What Matters Most for RETIREMENT PLANNING WHY IT S DIFFERENT FOR WOMEN Issued by Pruco Life Insurance Company and by Pruco Life Insurance Company of New Jersey. 0250519-00006-00 Ed. 09/2017
YOUR LIFE IS A JOURNEY Let s face it, you lead a busy life. Maybe you re juggling family and career. Continuing your education. Or 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. 2/16 Why It s Different for Women
Chart your own course As you go through life, you can never predict what s around the next corner. You may need to reroute your course when unexpected events cross your path. Planning for retirement is actually quite similar. There is a lot to consider, but understanding the unique challenges women face during retirement can help you put together a strategy to help meet those challenges. Choose your itinerary Although you can t predict 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 available to help you build a more secure retirement. Your financial professional can provide you with the guidance and knowledge you ll need to make informed decisions, and help ensure that you continue to stay focused on what matters most. This guide introduces concepts that will be important as you plan for your financial future. You can discuss these with your financial professional, and tax and legal counsel as you put together a plan for your future. 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 investment, tax, accounting or legal advice. Please consult your financial professional, attorney or accountant. Why It s Different for Women 3/16
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 lifestyle choices, 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 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 impact 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. 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 decade. 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, you should consult with your financial professional to discuss new ways to insure your income for the future. Loaf of white bread 1 Residential Electricity per kwh 2 U.S. postage stamp 3 2015 $1.46 $0.13 $0.49 2005 $1.04 $0.09 $0.37 1995 $0.79 $0.08 $0.32 1985 $0.55 $0.07 $0.22 45 Every now and then life throws you a curve ball. As much as you plan for the expected, you cannot predict the future. But you can feel confident that you have a variety of options to help secure your future. 1 Bureau of Labor Statistics, as of July 2017 2 www.eia.gov/totalenergy/data/monthly/pdf/sec9_11.pdf, accessed July 2017 3 U.S. Postal Service, Rates for Domestic Letters Since 1863, accessed July 2017 4/16 Why It s Different for Women
Mapping your future Key retirement concepts With so many challenges to consider, how can you ensure the money you save for retirement is enough to last a lifetime? And since women tend to live longer than men, they have to plan for longer retirements and overcome more obstacles. While everyone s situation is unique, this brochure identifies key concepts for discussion with your financial professional to help keep you on course to retirement. Be aware of your Social Security benefit options Accurately estimate the impact of future healthcare costs Understand how taxes impact your retirement plan Assess the long-term effects of taking Required Minimum Distributions Realize the importance of spousal protection Actively planning for these key retirement concepts can increase your chances of living the lifestyle you envision for your retirement. Why It s Different for Women 5/16
Social Security Understanding your benefit options While almost everyone is familiar with Social Security, it is a complex system and can be confusing. When to begin taking Social Security benefits is an important decision that will affect the amount of benefits you receive. If you have met the 10-year wage-earning requirement, you can begin your retirement benefits as early as age 62 but this will cause them to be reduced by as much as 30%. And if your spouse decides to take an early benefit election, that would also reduce any spousal or survivor benefits you may receive. But if you delay your claim past full retirement age, your benefits will increase 8% each year, up to age 70. 1 benefits reduced as much as f30% benefits increased up to d32% $2,000 /month $1,400 /month $2,640 /month full retirement (Age 67) early retirement (Age 62) delayed retirement (Age 70) Did you know Social Security was never intended to be your only source of retirement income. However, 61% of beneficiaries received at least half of their income from Social Security in 2014. This is a hypothetical mathematical example for illustrative purposes only. This income example assumes a full retirement age benefit of $24,000 a year that the government could provide based on the assumed ages above. As the specifics for your situation may be different, please go to ssa.gov for more information. Source: www.ssa.gov: Fast Facts & Figures About Social Security, 2016 1 www.ssa.gov, as of July 2017 6/16 Why It s Different for Women
Choosing the best option for you How and when you file can significantly affect your financial future. Work with your financial professional to review your Social Security options and determine which strategies can help maximize your benefits. If You Are Married: Spousal benefits: You may make a claim based on your spouse s work record as early as age 62. At full retirement age, you could receive 100% of your own benefit or 50% of your spouse s benefit, whichever is greater. Survivor benefits: You can choose to receive, or step up to, your spouse s benefit, in lieu of your own personal benefit. Survivors are eligible for a reduced benefit as early as age 60. If you are at full retirement age, you can receive 100% of your spouse s benefit. Restricted application: If one spouse wishes to delay taking benefits past full retirement age and the other wishes to claim benefits, the spouse who delays may want to consider a restricted application. This would allow the delaying spouse to claim a spousal benefit while his or her own benefit continues to grow. Then, when that spouse chooses to claim his or her own benefit (or reaches age 70), he or she can switch from the spousal benefit at that time. This is only available to those who have attained the age of 62 by December 31, 2015. If You Are Divorced: Claiming benefits from a previous marriage: If you are divorced and not remarried, and your marriage lasted 10 years or longer, you may be eligible to receive benefits on your ex-spouse s record even if he or she is remarried. However, your ex-spouse must be receiving benefits, or you must have been divorced at least two years. Collecting these benefits will not affect your exspouse s benefits, nor is his or her permission required for you to receive this benefit. Ex-spouse survivor benefits: If you were previously married, you could also be entitled to survivor benefits when your ex-spouse passes away. To be eligible, you must be at least 60 years old, your marriage must have lasted at least 10 years, and you cannot have been remarried before age 60, unless that marriage has since ended. Promptly report any name changes: To ensure you receive all benefits you are due, always remember to report any name changes (whether you are remarrying or revert to your maiden name) to the Social Security Administration as quickly as possible. Why It s Different for Women 7/16
