Contractual Savings Conference

Larry Zimpleman

Executive Vice President

Principal Financial Group

April 30, 2002

16% CAGR

11% CAGR

Estimated Distributions from DC Plans

$188$212

$240$270

$304$341

$382

$427

$477

$531

$591

$656

$0

$100

$200

$300

$400

$500

$600

$700

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: CA Research, EBRI, ICI

1999-2010 ($ billions)

Baby Boomers Approach Retirement

Source: Investment Company Institute (ICI), Cerulli Associates

30-3931%

40-4930%

50-5920%

65-693%

60-643%

20-2913%

20-2930-3940-4950-5960-6465-69

401(k) Participants by Age Group

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1980

1984

1988

1992

1996

2000E

2004E

2008E

2020E

2040E

2050E

Pop

ulat

ion

in T

hous

ands

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

45 to 64 65 and over

Industry PerspectiveProtection Accumulation Payout Transfer

LifeInsurance,DisabilityInsurance

IRAs, 401(k)s,Mutual Funds,

Annuities,Life Insurance

Annuities,PeriodicWithdrawals

Life Insurance,

Long-Term Care Insurance

Sources: U.S. Census Bureau and Credit Suisse First Boston Corporation.

Changing Retirement Landscape• Increased lifespan and earlier retirements

resulting in 20 to 30 year retirements versus historical 10 to 15 years.

• Maximum monthly social security pension payment around $1,500.

• 56% of current retirees’ have no DB plan

• Guaranteed portion of retirement income is declining: 1974 2030E

Federal Inc. (SS): 42% 19%

Pension (DB Plan): 14% 5%

56% 24%

Changing Needs • Pre-retirement Needs:

– Manage income and expenses so individual can actually save for retirement.

– Manage investments to maximize growth. • In-retirement Needs:

– Need to manage funds, so individual doesn’t outlive assets.

– Need to manage the investment risk carefully. – Need to withdraw money periodically for living

expenses.– Need to maximize funds to take care of a spouse

after death.– Need to manage funds to afford to pay possible

health care or nursing home needs.

Mutual Funds• Strengths

– Grow nest egg– Choose funds– Access assets

• Weaknesses– No income

guarantee– No protection

against long-term illness

– Market fluctuations

AnnuitiesStrengths•Never outlive income•Avoid equity market fluctuations

Weaknesses•No penalty-free access to money•No protection against long-term illness•No growth potential•Typically, no inflation protection

Lifetime Income IRA

Capitalizes on Strengths and minimizes Weaknesses of the alternative products

•Time to grow nest egg

•Maximizes flexibility

•Attach other benefits

•Benefit cost averaging

Income Management Solutions

Accumulation

Mutual Funds

Security

Annuities

Transition

Market InvestmentsSecure Retirement

Benefits

Sec

ure

R

etir

emen

t D

ate

Inco

me

Sta

rt D

ate

Core Concept & Vision: Integrating Two Industries

Lifetime Income IRA Program

Market Investments

Stock Mutual Funds

Bond Mutual Funds

Money Market Funds

Money is transferred periodically to fund these benefits Pension Benefits

Survivor

Caregiver

Legacy

Guaranteed lifetime income

Increase in income benefit if criteria met

Guaranteed lifetime income to either survivor

Guaranteed benefit for heirs

Unneeded income can be

reinvested without tax

consequences

Income IRA Payment to Client

(Optional Benefits)

How Lifetime Income IRA Program’s Moving Parts Work Together

Pension Benefit

Survivor Benefit

Legacy Benefit

Caregiver Benefit

Changes with investment performance until Secure Retirement Date; may be increased automatically to offset inflation

May be set at 50-100% of Pension; may be reduced at any time

May be set at 0-100% of Pension; may be reduced at any time

If elected, will provide an increase in income; set at 25-100% of Pension and covers both spouses if Survivor Benefit is elected

Benefit How It Works

Value of Lifetime Income IRA:

• Can’t outlive Lifetime Income IRA Program.

• Won’t have to guess at how much he/she can afford to spend to support lifestyle.

• Retirement income can increase when either/both spouse is disabled or sick.

• Can support spouse or provide for the next generation.

• Can continue to participate in the market while building up secure lifetime income.

• Not locked in—individual can adjust plan.

Conclusions

• Payout phase natural extension of accumulation phase.

• Product/Service solutions not identical; payout phase may provide:– Income security– Life event recognition, such as

benefits for:• Legacy and/or Survivor• Health care

• Companies working on creative solutions

Thank you!