Retirement Plans. Participant education program. Living. in retirement

Transcription

1 Retirement Plans Participant education program Living in retirement

2 Lifestyle. Income. Estate planning. 2

3 Whether or not you ve enrolled in your company s retirement plan, we want you to have access to education that can help you prepare for retirement. Use this brochure to learn how preparing now may help you reach your goals for how you would like to live in retirement. 3

4 What is living in retirement? Living in retirement centers on that transition from planning for retirement to planning through retirement: what to expect, what changes and how you can get ready now for your needs later. It all starts with a financial plan. Financial planning in retirement How you want to live in retirement (lifestyle) Where your income will come from (income sources) How you want to pass your assets onto the next generation (estate planning) 4

5 Your lifestyle Your lifestyle may be defined as how you want to live. It s not uncommon for those facing retirement to not be able to define how they want to live in retirement perhaps because they don t really know what people do in retirement. Early years activities Mid years activities Late years activities Travel Hobbies, recreation Exploring interests Settling into routines Traveling less Volunteering More homebound Health issues rise Thinking about a legacy Financial planners often say most retirees need 78% of pre-retirement income to maintain their current lifestyle in retirement. 1 In addition, 17% of a typical retiree s budget goes to lifestyle purchases. 2 But what if you don t want to maintain your current lifestyle? What if you want to do more? Or less? 5

6 Health care costs Health care is likely to be your second-largest expense in retirement, though it s often overlooked as a plannedfor expense. The reason may be Medicare. Out-of-pocket health care expenses for a 65-year-old couple retiring today and living for 20 years are estimated from $220, Where health care expenses typically go Below is a breakdown of where retirees can expect their out-of-pocket expenses to go. 23% 32% 45% Medicare cost-sharing provisions Premiums for Medicare Part B & D Out-of-pocket prescription drug expenses 6

7 Your retirement income Income in retirement defines where the money that funds your lifestyle in retirement comes from. Retirement income sources 4 Source Traditional pension Few workers have a pension plan. Thoughts to consider Social Security Benefits account for about 40% of income at retirement. 5 Personal assets Employment while retired 401(k), IRA, personal savings Some assets may not be easily converted into cash. The economy or one s health may make working impossible. What Social Security doesn t provide typically comes from these sources. Social security and pensions are usually considered fixed income sources, because any cost-of-living adjustments tend to lag inflation. This means that over time, a larger portion of retirement income must come from a 401(k), IRA, and personal savings. Important age milestones 50 Eligible for catch-up contributions to supplemental retirement plans, such as 401(k)s and IRAs 55 59½ Eligible to take assets from an employer s plan without 10% penalty if you separate from service after age 55 Eligible to take assets from an employer s plan without 10% penalty, regardless of employment status 62 Earliest age to start taking Social Security benefit, but at a reduced monthly payout Eligible for Medicare benefits; most individual and group health insurance benefits are adjusted to account for Medicare benefits Social Security s full retirement age, at which you re eligible for full Social Security benefits; the exact age depends on your date of birth Latest age to start receiving Social Security benefit; waiting until this age results in the highest monthly payout 7

8 Withdrawal strategy A withdrawal strategy is a plan that specifies when and how assets in various plans and accounts are converted into cash for use as retirement income. A good strategy will consider the tax treatment of distributions, which income is guaranteed, the need for future investment growth, and preservation of capital. To defer taxes, consider drawing from your accounts in this order 6 Tax-free accounts Roth Taxable savings or brokerage accounts Tax-deferred such as your 401(k) account or IRA Consider which income may be guaranteed, and which is not Social Security Pension Fixed annuities 401(k) IRAs Variable annuities guaranteed* non-guaranteed Of course, once you ve passed age 70½, the IRS requires minimum distributions. Under certain circumstances, your Social Security benefit may be taxable. You and your financial advisor will include these considerations as you develop your strategy. * Social Security is backed by full faith and credit of the U.S. government; pensions are insured by the Pension Benefit Guaranty Corporation, a federal agency; and fixed annuity guarantees are backed by the claims-paying ability of the life insurance company that issues it. 8

