Am I on the Right Track for Retirement?

Transcription

1 Am I on the Right Track for Retirement? Date June 9, 2009 Presented by: Vernon H. Stockton, III Retirement Plan Specialist AC:

2 Retirement is Closer then You Think What does retirement mean to you? Will you be ready? Average ICMA-RC public employee plans to retire at 59 Easily be retired for 25 years or more You ll need at least 75% 89% of today s income to maintain your lifestyle* It s time to: Set goals Design a financial plan Take advantage of all available retirement savings vehicles * Source: Aon Consulting 2004 Analysis 2

3 Setting Retirement Goals Key items to consider What will be provided? Employer-sponsored Retirement Plans Deferred compensation (457) Defined contribution (401) Defined benefit (pension) Social Security Medical Insurance Roth IRA 3

4 Setting Retirement Goals The Successful Retirement When will you retire? Where will you live? What do you want to do? What s your life expectancy? Age 81 for men; Age 84 for women* What are the future financial conditions? Inflation: Erosion of purchasing power How will you pay for health care and long-term care? * Source: Newsweek 2/14/05, Portrait of an Aging Nation 4

5 Setting Retirement Goals Basic Retirement Income Sources Employer-sponsored Plans Defined Benefit Pension Specific annual retirement benefit from employer Defined contribution (401, 457) Benefits based on contributions from you and/or employer How much can you expect? Ask for a summary plan description Benefit estimate 5

6 Setting Retirement Goals Basic Retirement Income Sources Social Security Not all public employees are eligible May still qualify for portion of benefit Go to to calculate or call the Social Security Administration at their toll-free number (800) to request a Personal Earnings and Benefit Estimate Statement. Health Insurance Does your employer continue eligibility after retirement? Medicare: Typically pays about 50% of health costs; no long-term care Will these income sources really be enough? 6

7 Will You Have Enough During Retirement? Actively design a realistic financial plan Charting Your Course Worksheets Consider consolidating retirement assets What retirement savings vehicles are available to you? It s never too early; It s not too late 7

8 Worksheets Pension Plan Checklist What can you expect from your employer s retirement plan? How Much Do You Need to Save? Determine how much current savings, pension and other assets will provide for your retirement How much more will you need to save? 8

9 Consolidate Retirement Accounts Organize your retirement accounts and make it easier to manage Transfer, or rollover assets from one eligible program to another 9

10 Design Your Plan What s Available? 457 Deferred Compensation Contributions are made pre-tax (Federal) Reduces current income taxes Earnings accumulate tax-deferred 401 Defined Contribution You have a plan account to which contributions are made by you and/or your employer Plan benefits based on the total amount in account Some contributions may be tax-deferred Earnings tax-deferred 10

11 Design Your Plan What s Available? No Fee Vantagepoint IRA* A tax-deferred savings account that allows you to build retirement savings Earnings compound tax-deferred Two types: Roth IRA and Traditional IRA Retirement Health Savings Program Accumulate assets tax-free to pay for medical expenses for you, your spouse and/or your dependents in retirement Funds are withdrawn tax-free when used for qualified medical expenses * No Fee Vantagepoint IRA requires a Minimum balance of $1,

12 Design Your Plan How it Works You make automatic contributions through payroll deduction You direct the investments of contributions and earnings Upon retirement, you set up a payout schedule Remaining funds are still invested/earning 12

13 Design a Plan It s never too Early $300,000 Account Balance at Age 65 Assumes bi-weekly contributions of $50 and a compounded average annual return of 7% Ending Balance $250,000 $200,000 $150,000 $100,000 Start at 25 Start at 35 Start at 45 Start at 55 $267,074 $126,313 $50,000 $54,758 $ Number of Years $18,383 1 See disclosures at the end of this presentation. 13

14 Design a Plan It s not too Late Increase Contributions Take advantage of retirement plan No Fee Vantagepoint IRA* Catch-up Provisions * No Fee Vantagepoint IRA requires a minimum balance of $1,

15 Design a Plan It s not too Late Catch Up Provisions Allows you to contribute greater than the maximum limits Tax-deductible Two types: Age 50 Catch-up Provision Normal Catch-up Provision Must follow very specific IRC guidelines Catch-up limits Cannot use both types in same calendar year Catch-up Provision Packet for complete information and worksheets 15

16 Why Participate? Tax Advantage Dollar-cost Averaging 2 Funds can accumulate quickly Effect of Increased Contributions 2 See disclosures at the end of this presentation. 16

17 Why Participate? Tax Advantage Conventional Investment Account Total to Taxes Total Invest Taken out Invested $2,400 -$600 $1,800 Taxes taken out are based on the 25% tax bracket Deferred Compensation Account Total to Taxes Total Invest Taken out Invested $2,400 -$0 $2,400 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $92,737 $121,511 Assumes you contribute $200 monthly, earn 7% and are in the 25% pre-retirement tax bracket. Deferred Compensation: $200 per month saved for 300 months earning 7% annually = $162,014. Less lump-sum tax at 25% = $121,511. Conventional Investments: $200 per month after tax at 25% = $150. $150 per month saved for 300 months, which provide earnings of 7% annually which are taxed at 25% = $92,737. $20,000 $0 Conventional Investments Deferred Compensation (after taxes paid on lump-sum distribution) 1 See disclosures at the end of this presentation. 17

