INVESTING IN YOUR FUTURE: A TIAA FINANCIAL ESSENTIALS WORKSHOP. Money at Work 1: Foundations of investing

Transcription

1 INVESTING IN YOUR FUTURE: A TIAA FINANCIAL ESSENTIALS WORKSHOP Money at Work 1: Foundations of investing

2 Staying on course: Today s agenda Retirement Advisor Understanding saving Risk tolerance Asset classes and asset allocation Mutual funds, IRAs, stocks and annuities Tools and action steps

3 Trivia 1. What percentage of Americans has no confidence that they ll have enough money to retire comfortably? 2. What percentage of Americans report that they aren t contributing to any retirement plan?

4 The basics Where to begin? Assess your current situation Get out of debt Make saving a priority Create a budget, and stick to it Pay yourself first

5 Retirement Advisor - How much will you need? TIAA.org/setyourgoals TIAA tools can help you figure out your personal retirement situation.

6 Understanding saving: The rainy day will come Take advantage of employer retirement plans Start saving right away to take advantage of compound interest Put some savings toward an emergency fund Consider saving at least 15-20% of your income each year Consider tax advantages when looking into investment vehicles 403(b) tax-deferred annuity plans An IRA can give you a tax-advantaged boost!

7 Investing in stocks: the Rule of 72 How long does it take to double your money? 72 9 the magic number your percentage rate of return as a whole number = 8 years it will take to double your money

8 The high cost of delaying The above illustration is intended to show a hypothetical example of the principle of compounding. Assumptions: Current age: 35, $65,000 salary with no increases, employee contribution rate of 12%, employer contribution rate of 6% and 6.0% rate of return. These returns are illustrative only and do not reflect actual performance, or predict future results, of any TIAA account. Investment returns, and the value of the principal you ve invested, will vary over time. Investments offering the potential for higher rates of return also involve a higher degree of risk to capital. The results do not represent any specific product and do not predict or project future returns. The examples also do not reflect any withdrawals during the period displayed. You need to keep in mind that investing poses risks and it is possible to lose money by investing in securities.

9 Investing: Find your type Vehicles vs. investments Vehicles: 401(k), 403(b) or other types of investment accounts Investments: stocks, bonds, mutual funds, annuities

10 Understanding your risk tolerance What s your risk level? Conservative Moderately conservative Moderate Moderately aggressive Aggressive What s your time horizon? There are inherent risks associated with investing in securities, including loss of principal. The greater the risk, the more likely you can lose money. An investor s needs and the suitability of an investment should be carefully considered prior to purchase.

11 Class is in session Asset classes Guaranteed Money market Lower Risk Higher Fixed income Real estate Guaranteed* Money Market Fixed Income Real Estate** Equities Stocks (a.k.a. equities) There are inherent risks in investing in securities. Past performance is no guarantee of future results. In addition, investment returns and principal value will fluctuate so your accumulation, when redeemed, may be worth more or less than the original cost. * Subject to TIAA s claims-paying ability. ** In California, the TIAA Real Estate Account is available through IRAs, but not all employer-sponsored plans. Please contact us to determine if your institution s plan can accept investments into the account.

12 Asset allocation: Diversifying your portfolio You can diversify your portfolio to avoid big investment value fluctuations by: Dividing your investments into stocks, bonds and cash equivalents Diversifying by sector also (retail vs. energy vs. etc.) As you get closer to retirement, you may want to shift more investments to safer options Examples - Bonds, cash and a guaranteed account

13 Diversification!

14 Determinants of portfolio return variation Diversification is a technique to help reduce risk. However, there is no guarantee that diversification will protect against a loss of income. The strategies of diversification, rebalancing and asset allocation cannot eliminate the risk of investment losses or guarantee that an investor's goal will be met.

