SLIDE 0010 V18N2 FO: RET Broadridge Investor Communication Solutions, Inc.

Transcription

1 SLIDE 0010 Welcome to our retirement workshop. We re excited to see you. You should have been given some materials as you entered. I also have pencils (or pens) available if you need them. Before we start the main part of our presentation, let me take a minute or two to tell you what we hope to accomplish over the course of the next hour or so.

2 SLIDE 0020 We have three main workshop objectives. First, we d like to introduce ourselves and our company. (Give a brief personal background, tell about your organization, and give its location.) We use workshops like this one to introduce ourselves and to develop strong working relationships with people like you. Second, we d like to educate you about the benefits of financial strategies. We ll also discuss some techniques that can help you reach your retirement goals. And third, we d like to clearly illustrate the advantages of working with a company like ours.

3 SLIDE 0030 Our commitment to the community extends beyond simply offering financial services. We are committed to helping people evaluate their financial situations and giving them the tools to help them make informed decisions. As part of that commitment, we use workshops like this one to provide individuals with sound financial information. This will help you identify your goals and make wise decisions to improve your financial situation. We follow up this session with a meeting in our offices. This is a complimentary consultation we offer to everyone who attends our workshops. During that consultation, we can discuss any questions you have as a result of today s workshop. If you prefer, we can use that time to examine your specific situation and begin the process of helping you formulate a financial strategy that will suit your needs. We know that we ll establish a working relationship with you only when you re confident we can be of service to you. We want you to understand your options and to know how you may benefit from our services. The information provided in this presentation is not written or intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. Individuals are encouraged to seek advice from an independent professional advisor.

4 SLIDE 0040 When we gave you your seminar materials, you should have received an evaluation form just like this one. (Pull out an evaluation form for your workshop participants to see.) At the end of the workshop, you ll use this form to tell us whether you re interested in taking advantage of the complimentary consultation. We d like to make you two promises concerning this form. First, if you check Yes, I am interested in scheduling a complimentary consultation, we ll call you tomorrow and set up an appointment. Second, if you check No, I am not interested in scheduling an appointment at this time, we won t call you or contact you directly after the workshop. In exchange for our two promises to you, please promise that you will fill out this form. Many of our workshop attendees do come in for a consultation, so we ve set aside time just to meet with you. When you do come to our office, feel free to leave your checkbook at home. We are very interested in developing working relationships with many of you, but that decision is yours.

5 SLIDE 0050 Let s talk about your workbook. Typically, people are more likely to remember something they act on rather than something they only hear about. That s why we designed this workbook so you can apply what you learn to your situation. It s yours to keep. It reinforces the workshop s major points and will be a valuable resource for you. Throughout the workbook, you ll see informative graphics. They come directly from the workshop slides, making it easy for you to follow the presentation. Later, these graphics will be reminders of the workshop s important points. The workbook has wide margins so you can take notes. As we cover this material, feel free to underline or circle items you may have questions about. That way, they ll be fresh in your mind during the complimentary consultation. You ll also find helpful exercises, worksheets, and self-analysis quizzes. These materials will make your workshop experience interesting, informative, and most important, valuable.

6 SLIDE 0060 Let me tell you a tale of two portfolios and the individuals who planned on them to fund their future retirements. Robert and Karen began saving for retirement in 1998 and planned to retire in Both saved $20,000 a year and wanted to accumulate $1 million to retire comfortably. Although these examples are purely hypothetical, they illustrate how investment portfolio management can play a major role in determining the kind of retirement an individual can expect.

7 SLIDE 0070 Robert had a $1 million goal for retirement. Because he always believed that the stock market was a place for gamblers, he didn t like the idea of putting his hard-earned money at risk. As a result, Robert decided to take a relatively safe approach and invested 60 percent of his portfolio in Treasury bonds, 30 percent in corporate bonds, and 10 percent in one-month CDs. Through the years, Robert s portfolio grew slowly but steadily, suffering only one year of loss. At the end of 2017, on the verge of retirement, Robert was about $320,000 short of his $1 million goal to retire comfortably. Source: Thomson Reuters, 2018, for the period January 1, 1998, to December 31, This hypothetical example is used for illustrative purposes only and does not represent any specific investment. Treasury bonds are represented by the Citigroup Treasury 7 10 Year Index. Corporate bonds are represented by the Citigroup Corporate Bond Composite Index. The performance of an index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not indicative of future results. Actual results will vary. Treasury bonds are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. The FDIC currently insures CDs for up to $250,000 (per depositor, per institution) at FDIC institutions. CDs generally provide a fixed rate of return.

8 SLIDE 0080 Karen took a different approach for reaching her retirement goal of $1 million. Based on her 20-year investment time frame and her personal risk tolerance, she invested $20,000 a year in a balanced portfolio of 60 percent stocks and 40 percent corporate bonds. She also rebalanced her portfolio on an annual basis. Despite volatility in the markets, Karen stuck to her plan. By the end of 2017, she was about $70,000 short of her $1 million goal. Source: Thomson Reuters, 2018, for the period January 1, 1998, to December 31, This hypothetical example is used for illustrative purposes only and does not represent any specific investment. Stocks are represented by the Standard & Poor s 500 composite total return. The S&P 500 is an unmanaged index that is generally considered representative of the U.S. stock market. Corporate bonds are represented by the Citigroup Corporate Bond Composite Index, which is generally considered representative of the U.S. corporate bond market. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Rates of return will vary over time, particularly for long-term investments. Actual results will vary.

9 SLIDE 0090 What can we learn from these two portfolios? Not only is investing unpredictable, but it may take more than 20 years to accumulate enough money to enjoy a comfortable retirement. Remember also that market events can deal investors a bad hand. By avoiding stocks and taking a more conservative approach, Robert was able to earn a modest but steady return and avoided significant losses during market downturns. Over this 20-year period, his portfolio earned a 4.85 percent average annual return. This illustrates that many investors may want to consider allocating a portion of their portfolios to growth-oriented investments that have the potential to earn higher returns in order to meet their retirement goals. Although Karen was unnerved by the volatility of stocks (especially in 2001, 2002, 2008, 2011, and 2015), she maintained her balanced asset allocation. This approach helped smooth out the effects of extreme market ups and downs. Her portfolio earned a 7.50 percent average annual return over this 20-year period, and she was able to accumulate about $250,000 more than Robert. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Actual results will vary.

10 SLIDE 0100 This tale of two portfolios teaches us three keys that could help fund a comfortable retirement. First, you need to determine your retirement income needs. This involves calculating how much money you will need to retire comfortably and then charting a course to meet those needs. Second, you need to invest wisely and start saving as early as possible in your career. As Robert and Karen learned, the markets can be volatile and unforgiving. Investing strategically can help you reduce your exposure to market risk as you pursue portfolio gains. Finally, it s important to protect your nest egg. This means making regular adjustments to your portfolio where necessary and considering some risk protection to help safeguard your assets from unexpected events. Let s discuss each of these steps in greater detail.

11 SLIDE 0110 Determining your retirement income needs is the first key to funding a comfortable retirement. This involves answering two main questions: How much money will you need to retire comfortably? And how will you get there? Let s look at the first question. BONUS FEATURE (Click the calculator icon to discuss how much money someone you know might need to retire comfortably.)

12 SLIDE 0120 How much money will you need? Unfortunately, there s no one-size-fits-all answer. It depends on a number of factors specific to your personal situation. For example, at what age do you plan to retire? Based on your health and family history, how long do you expect to be retired? Do you need to pay for health care, or will your former employer help cover that expense? How much income will you need after you account for inflation? And finally, what type of retirement lifestyle do you envision? Let s talk about each of these issues.

