Retirement Readiness. The Next Big Thing

Transcription

1 The Next Big Thing Figures are past results and are not predictive of results in future periods. Investments are not FDICinsured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. Retirement Readiness INGEPO S American Funds Distributors, Inc. AI-56442

2 How Do You Define Retirement Plan Success? AI-56443

3 We believe American workers deserve the ability to retire with dignity, and the ability to stay comfortably retired. AI-56444

4 Start With Why I mproving P articipant O utcomes AI-56445

5 Agenda 1 Why retirement readiness matters 2 Why plan participants and plan sponsors need guidance 3 How do we get more people ready for retirement? AI-56446

6 Why Retirement Readiness Matters AI-56447

7 Income Replacement Plan Participants Lens % % % % Without access to a plan Automatically enrolled in a plan In a plan with auto-escalation Household deferral rate of 10% or more Source: Study by Brightworks Partners and Empower Institute, Lifetime Income Score VI, 2016 AI-56448

8 Why It Matters Plan Sponsors Lens Care Hire and retain Productivity gap Promotion Expensive Your Lens Care Business growth Happy clients/referrals Advisor differentiator AI-56449

9 Plan Participants Lens The investor s chief problem and even his worst enemy is likely to be himself. Benjamin Graham AI-56450

10 Investor Behavior Plan Participants Lens Growth of a hypothetical $100,000 investment (December 31, 1996 December 31, 2016) $439, % $254, % Average equity investor Standard & Poor s 500 Index Returns for average equity and fixed-income investors calculated by DALBAR. DALBAR uses data from the Investment Company Institute (ICI), Standard & Poor's, Barclays Capital Index Products and proprietary sources to compare mutual fund investor returns to an appropriate set of benchmarks. The study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the "average investor." Based on this behavior, the analysis calculates the "average investor return" for various periods. These results are then compared to the returns of respective indexes. Ending values for the indexes and hypothetical equity and fixed-income investor investments are based on average annual total returns. AI-56451

11 fpo Congressmen Senators President AI-56452

12 Why Plan Participants and Plan Sponsors Need Guidance AI-56453

13 Why They Need Guidance Plan Participants Lens Retirement crisis 62 years old $1.6 million More $40, AI-56454

14 Inflation: Reverse Rule of 72 AI-56455

15 Why They Need Guidance Plan Participants Lens Retirement crisis 62 years old $1.6 million More $200,000 $40, AI-56456

16 The Single Most Powerful Force The in Retirement Single Most Powerful Force in Retirement INERTIA AI-56457

17 Organ Donation Difference Between Germany and Austria Germany 12% Donation Rate (Opt-in) Austria 99% Donation Rate (Opt-out) Source: NYTimes.com, 9/26/09 AI-56458

18 Plan Design Is Key to Participant Success Plan Sponsors Are Acting 1. Participate in the plan Auto-enrollment at least 6%* 3. Invest appropriately Streamline investment structure QDIA Investment re-enrollment One-time event Recurring event 2. Save enough: 12% 15% a year Auto-escalate at least 1% to 3% per year* Creative match design Example: 25% on first 6% instead of 50% on first 3% Make participants reach for full match * Not all platforms offer the ability to use all of these auto-features. Source: Capital Group. AI-56459

19 Can There Be Too Much of a Good Thing? AI-56460

20 Aisle 1 24 Varieties Aisle 2 6 Varieties 3 % Purchased 30 % Purchased 60% Visits 40% Visits Source: 2000 study by Sheena S. Iyengar, Graduate School of Business, Columbia University and Mark R. Lepper, Department of Psychology, Stamford University. AI-56461

21 Potential Unintended Consequences Employees may: Freeze up from option overload Limit how much they contribute Decide not to participate in the plan at all Chase performance Realize poor diversification due to asset overlap AI-56462

