PREPARE. Your Retirement Plan At Work SAVING : INVESTING : PLANNING

Transcription

1 PREPARE Your Retirement Plan At Work SAVING : INVESTING : PLANNING

2 Agenda 1 What generation are you? 2 Why save for retirement? 3 Why participate in your workplace plan? 4 What are the most common tax-qualified plans? 5 Where to go from here? 2

3 Seminar materials About your workbook and evaluation 3

4 What generation are you?

5 According to USA Today, the year you were born partly determines what generation you belong to, but so do your cultural experiences. Your teenage years are the years when people are most influenced by the world around them Source: Senior Moment. USAToday.com. Retrieved January 10, 2011.

6 What generation are you? Generation quiz > What technology came into being when you were a teenager? A Transistor Radio B Electric typewriter C 8-track cassette tapes D MP3 Player E Walkman F First cell phone 6

7 What generation are you? Generation quiz > What was the blockbuster movie when you were a teenager? A B C D E F Leonardo DiCaprio Starring: Paul McCartney John Lennon George Harrison Ringo Starr STARRING: JAMES DEAN Kate Winslet 7

8 What generation are you? Generation quiz > What song was popular when you were growing up? A B C D E F 8

9 What generation are you? Generation quiz > Where do you currently get your news? A Newspaper B Television C Radio D Online 9

10 What generation are you? What cultural experiences helped shape your views? Category Technology Movie Music G.I. Generation ( 1936) Get news Transistor Radio (1954) Singin in the Rain (1952) Chattanooga Choo Choo (1941) Newspaper & Television Silent Generation ( ) Electric Typewriter (1961) Rebel without a Cause (1955) Hound Dog (1956) Newspaper & Television Boomers (Older/Younger) ( ) 8-Tracks (1965) Walkman (1979) Hard Day s Night (1964) Star Wars (1977) I Wanna Hold Your Hand (1964) YMCA (1979) Television & Newspaper Gen X Generation ( ) First Cell Phone (1986) Back to the Future (1983) I Love Rock-n-Roll (1982) Television, Radio & Online Millennials Generation ( ) MP3 Player (2001) Titanic (1997) Oops!... I Did It Again (2000) Online Sources: What Generation Do You Belong To? Quiz. USA Today.com. Retrieved January Generations Pew Research Center. December 16,

11 What generation are you? Consider this You may live to be 100! 11

12 Why save for retirement?

13 Why save for retirement? With all those extra years in your future, how will you pay for them? Estimated percentage of 80% last working year s salary you ll need to maintain your lifestyle in retirement Source: Retirement Benefits. SSA Publication No Social Security Administration. January

14 Why save for retirement? Even modest inflation over time can have a major impact on your retirement 276% increase Source: Consumer Price Index. Bureau of Labor Statistics. January

15 Why save for retirement? Sources of retirement income (Balance) 14% Savings 0% 20% - 60% Retirement/pension plan 27% Post-retirement wage 15% 40% - 25% Social Security security Please note that this is just one scenario and the sources of retirement income will vary depending on your individual situation. Source: Social Security Administration, Fast Facts and Figures About Social Security, May not add to 100% due to rounding.

16 Why save for retirement? Average annual Social Security benefits Year 1 Wage Base 1940 $ $ $ $1, $3, $6, $10, $10, $11, $12, $13, $14, $14,748 Sources: 1 Average Monthly Social Security Benefits (calculated to provide annual total), Social Security Bulletin: Annual Statistical Supplement. SocialSecurity.gov, Retrieved December Most current data available. 2 Some facts about Social Security Administration. SocialSecurity.gov. Retrieved December 2012.

17 Why save for retirement? Reasons people delay saving for retirement I m too young Time is on your side 20s 30s Too many expenses Pay yourself first Saving for child s college tuition Compound savings 40s 50s Supporting children and parents Workplace plan and catch-up provision 17

18 Why participate in your workplace plan?

19 Why participate in your workplace plan? Participating in your workplace plan Easy Payroll deduction Time is on your side Taxdeferred growth Small changes Compound interest Income taxes are payable upon withdrawal; federal restrictions and a 10% federal early withdrawal penalty might apply to withdrawals prior to age 59½. 19

20 Why participate in your workplace plan? The advantages of a tax-qualified plan This chart compares the hypothetical results of contributing $100 each month to (1) a taxable account and (2) a tax-qualified retirement account. Bear in mind that a $100 pretax contribution to a tax-qualified account has a current cost of $75 (assuming a 25% income tax bracket) and also reduces current taxable income. The chart assumes an 8% annual rate of return. Fees and charges, if applicable, are not reflected in this example and would reduce the amount shown. Income taxes on tax-deferred accounts are payable upon withdrawal. Federal restrictions and a 10% federal early withdrawal penalty may apply to withdrawals prior to age 59½. This information is hypothetical and only an example. It does not reflect the return of any investment and is not a guarantee of future income.