13 SLIDE 0130 Knowing your expected retirement age the age at which you plan to retire will help you determine how much you need to save. Keep in mind that you can t always control your retirement age. As this chart shows, the ages when workers expect to retire are later than the actual ages when retirees left the workforce. In fact, about half of today s retirees say they left the workforce earlier than they had planned. 1 Consider the possibility that you might be unable to continue working because of poor health or changes at your company, such as downsizing and workplace closure. It s important to remember that due to changes in Social Security, Americans won t reach full retirement age (to be eligible to receive full Social Security benefits) until age 66 up to 67, depending on birth year. Of course, the earlier you retire, the more you may need to save in order for your money to last throughout your retirement. Source: 1) Employee Benefit Research Institute, 2017 (numbers don t add up to 100 due to rounding)

14 SLIDE 0140 The length of your retirement also helps determine how much you will need to save. With recent advances in technology and medicine, life expectancies are stretching considerably. As you can see, chances are good that you ll be spending a large portion of your life in retirement. In fact, a healthy 65-yearold is likely to live another 20 to 30 years. 1 Are you prepared financially to live this long? (Discuss chances of a man and a woman living to age 85 or 90.) Source: 1) Society of Actuaries, 2018 BONUS FEATURE (Click the light bulb icon for a chart showing the growth in centenarians.)

15 SLIDE 0150 What about your future health-care needs? This chart shows that in three out of the last four years, health-care costs have increased at a faster rate than general inflation, and the trend may well continue. 1 As a result, fewer employers are offering health-care benefits to retirees, and many that do offer benefits are scaling back. In fact, if Medicare benefits remain at current levels, it s estimated that a 65-year-old couple who retire today and live an average life expectancy might need about $273,000 to pay their health expenses in retirement (assuming they don t have employer-paid retiree health benefits). 2 Under the circumstances, it s little wonder that paying for medical expenses has become one of the biggest worries that many retirees face. Sources: 1) U.S. Bureau of Labor Statistics, 2018; Employee Benefit Research Institute, 2017

16 SLIDE 0160 Inflation also affects the amount you will need to save for retirement. Inflation is the rise in consumer prices over time. Because inflation makes it more expensive to buy the things you need in order to live comfortably from day to day, it can effectively lower the value of your savings from year to year. It is critical for your savings to keep pace with or exceed inflation in order to avoid losing purchasing power as the years go by. BONUS FEATURE (Click the calculator icon to show how inflation can result in a loss of purchasing power.)

17 SLIDE 0170 The kind of retirement lifestyle you envision will also have an impact on your savings needs. For example, you may plan to travel extensively, be involved in philanthropic endeavors, or maintain a membership at the local country club. Considering these and other potential retirement expenses, such as increased health-care costs, some experts suggest that you will need at least 70 percent to 80 percent of your pre-retirement income to live comfortably in retirement. BONUS FEATURE (Click the workbook icon to direct participants to a workbook exercise that will help them determine how much money they will need to save for retirement.)

18 SLIDE 0180 Now that you have some idea of how much you will need to save for retirement, the next question becomes: How will you get there? Let s look at a few different sources of retirement income, including Social Security, continued employment earnings, and personal savings and investments including both tax-deferred and taxable vehicles.

19 SLIDE 0190 Social Security benefits are based on your highest 35 years of earnings in the workforce and on the age at which you claim Social Security. If you retire at your full retirement age (66 to 67, depending on birth year), you will receive your full Social Security benefit. However, you can choose to retire as early as age 62 and receive a reduced benefit (25 to 30 percent less than your Primary Insurance Amount), or later (up to age 70) and receive a larger benefit. For each year you delay filing from full retirement age to age 70, your benefit would increase by about 8 percent. Married couples have additional filing options, including spousal and survivor benefits. Social Security currently provides 50 percent or more of income for half of older married couples. 1 The average monthly Social Security benefit for all retired workers in 2018 is estimated to be $1,404. Typically, the monthly benefit increases annually to keep pace with the rising cost of living, but there were no cost-of-living (COLA) increases in 2010, 2011, or 2016 because inflation was too low to trigger an increase. The 2017 COLA was only 0.3 percent, and the 2018 COLA was 2 percent. 2 Social Security Statements, which describe the estimated benefits you may be eligible to receive and your earnings history, are no longer being mailed annually to all workers as they were in the past. However, at any age, you can view your Statement online. Visit ssa.gov/my account to create your own personal Social Security account on the Social Security website. Source: 1 2) Social Security Administration, 2017 BONUS FEATURE (Click the light bulb icon to discuss pension plans.)

20 SLIDE 0200 Continued employment earnings can also help provide income during retirement. Seventy-nine percent of workers say they plan to continue working for pay after they reach retirement age. Although it s good to hope for the best when preparing for retirement, remember that half of today s retirees stopped working earlier than they had planned, often because of health reasons or workplace changes. The best way to prepare for the unexpected in retirement may be to save enough so that, if you are unable to work for pay, you can still enjoy the kind of lifestyle you have envisioned. Source: Employee Benefit Research Institute, 2017

21 SLIDE 0210 Personal savings and investments will make up the bulk of retirement income for many of today s workers. People often choose to save for retirement using tax-deferred retirement savings vehicles, such as employer-sponsored retirement plans and individual retirement accounts (IRAs). Annuities are an additional option to consider. And some investors supplement their tax-deferred savings and investments by investing in stocks, bonds, cash alternatives, mutual funds, and exchangetraded funds. We ll discuss each of these options in a bit more detail.

22 SLIDE 0220 Generally, deferring current taxes can help you save money. That s why so many people choose to contribute to employer-sponsored retirement plans and traditional IRAs to save for retirement. When you contribute funds to a tax-deferred account, you pay no current taxes on the contributions or any earnings until you withdraw funds, generally in retirement. This may allow your savings to accumulate faster over time because you have your full contribution working for you. Consider this example: A $100,000 investment yielding a hypothetical 6 percent rate of return for 20 years would grow to $243,956 in a taxable account (assuming a 24 percent tax rate) or $267,742 in a tax-deferred account after taxes (24 percent rate). Over 20 years, the difference between the taxable and the tax-deferred investment would amount to almost 10 percent! This hypothetical example is used for comparison purposes only and does not represent any specific investments. Rates of return will vary over time, especially for long-term investments. Actual results will vary. Distributions from tax-deferred plans are taxed as ordinary income. Withdrawals taken prior to age 59½ may be subject to a 10 percent federal income tax penalty. Investment fees and expenses are not considered and would reduce the results shown if they were included. Lower maximum tax rates for capital gains and dividends, as well as the tax treatment of investment losses, could make the taxable investment return more favorable, reducing the difference in performance between the accounts shown. Investors should consider their investment horizon and income tax brackets, both current and anticipated, when making investment decisions.

23 SLIDE 0230 Employer-sponsored retirement plans such as Section 401(k) and 403(b) plans offer a number of benefits. First, you generally contribute a percentage of your salary using pre-tax funds, and you don t have to pay current taxes on contributions or any earnings until you withdraw money, generally in retirement. As we discussed, this can greatly enhance the growth potential of the investment by allowing each year s savings to build on the pre-tax accumulation of previous years. In addition, making pre-tax contributions may help lower your current income tax liability and may enable you to contribute more each month. Employers may offer to match a percentage of your employer-plan contributions with additional funds. This is essentially extra money provided by your employer to help you save for retirement. Whatever your savings strategy, it is usually a good idea to contribute at least enough to qualify for the full employer match, if one is offered. One drawback of defined-contribution plans is that they are subject to federal contribution limits. In 2018, workers may contribute up to $18,500 to a 401(k) or 403(b) plan, and those who are 50 and older may save an additional $6,000 thanks to a special catch-up provision. You should also remember that distributions from most employer-sponsored retirement plans are taxed as ordinary income. Withdrawals taken prior to reaching age 59½ may be subject to a 10 percent federal income tax penalty. Generally, required minimum distributions from tax-deferred plans must begin for the year in which you reach age 70½. The required beginning date (latest date to take the first distribution) is April 1 of the year after the year in which you reach age 70½. In some cases if you re still working, you might be able to delay required distributions from your current employer s retirement plan. BONUS FEATURE (Click the light bulb icon to discuss the importance of managing your 401(k).)