15 Mutual funds: Strength in numbers Generally made of several assets, like stocks or bonds Money is pooled to buy assets for the investors who own part of the fund Retirement accounts can invest in mutual funds After tax vs. employer-sponsored retirement plans

16 IRAs: Traditional vs. Roth Traditional IRA Roth IRA

17 Traditional IRA Contributions may be tax deductible Tax-deferred potential growth No income limits to make contributions May be a good option if you think you might be in a lower tax bracket during retirement or if you may need money before age 59½ (withdrawal is subject to 10% early distribution penalty)

18 Roth IRA Contributions made with after-tax dollars Withdrawals can be tax free (conditions apply) Consider a Roth IRA if you: - Think you might be in a higher tax bracket during retirement - Can double as a savings vehicle for certain short-term goals such as buying a home or college tuition (qualifications, restrictions and/or penalties may apply) - Would like to leave tax-free assets to your heirs - May want to retrieve your original contributions before retirement - Are age 70½ or older and want to continue investing in an IRA

19 IRA comparison Tax Benefits Eligibility: Income Limits Traditional IRA Tax-deferred growth Tax deductible contributions* None Roth IRA Tax-free growth Tax-free qualified withdrawals Single or head of household: $120,000-$135,000 Married, filing jointly: $189,000-$199,000 Annual Contribution Limits Age 49 and below: $5,500 cumulative Age 50 and above: $6,500 cumulative Eligibility: Withdrawals Penalties at Withdrawal Required Minimum Distribution (RMDs) No restrictions with earned compensations and income levels met If age 59½ or younger, withdrawals are subject to a 10% federal early withdrawal fee* Must start at age 70½ If held for >5 years, eligible for withdrawals starting at age 59½ Can withdraw contributions only, anytime without penalty If held <5 years, withdrawals result in taxable earnings and a 10% early withdrawal fee if age 59½ or less* No requirements *Some qualifications and/or exceptions may apply. Consult a tax advisor for more information.

20 Investing in stocks a primer A stock is a piece or share of something valuable. Stocks are also known as equities. Stocks are volatile investments their value can vary a great deal in a short time period. BUT that s looking at too big of a picture!

21 Dollar cost averaging NOTE: A periodic investment plan such as dollar cost averaging does not assure a profit or protect against a loss in declining markets.

22 Demystifying the annuity TIAA.org/public/offer/products/annuities An annuity is a contract between you and an insurance company. There are different kinds of annuities: Deferred vs. immediate annuities Fixed vs. variable annuities Some annuities offer the option of lifetime income Myths about annuities

23 Average annual total returns ( ) (Subtract inflation from the nominal return to get the real return) Inflation U.S. T-Bills Long-term Corporate Bonds Nominal Real Real Estate* Common Stocks *Chart illustrates returns from 1/1/1926 to 12/31/2016. Real Estate returns are from 12/31/ /31/2016 from NCREIF Index. Source: 2017 Morningstar Investment Management LLC. All rights reserved. Morningstar Investment Management LLC is a registered investment adviser and subsidiary of Morningstar, Inc. The Morningstar name and logo are registered marks of Morningstar, Inc. These returns are for illustrative purposes only and do not reflect TIAA-CREF performance or the returns various kinds of investments may earn in the future. Stocks represent shares of ownership in a corporation, bonds are debt obligations and real estate is direct property ownership. The value of each will fluctuate with market conditions. Treasury bills (T-bills) and government bonds are insured as to timely payment of principal and interest by the U.S. government, unlike stocks and corporate bonds. T-bills are short-term money market instruments. Past performance does not guarantee future returns. S&P 500, Ibbotson U.S. Long Term Corporate Bonds, Ibbotson U.S. Long Term Government Bonds, Ibbotson U.S. 30-Day Treasury Bills, U.S. Consumer Price Index for All Urban Consumers (CPI-U). Please note that the indexes are unmanaged and that it is not possible to invest directly in an index.