21 Why participate in your workplace plan? Time is money, start saving early Cost of $12,000 over a 5-year-period 25-year-old $200 monthly for 5 years 8% annual rate of return $300,000 by age 65 This hypothetical example illustrates the cost to accumulate $300,000 by age 65 with the assumptions indicated. Tax-qualified plan accumulations are taxed as ordinary income when withdrawn. Federal restrictions and tax penalties may apply to early withdrawals. This information is hypothetical and only an example. It does not reflect the return of any investment and is not a guarantee of future income. 21

22 Why participate in your workplace plan? How much should $300,000 cost? The cost of procrastination This hypothetical example compares the total out-of-pocket costs required to fund the retirement goals of an investor if the investor started contributing $200 a month at different ages. This example assumes an 8% annual rate of return. Tax-qualified plan accumulations are taxed as ordinary income when withdrawn. Federal restrictions and tax penalties can apply to early withdrawals. This information is hypothetical and only an example. It does not reflect the return of any investment and is not a guarantee of future income. 22

23 Why participate in your workplace plan? How much should you save for retirement? > Create a household budget To determine essential and discretionary expenses > Work with a financial advisor To develop an overall retirement strategy 15% Estimated percentage of income to save annually to meet your retirement goals This percentage is only a guideline. The percentage may increase depending on your investment goals and time horizon. Source: Ultimate guide to retirement: How much should I save? CNNMoney.com. Retrieved February 22,

24 Why participate in your workplace plan? How much could you save? > Fewer trips to the coffee bar could add to your retirement savings This illustration is hypothetical only. It does not reflect the return of any investment and is not a guarantee of future income. 24

25 Why participate in your workplace plan? When will you retire? > Start early, time to recover from market downdrafts Investment options with short-term volatility potential for higher returns > Start later, recovering from losses more difficult Investment options less volatile potential for moderate returns 25

26 What are the most common tax-qualified plans?

27 What are the most common tax-qualified plans? Common workplace retirement plans > Broad range of investment options including annuity contracts and mutual funds 403(b) Public schools and nonprofit 457(b) Government and Tax-exempt 401(k) Nongovernment employers 27

28 What are the most common tax-qualified plans? Contributions limits for 2014 > Elective deferrals via salary-reduction agreement > $17,500 annual contribution limit 403(b) and 401(k) combined limit 457(b) separate limit 28

29 What are the most common tax-qualified plans? Age-based catch-up contribution of $5,500 for participants age 50 and older (2014) > Available for 403(b), 457(b) government, 401(k) > Does not apply to 457(b) tax-exempt organizations 29

30 What are the most common tax-qualified plans? Service-based catch-up contributions for 2014 > 403(b) Participants with 15 years of service, 15-year rule $3,000 per year up to a total of $15,000 if contributed on average less than $5,000 per year for the prior 15 years (for qualifying plans) > 457(b) Participants may contribute up to an additional $17,500 per year in the three years before the year they reach the plan s normal retirement age, but only if under contributed in prior years Age-based and service-based catch-up contributions not allowed in same tax year > 401(k) Does not apply 30

31 What are the most common tax-qualified plans? Maximize your tax-deferred savings for 2014 > 403(b) retirement plan Up to $26,000 total deferrals $17,500 annual contribution limit $3, year rule catch-up (for qualifying plans) $5,500 age-based catch-up Note: You can make both catch-ups in the same year, if eligible > 457(b) retirement plan Up to $35,000 total deferrals $17,500 annual contribution limit $17,500 special catch-up (only in the three years before the year you reach normal retirement age), or $5,500 age-based catch-up (governmental 457(b) only) Note: You can t make both catch-ups in the same year > Combination plans Up to $61,000 total deferrals 403(b) and 457(b) annual deferrals including catch-up contributions 31