Healthcare Estimating costs that impact 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. Fast facts 2nd largest expense in retirement 1 Women average four years in a nursing home (men average two years) 2 Medicare only pays for a maximum of 100 days in a nursing home 3 An average 65 year-old woman can expect to spend 18% more on healthcare than a man the same age 4 Healthcare can take a healthy bite out of retirement savings. It is estimated that an average, healthy, 65-year-old couple will need $260,000 to pay for medical expenses for the remainder of their lives. Source: Fidelity Benefits Consulting, Retiree Health Costs Rise, August 16, 2016. Healthcare and nursing home costs may vary by state. 1 U.S. News & World Report, Take Control of Your 6 Biggest Retirement Expenses, August 2015 2 LongTermCare.gov, accessed May 2016 3 https://www.medicare.gov/coverage/skilled-nursing-facility-care.html, accessed February 2017 4 HealthView Services: 2016 Retirement Health Care Costs Data Report 8/16 Why It s Different for Women
Medicare doesn t cover everything Many people underestimate the impact that healthcare costs will have on them during retirement because they assume that Medicare will cover all their healthcare expenses. The truth is that Medicare only covers about 60% of all retirement healthcare costs. 5 The standard Medicare coverage may be best for you, but it is not your only option. In addition to standard Medicare Part A and Part B, there are supplemental options, such as prescription drug coverage. There are also alternative coverage plans offered by private insurance companies that may provide more benefits than standard Medicare, as well as greater flexibility in choosing a plan that will fit your needs. Part A Part B Part C Part D Medigap Hospital insurance Medical insurance Medicare Advantage plans Prescription drug coverage Medicare supplemental insurance Your financial professional can help you estimate your annual expenses and suggest strategies to help you cover your healthcare costs in retirement. Starting today can help you face the future with more confidence. 5 EBRI Notes: Amount of Savings Needed for Health Expenses for People Eligible for Medicare, October 2015 Why It s Different for Women 9/16
Taxes Understand their impact during retirement Federal taxes paid annually can significantly erode your income in the future and that can directly impact your goals for retirement. You can help minimize your tax obligations and create more future retirement income by investing strategically in accounts with different tax treatments: Taxed now: Investments such as mutual funds, stocks, and certificates of deposit (CDs) are taxed in the current year. It s important to keep in mind when investing in mutual funds and stocks, even routine transactions initiated by the money manager can have tax consequences. Taxed later: Since IRAs, 401(k)s/403(b)s and annuities are generally intended specifically for retirement, there are strict guidelines surrounding their use, including a 10% federal tax penalty for most withdrawals before the age of 59½. In addition, for qualified accounts, there are Required Minimum Distributions (RMDs) that start at age 70½. Tax-advantaged: Investments such as Roth accounts, municipal bonds, and cash-value life insurance typically have limits on contributions and/or investment returns. In the case of life insurance, proof of insurability is required. Roth accounts in an employer plan are also subject to RMDs. 10/16 Why It s Different for Women
Women have more to consider Everyone needs to evaluate the impact of taxes when planning for retirement, but women face additional challenges that can compound the effect of taxes during retirement. Because women tend to live longer than men, they will need to manage taxes over a longer period of time. Additionally, many women take time to care for children, allowing for less time in the workforce and reducing their lifetime earnings. There are other tax strategies to consider if you are: Married: Whether you are filing jointly or separately, it s important to keep in mind that decisions made about pension plans, Social Security benefits, and other sources of retirement income can impact the amount of taxes you owe as well as your future retirement income. If you left the workplace, you can still contribute to an Individual Retirement Account (IRA). As long as you are filing jointly and your spouse has earned income, you can save for retirement and also receive tax benefits. Widowed: If your spouse passes away, beneficiary payments from life insurance or annuity accounts are not taxable. If your spouse belonged to a retirement plan, you may be entitled to receive a survivor benefit. Income tax may be owed when money is withdrawn. Since each retirement plan has its own rules regarding the disposition of their accounts, it s important to request a copy of the Plan Description and work with your own tax advisor. If you are the beneficiary of a retirement account, it will be important to consider the timing of any required withdrawals. If you assume the position of owner, you would be subject to an IRS 10% tax penalty if you take any withdrawals before age 59½. But since you re not required to take distributions until age 70½, this is an opportunity for additional tax-free growth. A beneficiary is not subject to the 10% tax penalty but must begin distributions by December 31st of the year after the owner s death, although as the surviving spouse, you can defer payments until your spouse would have been 70½. Divorced: Alimony generally needs to be reported as income on your tax return. If you are the spouse paying alimony, it is a tax deduction assuming certain requirements are met. Certain alternatives to traditional alimony may be tax-advantaged, such as an upfront lump sum payment in lieu of alimony, and Alimony and Maintenance Trusts (also known as Section 682 Trusts). Talk to your financial professional about how tax-deferred products like IRAs, 401(k)s, and annuities can reduce your tax burden now, while allowing your retirement assets to grow tax-free until you start taking income from those accounts. Why It s Different for Women 11/16
