WHAT MATTERS MOST. A woman s guide to an inspired retirement strategy

Transcription

1 WHAT MATTERS MOST A woman s guide to an inspired retirement strategy Issued by Pruco Life Insurance Company (in New York, issued by Pruco Life Insurance Company of New Jersey) Ed. 01/2014

2 Your life is a journey In many families, women are a driving force that make everything happen. You lead a busy life and may be juggling a combination of family, career, education, and caring for aging parents. But while you re busy facing today s challenges, it s important to take the time to understand how the financial decisions you make today can impact your future. Did you know Confidence grows with advice. Women who work with a financial professional feel more confident about not outliving their savings in retirement and maintaining their standard of living than others. Source: Financial Experience & Behaviors Among Women, Prudential Research Study 2/ 12

3 Chart your own course Research shows that women feel less confident about their finances and many tend to put planning for their financial futures aside.1 There s a lot to consider, but understanding what matters most during the saving, spending, and sharing phases of a woman s life, and how certain life events can affect these phases, is critical. This guide introduces concepts that may not be top of mind, but will be important as you plan for your financial future. You can discuss these concepts with your financial professional, tax, and legal counsel as you find yourself in various financial phases and life situations. As you travel through life, there will be times when the journey is smooth and straight. There will also be bumps, twists and turns, and even an occasional detour. You may have to reroute your course as changes in your life take you in a new direction. Through it all, you ll need to plan for the expected and prepare for the unexpected. Having a holistic strategy that meets your unique financial situation, goals, and time frame is important. Conversations with your trusted financial professional can help ensure that you continue to stay focused on what matters most. Choose your itinerary As you navigate your way toward retirement, you will move through different financial phases where you will save, spend and share your money. In each of these phases, a life event may cause you to seek financial guidance. Although you can t predict things like personal, family, or financial challenges, you can have flexible strategies in place that may make getting through these events more manageable. Whether you are married, raising a family, single, or divorced, you ll have many financial choices to make over the years and many options are available to help you get to your retirement destination. Your financial professional can help you explore these options and provide you with the knowledge you ll need to make informed decisions. 1 Prudential Financial, Inc., Financial Experience & Behaviors Among Women, Prudential Research Study. This guide presents a general overview and the ideas presented are not individualized for your particular situation. Prudential Annuities, its distributors and representatives do not provide tax, accounting or legal advice. Please consult your own attorney or accountant. 3/ 12

4 Life happens PLAN FOR THE EXPECTED AND PREPARE FOR THE UNEXPECTED Living a long and healthy life is more common these days. With advances in medicine and a focus on healthy living, people are living longer. Whether you stay at home to care for your family or work outside of the home, you need to plan and prepare for a longer retirement. Every year life gets more expensive. Even the little things like a gallon of milk or loaf of bread seem to cost more each year. Take the time to think about how you can get ahead of future expenses that can affect your retirement lifestyle, such as the costs of healthcare or taking care of loved ones. More frequently, women are the family s primary caregiver, so it makes sense to know how to position your money to ensure that bills are paid and needs are met. Gallon of unleaded regular gas 2 Loaf of white bread 2 U.S. postage stamp $3.64 $1.42 $ $1.35 $1.02 $ $1.13 $0.75 $ $1.30 $0.53 $0.20 The economy, like life, can be uncertain. When it comes to the economy, we ve experienced our share of ups and downs in the past few years. But it s important to learn from times of economic uncertainty and prepare for financial stability. If your investments aren t providing the returns they used to, it may be time to find new ways to insure your income for the future. Every now and then life throws you a curve ball. As much as you plan for the expected, you cannot predict the future. You don t want to leave your future security and comfort to chance. Whether you are single, married, raising a family, divorced or widowed, you can feel confident that you have a variety of options to help secure your future. 2 Source: Bureau of Labor Statistics, as of July Source: as of July / 12