22 Plan Design Is Key to Participant Success Plan Sponsors Are Acting 1. Participate in the plan Auto-enrollment at least 6%* 2. Save enough: 12% 15% a year Auto-escalate at least 1% to 3% per year* Creative match design Example: 25% on first 6% instead of 50% on first 3% Make participants reach for full match 3. Invest appropriately Streamline investment structure QDIA Investment re-enrollment One-time event Recurring event 4. Draw down savings wisely: 4% a year Research/Implement spend down Delay taking Social Security * Not all platforms offer the ability to use all of these auto-features. Source: Capital Group. AI-56463

23 People make better decisions with financial advisors. Robert Shiller, Nobel Prize-winning economist AI-56464

24 How Do We Get More People Ready for Retirement? AI-56465

25 Building Retirement Savings The Long-Term Objective Should Be to Realize More Growth from Earnings Contributions and Earnings as Percent of Cumulative Investment Portfolio by Investor Age 100% of retirement portfolio Earnings 70% Contributions 30% Age AI-56466

26 Level of equity as a % of total assets Participants Need to Invest Better Many might have inappropriate portfolio allocations Plan Sponsor ABC Each data point symbol represents 1500 participants 100% 80 High equity allocation nearing retirement Young participants with very low equity allocations Age of each participant Source: Capital Group. This illustration is hypothetical and does not reflect actual data from any plan AI-56467

27 Investment Re-Enrollment Asset Allocation is an Important Driver of Participant Savings Growth After Re-Enrollment Level of Equity as a Percent of Total Assets 100% Hypothetical target date glide path Majority of participants may be on QDIA glide path 40 Some participants may have reconfirmed their choices 20 0 Data points and glide path are hypothetical and intended only for illustration. Individual participant Age of participant AI-56468

28 A Top Target Date Fund-Related Action for 2016: 53% of plan sponsors and 76% of elite plan advisors* are considering a comprehensive review of target date fund managers Source: Ignites Research, Opportunities in Target Date Funds, March * Ignites Research identified elite plan advisors as those included in The Financial Times 401 Top Plan Advisors, which is a select group of defined contribution (DC) advisors across the U.S. with an average of $770 million in DC plan assets under advisement. AI-56469

29 American Funds Target Date Retirement Series Among the Best in Class 100% active Meaningful equity exposure Underlying funds that have consistently outpaced their peers Among the lowest cost financial advisor-sold target date funds Superior lifetime results AI-56470

30 Superior Lifetime Results Results as of June 30, Figures shown are past results for Class R-3 shares and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose value. Investing for short periods makes losses more likely. Class R shares do not pay an up-front or deferred sales charge. Fund results shown are at net asset value with all distributions reinvested. For current information and month-end results, visit americanfundsretirement.com. Expense ratios* (%) American Funds Target Date Fund Inception date Lifetime 10 years 5 years 3 years 1 year Net Gross 3/27/ /1/10 2/1/07 2/1/07 2/1/07 2/1/07 2/1/07 2/1/07 2/1/07 2/1/07 2/1/ * Expense ratios are as of each underlying fund s prospectus available at the time of publication and include the weighted average expenses of the underlying American Funds. The 2060 Fund s expense ratios are estimated. Cumulative total return since the fund s inception on March 27, Investment results assume all distributions are reinvested and reflect applicable fees and expenses. When applicable, investment results reflect expense reimbursements, without which results would have been lower. Please see americanfunds.com for more information. The investment adviser is currently reimbursing a portion of other expenses for each share class of American Funds 2060 Target Date Retirement Fund. The reimbursement will be in effect through at least April 7, The adviser may elect at its discretion to extend, modify or terminate the reimbursement at that time. Investment results and net expense ratios reflect the reimbursement, without which the results would have been lower and the expenses would have been higher. Class R-3 shares were first offered on May 15, Class R-3 share results prior to the date of first sale are hypothetical based on Class A share results without a sales charge, adjusted for typical estimated additional expenses. Please see each fund s prospectus for more information on specific expenses. AI A

