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Allianz Life Insurance Company of North America Allianz Life Insurance Company of New York Inflation: Protecting Your Retirement Future Presented by [Producer Name] [Producer Title] [Producer Company] AMK-277 -N (R-3/2016)

Please note [Producer name, producer company name] is not an employee of Allianz Life Insurance Company of North America (Allianz), Allianz Life Insurance Company of New York (Allianz Life® of NY), or their subsidiaries or affiliated companies. This material is prepared by Allianz Life Insurance Company of North America and its affiliate Allianz Life Insurance of New York for use by financial professionals. This material is prepared by Allianz Life Insurance Company of North America (Allianz) and its affiliate Allianz Life Insurance of New York (Allianz Life® of NY) for use by its financial professionals.

Before we begin This presentation is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America (Allianz), Allianz Life Insurance Company of New York (Allianz Life® of NY), and Allianz Life Financial Services, LLC, their affiliated companies, and their representatives and employees do not give legal or tax advice. Allianz, Allianz Life of NY, and Allianz Life Financial Services, LLC, are affiliated companies. • Not FDIC insured • May lose value • No bank or credit union guarantee • Not a deposit • Not insured by any federal government agency or NCUA/NCUSIF

Risks, if not addressed, can chip away at retirement savings 4 Accumulated retirement savings

Inflation § Modest rates of inflation are a long-term reality § Problems may occur if inflation risks are not dealt with properly § The sooner these issues are addressed, the greater your chance of successfully managing them in retirement Even a modest 2. 5% inflation rate means costs could double in about 28 years

Agenda 1. Inflationary trends 2. Inflation concerns 3. Rising health care costs 4. Next steps 6

1 Inflationary trends 7

Inflation types Demand-pull inflation Demand/supply theory

Inflation types Cost-push inflation Caused by drop in supply due to increases in costs or natural disasters – not excess demand

Types of inflation Hyperinflation Generally, prices rise by 50% or more per month. Stagflation Slow economic growth and high unemployment (a time of stagnation) and a rise in prices or inflation. Deflation A sustained decline in the general level of prices. Often caused by reduction in supply or money or credit or decrease in spending. Disinflation A slowing in the rate of inflation.

Why inflation is perceived negatively § Hurts savers § Leads to higher interest rates § Influences when people buy § Is generally hated by voters – so politicians campaign against it

Can inflation actually be good? Various theories support that some level of inflation can be desirable in The best inflation is an economy not too high, nor too low: from 1% – 3% seems about right. ” 11

Inflation is measured by the CPI Consumer Price Index (CPI) CPI-W CPI-E Urban Wage Earners & Clerical Workers Senior Consumers Age 62+ Core CPI Excludes food and energy 13

New inflation measurement § New state-of-the-art estimation system by Bureau of Labor Statistics § First major improvement in over 25 years § Effective with release of January 2015 CPI on February 26, 2015. § Employs a formula reflecting substitution consumers make across categories in response to price changes § Improved flexibility and review capabilities § Eliminates paper in all steps of the process 1 U. S. Department of Labor, Bureau of Labor Statistics, CPI, New CPI Estimation System To Be Introduced, October 2014. 14

U. S. inflation history 1 60 s 2. 33% Average rate 7. 1% 70 s 1 since 1914: 5. 55% 80 s ‘ 70 ‘ 71 5. 7% 4. 4% 3. 2% Average rate 6. 2% ‘ 73 in 1970 s: 11% ‘ 74 ‘ 72 3. 28% 7. 08% 90 s 00 s 1 3. 01% 2. 56% 2. 1% U. S. Department of Labor, Bureau of Labor Statistics, CPI, 1914 -2015. 15 9. 1% ‘ 75 ‘ 76 ‘ 77 ‘ 78 ‘ 79 5. 8% 6. 5% 7. 6% 11. 3%

2 Inflation concerns 16

Planning for longer retirements Women – 74. 71 Women – 811 Men – 67. 11 Men – 76. 21 In 2014, for a couple both age 65, there is a 47% chance that one spouse will live to age 90, a 2% increase from the previous year. 2 1970 1 National Vital Statistics Reports, Volume 63, No. 7, Nov. 6, 2014, page 45. Morgan, Guide to Retirement, 2014 edition, pg. 6. 2 J. P. 17 2010

Inflation may erode purchasing power $25 groceries today This hypothetical example is for illustration purposes only.

Inflation may erode purchasing power $25 groceries 20 years later 3% cost increase This hypothetical example is for illustration purposes only.

You may outlive your retirement income $700, 000 4% $600, 000 5% $500, 000 6% $400, 000 8% $300, 000 $200, 000 $100, 000 65 80 88 95 110 This chart shows how long retirement savings may last at a 4%, 5%, 6%, and 8% annual year-end withdrawal rate (withdrawal rates apply only to the first year of withdrawal). The chart is a hypothetical example and assumes $500, 000 beginning balance in retirement, a 3% annual inflation rate, and a 6% annual rate of return, compounded monthly. This hypothetical example does not represent the performance of any specific investment product, taxes, or product fees.