24 You re in control of your investments: Next steps to consider Pay off debt Make and stick to a budget Discover your investment personality Build your investment mix Review your retirement plan regularly Use our online tools: TIAA.org/tools Schedule an appointment with a Financial Consultant

25 Tools and resources TIAA.org/tools Retirement Advisor TIAA.org/setyourgoals Selecting the right IRA TIAA.org/public/iraselectortool

26 Congratulations. You ve invested in your future today Questions?

27 Action steps to consider Call Weekdays, 8 a.m. to 8 p.m. (ET) to schedule a one-on-one session with a TIAA Financial Consultant. Schedule online at TIAA.org/schedulenow

28 Sources Retirement confidence declined to 60% in 2017, down from 64% in Nearly 4 in 10 American workers say they aren t contributing to any retirement plan, according to a 2017 study by the Employee Benefits Research Institute. 1 1 Employee Benefit Research Institute, The 2017 Retirement Confidence Survey, March 2017 Average annual healthcare spending can reach nearly $4,400 for households over 65 and can jump to more than $6,600 for those 85 and older. 2 2 Employee Benefit Research Institute, Utilization Patterns and Out-of-Pocket Expenses for Different Health Care Services Among American Retirees, accessed May 2017 Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. By investing in more than one asset category, if one asset category's investment return falls, you'll be in a position to counteract your losses in that asset category with potentially better investment returns in another asset category. The practice of spreading money among different investments to reduce risk is known as diversification. By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns. 3 3 Securities and Exchange Commission, Beginners' Guide to Asset Allocation, Diversification, and Rebalancing, accessed May 2017

29 The Retirement Advisor does not monitor your retirement assets or personal circumstances. The purpose of the retirement income tool is to show how the performance of the underlying investment accounts could affect the participant's policy cash value and the resulting retirement income. It is not intended to project or predict investment results. The advice may vary over time and with each use. There may be other investments not considered by the Retirement Advisor that have characteristics similar or superior to those being analyzed. The tool s advice is based on statistical projections of the likelihood that you will achieve your retirement goals. The projections rely on financial and economic assumptions of historical rates of return of various asset classes that may not reoccur in the future, volatility measure and other facts, as well as information you have provided. IMPORTANT: Projections and other information generated through the Retirement Advisor regarding the likelihood of various investment outcomes are hypothetical, do not reflect actual investment results and are not a guarantee of future results. The projections are dependent in part on subjective assumptions, including the rate of inflation and the rate of return for different asset classes. These rates are difficult to accurately predict. Changes to the law, financial markets or your personal circumstances can cause substantial deviation from the estimates. This could result in declines in the account s value over short or even extended periods of time.

30 You should consider the investment objectives, risks, charges and expenses carefully before investing. Call or log on to TIAA.org for underlying product and fund prospectuses that contain this and other information. Read the prospectuses carefully before investing. This material is for informational or educational purposes only and does not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made in consultation with an investor s personal advisor based on the investor s own objectives and circumstances. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value. Investment products may be subject to market and other risk factors. See the applicable product literature, or visit TIAA.org for details. It is possible to lose money when investing in securities. TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), New York, NY. The TIAA-CREF Retirement Advisor is a brokerage service provided by TIAA-CREF Individual & Institutional Services, LLC, a registered broker/dealer and member of FINRA. After-tax annuities are issued by TIAA-CREF Life Insurance Company, New York, NY. Each is solely responsible for its own financial condition and contractual obligations.

31 Annuities are designed for retirement and other long term goals. If you choose to invest in variable annuities, your money will be subject to the risks inherent in investing in securities. Annuities offer several payment options, including lifetime income. Guarantees are based on the claims-paying ability of the issuer. Payments from variable annuity accounts are not guaranteed and will rise or fall based on investment performance. Withdrawals of earnings from a retirement account or annuity are subject to ordinary income tax, plus a possible federal 10% penalty if you make a withdrawal before age 59½. The tax information contained herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. It was written to support the promotion of the products and services addressed herein. The TIAA group of companies does not provide legal or tax advice. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor. TIAA.org 2017 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, 730 Third Avenue, New York, NY

32 Thank you! You can call Weekdays, 8 a.m. to 8 p.m. (ET) to schedule a one-on-one session with a TIAA Financial Consultant Or, schedule online at TIAA.org/schedulenow