24 SLIDE 0240 Individual retirement accounts (IRAs) are another popular means of saving for retirement on a tax-deferred basis. There are two main types of IRAs: traditional and Roth. Almost twenty-six percent of American households own at least one traditional IRA, and more than 17 percent own at least one Roth IRA. Let s take a moment to review the features and advantages of IRAs. Source: Investment Company Institute, 2017 BONUS FEATURE (Click the light bulb icon to discuss the benefits of traditional IRAs.)

25 SLIDE 0250 The Roth IRA, which was first introduced in 1998, has become popular in recent years. It differs from a traditional IRA in that qualified Roth IRA distributions are free of federal income tax, whereas traditional IRA withdrawals are taxed as ordinary income. Having a tax-free source of income could be beneficial in retirement because distributions aren t included in your taxable income and thus don t affect the taxability of Social Security benefits. Unlike traditional IRAs, which are funded with tax-deductible contributions, Roth IRAs are funded with after-tax contributions (as well as assets converted from traditional IRAs and employer-sponsored retirement plans). Any earnings accumulate tax deferred. You can also contribute to a Roth IRA past age 70½ as long as you qualify and have earned income. If you are the original owner of a Roth IRA, you never have to take required minimum distributions (RMDs) due to age. (Roth IRA beneficiaries do have to take RMDs, but they are free of federal income tax.) Roth IRAs are subject to the same contribution limits as traditional IRAs. Workers may contribute up to $5,500 ($6,500 for those aged 50 and older) to all IRAs combined. However, eligibility to contribute to a Roth IRA phases out at higher income levels: $120,000 for single filers and $189,000 for married couples filing jointly in To qualify for the tax-free and penalty-free withdrawal of earnings (and assets converted to a Roth), Roth IRA distributions must meet the five-year holding requirement and take place after age 59½, or they need to result from the original owner s death, disability, or a qualifying first-time home purchase ($10,000 lifetime maximum). (You might mention that you could discuss the potential benefits of converting tax-deferred assets to a Roth IRA at the complimentary consultation.)

26 SLIDE 0260 Annuities offer another way to accumulate funds for retirement, yet they don t have some of the restrictions associated with IRAs and employer-sponsored retirement plans. An annuity is a contract between you and an insurance company. In return for your payments, the company agrees to pay you a regular income for a set number of years or for the length of your retirement. Contributions to annuities are made with after-tax dollars, but any earnings accumulate tax deferred. Unlike IRAs and employer-sponsored retirement plans, annuities are not subject to federal contribution limits, so they can be funded with a lump sum from an inheritance or the sale of a home or business. In addition, annuity owners are not required to take mandatory distributions due to age. Finally, some types of annuities offer guaranteed returns and lifetime payments (for an additional cost), which could significantly enhance your income in retirement. Generally, annuities have mortality and expense charges, account fees, investment management fees, and administrative fees. The earnings portion of annuity withdrawals is taxed as ordinary income; withdrawals prior to age 59½ may be subject to a 10 percent federal income tax penalty. Surrender charges may also apply during the contract s early years if the annuity is surrendered. The guarantees of fixed annuity contracts are contingent on the financial strength and claims-paying ability of the issuing insurance company.

27 SLIDE 0270 There are three main types of annuities: fixed, variable, and indexed. Fixed annuities offer a guaranteed rate of return, so your investment pays a set yield no matter how the market performs. Fixed annuities may be set up to pay you guaranteed income for a certain number of years or for the entire length of your retirement. With variable annuities, you can invest in a variety of investment subaccounts whose value may fluctuate with market conditions. The investment objectives of the subaccounts can range from conservative to aggressive. A variable annuity may outperform a fixed annuity, but there are no guarantees. If the markets experience hard times, investors run the risk of losing accumulated earnings and even principal. Indexed annuities (sometimes called equity-indexed annuities) are designed to combine the benefits of fixed and variable annuities by offering guaranteed protection of principal with the potential for additional gains. The performance of an indexed annuity is tied to a market index such as the Standard & Poor s 500.* When the index rises, so does the return on the annuity. But if the index tumbles, typically the worst the annuity can do is earn no interest or a guaranteed minimum, if one is offered. This minimum guarantee is contingent upon holding the indexed annuity until the end of the term. Thus, indexed annuities allow investors to pursue stock market gains while still protecting their principal. The guarantees of fixed and indexed annuity contracts are contingent on the financial strength and claimspaying ability of the issuing insurance company. Generally, annuities contain mortality and expense charges, account fees, investment management fees, and administrative fees. Most annuities have surrender charges that are assessed during the early years of the contract if the annuity is surrendered. In addition, withdrawals prior to age 59½ may be subject to a 10 percent federal income tax penalty. The earnings portion of annuity withdrawals is taxed as ordinary income. The guarantees of indexed annuities may cover only a certain percentage of the initial investment. The participation rate (which is the amount of index gain that the insurance company will credit to the annuity) is set and limited by the issuing insurance company. And sometimes there is a cap rate, which is the maximum rate of interest the annuity can earn. Some insurance companies reserve the right to change participation rates, cap rates, and other fees either annually or at the start of each contract term; these types of changes could affect the investment return. Based on the guarantees of the issuing company, it may be possible to lose money with this type of investment. Therefore, it is recommended that you understand how the contract handles these issues before deciding whether to invest. Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, is available from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. *Individuals cannot invest directly in an index. The performance of an unmanaged index is not indicative of the performance of any specific security.

28 SLIDE 0280 Taxable investments most commonly take one of three forms: stocks, bonds, or cash alternatives. With mutual funds and exchange-traded funds (ETFs), investors can purchase a combination of securities that may include stocks, bonds, and cash. Mutual funds and ETFs are portfolios of securities assembled by an investment company. Their underlying investments are typically selected to track a particular index, asset class, or sector or they may follow a specific strategy. Because these funds can hold dozens or hundreds of securities, they could provide greater diversification at a lower cost than you might obtain by investing in individual stocks and bonds. Diversification does not guarantee a profit or protect against loss; it s a method used to help manage investment risk. In spite of their similarities, there are key differences between these types of pooled investments. You can invest in mutual funds through investment companies and employer-sponsored retirement plans. Mutual fund shares are typically purchased from and sold back to the investment company, and the price is determined by the net asset value at the end of the trading day. By contrast, ETFs can be bought and sold throughout the trading day like individual stocks. You must pay a brokerage commission when buying or selling ETF shares. The price at which an ETF trades on an exchange is generally a close approximation to the market value of the underlying securities, but supply and demand may cause ETF shares to trade at a premium or a discount. However, the ability to buy or sell ETF shares quickly during market hours could encourage investors to trade ETFs more often than might be necessary, or to make emotional trading decisions during bouts of market volatility. ETFs are not widely available to investors who participate in employer-sponsored retirement plans. The return and principal value of mutual fund and ETF shares fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. You should be aware that mutual funds and ETFs are generally subject to the same risks as the underlying securities in which they invest. For example, bond funds are subject to the same interest-rate, inflation, and credit risks associated with the underlying bonds in the fund. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund s performance. Mutual funds and exchange-traded funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, is available from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. BONUS FEATURE (Click the light bulb icon to review why people invest in mutual funds.)