3 Rising health care costs 21

Consumer spending by age group Percent distribution of expenditures for all consumer units, by age, 2013 annual averages 4. 6 5. 4 3. 1 34. 2 1 35. 8 35. 1 6. 3 7. 8 31. 4 32. 1 12. 2 34. 3 U. S. Bureau of Labor Statistics, The Economics Daily, Consumer spending by age group in 2013, March 18, 2015. 22

Health care costs can have a dramatic effect on retirement R A LTH HE U S N I E C AN M E R P 191% S M IU 54% GS RNIN A E ’ S R E K WOR FLATION N I L L A R E V O 1999 43% 2014 “Cumulative Increases in Health Insurance Premiums, Workers’ Contributions to Premiums, Inflation, and Workers’ Earnings, 1999 -2014, ” Kaiser Family Foundation/HRET Survey of Employer-Sponsored Health Benefits, September 10, 2014. 23

Estimated health care costs in retirement 65 -year-old healthy couple retiring in 2015 $394, 954 Estimates only – costs can be higher. Healthview Services: 2015 Retirement Health Care Costs Data Report.

Fewer employers are offering retiree health insurance 1988 2015 66% 23% Employers offering retiree health insurance “ 2015 Employer Health Benefits Survey”, Kaiser Family Foundation, 2015. 25 For financial professional use only – not for use with the public.

Medicare costs § If not currently receiving Social Security benefits, your clients must enroll to begin Medicare. § When they enroll can affect their premiums 26 Eligible first day of the month turning age 65

Medicare costs Part A Generally, no monthly premium for coverage § 2016 inpatient deductible $1, 288 per benefit period § Daily coinsurance amounts Part B § For most people, 2016 Standard monthly premium of $104. 901 Hospitalization Medical expense insurance - Higher annual income brackets pay higher premiums § Means tested – tax return from two years prior 1 Centers 27 for Medicare and Medicaid Services, Medicare 2016 costs at a glance, November 2015.

Medicare costs Part C Medicare health plan choice Medicare Advantage Plans - Sometimes called “MA Plans” - May offer extra coverage such as vision, hearing, dental, and/or health and wellness programs - Monthly premium varies by plan Part D For 2016: § National base beneficiary premium $34. 10/month (varies by plan)1 Prescription drugs - Higher annual income brackets pay higher premiums. § Deductible $3602 § Initial benefit limit of $3, 3102 § Out-of-pocket threshold $4, 8502 1 Centers for Medicare and Medicaid Services, July 2015. 2016 costs at a glance, January 2016. 2 Medicare 28

Medicare does not cover nursing home costs § Medicaid is a joint federal-state program for low income individuals for nursing home and some other costs - Subject to federal and state guidelines - Program options and names vary from state to state (e. g. , Medical Assistance or Medi-Cal) § Qualifications - Vary from state to state - Income and resource requirements also vary between states § Long term care policies and riders may be needed Medicare and You, Centers for Medicare and Medicaid Services, 2016 pp. 124 -125. 36

Annual long term care costs can be significant Medicare does not cover nursing home costs 2015 average annual nursing home cost in the U. S. $91, 250 (private room) 4% increase Percent increase represents the compound annual growth rate for surveys conducted 2010 to 2015. Genworth 2015 Cost of Care Survey. 30

Estimated annual retiree health care costs Monthly cost Annual cost Medicare A (hospital insurance premium)1 $0 $0 Medicare B (medical insurance premium)1 $104. 90 $1, 258. 80 Medicare Supplement (Medigap) average 2 $183 $2, 196 Medicare Part D (prescriptions)1 $34. 10 $409. 20 TOTAL $322 $3, 864 $7, 728 30 years $8, 105 $16, 210 20 years $6, 331 $12, 663 10 years $4, 946 $9, 842 1 The monthly premium you pay for Part D is based on your income reported on your IRS tax return from 2 years ago and last year. 2 The cost of Medicare Supplement (Medigap) coverage varies based on the plan. Figure used here is average from 2010. 1 Centers INFLATION Expense for Medicare and Medicaid Services, Medicare 2016 costs at a glance. 2 Kaiser Family Foundation, Medigap: Spotlight on Enrollment, Premiums and Recent Trends, 2013. 39 Couple

4 Next steps 32

Next steps What can you do? § Understand how inflation can impact your retirement § Manage your overall expectations for the impact of inflation and focus on what you can control § Familiarize yourself with Medicare options § Work with a financial professional to help you address inflation protection strategies

Next steps What can you and your financial professional do together? § Analyze your retirement income needs based on inflation’s impact on the potential of a longer retirement § Review the impact of high inflation and low interest rates on rates of return during retirement § Discuss annuity options and the steady stream of lifetime income they can provide § Consider long term care insurance policies and riders to help supplement the rising costs of health care

Summary 1. Inflationary trends 2. Inflation concerns 3. Rising health care costs 4. Next steps 35

Disclosures This presentation is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, their affiliated companies, and their representatives and employees do not give legal or tax advice. Clients are encouraged to seek advice for their personal situations from their tax and legal professionals. Purchasing an annuity within a retirement plan that provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefit. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan. All annuity contract and rider guarantees, or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer from which this annuity is purchased, by the insurance agency from which this annuity is purchased, or any affiliates of those entities, and none makes any representations or guarantees regarding the claims-paying ability of Allianz Life Insurance Company of North America or Allianz Life Insurance Company of New York. Guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions. • Not FDIC insured • May lose value • No bank or credit union guarantee • Not a deposit • Not insured by any federal government agency or NCUA/NCUSIF Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 554161297. www. allianzlife. com. In New York, products are issued by Allianz Life Insurance Company of New York, 28 Liberty Street, 38 th Floor, New York, NY 10005 -1422. www. allianzlife. com/new-york/. Variable products are distributed by their affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416 -1297. www. allianzlife. com. Only Allianz Life Insurance Company of New York is authorized to offer annuities and life insurance in the state of New York.

Thank you! Questions? 37