Retire with. Confidence. A helpful guide to retirement planning. Growing, Managing and Protecting Your Assets

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1 Retire with Confidence A helpful guide to retirement planning Growing, Managing and Protecting Your Assets

2 No matter what stage you are in planning, nearing or already retired there are things you can do right now to help TAKE CONTROL of your finances so the money will be there when you need it. Retirement planning is a high priority among most working Americans today. Yet, many people still do not have a well-defined strategy to help them reach their retirement goals. A key to feeling confident that you will retire with the lifestyle you desire is by making and following a strategy. No matter how close or far you are to retirement, it s not too late to develop a more complete approach to retirement. Here s how Growing Identify Needs Income Gaps Protecting Protect Assets Income Health Managing Manage Assets Income Expenses In a recent study, 56% of participants said they felt more confident about meeting their retirement goals once they had a strategy in place. Source: 2003 Life Insurance Marketing Research Association study, Managing Retirement and Financial Status. This brochure will help you understand that there can be many unforeseen issues and obstacles to achieving a rewarding retirement.

3 Developing a More Complete Strategy Busting Myths and Getting Real There are widespread misconceptions among Americans about how much time they will spend in retirement and how much they will actually need annually once they stop working. It can help to first define how you intend to spend your time in retirement. Visiting grandchildren and other family members? Leisure and travel? Volunteer work? Continue working? The next step is to determine what that time translates into in terms of money. What will your daily expenses be? Do you need to provide for family members? Once you have a clear picture of how you want to spend time in retirement and what that translates to in terms of money, you ll need to dispel any myths that stand between you and a comfortable retirement. Myth #1: My expenses will be less once I retire. You may have heard the rule of thumb that you ll need between 60% and 80% of your after-tax pre-retirement income to maintain your standard of living during retirement. Many times these targets are based on the assumption that expenses will decline during retirement. Reality may tell us something different. Many expenses may be the same or higher than before you retired. It pays to make an educated decision regarding your target income goal and can mean the difference between feeling either confident or insecure throughout your retirement.

4 Myth #2: My Social Security and pension will be enough. Knowing where your income will come from and whether it will really be enough to meet your goals is crucial. With recent tax law changes and the increase in retirement account contribution limits and eligibility, the federal government is strongly encouraging Americans to become more selfreliant in saving for their retirement. Take a close look at the sources you are relying on for retirement income. Myth #3: I know how long my money needs to last. Studies show that most people believe they will live to age 80 or 85 at the most. However, life expectancies are increasing, making it entirely possible that you will live much longer than you anticipate and potentially outlive your retirement savings. How Far Will the Money Go? Perhaps Not as Far as You Think. The amount you can withdraw per year for the term shown. Starting With: Years Years Years Indefinitely (withdraw interest only) $ 50,000 $ 6,445 $ 3,367 $ 3,056 $ 2,664 $ 100,000 $12,891 $ 6,773 $ 6,113 $ 5,316 $ 150,000 $19,336 $ 10,100 $ 9,169 $ 7,980 $ 200,000 $25,781 $ 13,466 $ 12,226 $ 10,632 $ 250,000 $32,226 $ 16,833 $ 15,282 $ 13,296 $ 500,000 $64,452 $ 33,666 $ 30,985 $ 26,592 $ 750,000 $96,679 $ 50,498 $ 45,847 $ 39,960 These figures are based on a hypothetical 5.5 percent annual yield compounded quarterly. The figures are not based on a particular product. Withdrawals are taken annually at the beginning of each year. Investment performance and taxation can dramatically affect these numbers. Inflation can also seriously affect the value of withdrawals. Figures are in today s dollars and have not been adjusted for inflation, nor do they reflect any taxation.

5 Will you really be able to afford the lifestyle you envision? You may find that you have a gap between your projected sources of income and expenses. If that is the case, you have several options to consider: Delay your retirement date; Reduce your retirement income goal; Increase your savings level; or Increase the return on your investments. Your strategy can involve taking one or more of these actions. Each has its own ramifications and it s important that you speak with a financial professional to understand all of them.

6 Growing Your Retirement Assets Growth of your retirement savings involves many elements. Let s look at the critical factors you must examine before you can say you ve got the most suitable strategy. Each of these factors can have different implications, based on where you are in the retirement planning process. What are your current and future options for accumulating the funds you will need during retirement? How are you using some of these options now? 401(k): Are you already contributing the maximum rate? IRAs: Are you contributing to individual accounts in addition to your employer-sponsored plan? Pension Plan: Do contribution rates limit the amount you can save? Social Security: How much will be available at retirement? Generally, it will replace only a small part of your income. A well-defined and comprehensive strategy has several working parts. All parts have to work with each other in order to achieve your goals. Consider the following... have you: determined the right combination of investments in your retirement portfolio using an asset allocation strategy? realistically planned to make sure that you won t outlive your money? taken into account the effect of inflation on your future purchasing power and the effect of taxes on your assets? evaluated a diversification strategy to spread the risk out over several investments? Each of these is an important part of your retirement strategy.

7 Managing Your Assets A common tendency after setting up a strategy is to expect it to work without having to look at it again. It is important to monitor your overall investment performance at least annually. As you manage your retirement assets, income and expenses, consider some of these questions as to when and if you need to adjust your portfolio. Preparing for or Nearing Retirement Have you invested according to your time horizon and risk tolerance? Have you been managing risk by diversifying your investments? At what age should you begin to take Social Security benefits? Changing jobs? How should you handle a rollover from an existing plan? During Retirement When is the appropriate time to shift your assets from growth to income producing? Which retirement accounts should you take withdrawals from first for your income? What should you do if you receive a lump sum distribution? Have you factored in expenses, taxes, and inflation potentially increasing? One key to your in-retirement income strategy is setting a sustainable withdrawal rate that manages income against growth needs. The amount of your withdrawal will probably vary over time depending upon your needs and the performance of your investments. It is important to consider what, if any, tax implications may arise which may impact your decisions. You have the flexibility and control to make changes to the amount of income taken from your personal retirement assets. Follow your strategy and be patient with today s market and economic conditions. Stay focused on your long-term goals and the factors you can control, such as the quality of your investments and diversification.

