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The U.S. Retirement Market

The U.S. Retirement Market. Gregory B. Salsbury, Ph.D. Executive Vice President Jackson National Life Distributors, Inc. The U.S. Retirement Market. The scope of the U.S. retirement savings market The evolution of retirement The need for financial planning and advice.

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The U.S. Retirement Market

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  1. The U.S. Retirement Market Gregory B. Salsbury, Ph.D. Executive Vice PresidentJackson National Life Distributors, Inc.

  2. The U.S. Retirement Market • The scope of the U.S. retirement savings market • The evolution of retirement • The need for financial planning and advice

  3. Retirement Assets by Country UK 10% Japan USA 9% 71% W. Europe 7% Rest of Asia 3% Source: JNL Market Research

  4. Top 10 Global Life Insurers(By Gross Written Premium) Source: AM Best, UBS Warburg Research, Company Accounts. Worldwide Life 2001 GWP.

  5. Investable Retirement Assets in the U.S. $7 trillion and growing Total Private Retirement Market Assets (In $Trillions) $14.5 $15 $12.5 $10.7 $10 $9.2 $7.8 $7.3 ($Trillions) Retirement Market Assets $6.6 $5.3 $5 $4.0 $0 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: Cerulli Report, Retirement Industry Update: Trends in 401(k) and IRA Markets 2002

  6. Jackson National Life Assets Nearly $50 billion and growing Total JNL Assets (In $Millions) $49,919 $50,000 $47,242 $43,953 $40,521 $40,000 $36,214 JNL Assets ($Millions) $33,096 $29,148 $30,000 $20,000 1996 1997 1998 1999 2000 2001 2002 (Q2) GAAP assets. Excludes FAS-115, FAS-133, reverse repurchase obligations, and securities lending deposits.

  7. U.S. Investor Holdings Percentage of families holding investment assets 100% 93% 80% 60% 49% 40% 30% 19% 19% 17% 15% 20% 3% 0% Retirement Certificates Savings Mutual Stocks Bonds Life Any Acounts of Deposit Bonds Funds Insurance Financial Investment Source: Board of Governors of the Federal Reserve, Survey of Consumer Finances, 1998; The American Marketplace New Strategist Publications, 2001

  8. Demographics: Net Worth by Age • Seniors hold the wealth • The myth of the young millionaire $146,500 $150,000 $127,500 $125,600 $105,500 $100,000 $63,000 $50,000 $9,000 $0 Less than 35 35-44 45-54 55-64 65-74 75 or more Source: Board of Governors of the Federal Reserve, Survey of Consumer Finances, 1998.

  9. The U.S. Retirement Market The scope of the U.S. retirement savings market The evolution of retirement The need for financial planning and advice

  10. Pension and Retirement Changes 1935 1974 1978 1997 2001 2002 Social Security Act Employment Retirement Income Security Act Revenue Act Taxpayer Relief Act Economic Growth and Tax Relief Reconciliation Act Job Creation and Worker Assistance Act

  11. Social Security Overburdened • Social Security doesn’t pay very much • Most Americans depend on it • The ratio of payees to beneficiaries is shrinking • Future retirees will not likely receive Social Security Source: General Accounting Office; Cerulli Associates.

  12. Benefits warning! In 15 years or less, Social Security will start paying out more than it takes in. By 2075, it will be $22.2 trillion in the hole. Source:Barron’s, “Pension Poverty,” January 28, 2002

  13. Death of the Company Pension • Companies unable to meet pension responsibilities • Defined Benefit yields to Defined Contribution • The boom in additional retirement plans Source: General Accounting Office; Cerulli Associates.

  14. Today’s Retirement Plans Defined Contribution Plans Alternative Savings Vehicles Qualified Non-qualified Individual Employer/Group Public All Company Small Company 403(b) Traditional 401(k) SIMPLE 401(k) Traditional IRA Annuities 457 SIMPLE IRA Roth IRA Life Insurance Money Purchase Profit Sharing SEP IRA Safe Harbor 401(k) Traditional 401(k) Individual 401(k)

  15. Defined Contribution Assets Grow $5.7 $5.0 $4.7 $3.9 $3.3 $4.4 Retirement Assets ($Trillions) $2.7 $3.6 $2.5 $2.5 $2.2 $3.0 $1.9 $2.5 $2.0 $1.4 $1.8 $1.6 $1.3 $0.9 $1.3 $1.1 $0.9 $0.8 $0.7 $0.7 $0.6 $0.6 $0.5 $0.0 1995 1997 1999 2001 2003 2005 2007 2009 2011 Other DC Assets 401(k) Assets Source: Cerulli Report, Retirement Industry Update: Trends in 401(k) and IRA Markets 2002