29 SLIDE 0290 As we ve seen, there are many potential sources of retirement income. The percentage of your income that will come from tax-deferred and taxable investments, Social Security, and continued employment earnings depends on your personal situation and savings strategy.

30 SLIDE 0300 Once you have determined your retirement income needs, the second key is to invest wisely.

31 SLIDE 0310 Investing wisely involves three fundamental strategies: diversification, asset allocation, and dollar-cost averaging. Let s take a closer look at each one.

32 SLIDE 0320 Diversification is a basic principle of successful investing. It involves investing in different asset classes and investment vehicles in an attempt to limit exposure to losses in any one sector of the market. Different types of investments may react to changing market conditions in different ways. For example, an unfavorable news story may push stock prices lower, while bond values rise, or vice versa. When you divide your money among various asset classes and investment vehicles, gains in one area can help compensate for losses in another. Diversification does not guarantee a profit or protect against investment loss; it is a method used to help manage investment risk.

33 SLIDE 0330 Let s look at a simple example to see how diversification might work. This example shows two $200,000 portfolios. One portfolio relies on a single type of investment. The other portfolio is split equally into five different investment categories, each with a different potential for return and accompanying risk. If the single investment in the first portfolio becomes volatile, the value of the portfolio may fluctuate widely. The diversified portfolio, on the other hand, may be able to take advantage of potential rallies with some of the investments. And in the event that any one investment suffers a downturn, only a portion of this portfolio would be vulnerable. Does everyone see how this works? This hypothetical example is used for illustrative purposes only. Actual results will vary. Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. BONUS FEATURE (Click the light bulb icon to show how these two portfolios might fare over time.)

34 SLIDE 0340 The second fundamental investment strategy is asset allocation. This is a systematic approach to diversification that determines an efficient mix of assets for a given investor, based on his or her individual needs. Asset allocation involves strategically dividing a portfolio into different asset classes typically, stocks, bonds, and cash alternatives to seek the highest potential return for the investor s risk profile. It utilizes sophisticated statistical analysis to determine how different asset classes perform in relation to one another, and its goal is to achieve an appropriate balance of security and growth potential. Asset allocation is a method used to help manage investment risk. It does not guarantee a profit or protect against investment loss in declining markets.

35 SLIDE 0350 Personalizing your asset allocation model means taking into account three things: your investment objectives, your time frame, and your risk tolerance. Let s look at each of these considerations in more detail.

36 SLIDE 0360 The first step in personalizing your asset allocation model is to establish your investment objectives. What are you trying to achieve by investing? Are you satisfied with what you have and concerned about protecting the current value of your portfolio? Would you like to see your assets continue to grow, even if it means taking on additional risk? Or are you more interested in generating a steady income that will continue no matter what happens to the markets? Your answers to these questions will help determine the appropriate mix of assets for your investment portfolio. For example, certificates of deposit (CDs) and money market funds are generally considered to be safe investments, whereas stocks, certain mutual funds and exchange-traded funds (ETFs), and variable annuities allow investors to pursue growth with an accompanying degree of risk. Bonds and fixed annuities can help generate a steady stream of income that is attractive to many retired investors. Bonds come with a number of different interest rates, maturities, and levels of risk, whereas fixed annuities offer a guaranteed source of regular income for a fixed term or for the rest of your life. Dividendyielding securities are another alternative, although they typically involve more risk. It s important to understand that dividends are paid at the discretion of a company s board of directors. Though dividends can increase, there is no guarantee that a dividend will not be reduced or eliminated. The FDIC insures CDs, which generally provide a fixed rate of return. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund. The earnings portion of annuity withdrawals is taxed as ordinary income and may be subject to a 10 percent federal income tax penalty if withdrawals are made prior to age 59½. Surrender charges may also apply during the contract s early years. Generally, annuities contain mortality and expense charges, account fees, investment management fees, and administrative fees. The guarantees of annuity contracts are contingent on the financial strength and claims-paying ability of the issuing insurance company. Keep in mind that the investment return and principal value of stocks, mutual funds, ETFs, bonds, and variable annuities will fluctuate so that an investor s shares, when sold, may be worth more or less than their original cost. Bond funds are subject to the interest-rate, inflation, and credit risks associated with the underlying bonds in the fund. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund s performance. Greater risk is inherent in portfolios that invest primarily in high-yield bonds. They are subject to additional risks, such as limited liquidity and increased volatility. Mutual funds, exchange-traded funds, and variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the mutual fund, ETF, or the variable annuity contract and the underlying investment options, is available from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

37 SLIDE 0370 The second step in personalizing your asset allocation model is identifying your time frame. The amount of time you have before you retire can have a tremendous impact on the investment categories you choose for your portfolio. That s because fluctuations in the financial markets can affect the short-term value of certain types of investments. For example, if you don t expect to retire for another 20 years, you may be able to invest more aggressively because your portfolio would have more time to recover from short-term market fluctuations. On the other hand, if retirement is just around the corner, you might want to invest more conservatively to help shelter your portfolio from potential losses.

38 SLIDE 0380 This graph shows the volatility and historical performance of various types of investments. It s a good reminder of why it is important to keep your time frame in mind when developing a sound investment strategy. Of course, keep in mind that past performance is no guarantee of future results. Although stocks are generally considered to be growth investments, their performance can be unpredictable. In the last 25 years, the annual performance of stocks has reached a high of nearly 38 percent and a low falling below 35 percent. The average annual return over this time period was 9.69 percent. Because of the characteristic volatility of stocks, most experts suggest investing in them only when you have at least 5 to 10 years before you ll need the money. Historically, corporate bonds have not performed as well as stocks over time, but they are typically less volatile. The average annual return over this 25-year period was 6.45 percent. On the other hand, Treasury bills and other cash alternatives almost always produce positive returns, but their potential for growth and keeping pace with inflation is much lower. The average annual return of three-month Treasury bills was 2.51 percent over this 25-year time period. That s not much above general inflation (CPI), which averaged 2.23 percent over this period. Source: Thomson Reuters, 2018, for the period January 1, 1993, to December 31, Stocks are represented by the Standard & Poor s 500 composite total return. The S&P 500 is an unmanaged index that is generally considered to be representative of the U.S. stock market. Corporate bonds are represented by the Citigroup Corporate Bond Composite Index, which is generally considered to be representative of the U.S. corporate bond market. Treasury bills are represented by the Citigroup Three-Month Treasury Bill Index. T-bills are generally considered representative of short-term cash alternatives and are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. The returns shown do not reflect taxes, fees, brokerage commissions, or other expenses typically associated with investing. The performance of an unmanaged index is not indicative of the performance of any particular investment. Individuals cannot invest directly in an index. Actual results will vary.

39 SLIDE 0390 The third step in personalizing your asset allocation model is identifying your risk tolerance. This means assessing how much risk you are willing to take to reach your financial goals. It includes the ability to watch the value of your investments fluctuate without becoming queasy. Generally, the more potential for growth offered by an investment, the more risk it carries. Market performance over the past decade has tested many investors risk tolerance and driven home the fact that risk tolerance is an essential consideration of a sound investment strategy. BONUS FEATURE (Click the workbook icon if you want participants to take a risk tolerance quiz.)

