 65) are retired with 2 non-dependant children & own their home Their SMSF has a $850,000 balance with $700,000 allocated to cash and $150,000 allocated

to direct blue-chip equities

They need income of $60,000 p.a. to maintain their desired lifestyle Despite their healthy SMSF balance they are concerned that with this level of income they will

outlive their savings and know that social security alone will not provide for their desired lifestyle
The equity market outlook is improving so they think it might be time to re-enter the market to

grow their savings

However now that they are retired, and drawing income from their pension, they know their

retirement savings are more exposed to falling equity markets early in retirement
Due to their good health there is a 20% chance at least one of them will live to 100

inveStMent Strategy

MLIG provides a guaranteed income for life while allowing for a greater equity allocation

Bill and Marys adviser demonstrates that while their cash heavy investment strategy is safe from market crashes, it leaves them exposed to significant longevity risk. Instead he recommends core satellite strategy:
MLIG (with 70% equity exposure) Blue-chip equities High-performing actively managed funds Cash Key Differences in Strategies Current Initial Value Initial Income Level (p.a.) Possible Term Equity Exposure Return Expectation Initial cost of premiums Return (net premiums) $850,000 $59,500 84 yrs old 18% 5.24% -% 5.24% Mlig $850,000 $59,500 Lifetime 71% 8.60% (0.94%) 7.65% 8 - 13 yrs longer 53% 3.36% (0.94%) 2.42% Differences $500,000 $150,000 $100,000 $100,000 SATELLITE CORE

By following this strategy and using MLIG Bill & Mary can:
Initially draw their desired $60,000 p.a. Be guaranteed to receive pension payments for the rest of both their lives regardless

of how markets perform (as Spouse Option was selected)

Increase their expected return from 5.2%p.a. to 8.6%p.a. with an additional cost of only

0.94%p.a. of their initial SMSF balance

Retain the flexibility to change the strategy at any time as their needs change or

markets perform well as they can stop the guarantee and retain full access to their pension account balance.

This core satellite strategy with an added layer of protection provided by the MLIG guarantee delivers a simple, diversified SMSF that manages longevity and market risk.
The following two illustrations can be used to show that MLIG is a valuable addition to their SMSF whether markets go up or down providing protection throughout the first 10 years of retirement.

Strong MarKet perForManCe

After a period of strong investment performance the Guarantee can be turned off

As a result of the higher equity allocation Bill & Marys SMSF benefited from the strong market performance and they are $175,000 better off compared to their current strategy. After 10 years, as there is less chance they will run out of savings, they have 2 options:
Turn off the Guarantee, at no cost, and decrease their equity exposure - saving the ongoing

cost of the Guarantee Premiums; or

Continue with the MLIG protection and remain exposed to equity markets for longer. Strategy comparison after 10 years Starting SMSF balance Investment Income Social Security Total Income drawdown (inc. social security) Investment Earnings (net fees) Premiums SMSF Balance After 10 yrs Benefit of MLIG strategy $821,172 Current $850,000 $498,166 $143,997 $642,163 $469,338 MLIG $847,500 $529,203 $112,960 $642,163 $758,141 -$81,057 $995,381 $174,209

poor MarKet perForManCe

Account Balance

While strong market performance is more common, history shows that equity markets can be very volatile and risky for retirees

If markets havent performed well in the first 10 years, Bill & Mary would continue to take full advantage of the MLIG protection and, when their SMSF balance falls to $0, receive a Guaranteed Lifetime Income for the remainder of both their lives.
$1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 65 70 75 Satellite Balance 80 85 90 95 Social Security 100 Guarantee Payments Investment Account Balance Income from MLIG + Investments $60,000 $40,000 $20,000 $0 The MLIG Guarantee payments contribute a significant percentage to overall retirement income $100,000 $80,000

Income Level

If either Bill or Mary live until they are 95, they will be over $200,000 better off with MLIG

This information has been prepared by Macquarie Life Limited ACN 003 963 773 AFSL 237497 (Macquarie Life) and is current as at 12 May 2010. Macquarie Life is the issuer of the Macquarie Lifetime Income Guarantee Policy (Macquarie Lifetime Income Guarantee or Policy). An invitation to apply for an investment in the Policy is made in the Product Disclosure Statement dated 8 March 2010 (PDS). The PDS is available by phoning 1800 618 913. The Policy provides cover to members of superannuation funds. The Policy must be held by the trustee of the superannuation fund. In many cases, particularly where the superannuation fund is a self-managed fund, the member (you) and the trustee will be the same person. To make this information easier to read, benefits provided by the Policy to your superannuation fund trustee for your benefit are referred to as benefits provided to you. Expressions used in this information and capitalised terms not otherwise defined have the same meaning as in the PDS. This information is general advice and does not take account of the trustees or your objectives, financial situation or needs. Before acting on this general advice, the trustee should therefore consider the appropriateness of the advice having regard to its situation. The trustee and you should consider the PDS in deciding whether to acquire, or continue to hold, an investment in the Policy. We recommend investors obtain financial, legal and taxation advice and consider all risks before making any decision about investing in the Policy. You should note that this information does not take into account the rules of (or any other factors relevant to) your superannuation fund. Macquarie Life or its associates, officers or employees may have interests in the financial products referred to in this information by acting in various roles including as investment banker, broker, lender or adviser. Macquarie Life or its associates may receive fees, brokerage or commissions for acting in those capacities. In addition, Macquarie Life or its associates, officers or employees may buy or sell the financial products as principal or agent. You may contact Macquarie Life on 1800 618 913. Macquarie Life does not give, nor does it purport to give, any taxation advice. The taxation discussion in this document is based on laws current at the time of writing. Those laws and the level of taxation may change. The application of taxation laws to each investor depends on that investors individual circumstances. Accordingly, investors should seek independent professional advice on taxation implications before making any investment decisions. Past performance is not a reliable indicator of future performance. Macquarie Life is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Cth), and Macquarie Lifes obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide any assurance in respect of the obligations of Macquarie Life. Investments in the underlying Investment Funds offered under the Policy are not deposits with or other liabilities of Macquarie Bank Limited or of any Macquarie Group Company, and are subject to investment risk, including possible delays in repayment and loss of income or principal invested. Neither Macquarie Bank Limited, Macquarie Life nor any other member company of the Macquarie Group of companies guarantees the performance of the investments of the Investment Funds. Macquarie Group