  16. IRA Assets Americans are managing nearly $3 trillion in IRA assets $6 $5.1 $4.2 $4 $3.5 $2.9 IRA Assets ($Trillions) $2.6 $2.2 $2 $1.5 $1.1 $0 1994 1996 1998 2000 2002 2004 2006 2008 Source: Cerulli Report, Retirement Industry Update: Trends in 401(k) and IRA Markets 2002

  17. Variable Annuity Sales Growth ($ in billions) $112.8 $120 $100 $80 $60 $40 $20 $4.5 $0 1985 2001 Source: J.P. Morgan and VARDS

  18. Variable Annuity Asset Growth ($ in billions) $1,000 $882.9 $800 $600 $400 $176.0 $200 $0 1991 2001 Source: J.P. Morgan and VARDS

  19. Fixed Annuity Sales Growth ($ in billions) $80 $74.3 $60 $40 $23.6 $20 $0 1985 2001 Source: LIMRA

  20. After Years of Variable Annuity Growth, Fixed Sales are Back Industry Annuity Sales $196 $200 $192 $171 $150 $134 $131 Industry Annuity Sales ($Billions) $100 $50 $0 1997 1998 1999 2000 2001 Fixed VA EIA Source: J.P. Morgan, VARDS, and LIMRA

  21. JNL Retirement Funding Vehicles • Fixed annuities • Variable annuities • Equity-indexed annuities • Life insurance

  22. Today’s Retirement Plans Defined Contribution Plans Alternative Savings Vehicles Qualified Non-qualified Individual Employer/Group Public All Company Small Company 403(b) Traditional 401(k) SIMPLE 401(k) Traditional IRA Annuities 457 SIMPLE IRA Roth IRA Life Insurance Money Purchase Profit Sharing SEP IRA Safe Harbor 401(k) Traditional 401(k) Individual 401(k)

  23. Today’s Retirement Plans Through TPA Defined Contribution Alternative Savings Vehicles Directly Under Review Qualified Non-qualified Individual Employer/Group Public All Company Small Company 403(b) Traditional 401(k) Simple 401(k) Traditional IRA Annuities 457 Simple IRA Roth IRA Life Insurance Money Purchase Profit Sharing SEP IRA Safe Harbor 401(k) Traditional 401(k) Individual 401(k)

  24. Driven by a Dying Pension System Aging baby boomers + Pension Self directed = Enormous personal wealth

  25. The Aging of the Aged • By the year 2030, one in four people in the developed world will be aged 65 or older • 80+ U.S. population growing 5 times faster than overall population • By the year 2030 in the U.S., the demographics of 32 states will resemble those of Florida today • By the year 2005, eldercare will replace childcare as the number one dependent care in the U.S. Source: Peterson, Peter G. Gray Dawn, OECD (1996); Department of Labor, www.lifeinsuranceselling.com, “The LTC Solution,” December 2001.

  26. Average Life Expectancy 100 92 86 84 80 80 60 48 46 40 20 0 1900 2000 2050 Men Women Source: National Vital Statistics Report, Vol. 48, No. 18, Feb. 7, 2001; U.S. Census Bureau projections, 1996; National Center for Health Statistics

  27. Retiring Younger 72 70 68 65 65 64 63 64 62 60 56 1950 1960 1970 1980 1990 2000 Source: Burtless, Gary and J.F. Quinn. (2000) “Retirement Trends and Policies to Encourage Work Among Older Americans” and AARP (2000), “Beyond 50: A Report to the Nation on Economic Security.”

  28. The Increasing Tax Bite The Tax Foundation has shown that the typical two-earner family now spends more on federal, state, and local taxes than on shelter, food, clothing and transportation combined. Source: “Tax Freedom Day Arrives,” www.house.gov/dunn/oped/txfree2.htm Source: Combined federal, state, and local taxes per capita as a percentage of income, 2001. Special Report, No. 104, April 2001, Tax Foundation

  29. Who Pays America’s Taxes? 100 Taxpayers – February 2002 1 Top Taxpayer 49 Middle Taxpayers 36% 60% 4% 50 Bottom Taxpayers Source: Tax Foundation, February 2002

  30. JNL Provides Answers • Retirement funding vehicles • Taxed deferred savings • Accumulation and distribution • Options for every risk profile

  31. JNL Growing Client Base JNL investment clients1 increased 75% 1,600,000 1,400,000 1,400,000 1,200,000 600,000 1,000,000 800,000 1995 to 2001 Prior to 1995 600,000 800,000 400,000 200,000 0 Total Number of Policyholders • Source: JNL Market Research • Investment Clients are policyholders who purchased investment products such as Annuities, Stocks, Bonds and Mutual Funds. It does not include Life Insurance.