40 SLIDE 0400 This sample asset allocation model might be appropriate for a conservative investor. This investor has a time frame of about 20 years. Her primary concern is to manage the upward and downward swings in her portfolio. She needs an appropriate mix of investment categories for such a time frame. An appropriate portfolio for a conservative investor might look like this: 50 percent in bonds, 30 percent in stocks, and 20 percent in cash alternatives. These investment categories would be somewhat volatile over the years. But because this investor has a fairly long time frame, this mix of investments could give her an adequate potential return for the risk she is willing to take. This hypothetical example is used for illustrative purposes only. Actual results will vary. BONUS FEATURE (Click the light bulb icon to view the best and worst years for a conservative allocation model over the last 20 years.)

41 SLIDE 0410 This sample asset allocation model might be more appropriate for an aggressive investor. An aggressive investor is willing to take on more risk and to accept more volatility in exchange for higher growth potential. He has the same 20-year time frame as the conservative investor. But because he is more comfortable with risk, his investment allocation looks different even though the time frame is the same. An appropriate investment mix for an aggressive investor might be only 5 percent in cash alternatives, 15 percent in bonds, and 80 percent in growthoriented stocks. The individual investments in the portfolio would have more volatility, but over this time horizon, this investor hopes that a more aggressive mix will ultimately yield a higher overall potential return than the conservative investor s portfolio. Keep in mind that this hypothetical example is used for illustrative purposes only. Actual results will vary. Investments offering the potential for higher rates of return also involve a higher degree of risk of principal. BONUS FEATURE (Click the light bulb icon to view the best and worst years for an aggressive allocation model over the last 20 years.)

42 SLIDE 0420 The third fundamental investment strategy is dollar-cost averaging. Dollar-cost averaging attempts to accumulate funds over time by investing a set amount of money at regular intervals on an ongoing basis. Here s how it works. An individual invests a specific amount of money in the stock market at regular intervals say $100 each month. That $100 automatically buys more shares when prices are low and fewer shares when prices rise, resulting in an overall lower cost per share over time. Let s take a closer look.

43 SLIDE 0430 In this hypothetical example, an investor uses dollar-cost averaging to invest $100 per month in a mutual fund with fluctuating share prices. At the end of five months, she has shares. As you can see, the average price per share during the period was $5.20, but because the investor purchased more shares when prices were low, she paid an average of $4.65 per share. Dollar-cost averaging can help investors take advantage of stock market fluctuations without the stress and risk of trying to time the markets. It can be an effective way to steadily accumulate shares to help meet long-term goals. Although dollar-cost averaging can be a useful strategy, it does not ensure a profit or prevent a loss. To take full advantage of the benefits of this strategy, an investor must be financially able to continue making purchases through periods of high and low price levels. This hypothetical example is used for illustrative purposes only and does not represent the performance of any specific investment. Actual results will vary.

44 SLIDE 0440 When it comes to investing wisely, keeping expectations in check can help you avoid disappointments. Investors polled at the end of 1999, just before the bull market hit its peak, were expecting 18.4 percent returns from stocks in By September 2003, after the economy had fallen into a recession and the markets had suffered a prolonged downturn, investor expectations had fallen to 8.5 percent. 2 As the stock market started to rebound in 2009, investors were more optimistic that the market would continue rising. After double-digit performance years for stocks in 2013 (32.4%) and 2014 (13.7%), followed by a relatively flat year in 2015 (1.38%) and a return to double-digit returns in 2016 (12%) and 2017 (21.8%), investors were expecting moderate stock returns of about 8 percent in Because your financial strategy depends on the return you expect from your investments, it is important to be realistic about the return your portfolio will yield from one year to the next. It is unrealistic to think that the markets will perform the same way every year. Inflated expectations may cause you to overspend or fall short of your goals. A more realistic outlook may prompt you to save more and, if you re fortunate, possibly even reach your goals earlier than expected. Sources: 1 2) Gallup, 2003; 3) Thomson Reuters, 2018 (S&P 500 Composite Index total return for ); 4) Kiplinger s Personal Finance, January 2018 The performance of an unmanaged index is not indicative of any specific investment. Investors cannot invest directly in an unmanaged index. Past performance is not a guarantee of future results. Actual results will vary. BONUS FEATURE (Click the calculator icon to show how inflated expectations can cause investors to overestimate their potential earnings.)

45 SLIDE 0450 The final key to funding a comfortable retirement is to review your progress and take steps to protect your nest egg. As you regularly review your savings progress and retirement needs, you can make necessary adjustments to stay on track. In addition, you may want to utilize insurance to help protect your assets as you experience life changes.

46 SLIDE 0460 Remember our friends, Robert and Karen? Both had saved for retirement for 20 years, and both are short of their $1 million accumulation goals. Robert, whose portfolio was composed of a mix of Treasury bonds (60%), corporate bonds (30%), and one-month CDs (10%), had achieved 68 percent of his goal. Karen, whose portfolio was divided 60 percent into stocks and 40 percent in corporate bonds, had achieved 93 percent of her goal. Still, both need to decide whether to retire on schedule and live on a reduced retirement income, or work longer to accumulate a larger nest egg. The earlier you can determine whether you are on track to meet your longterm retirement goals, the more time you have to make up for a potential shortfall. For example, a 60-year-old who wanted to retire at age 67 could make up for a potential $200,000 shortfall by saving an additional $23,827 a year, assuming a 6 percent average annual return. Many people today are in a similar situation, or worse. The market turmoil in 2008 and early 2009 took a heavy toll on the nest eggs of Americans. Investors who were shaken by the declining market and moved out of stocks into safer vehicles may not have participated fully in the bull market that started in March The strategies in this presentation can help you focus on your retirement goals. If you need help to get back on track, you may want to consider meeting with us to consider your options. Working with a financial professional does not guarantee superior results. But a financial professional can provide education and make suggestions that you might find helpful when weighing specific financial opportunities. These hypothetical examples are used for illustrative purposes only and do not reflect the performance of any specific investments or consider investment expenses and taxes. Rates of return will vary over time, particularly for long-term investments. Actual results will vary, and past performance does not guarantee future results.

47 SLIDE 0470 Protecting your nest egg means taking care of three things. First, to get the most from your money, you ll want to start saving now. Second, as your portfolio changes over time, you may need to rebalance your assets on a regular basis to maintain the appropriate allocation that you desire. Finally, you need to prepare for the unexpected so that you won t be financially unprepared if a tragedy or illness should strike.

48 SLIDE 0480 Starting to save now can pay off later. Here s an example comparing two investors: Jim, who started saving early, and Susan, who procrastinated. In years 1 through 5, Jim invested $5,000 annually in an account earning 6 percent. After he contributed $25,000, he stopped investing but left his funds to continue appreciating. Susan waited five years, then began investing $5,000 annually in years 6 through 10; her account also earned a 6 percent average annual return. After 10 years, Jim and Susan each had invested a total of $25,000. But look at the difference in earnings! Because of compounding, Jim earned $14,982, for a total accumulation of $39,982. Susan, on the other hand, earned only $4,877, for a total accumulation of $29,877. That s a difference of nearly 30 percent, just because Jim started early! This hypothetical example of mathematical compounding is used for illustrative purposes only and does not represent the performance of any specific investments. Rates of return will vary over time, particularly for longterm investments. Investments offering the potential for higher rates of return also involve a higher degree of investment risk. Actual results will vary.