18 Why Participate? Dollar Cost Averaging 2 Automatic payroll deduction Consistent contribution Market goes up; market goes down Buys more shares; buys less shares Over time, average cost of shares is reduced 2 See disclosures at the end of this presentation. 18

19 Why Participate? Dollar Cost Averaging 1, 2 Investing $2,400 Over A Four Month Period Dollar Cost Averaging buys 90 shares Average Market Price buys only 84.2 shares Amount Price/ # of Month Invested Share Shares Jan $600 $20 30 Feb $600 $30 20 Mar $600 $24 25 Apr $600 $40 15 Average Share Price = $28.50 Average Cost Per Share Price = $26.67 Savings: $1.83 Per Share Total $ , 2 See disclosures at the end of this presentation. 19

20 Why Participate? Funds Can Accumulate Quickly 1 If $1,000 a year is contributed for: Your account may have an accumulated value of: 5 Years $7, Years $16, Years $28, Years $46, Years $70, Years $104, Years $205,370 Assumes a 7% rate of return on the investment. 1 See disclosures at the end of this presentation. 20

21 Why Participate? Funds Can Accumulate Quickly 1 Compounding earn income from your original investment and earn income on the investment income. For example 1, lets say you invest $1, in Year 1. Rate of Difference between Investment Return Result Original Investment Year 1 $1, % $1, $72.29 Year 5 7% $1, $ Year 10 7% $2, $1, Year 15 7% $ 2, $1, Year 20 7% $4, $3, Year 25 7% $5, $4, See disclosure at the end of this presentation. 21

22 Why Participate? Funds Can Accumulate Quickly 1 $300,000 $200 monthly contribution at 7% return 1 $200,000 $100,000 $161,194 earnings Total: $233,194 $0 30 Years $72,000 contributed 1 See disclosures at the end of this presentation. 22

23 How We Can Help Local Representative Phone ICMA-RC Web site Your Account Statement Series 7, 63 and 65 licensed Answer questions and help fill out enrollment forms Retirement planning worksheets and materials Location visits on a regular basis or contact me directly Ongoing presentations focusing on the basics of investing Account inquiries Answer questions Resolve issues Transactions Address changes Other customer servicerelated issues ICMA-RC Investor Services: Automated services 24 hours a day, 7 days a week Check account balance Make transactions Fund information Additional helpful tools and services Mailed 10 business days after quarter end Provides: Account summary Personalized performance Account balance charts Fund information Contact Info: Vernon H. Stockton,III Ret. Plan Specialist (888) Investor Services representative Monday - Friday between 8:30am and 9:00pm ET 23

24 Take Control of Your Future Today Next Steps 1. Start Planning Complete Worksheets Pension Plan How Much Do You Need to Save Online tools at Consider rolling over retirement assets to one account Request a Benefit Illustration from your ICMA-RC representative 2. Enroll or increase contributions in the program(s) that are right for you Invest in funds based on your tolerance/understanding 3 3 See disclosures at the end of this presentation. 24

25 Important ICMA-RC Contacts Vernon H. Stockton, III, Retirement Plans Specialist (888) Investor Services

26 Disclosures 1. For illustrative purposes only. Example does not reflect an actual account or specific investment. Actual results may be higher or lower. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RETURNS. 2. Dollar cost averaging plan does not assure profit. Plan does not protect against loss in a declining market. Since the plan involves continuous investment, regardless of fluctuating prices, investor must consider financial ability to invest during low price levels. 3. Please consult both the current applicable prospectuses and MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide carefully for a complete summary of all fees, expenses, charges, financial highlights, investment objectives, risks and performance information. Investors should consider the Fund s investment objectives, risks, charges and expenses before investing or sending money. The prospectus contains this and other information about the investment company. Please read the prospectus carefully before investing. ICMA-RC s proposed fund lineup is a commitment to administer these funds for the plan, not advice to the plan sponsor on the composition of the plan s fund line-up. ICMA-RC provides plan sponsors fund information to assist them in meeting their fiduciary responsibility in managing the plan. The plan sponsor retains the obligation to prudently select and monitor the investment funds it offers to plan participants. ICMA-RC may adjust fees commensurate with changes in revenue from alternative funds selected by the plan sponsor from ICMA-RC s mutual fund platform. Vantagepoint securities are distributed by ICMA-RC Services LLC, a broker dealer affiliate of ICMA-RC, member NASD/SIPC. For a current prospectus, contact ICMA-RC Services LLC, 777 North Capitol Street NE, Washington, DC