Required Minimum Distributions Assessing their long-term effects Many people are unaware that the IRS requires them to take distributions from their qualified retirement accounts when they reach age 70½. These Required Minimum Distributions (RMDs) must then be taken each subsequent year and can significantly increase the likelihood of running out of retirement income. Retirement accounts that are subject to RMDs include: Qualified plans, including 401(k), 403(b) and Keogh plans Traditional IRAs Simplified Employee Pension Plans (SEPs) SIMPLE IRAs Financial experts have long suggested that withdrawing 4% annually from your retirement savings would provide enough income for a 30-year retirement. But ongoing market volatility and prolonged low interest rates have caused many experts to adjust that rate down to 3% or even less. But as you can see from the chart on the right, RMDs begin at 3.65%, and continue to increase every year, even if your investments lose value from a market downturn. When you take a withdrawal from a non-qualified account, you are only taxed on the earnings. But RMD withdrawals are fully taxed, often causing these accounts to deplete quicker than planned. Talk to your financial professional about a strategy to help minimize the impact of RMDs on your qualified accounts. Roth IRAs are not subject to the RMD 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, which would allow you to take over control of the Roth IRA. 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 70 3.65% 71 3.77% 72 3.91% 73 4.05% 74 4.20% 75 4.37% 76 4.55% 77 4.72% 78 4.93% 79 5.13% 80 5.35% 81 5.59% 82 5.85% 83 6.13% 84 6.45% 85 6.76% 86 7.09% 87 7.46% 88 7.87% 89 8.33% 90 8.77% 91 9.26% 92 9.80% 93 10.42% 94 10.99% 95 11.63% 96 12.35% 97 13.16% 98 14.08% 99 14.93% 100 15.87% Source: www.irs.gov, accessed June 2017 12/16 Why It s Different for Women
Spousal Protection Realizing its importance Losing a spouse is an emotional time that can be worsened without a plan in place to protect the money you both spent a lifetime to build. A newly widowed woman s income decreases by approximately 35%, but her expenses decrease by only 20%. 1 There are a number of situations that can cause the surviving spouse s retirement income to decline and cause an income gap: Pension payments (if applicable) can cease if your spouse chose a single life payout option to maximize his or her payments Social Security income decreases, leaving you to receive the greater of: - the Social Security benefit based on your own earnings, or - the Social Security income your spouse was actually receiving You can help lessen the financial impact of losing a spouse by working with your financial professional to put strategies in place to manage your cash flow in retirement and help avoid a potential income gap. Together you can: Make sure 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 a variable annuity with a spousal option to provide retirement income after the death of the first spouse Did you know There are three times as many widows over age 65 than widowers. Source: Administration on Aging, U.S. Department of Health and Human Services, A Profile of Older Americans: 2016, p. 4. www.giaging.org/documents/a_profile_ of_older_americans_2016.pdf. 1 WISER/Women s Institute for a Secure Retirement, accessed March 2017 Why It s Different for Women 13/16
Financial confidence begins with a plan You do so much for others, but now it s time to take care of yourself. 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. Work with your trusted financial professional to help you: Identify your financial goals and understand their impact on your lifestyle in retirement Consider your Social Security benefit options Understand how taxes, healthcare costs and Required Minimum Distributions impact retirement income Develop an estate plan for your assets and beneficiaries 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 14/16 Why It s Different for Women
How can an annuity help? As you prepare for your future you may want to consider an annuity as part of your overall retirement portfolio. There are a variety of annuity strategies available to help you meet your specific needs and goals. Some are geared toward helping grow your assets for retirement. Others can help create guaranteed annual income that you can begin immediately, or at some point in the future. Annuities also offer tax-deferred growth and generally include a standard death benefit for your beneficiaries. Some may even offer enhanced legacy planning options. Talk to your financial professional to determine which annuity strategy may be right for you. Why It s Different for Women 15/16
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. This material is for informational or educational purposes only. The information is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. In providing these materials, Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey and the distributor listed above are not acting as your fiduciary as defined by any applicable laws and regulations. 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. Prudential Annuities and its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant. 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 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, optional benefits, any fixed account crediting rates or annuity payout rates are backed by the claims-paying ability of Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey. 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. 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. 2017 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 06484 0250519-00006-00 ORD206995 Ed. 09/2017 [REF# 1169641] 16/16 Why It s Different for Women