5 Mapping your future KEY RETIREMENT CONCEPTS How can you tell how much money you ll need saved in order to last the course of your retirement? For years, many financial experts estimated that taking 4% of your retirement savings each year was a good rule of thumb. But with today s market uncertainty and low interest rates, the 4% rule could cause you to run out of money. 4 Many of these same experts have revised their thinking to reflect a 3% rule. 5 So, how can you ensure that the money you save for retirement is enough to last a lifetime? Because women tend to live longer than men, they have to plan for longer retirements and overcome more obstacles. While everyone s life is unique, we ve identified key concepts to help keep you on course to your retirement. Analyze your Social Security benefit options Accurately estimate the impact of future healthcare costs Realize the importance of spousal protection Assess the long-term effects of taking Required Minimum Distributions (RMDs) from your qualified plans (IRAs, employer sponsored plans, etc.) Being aware of these key concepts can help you to be more prepared for them. By actively planning, you have a better chance of sustaining the lifestyle you envision for your retirement. 4 Source: Greene, Kelly, Say Goodbye to the 4% Rule, The Wall Street Journal, March 4, Source: Time for the 3% Withdrawal Rule?, Morningstar, January 21, / 12

6 Did you know Originally Social Security was designed to help supplement retirement income. But over time it has become the largest source of income for mature Americans.* In fact, for 65% of recipients in 2010, Social Security made up at least half of their income.** Source: * Your Social Security Statement, July 16, 2013 ** Fast Facts and Figures About Social Security, 2012, August 2012 Social Security up to d32% as low as f30% $2,000 /month $1,400 /month $2,640 /month full retirement early retirement delayed retirement ANALYZING YOUR SOCIAL SECURITY BENEFIT OPTIONS When thinking about Social Security, there is a lot to consider. For instance, deciding when to start receiving Social Security benefits can have a great impact on your future. At full retirement age, you can receive your full Social Security benefits. But what happens if you decide to take benefits prior to, or after, full retirement age? Taking benefits early may result in not only reduced payments for the life of the Social Security recipient, but also reduced survivor benefits for the spouse. The surviving spouse is entitled to receive the greater of his/her own benefits or the deceased spouse s benefits. But if a spouse decided to take an early benefit election before his or her full retirement age, then the surviving spouse receives reduced survivor benefits. This has the potential to adversely affect women more than men since they typically live longer.6 It s a common occurrence since 90% of men take their Social Security benefits early.7 You can work with your financial professional to help you become more aware of the options you have with Social Security. Discuss any spousal, survivor or divorcee benefits you may be entitled to receive Look at how various filing strategies such as restricted application and file and suspend can potentially maximize your benefits Ask how working while taking Social Security affects your benefits Understand how your Social Security benefits will be taxed 74% of Social Security beneficiaries receive reduced payments Source: as of October 2012 Source: as of May 2013 Source: Center for Retirement Research at Boston College, March / 12