49 SLIDE 0490 You should establish a regular review schedule. Typically, you want to examine your investment mix and performance at least once a year. You should also review your portfolio any time you have a major lifestyle change that might affect your objectives. For instance, when you retire, you will probably need to examine your portfolio and shift some assets into income-producing investments. There are certain situations in which it is wise to review your portfolio and consider appropriate changes, such as when your marital status changes, your children are born or graduate from college, and when you change jobs. Changes in your investing outlook may also affect your investing strategy. By monitoring your portfolio to see how it performs during and after significant changes in the economy, you may want to consider adding, selling, or shifting assets to potentially enhance portfolio performance. Note: Rebalancing may result in a taxable event.

50 SLIDE 0500 Obviously, you want to assess whether your retirement savings are on track to meet your changing needs. Did you know that only 41 percent of Americans have tried to calculate how much money they will need to live comfortably in retirement? The interesting fact is that those who have done a retirement-needs calculation are twice as likely to be very confident about being able to live comfortably in retirement compared with those who haven t calculated how much they will need. 1 Retirement planning is not something you can afford to ignore. Being vigilant about your saving and investing plan can help you better prepare for the kind of retirement lifestyle you envision. Source: 1) Employee Benefit Research Institute, 2017

51 SLIDE 0510 Once you have developed a solid retirement strategy, it s wise to take steps to prepare for the unexpected. You ve worked hard to build your retirement savings. Don t let an unexpected tragedy rob you or your family of what you have rightfully earned.

52 SLIDE 0520 Life insurance can be used to help protect your retirement assets in a number of ways that are not always considered. Most people purchase life insurance to provide financially for their loved ones in the event of their death. A policy s death benefit can be used to cover funeral expenses, settle debts, pay for a child s education, pay off a mortgage, or replace a breadwinner s income. Whole life insurance can also be accessed during the policy owner s lifetime to fund unexpected expenses. Whole life insurance accumulates cash value that may be borrowed against or withdrawn to pay emergency expenses or to provide additional income in retirement. Life insurance can also be used to help protect a business in the event that an owner dies unexpectedly. The benefit may be used to help fund a buy-sell agreement or provide income for the surviving family. Finally, life insurance can also be a powerful estate preservation tool. It can provide heirs with funds to help pay estate taxes and fees so they won t have to liquidate assets. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. The cost and availability of life insurance depend on such factors as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable. For whole life policies, access to cash value is through withdrawals or loans. Policy loans will reduce the cash value by the amount of any outstanding loan balance plus interest, and will reduce the policy s death benefit. BONUS FEATURE (Click the light bulb icon to show how whole life insurance works.)

53 SLIDE 0530 Developing a long-term care strategy is another important part of protecting your retirement assets. In fact, research indicates that 70 percent of 65-year-olds will need longterm care services and support at some point in their lives. 1 Long-term care describes the type of daily medical and nonmedical services that people might need if they become physically or mentally disabled due to a prolonged injury, illness, or cognitive impairment. Unfortunately, Medicare and most traditional health insurance plans offer little or no relief for those who need this type of custodial care. And sometimes it s impossible for families to provide long-term care support for extended periods. Source: 1) 2018 Field Guide, National Underwriter Company

54 SLIDE 0540 The cost of long-term care can be daunting. As the chart shows, the national average nursing home cost is about $97,455. That s about $8,100 a month or $267 a day. In some states, the cost is much higher. Few retirees can afford to pay long-term care costs out of pocket. Receiving care at home or in an assisted-living facility is also very expensive. And many families may not want to burden their families with the task of caregiving. Source: 2017 Cost of Care Survey, Genworth Financial, Inc. (state costs are for a private room in a nursing home) BONUS FEATURE (Click the calculator icon to calculate the current and future cost of long-term care in your state.)

55 SLIDE 0550 Today we ve discussed three keys to funding a comfortable retirement: determine your needs, invest wisely, and protect your nest egg.

56 SLIDE 0560 We ve covered a lot of information. We re confident that we have given you some strategies that will help you prepare for your retirement years. So, where do you go from here?

57 SLIDE 0570 There are several ways you can proceed from here. You can do it yourself. You can dig through prospectuses and interview investment managers and gradually assemble a portfolio that may meet your needs. It s a tremendous amount of work, but you could do it. You can work with others. Perhaps you have contacts who can help you accomplish some of your financial goals. You could work with us. We hope you feel comfortable with what you ve learned about our professional knowledge and the approach we take with our clients. Finally, you can procrastinate. Given the nature of the markets, procrastination is not a prudent move. Of course, we hope you ll decide to work with us, and we hope you ll come to the complimentary consultation. We don t expect you to make any decisions now, nor do we expect you to decide when you come in to our office. We want you to decide only when you re ready. As you get to know us better, we feel confident that you ll want to work with us. But again, the choice is up to you.

58 SLIDE 0580 Will everyone please turn to the front of your workbook and pull out the evaluation form I talked about earlier? I d like you to fill out the form now and turn it in. The evaluation form is your way of commenting on the workshop. It also lets us know whether you d like a personal meeting to discuss any of the ideas you ve learned here. Because many of the people who attend our workshops come in for a complimentary consultation, we ve blocked out several days next week to meet with you, answer your questions, and address your specific concerns. (Look around the room to be certain everyone is filling out an evaluation form. If some are not, take a step forward and ask for everyone to fill out an evaluation form. If some participants still do not take out their forms, have extra forms available to hand out to them.) Remember my two promises. If you check Yes, I am interested in scheduling a complimentary consultation, I ll call you tomorrow to set up an appointment. If you check No, I am not interested in scheduling an appointment at this time, no one from our office will contact you directly after the workshop. I ll be collecting the evaluation forms as you leave today.

59 SLIDE 0590 In addition to your workshop workbook, there are several important items you should bring to the complimentary consultation. On the back of your workbook, you ll find a place to write these down. (Note: Mention the important financial forms and documents that you would like participants to bring to the consultation. Among others, you may want to include: Personal balance sheet Personal income statement Recent bank/brokerage statements Income tax returns past three years Life insurance policies Annuity contracts Retirement plan account statements.) Also, on pages 18 and 19 of the workbook, you ll find worksheets designed to gather pertinent financial information about you. Please go ahead and fill this out at home. Then during our consultation, we ll review this data accordingly. Of course, if you can t find some of these documents or don t finish the worksheets, please come anyway. We are looking forward to meeting with you either way.

60 SLIDE 0600 Thank you for coming to our workshop. We want to compliment everyone on the initiative you ve shown in wanting to improve your financial situation. Before you leave, I d like to shake hands with you and collect your evaluation forms. Thank you again.

61 Bonus Feature for Slide 0110 SLIDE 0610 Think of someone you know who may be approaching retirement. It could be a relative, friend, or neighbor. Just for fun, let s take a look at how much this person might need in order to retire comfortably. (As you go through the example, fill in the blanks in the calculator. You may want to ask a participant to suggest values for each one.) How much money do you think your friend would need each month to maintain his or her current lifestyle? For this example, let s assume that your friend would need a monthly income of $5,000. Let s also assume that this person wants to retire in 10 years. And let s say he or she currently has $300,000 saved for retirement and expects that money to grow at a 6 percent rate of return each year. (Click Calculate and the numbers will populate.) Using some basic assumptions a 3 percent inflation rate and a 6 percent rate of return for a 25-year retirement your friend would need to save a total of $1,055,035 in order to maintain his or her current lifestyle in retirement. If your friend s current savings earned a hypothetical 6 percent rate of return, it would grow to $537,255 by the time of retirement. That means he or she would need to save an additional $517,780 over the next 10 years. (Click Reset to clear the numbers. You may want to use the calculator for additional examples.) Of course, this hypothetical example is used for illustrative purposes only. Rates of return will vary over time, particularly for long-term investments. Investments seeking higher rates of return also involve a higher degree of investment risk. Actual results will vary.