9 Risks to retirement income Risks to retirement income include events or activities that may reduce or eliminate income potential, or destroy it altogether. You and your financial advisor need to account for and balance these risks against your needs for retirement income as you develop your withdrawal strategy. Common risks to retirement income 7 1. You could outlive your money. 2. You could lose money on your investments. 3. Rising prices could erode your income s buying power. 4. You could not earn enough from investments to overcome inflation. 5. You could withdraw too much, especially in the early years of retirement. The 4% rule The 4% Rule suggests that retirees who limit withdrawals to 4% of their portfolio each year rarely run out of money. While relatively simple, 8 this rule doesn t consider tax strategies or personal needs. 9 Thus, you may want to consider the 4% Rule as a good starting point as you draft your withdrawal strategy. 9

10 Prepare an estate plan Everything you own and have rights to is your estate. As the saying goes, You can t take it with you. An estate plan lets you control how it will be passed on to the next generation. Potential benefits of estate planning Helps ensure both short-term and long-term goals can be achieved May reduce taxes Ensures your estate is distributed according to your wishes Plans for future needs or health concerns Provides financially for the individuals and causes you love most Offers certainty in an otherwise uncertain world Large or small, every estate is worth protecting. You know best what and where your assets are, and have a clearer idea of how you would like to leave a legacy. The best news: It s never too late to start planning. 10

11 Leaving a legacy A legacy is a gift of property from one generation to the next. How you leave your legacy can define how you will be remembered by loved ones and society itself. A well-designed estate plan can help ensure your legacy is administered as you wish. Prudent actions to consider Consider gifting assets to heirs and charities Prepare a will; without it, the State decides who gets your estate Establish a trust or living trust to safeguard your assets Purchase life insurance for you and your loved ones Make sure a current beneficiary designation form is on file for each life insurance policy, retirement plan and any other program you have that offers survivor rights or benefits For most of what s discussed here, you should consider consulting your tax, legal or financial advisor. Learn more about managing your Nationwide retirement plan account nationwide.com/myretirement 11

12 Learn more about managing your Nationwide retirement plan account nationwide.com/myretirement Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution Not insured by any federal government agency May lose value 1 Your Retirement Lifestyle, T037-C000-S002-your-retirement-lifestyle.html. 2 Consumer Expenditure Survey 2013, Bureau of Labor Statistics. 3 Retiree health costs hold steady, Fidelity Benefits Consulting, based on a hypothetical couple retiring at age 65 years or older, with average (82 male, 85 female) life expectancies (06/11/2014) policy/docs/ssb/v68n2/v68n2p1.html, com/heres-how-seniors-have-been-getting-screwed-by-how-wecalculate-social-security withdrawal-rule/, blobcontent/4/185/ _es-dynamic.pdf, 4-retirement-spending-rule/, personal-finance/120513/why-4-retirement-rule-no-longer-safe.asp, Rule-Still-Appropriate. This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation. Investing involves market risk, including possible loss of principal. No investment strategy, including asset allocation, diversification and dollar-cost averaging, can assure a profit or guarantee against loss in a declining market. Neither Nationwide nor its representatives can offer investment, tax or legal advice. You should consult your own counsel before making decisions. The Nationwide Group Retirement Series includes unregistered group fixed and variable annuities, and trust programs. The unregistered group fixed and variable annuities are issued by Nationwide Life Insurance Company. Trust programs and trust services are offered by Nationwide Trust Company, a division of Nationwide Bank. Nationwide Investment Services Corporation, member FINRA. Nationwide Mutual Insurance Company and Affiliated Companies, Home Office: Columbus, OH Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company Nationwide PNM-2874AO.2 (03/17)