7 Healthcare Costs ESTIMATING THEIR IMPACT ON YOUR FUTURE Although it can be difficult to think about, as you age your need for healthcare will most likely increase. While you can t predict the state of your future health, you can prepare by knowing the facts and having a healthy lifestyle. A recent study shows that many Americans greatly underestimate the amount of savings they may need to cover healthcare costs during retirement. Nearly half (48%) of pre-retirees (aged 55 64) believe they will need only $50,000 to pay for healthcare costs in retirement. 8 The truth is a typical 65-year-old couple will need about $220,000 to pay for healthcare costs in retirement since Medicare does not pay for all health expenses and you could face significant out-of-pocket costs. Healthcare can take a healthy bite out of retirement savings. It is estimated that an average, healthy, 65-year-old couple will need $220,000 to pay for medical expenses for the remainder of their lives. Source: Fidelity Benefits Consulting, Retiree health costs fall, May 15, Healthcare and nursing home costs may vary by state. RETIREMENT HEALTHCARE FAST FACTS: 2nd largest expense in retirement 9 70% of those turning 65 will need some type of long-term care services during their lifetime 10 Women average four years in a nursing home (men average two years) 11 70% of nursing home residents are women 12 Medicare only pays for a maximum of 100 days in a nursing home 13 Because of longer life expectancies, women spend $124,000 on average for long-term care services compared with $44,000 for men 14 How are you going to prepare for your future healthcare expenses? One of the best ways to be prepared is to know about Medicare and the options it provides to you and your spouse. Your financial professional can help you estimate your annual expenses and Medicare costs, and help you take inventory of your income needs. Did you know Your Social Security benefits may be lower than expected because of deductions for Medicare premiums. Medicare Part B covers supplementary services such as doctors visits and outpatient expenses. When you sign up for Medicare and if you are receiving Social Security benefits, your Medicare Part B premium will automatically be deducted from your Social Security payments. It s important to understand your options. For more information visit Source: as of July Fidelity Investments, February 2013, 9 Employee Benefits Research Institute (EBRI), 2011 Retirement Confidence Survey 10 National Clearinghouse for Long Term Care Information, U.S. Department of Health & Human Services, as of April Colorado State University, as of July 16, American Association for Long-Term Care Insurance, Prudential s Four Pillars of Retirement Series. Planning for Retirement: The Distribution of Lifetime Healthcare Costs, December Kiplinger s Retirement Report, volume 20, number 7, July / 12

8 Spousal Protection REALIZING ITS IMPORTANCE The emotional impact of losing a spouse is unimaginable, but it can be worsened by the lack of proper planning. Planning for the death of a spouse is something that all couples should do. The facts show that 75% of married women will outlive their spouse and that the average age of widowhood is As a result, it s important to plan ahead so that the money you and your spouse spent so many years saving will be there when you need it. Many situations can arise where the surviving spouse s retirement income will decline and this has the potential to create an income gap. For instance, upon the death of your spouse: Pension payments (if applicable) can cease if your spouse chose a single life payout option to maximize his payments Social Security benefits will decrease, leaving a shortfall of income that you may be used to receiving You can help mitigate the financial effects of losing a spouse by working with your financial professional to put strategies in place for spousal protection before this life event happens. Your financial professional can help you manage your cash flow in retirement and help you to avoid a potential income gap. Together you can: Make sure that you and your spouse have adequate life insurance and long-term care coverage Take a look at how pension payouts are structured and explore your options for Social Security benefits before you start taking that income Consider variable annuities that offer spousal options that can help retirement income to continue after the death of the first spouse Did you know A newly widowed woman s income decreases by 50% on average, but her expenses decrease by only 20%. Source: LIMRA, MarketFacts Quarterly, Fall Source: National Center for Women in Retirement Research, / 12

9 Required Minimum Distributions (RMDs) ASSESSING THEIR LONG-TERM EFFECTS Many people are unaware that the IRS requires them to take minimum distributions from certain retirement accounts by April 1st following the year they reach age 70½. And RMDs must then be taken each subsequent year. Retirement accounts that are subject to RMDs include: Qualified plans (401(k), 403(b) and Keogh plans) Traditional IRAs Simplified Employee Pension Plans (SEPs) Simple IRAs The longer you live, the more years you ll be required to take RMDs, and the more potential they have to deplete your qualified account savings. If there is a market downturn and your investments lose value, you are still required to take RMDs so it adds to the challenge of planning for the unexpected. Plus, RMDs are typically fully subject to ordinary income tax, unlike withdrawals from your non-qualified accounts which are taxed as capital gains. As a result, large amounts in these accounts can deplete quicker than planned. When you turn 70½ years old, you and your financial professional can determine your RMD amounts. It s important to remember that RMD percentages increase as you age. By being aware of RMDs, you can better plan for their impact now and in the future. ROTH IRAS ARE NOT SUBJECT TO THE REQUIRED MINIMUM DISTRIBUTION RULES If your spouse owns a Roth IRA and then passes away, the IRS allows for a spousal rollover if you are the sole beneficiary of the Roth IRA. That means you automatically would become the new owner of the Roth IRA upon the death of your spouse. In this case there is no requirement for distributions to be made during your lifetime, which can create the opportunity for additional tax-free growth of the account. There are some income caps for contributing to a Roth IRA, so talk to your financial professional to see if they are right for your situation. Also keep in mind that withdrawals of earnings from a spousal rollover Roth IRA prior to age 59½ would be subject to the 10% early withdrawal penalty tax. RMD PAYOUT RATE CHART As you can see, the older you get, the larger your RMD percentage. Age RMD Payout Rate % % % % % % % % % % % % % % % % % % % % % % 9/ 12