32 What are the most common tax-qualified plans? Salary deferral amounts are up to you > Increase or decrease the amount you contribute to the plan as often as your employer allows > Discontinue contributions and resume them subject to the employer plan provisions Account will continue to grow on a tax-deferred basis Allow one month s notice for processing 32

33 What are the most common tax-qualified plans? When do withdrawals begin? > For 403(b) and 401(k) Attain age 59½ or 70½ Withdrawals Separation from service Death or disability Financial hardship Your plan was established to encourage long-term savings. Withdrawals prior to age 59½ might be subject to federal restrictions and a 10% federal early withdrawal penalty. Income taxes are due upon withdrawal. 33

34 What are the most common tax-qualified plans? When do withdrawals begin? > 457(b) plans are different Attain age 70½ Withdrawals Separation from service Death Unforeseen emergency Your plan was established to encourage long-term savings. No early withdrawal penalty. Income taxes are due upon withdrawal. 34

35 What are the most common tax-qualified plans? Tax-free loan provision (subject to employer plan provisions) > Defaulted loan amounts will be taxed as ordinary income and might incur a 10% federal early withdrawal penalty if under age 59½* > Does not apply to tax-exempt 457(b) plans *The 10% federal early withdrawal penalty does not apply to 457(b) plans. 35

36 What are the most common tax-qualified plans? Withdrawals from your retirement plan at work > Lump-sum withdrawal 20% immediate withholding Ordinary income taxes 10% federal early withdrawal penalty, if under age 59½* > Systematic withdrawal Payments at regular intervals Ordinary income taxes 10% federal early withdrawal penalty, if under age 59½* > Annuitization Periodic payments, irrevocable Ordinary income taxes 10% federal early withdrawal penalty, if under age 59½* *The 10% federal early withdrawal penalty does not apply to 457(b) plans. 36

37 What are the most common tax-qualified plans? Rollover: assets moved from one tax-qualified plan to another Qualified Plan Direct rollover IRA or new qualified plan No income taxes No penalties No withholding Qualified Plan 60 days to rollover After 60 days Indirect rollover Lump-sum cash distribution 20% withholding No income taxes No penalties Replace 20% withholding Taxes are due on entire distribution 10% federal early withdrawal penalty may apply if under age 59½* *The 10% federal early withdrawal penalty does not apply to 457(b) plans. 37

38 What are the most common tax-qualified plans? Putting it all together > What generation are you? Cultural experiences helped shape your views You may live to be 100 > Why save for retirement? People are living longer More responsibility placed on personal savings Higher prices means less purchasing power > Why participate in your retirement plan at work? It s easy and automatic Tax-deferred growth Time is on your side 38

39 What are the most common tax-qualified plans? Putting it all together > Most common tax-qualified plan types 403(b) Public schools and nonprofit 457(b) Government and Tax-exempt 401(k) Non-governmental organizations > Contributions and catch-up provisions > Ordinary income taxes are due upon withdrawal > 10% federal early withdrawal penalty may apply if under age 59½* > Choice of withdrawal methods *The 10% federal early withdrawal penalty does not apply to 457(b) plans. 39

40 Where to go from here?

41 The greatest power a person possesses is the power to choose. -J. Martin Kohe, author

42 Where to go from here? Work with a financial advisor > Enroll in your retirement plan at work > Develop an overall financial plan Prioritize your investment goals Determine the time horizon needed to achieve your goals Determine a financial strategy to help meet your goals 42

43 Where to go from here? Visiting with a financial advisor can help you plan for and enjoy a secure retirement. Here are some things to look for: > Comprehensive financial planning > Specialized retirement income planning > Longevity in the financial industry > Wide range of investment options 43

44 Where to go from here? Evaluation 44

45 This information is general in nature and may be subject to change. Neither VALIC nor its financial advisors or other representatives give legal or tax advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For legal or tax advice concerning your situation, consult your attorney or professional tax advisor. Securities and investment advisory services are offered by VALIC Financial Advisors, Inc., member FINRA and an SEC-registered investment advisor. VALIC represents The Variable Annuity Life Insurance Company and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company. Copyright The Variable Annuity Life Insurance Company. All rights reserved. VALIC.com VC23890 (03/2013) J EE

46 THANK YOU Your Retirement Plan At Work SAVING : INVESTING : PLANNING