62 Bonus Feature for Slide 0140 SLIDE 0620 Every year, centenarians are growing in number. In fact, this group is the fastest-growing segment of the population. The number of Americans who are at least 100 years old is rising dramatically. In 1990, there were approximately 37,000 Americans age 100 or older. That number rose to 82,000 in By 2035, it is projected that there could be about 154,000 centenarians; and by 2055, there could be 493,000 centenarians. How many of you are financially prepared to live until you are 100 years old or even longer? Source: U.S. Census Bureau, 2014, 2017

63 Bonus Feature for Slide 0160 SLIDE 0630 In a very real sense, inflation is the loss of purchasing power. So regardless of how quickly your investments are growing, they re always losing ground to inflation. Let s take a look at three common items and what they might cost in future years, assuming that historical inflation rates remain constant. (Note to presenter: Select a year from the pull-down menu in the right column, then click Calculate and the numbers will populate. Discuss the results. Click Reset to clear the numbers. You might mention that postal rate increases typically don t occur every year.) The difference is pretty remarkable, isn t it? In financial terms, it means a loss of purchasing power. If inflation were to remain constant at a rate of 4 percent, the purchasing power of your money would be cut in half in about 18 years. The moral of this story is that even if you put all your savings under your mattress to keep it safe, inflation would eat away at it just the same. Sources: Federal Communications Commission, 2016 (inflation rate from 2005 to 2015); U.S. Postal Service, 2017 (inflation rate from 1971 to 2018); Kelley Blue Book, 2017 (inflation rate from 1970 to 2017). Future costs are estimates and assume that historical inflation rates remain constant. Actual results will vary.

64 Bonus Feature for Slide 0170 SLIDE 0640 How much will you need to retire? We ve designed a worksheet to help you estimate the cost of retirement. Please turn to page 6 in your workbook. (Pause to give workshop participants sufficient time to locate the worksheet.) As you can see, the first column shows an example to help you see how the worksheet works. The second column is for you to fill out after you return home and have access to your records. Use the factors on page 7, which use various assumptions for inflation and rates of return, to complete the worksheet. Let s go through the hypothetical example together. Assume you are 47 now and want to retire at age 67 (the expected retirement age goes on line 1), and the estimated length of your retirement is 25 years (line 2). Your current annual income is $75,000 (line 3), and the percentage of pre-retirement income desired in retirement is 80 percent (line 4). To determine the amount of retirement income you would need in today s dollars (line 5), you multiply line 3 by line 4. In this example, you would need $60,000 a year in today s dollars. Next, you estimate the income you expect from Social Security in today s dollars (line 6). The average annual Social Security retirement benefit is about $16,000, so we ve entered that value on line 6. There s also a line for the amount of income you might expect from a pension in today s dollars. We ve entered $10,000 on line 7 for this example. Of course, this line may be blank for some people. To determine the amount of retirement income (in current dollars) you would need from savings and investments (line 8), you subtract the amounts from lines 6 and 7 from line 5. For this example, you would need to withdraw $34,000 in current dollars from savings and investments each year. To find the amount of income you would need from savings and investments in future dollars, you multiply line 8 times Factor A (found on page 9), based on the number of years until retirement. In this situation, we re assuming 20 years until retirement, so we multiply $34,000 times , which results in a $90,212 annual income needed from savings (in future dollars). To determine the amount you must save by retirement in future dollars, you multiply line 9 times Factor B. For this example, the total amount to be saved is $1,570,874 (line 10). On line 11, enter the amount you have saved already. For the example, we ll use $200,000. Then on line 12, to determine what your savings will grow to by the time you retire, you multiply line 11 times Factor C (based on the number of years until retirement), which results in $932,200 for the example. Line 13 shows the total amount you would still need to save before retirement. To find this value, subtract line 12 from line 10, which results in $638,674 for this example. Line 14 shows how much you would need to save each year (line 13 times factor D), which is $13,987 for this hypothetical situation. Bear in mind that roughly calculating the cost of retirement is only a beginning. We recommend a more comprehensive cash-flow analysis considering all sources of income and expenses.

65 Bonus Feature for Slide 0190 SLIDE 0650 Pensions are another key source of income for some retirees. However, times are changing. Like retiree health benefits, traditional pensions are gradually becoming a thing of the past. About 43 percent of today s retirees say a pension is their largest source of income. Yet even though the number of traditional pension programs has been declining, 25 percent of today s workers still expect a pension to be a significant source of income in retirement. This is somewhat surprising. 1 2 Many workers today expect to be relying on money they have put into a workplace retirement savings plan, such as a 401(k). Sources: 1) Employee Benefit Research Institute, 2017; 2) Pension Benefit Guaranty Corporation, 2015 (most current data available)

66 Bonus Feature for Slide 0230 SLIDE 0660 It is particularly important to manage your 401(k) or 403(b) wisely. Next to your home, the money you accumulate in an employer-sponsored retirement plan may become one of your most valuable assets. Managing your 401(k) means watching your allocations to different investment options, especially exposure to your company s stock, if it is offered in your plan. When Enron s stock lost 98.8 percent of its value in 2001, nearly 60 percent of employees 401(k) plan assets were invested in company stock. 1 The lesson is not to tie the value of your retirement portfolio to the fate of a single company. You also may not want to overweight your portfolio in a single mutual fund. By choosing more than one type of fund, you diversify your assets, or spread risk across a variety of investments. Often as the market fluctuates, gains in one area may help offset losses in another. If your plan offers target-date funds, it helps to understand how they work. Target-date funds are hybrid mutual funds that usually have a mix of stocks, bonds, and short-term debt instruments, with the investments typically becoming more conservative as the target date approaches. The target date is not a dollar amount but rather the date when an investor may need access to the money. Keep in mind that the principal value of target-date funds is never guaranteed, even at or after the target date. There is no guarantee that a target-date fund will meet its stated objectives. Different target-date funds typically have different glide paths, which is how the fund s allocation to equities changes before the target date and even after the date has been reached. Remember to view your 401(k) plan in the context of your overall portfolio. In other words, the way you allocate your 401(k) assets should take into account the way your other investment assets are allocated. Finally, always try to contribute as much to your plan as you can afford, and especially enough to take advantage of a company match, if one is offered. Ignoring a company match is like rejecting an annual raise. Deferring a percentage of your salary will reduce your taxable income for the year. Diversification does not guarantee a profit or protect against loss; it is a method used to help manage investment risk. The return and principal value of mutual funds are not guaranteed; they fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the mutual fund and the underlying investment options, is available from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. Source: 1) Employee Benefit Research Institute, 2002

67 Bonus Feature for Slide 0240 SLIDE 0670 A traditional IRA offers a number of distinct benefits. First, anyone under age 70½ who has earned income may contribute to a traditional IRA. Contributions are generally tax deductible, unless you participate in an employer-sponsored retirement plan and your income exceeds certain limits. Your contributions and any earnings accumulate tax deferred, so no current taxes are due until you make withdrawals, generally in retirement. Traditional IRAs may offer a broader range of investment options than an employer-sponsored retirement plan. However, IRAs are subject to lower federal contribution limits than many employer-sponsored plans. Individuals may contribute up to $5,500 to all IRAs combined, or $6,500 for those age 50 and older (in 2018). As is the case with tax-deferred employer-sponsored retirement plans, you must begin taking required minimum distributions from a traditional IRA each year after you reach age 70½. Remember that distributions from traditional IRAs are taxed as ordinary income. Withdrawals taken prior to reaching age 59½ may be subject to a 10 percent federal income tax penalty.