31 Our Series Stacks Up Well Against Its Peers The table below shows how the American Funds target date funds rank within their Morningstar categories over various periods of time. Morningstar rankings as of June 30, 2016 (Class R-3) 1 year 3 years 5 years Lifetime* American Funds Target Date Morningstar Retirement Series Category Rank Funds in Category Percentile rank Rank Funds in Category Percentile rank Rank Funds in Category Percentile rank Rank Funds in Category Percentile rank 2060 Morningstar Target Date Morningstar Target Date Morningstar Target Date Morningstar Target Date Morningstar Target Date Morningstar Target Date Morningstar Target Date Morningstar Target Date Morningstar Target Date Morningstar Target Date Morningstar Target Date Source: Morningstar for 1-, 3- and 5-year periods. Capital Group, based on Morningstar data for lifetime. Source: Capital Group, based on data for Morningstar, Inc. * Lifetime results are annualized and measured from the funds inception (February 1, 2007) though December 31, Lifetime results for the 2055 Fund represent the annualized return from the fund s inception (February 1, 2010) through December 31, American Funds 2060 Target Date Retirement Fund launched on March 27, Rankings are based on the funds average annual total returns (Class R-3 shares at net asset value) within the applicable Morningstar categories. The Morningstar rankings do not reflect the efforts of sales charges, account fees or taxes. Past results are not predictive of future results. When applicable, investment results reflect fee waivers and/or expense reimbursements, without which results would have been lower. AI-56472

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33 Wrap-Up Why retirement readiness matters Good idea/business 536 Why they need guidance Intentional inertia Participation, design How do we get more people ready for retirement? Better outcomes AI-56474

34 Thank You AI-56475

35 Prospectus Language Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. AI-39093

36 Target Date Results Class R-3 shares were first offered on May 15, All Class R-3 share returns prior to the date of first sale are hypothetical based on Class A share returns without a sales charge, adjusted for typical estimated additional expenses. Please see the fund s prospectus for more information on specific expenses and the fund s most recent shareholder report for actual date of first sale. If used after September 30, 2016, this presentation must be accompanied by a current American Funds quarterly statistical update. For current information and month-end results, visit americanfunds.com. We offer a range of share classes designed to meet the needs of retirement plan sponsors and participants. The different share classes incorporate varying levels of advisor compensation and service provider payments. AI-44440

37 Index Language The market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. There have been periods when the fund has lagged the index. AI-44440

38 Balancing Risk Language Allocation percentages and the underlying American Funds of the target date funds are subject to the Portfolio Oversight Committee s discretion and will evolve over time. Underlying funds may be added or removed during the year. For quarterly updates of the underlying fund allocations, visit americanfundsretirement.com. Investment professionals continue to manage each fund for 30 years after it reaches its target date. Although the target date funds continue to be managed for investors on a projected retirement date time frame, the funds allocation strategy does not guarantee that investors retirement goals will be met. AI-44440

39 Balancing Risk Language American Funds investment professionals actively manage the target date fund s portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the fund gets closer to its target date. The target date is the year in which an investor is assumed to retire and begin taking withdrawals. Investing outside the United States involves risks such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks. AI-44440

40 Balancing Risk Language Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with underlying bond holdings. While not directly correlated to changes in interest rates, the values of inflation-linked bonds generally fluctuate in response to changes in real interest rates and may experience greater losses than other debt securities with similar durations. Investments in mortgage-related securities involve additional risks, such as prepayment risk, as more fully described in the prospectus. Bond prices and a bond fund s share price will generally move in the opposite direction of interest rates. All American Funds trademarks in this presentation are owned by American Funds Distributors, Inc., an affiliated company or a fund. All other company and product names are the trademarks or registered trademarks of their respective companies. AI-44440

41 Multiple Perspectives. One Approach American Funds Distributors, Inc. AI-99902