  32. JNL Investor Profile Two-thirds of JNL Fixed Annuity owners are retired 100% 75% 66% 60% % of Policyholders Who are Retired 44% 50% 30% 25% 9% 0% Total Life Fixed VA EIA Source: JNL Market Research

  33. JNL Investor Profile Two-thirds of JNL investors have incomes in excess of $60K National Average = $33,000 100% 84% Income $60K-$90K Income $90K 75% 67% 30% 52% 23% % of Policyholders 50% 44% 20% 10% 28% 54% 6% 25% 44% 34% 32% 22% 0% Total Life Fixed EIA VA Source: JNL Market Research; 1998 Survey of Consumer Finances.

  34. JNL Investor Profile On average, JNL policyholders have 66% higher wealth $200,000 $184,500 $133,500 $124,500 $123,000 $121,000 $100,000 $74,000 Average Household Investable Assets $0 US Average JNL Total Life Fixed Perspective Persp. Insurance Advisor JNL Product Line Source: JNL Market Research; Board of Governors of Federal Reserve, Survey of Consumer Finances, 1998.

  35. The U.S. Retirement Market The scope of the U.S. retirement savings market The evolution of retirement The need for financial planning and advice

  36. The Impact of the Bull and the Bear on Investors

  37. Average Annual Returns January 1, 1984 - December 31, 2000 S&P 500116.29% Average Investor25.32% Certificates of Deposit36.48% Sources: 1 Ibbotson Associates 2002 Yearbook 2 Dalbar, Inc., “Quantitative Analysis of Investor Behavior,” June 21, 2001 3 www.federalreserve.gov, 1-month CDs

  38. The Equity Ride • 1982 to 1999 - large cap stocks averaged 18.5% • Five consecutive years of 20+% growth • U.S. household equity ownership doubled • Number of millionaires doubled between 1994 and 2000 (7.2 million) • 85% of all equity mutual fund accounts were added in the 1990s (48% after 1995) • What investors were taught … Sources: Gallup, Paine Webber, ICI, Strategic Insight, SIA, Federal Reserve Board, Nasdaq, Sept. 21, 2001; Yahoo Finance

  39. The Equity Ride • Investors ended the decade expecting annual portfolio returns of 19-22% • Holding periods plummeted • At the end of the decade, there were 8,000+ retail mutual funds. The 10 best-selling equity funds accounted for 44% of net inflows Mutual funds = 33 months Stocks = 10 months NASDAQ = 5 months Sources: Gallup, Paine Webber, ICI, Strategic Insight, SIA, Federal Reserve Board, Nasdaq, Sept. 21, 2001, Yahoo Finance

  40. The Equity Ride • As of 3/00, an unprecedented percentage of household assets in categories subject to principal loss • “Buy” recommendations outnumbered “sells” 72 to 1 Sources: Gallup, Paine Webber, ICI, Strategic Insight, SIA, Federal Reserve Board, Nasdaq, Sept. 21, 2001, Yahoo Finance

  41. And Then, The Ride Was Over … • 2000 worst year for S&P 500 since 1974, and then it got worse • By March of 2001 we hit official “Bear” territory for every major index • Then it got worse again … Sources: Gallup, Paine Webber, ICI, Strategic Insight, SIA, Federal Reserve Board, Nasdaq, Sept. 21, 2001, Yahoo Finance

  42. From Their Peaks … DJIA - 35.24% S&P500- 46.62% MSCIEAFE- 49.43% NASDAQ- 76.78% Source: As of 9/30/02, www.mscidata.com, http://finance.yahoo.com

  43. The Five Stages of Loss • Shock • Denial • Hurt • Anger • Acceptance

  44. Advisor Issues • Frightened investors • Fee-based pricing • Pursuit of the affluent

  45. JNL is Well-Positioned • Capitalizing on the retirement market • Focusing on advisors • Understanding investors

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