68 Bonus Feature for Slide 0280 SLIDE 0680 Why do people invest in mutual funds? There are a number of reasons. First, mutual funds offer convenience. Periodic statements describe your transactions and the details of your account. You may be able to have any dividends reinvested in additional fund shares. And if you invest in a family of funds, you may be able to shift your balances among funds quickly and easily over the telephone or through a Web site. In addition, you can take advantage of professional management. Portfolio managers supply the knowledge and technical expertise for buying, monitoring, and selling securities on a daily basis. Another very important advantage of mutual funds is flexibility. Mutual funds let you customize your investment portfolio. You can choose from a wide variety of investment styles and objectives to suit your investing profile. You can also adjust quickly to changes in your lifestyle or your market outlook. Finally, mutual funds offer a measure of diversification. They invest across a wide range of securities, industries, or asset classes. This may help reduce investment risk and enhance long-term return potential. We ll discuss this principle in greater detail later in the presentation. Of course, you should be aware that diversification does not guarantee a profit or protect against loss; it is a method used to help manage investment risk. There are risks, fees, and expenses associated with investing in mutual funds, including portfolio management fees and expenses and sales charges. Mutual funds are sold by prospectus only. Be sure to read the prospectus carefully before deciding whether to invest.

69 Bonus Feature for Slide 0330 SLIDE 0690 Let s take a look at how these hypothetical $200,000 portfolios might look like after 25 years. If the single-investment portfolio were to grow at a hypothetical 6 percent average rate of return during that time, the account would be worth almost $860,000 after 25 years. The diversified account, which was divided into five equal parts, would have grown at various rates of return during the same period. As you can see, some of the investments did very well, achieving 10 percent, 8 percent, and 6 percent returns. But one investment didn t grow at all, and another resulted in a total loss. Overall, however, even though each individual investment performed differently, the diversified portfolio earned considerably more. After 25 years, it was worth nearly $920,000, about $60,000 more than the single-investment portfolio. The diversified portfolio was able to take advantage of investment opportunities that provided a greater potential for return because it wasn t relying on a single investment to meet its goals. And in this way, it was able to reduce the total risk. Remember that this hypothetical example is used for illustrative purposes only. The results are not indicative of any specific investments, and the returns do not consider the effects of taxes, fees, brokerage commissions, or other expenses typically associated with investing. Investments offering the potential for higher rates of return also involve a higher degree of risk. Diversification does not guarantee a profit or protect against loss. It is a method used to help manage investment risk. Actual results will vary.

70 Bonus Feature for Slide 0390 SLIDE 0700 How much risk can you stand? We ve developed a Risk Tolerance Quiz to help you assess your ability to withstand risk. You ll find it on page 13 in your workbook. (Pause to give workshop participants time to locate the quiz and answer the questions. If time permits, conduct the quiz and allow participants to tally their scores and view the results. Or, if you prefer, you can recommend that they take the quiz at home.) Hopefully, your answers to the quiz will give you a better idea of your risk tolerance and help you make informed decisions regarding which investments may be appropriate for your portfolio.

71 Bonus Feature for Slide 0400 SLIDE 0710 Let s take a look at how this conservative portfolio would have performed over the 20-year period from 1998 through During the best year, this portfolio would have earned percent. During the worst year, it would have lost percent. The average annual return was 5.81 percent. Of course, this hypothetical example is used for illustrative purposes only. The returns shown do not include taxes, fees, and other expenses typically associated with investing. The performance of an unmanaged index is not indicative of the performance of any particular investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Actual results will vary. Source: Thomson Reuters, Performance described is for the period January 1, 1998, to December 31, Stocks are represented by the S&P 500 composite total return, which is generally considered representative of the U.S. stock market. Bonds are represented by the Citigroup Corporate Bond Composite Index, which is generally considered representative of U.S. corporate bonds. Cash alternatives are represented by the Citigroup Three-Month Treasury Bill Index. T-bills are generally considered representative of short-term cash alternatives and are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. The return and principal value of an investment in stocks and bonds fluctuate with changes in market conditions and, when sold, these securities may be worth more or less than the original investment amount.

72 Bonus Feature for Slide 0410 SLIDE 0720 Now let s take a look at how this more aggressive portfolio would have performed over the 20-year period from 1998 through During the best year, it would have earned percent. During the worst year, it would have lost percent. The average annual return was 6.85 percent. Because aggressive investments are typically more volatile, they have the potential to produce higher highs and lower lows than their conservative counterparts, with accompanying risk. However, investors who are willing to wade through the market s ups and downs may also achieve higher average returns over time. Of course, this hypothetical example is used for illustrative purposes only. The returns shown do not include taxes, fees, and other expenses typically associated with investing. The performance of an unmanaged index is not indicative of the performance of any particular investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Actual results will vary. Source: Thomson Reuters, Performance described is for the period January 1, 1998, to December 31, Stocks are represented by the S&P 500 composite total return, which is generally considered representative of the U.S. stock market. Bonds are represented by the Citigroup Corporate Bond Composite Index, which is generally considered representative of U.S. corporate bonds. Cash alternatives are represented by the Citigroup Three- Month Treasury Bill Index. T-bills are generally considered representative of short-term cash alternatives and are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. The return and principal value of an investment in stocks and bonds fluctuate with changes in market conditions and, when sold, these securities may be worth more or less than the original investment amount.

73 Bonus Feature for Slide 0440 SLIDE 0730 Are your expectations realistic? (Note to presenter: Select a starting portfolio amount, number of years for investment to pursue growth, expected average annual return from the drop-down menu, and how that might compare with an actual average annual return from the drop-down menu. Then click Calculate to view the results. After you discuss the results, click Reset to clear the numbers.) Let s take a look at what would happen to a $100,000 portfolio if you expected it to yield a 9 percent average annual return over 20 years, but because of market fluctuations, it received a 6 percent average annual return. (Click Calculate and discuss the results. Then click Reset to clear the numbers.) In this example, the expected return was 9 percent but the actual return was 6 percent. The difference between the expected and actual return over this time period was $239,728. Overestimating your returns could cause you to save too little and not reach your goals. On the other hand, if you are conservative in your expectations, you may be in the enviable position of having achieved your objectives early. (If desired, go through some additional examples.) This hypothetical example is used for illustrative purposes only. Taxes, fees, and investment expenses are not considered. Investments offering the potential for higher rates of return also involve a higher degree of risk of principal. Rates of return will vary over time, especially for long-term investments. Actual results will vary.

74 Bonus Feature for Slide 0520 SLIDE 0740 Whole life insurance is unique in that it provides financial protection for your family in the event of your death, while at the same time accumulating cash value that can be used during your lifetime. When you purchase a whole life policy, you traditionally pay a fixed premium for as long as you live or for as long as you keep the policy in force. Part of your premium goes to the insurance company for the protection element of your policy. The other part of your premium builds cash value. The cash value is invested in the company s general investment portfolio and grows at a minimum guaranteed rate of return. You can access the cash value during your lifetime through withdrawals or loans. Policy loans will reduce the cash value by the amount of any outstanding loan balance plus interest, and will reduce the policy s death benefit.

75 Bonus Feature for Slide 0540 SLIDE 0750 To give you an idea of the long-term care costs you might face, let s calculate the current and future cost of a one-year nursing-home stay in this state. (Note to presenter: Enter the full name or abbreviation of the state in the first box. Click Calculate to perform the calculation. Click Reset to clear.) The current cost of a one-year nursing-home stay in this state is (dollar amount). Factoring in a hypothetical 5 percent inflation, that cost could rise to (dollar amount) in 10 years. Source: 2017 Cost of Care Survey, Genworth Financial, Inc.