10 Financial confidence begins with a plan Your financial professional can help you create a strategy for your future by focusing on what will matter most to you in retirement, assisting in organizing your finances, and providing you with the financial knowledge to achieve your goals. You do so much for others. It s time to take care of yourself. WORK WITH YOUR TRUSTED FINANCIAL PROFESSIONAL TO HELP YOU: Identify and prioritize your financial goals Consider how your priorities will impact your lifestyle in retirement Identify financial products, resources, and strategies to help you achieve financial well-being Fill retirement income gaps with guaranteed income strategies such as a variable annuity with a living benefit, available for a fee Face your future with confidence It s time to be inspired. Consider what matters most to you. Talk to your financial professional today to get started. 10/ 12

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12 Investors should consider the features of the contract and the underlying portfolios investment objectives, policies, management, risks, charges and expenses carefully before investing. This and other important information is contained in the prospectus, which can be obtained from your financial professional. Please read the prospectus carefully before investing. Issuing companies are located in Newark, NJ (main office). Variable annuities are distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations. Prudential Annuities is a business of Prudential Financial, Inc. Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed financial professional can provide you with complete details. This material was prepared to support the marketing of variable annuities. Prudential, its affiliates, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any tax statements contained herein were not intended to be used for the purpose of avoiding U.S. federal, state or local tax penalties. Please consult your own independent advisor as to any tax or legal statements made herein. A variable annuity is a long-term investment designed for retirement purposes. Investment returns and the principal value of an investment will fluctuate so that an investor s units, when redeemed, may be worth more or less than the original investment. Withdrawals or surrenders may be subject to contingent deferred sales charges. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may be subject to an additional 10% federal income tax penalty, sometimes referred to as an additional income tax. Withdrawals, other than from IRAs or employer retirement plans, are deemed to be gains out first for tax purposes. Withdrawals reduce the account value, death benefits, and the annual amount of living benefit available. Variable annuities offered by Prudential Financial companies are available at a total annual insurance cost of 0.55% to 1.95% (depending on the product chosen) with an additional fee related to the professionally managed investment options. Note: All products may not be available through all third party broker/dealers. Optional benefits may not be available in every state and may not be elected in conjunction with certain optional benefits. Optional benefits have certain investment, holding period, liquidity, and withdrawal limitations and restrictions. The benefit fees are in addition to fees and charges associated with the basic annuity. All references to guarantees, including the benefit payment obligations arising under the annuity contract guarantees, rider guarantees, or optional benefits and any fixed account crediting rates or annuity payout rates are backed by the claims-paying ability of the issuing insurance company. Those payments and the responsibility to make them are not the obligations of the third party broker/dealer from which this annuity is purchased or any of its affiliates. They are also not obligations of any affiliates of the issuing insurance company. None of them guarantees the claims-paying ability of the issuing insurance company. All guarantees, including optional benefits, do not apply to the underlying investment options. Your needs and suitability of annuity products and benefits should be carefully considered before investing. You do not have to purchase an annuity in order to take advantage of stretching a qualified investment. Stretching is based upon current tax law. If these laws change in the future, your ability to maintain estimated distributions may be affected Prudential Financial, Inc. and its related entities. Prudential Annuities, Prudential, the Prudential logo, the Rock symbol, and Bring Your Challenges are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. one corporate drive shelton, connecticut ORD Ed. 01/ / 1212/ [WO# ]