8 Protecting Your Assets A retirement strategy represents a lifetime of work. Today, more than ever, recent headlines have made investors aware that they need to do everything they can to protect those hard-earned dollars and make their retirement funds last. Expenses during retirement can be driven up by a wide variety of health-related factors. Were you aware that Medicare does not currently cover the cost of prescription drugs? Will you be able to retain your company s health insurance benefits at the same cost? Did you know that the average cost of nursing home care is $90 a day, but can cost as must as $315 a day?* Are you and those you love protected from the impact of a premature death or prolonged disability? Protection helps preserve your assets and income for your spouse or children. As part of a well-rounded retirement strategy, life insurance can play two critical roles. It can: Help protect your loved ones and your retirement dreams. The death benefit it provides can help ensure that your loved ones will have the funds they need to pay living expenses, stay in their home, and perhaps help the children or grandchildren with education. It can also help ensure that a spouse s retirement dreams do not die with the person who contributes to the retirement plan. Supplement existing vehicles. If both spouses live to enjoy a full retirement, permanent life insurance can serve several purposes. It can help replace the death benefit protection of lost or greatly reduced group insurance and, although the primary purpose of purchasing life insurance is for the death benefit protection, cash values can also help provide a means of supplementing your retirement income. Withdrawals and loans will reduce policy values and the death benefit and may have tax consequences.

9 Unfortunately, many people underestimate the risk of becoming disabled and the effect that a disability could have on their ability to save for retirement or their standard of living during retirement. The impact of paying for long term care without insurance can be unforeseeable. You already know that long term care can be expensive. But, did you know that the elderly population requiring long term care services will more than double in the next 30 years to more than 70 million?** Even individuals with sizable estates find that their assets are quickly depleted in this situation. Don t be caught off-guard and overlook what could be a major gap in your overall financial plan. Help protect your assets. Help protect your choices. Help protect your future. *American Association of Retired Persons (AARP), To Buy or Not to Buy?, May/June 2000, page 5. ** Report, Findings and Recommendations of the Working Group Studying Long Term Care, United States Department of Labor, November 14, 2000, page 5.

10 Get Options. Find Answers. Gain Confidence with Prudential. At Prudential, you ll find the information you need to help make timely, informed decisions for your retirement goals. You ll get support from someone who is not only knowledgeable, but has vast resources and effective tools to do the job right for you. I will do more than simply focus on making appropriate investment recommendations. Instead, you ll be supported with a well-rounded approach that will help you grow, manage and protect your retirement assets. Using Prudential Financial Solutions, I will be able to help you: Profile: Gather information to help understand your priorities during retirement, quantify your retirement income goals, evaluate your current resources and review your insurance and financial situation. For example, we can: Estimate how much income you will need during retirement, including the potential effects of inflation and taxes; Take an inventory of all of your insurance programs to help make sure that neither spouse s financial security is jeopardized in the event of a premature death, disability or illness before or during retirement; and Determine the value of your estate. Plan: Develop a strategy that analyzes your current financial situation, identify any shortfalls and outline action steps needed to reach your retirement goals. I can help you: Determine the gap (if any) between what you will need and your projected income; Identify any insurance coverage gaps that may put your retirement goals at risk; Develop a strategy to limit your estate tax liability, reduce administrative costs and transfer assets to your beneficiaries;

11 Maximize the potential return on your investment portfolio given your personal risk tolerance, time horizon and investment objectives; Create a distribution strategy with maximum flexibility, considering income tax, Social Security and estate planning implications; and Determine the right age to begin receiving Social Security benefits. Implement: Identify appropriate insurance and financial products and services that will help you reach your retirement goals. We will: Consider investment vehicles that offer both growth potential and a guaranteed lifetime payment option, as you near retirement; and Determine how to help cover additional health care costs/prescription drug costs, etcetera, without sacrificing your standard of living during retirement. Monitor: We will: Monitor your investment performance and asset allocation at least annually; and Re-balance your portfolio, as necessary. Let s get started today with your retirement analysis and help make sure that you are doing everything possible to grow, manage and protect your wealth.

12 Products and Services You can expect an exceptional level of service and personal attention at Prudential. You can also expect a comprehensive variety of competitive insurance, investments and financial services. Helping to Grow Assets Annuities Retirement Planning IRAs Education Funding Mutual Funds Certificates of Deposit Helping to Protect Assets Life Insurance Term Life Insurance Insurance to Help Protect a Mortgage Disability Income Insurance Long Term Care Insurance Property and Casualty Insurance Small Business Business Continuation Funding Buy/Sell Funding Employee or Executive Benefit Plan Funding Section 162 Executive Bonus Plan Funding Deferred Compensation Plan Funding Key Person Insurance Coverage Split Dollar Arrangement 401(k) Plan SIMPLE Plan SEP/IRA Life insurance and annuities issued by The Prudential Insurance Company of America and its affiliates. Securities products and services offered through Pruco Securities LLC (member SIPC). Each is a Prudential Financial company located in Newark, NJ and is solely responsible for its own financial condition and contractual obligations. Availability of disability income insurance, long term care insurance, and property and casualty insurance varies by carrier and state. Neither Prudential Financial nor its representatives are authorized to provide tax advice. You should consult your attorney or tax advisor for advice regarding your personal situation. IFS-A Ed. 9/2003