Crafting a Retirement Strategy Through Planning The NSBA Sponsored Members Retirement Program AXA Equitable Life Insurance Company (NY, NY)
Thinking Ahead Your Business, Your Future & the Members Retirement Program Santo LoPorto Senior Director Members Retirement Program Toll-free: (800) 523-1125 Direct: (201) 583-2391 Email: santo.loporto@axa.us.com
Thinking Ahead On the Agenda 1. Retirement challenges we all face 2. Strategies in saving for retirement 3. How retirement plans help meet the challenges 4. Key considerations when choosing a retirement plan 5. The Members Retirement Program 6. About AXA 7. Next steps
Retirement Challenges We All Face
Retirement Challenges We All Face Four Universal Retirement Planning Challenges Longevity Inflation Taxes Market volatility
Retirement Challenges We All Face
Retirement Challenges We All Face Longevity risk 90 40.6% 29.5% 58.1% Source: Society of Actuaries 2000 U.S. Annuity Table Based on statistics for the year 2000, a 65-year-old female has a greater than 40% probability of living to at least age 90. And there s almost a 1-in-3 chance that at least one member of a 65-year-old couple will live to at least age 95. 7 What are the risks today?
Retirement Challenges We All Face Inflation How Inflation Can Erode Retirement Income (Hypothetical Example)* Savings Needed for Out-of-Pocket Prescription Drug Expenses Retiring at Age 65 in 2010 and 2020* $190,000 $194,000 $600,000 $170,000 $150,000 $147,485 $400,000 Min Max $130,000 $108,759 $200,000 $110,000 $90,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years in Retirement $0 Retiring in 2010 Retiring in 2020 * For illustrative purposes only. This hypothetical example assumes an annual retirement income starting at $200,000 and a 3% annual rate of inflation over 20 years. * Paul Fronstin et al., Funding Savings Needed for Health Expenses for Persons Eligible for Medicare. Issue Brief no. 351. Employee Benefit Research Institute. December 2010.
Retirement Challenges We All Face Stock and Bond Volatility Varies
Stock and Bond Volatility Varies 1926 2013 50% Stocks Bonds 40 30 20 10 0 10 20 30 1926 1946 1966 1986 2006 1926 1946 1966 1986 2006 Past performance is no guarantee of future results. Monthly percentage returns from 1926 2013. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 2014 Morningstar. All Rights Reserved.
Retirement Challenges We All Face Asset Class Returns Vary
Asset-Class Returns Highs and lows: 1926 2013 150% 142.9% 100 54.0% 50 Compound annual return: 12.3% 10.1% 40.4% 29.1% 14.7% 5.5% 5.3% 3.5% 0 14.9% 5.1% 0.0% 50 58.0% 43.3% 100 Small stocks Large stocks Long-term government bonds Intermediate-term government bonds Treasury bills Past performance is no guarantee of future results. Each bar shows the range of annual total returns for each asset class over the period 1926 2013. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 2014 Morningstar. All Rights Reserved.
Strategies in Saving for Retirement What Tax-Qualified Retirement Plans Offer Tax-deferred growth potential Compounding of any earnings Investment opportunities Asset allocation, dollar cost averaging, other tools Since dollar cost averaging involves continuously investing in securities regardless of fluctuating price levels, you need to consider your ability to continue purchasing through low price periods. Asset allocation does not guarantee a profit or protect against loss.
Strategies in Saving for Retirement
Strategies in Saving for Retirement Social Security and Income Replacement $2,663 16% $2,663 = The 2015 maximum monthly Social Security payment at full retirement age $14,004 84% $16,667 = The monthly payment required to replace an annual income of $200,000 Social Security Administration, Fact Sheet: 2015 Social Security Changes.
Strategies in Saving for Retirement Taxes $1,000,000 $800,000 $600,000 The Value of Tax-Deferred Investment Earnings (Hypothetical Example) $100,000 initial investment, 6% rate of return per year over 40 years, 28% federal income tax rate Tax-Deferred Investment (Before Taxes) Tax-Deferred Investment (After Taxes) Annually Taxed Investment $400,000 $200,000 $0 10 Years 20 Years 30 Years 40 Years For illustrative purposes only. This hypothetical chart does not represent actual performance of any specific product or investment. Withdrawals of tax-deferred earnings are subject to ordinary income tax. A 10% federal income tax penalty may also apply if you take the withdrawal before you reach age 59½. Dividends and sales profits on annually taxed investments are generally taxed at capital gains tax rates, which can be lower than ordinary federal income tax rates. Using capital gains tax rates with the taxed annually investment would reduce the difference between the taxed annually and tax-deferred accounts shown above. Many tax-deferred products have fees and charges, which are not included in the tax-deferred examples shown here. If they were, the returns of the tax-deferred examples including variable annuities would be lower. Consider your personal investment horizon and income tax bracket, both current and anticipated, when making an investment decision. These factors, as well as changes in tax rates and the treatment of investment earnings, may further affect the results of this comparison. Annuities are long-term financial products designed for retirement purpose. In essence, annuities are contractual agreements in which payment(s) are made to an insurance company, which agrees to pay out an income or a lump-sum amount at a later date. There are contract limitations and fees and charges associated with annuities, which include, but are not limited to, mortality and expense risk charges, sales and withdrawal charges, administrative fees, and charges for optional benefits. Amounts in a variable annuity s investment portfolios are subject to fluctuation in value and market risk, including loss of principal. A financial professional can provide cost information and complete details. Actual results will vary. Rates of return will vary over time, particularly for long term investments. Investments offering the potential for higher rates of return also include a higher degree of risk. YEAR
Strategies in Saving for Retirement
Strategies in Saving for Retirement Hypothetical Example: Assumes 4% annual price inflation, deposits to plan at the end of each month, and 8% average annual returns. Taxes or investment fees have not been considered in this example. There are 52 weeks in a 365-day year. Newkirk Products, Inc. Research Although this example uses an assumed constant rate of return, actual rates of return will vary over time particularly for long-term investments.
Strategies in Saving for Retirement Inflation and Market Volatility
Reduction of Risk Over Time 1926 2013 Small stocks Large stocks Government bonds Treasury bills 150% 120 90 60 30 Compound annual return: 12.3% 10.0% 5.5% 3.5% 0 30 60 1-year Holding period 5-year 20-year 1-year 5-year 20-year 1-year 5-year 20-year 1-year 5-year 20-year Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period 1926 2013. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 2014 Morningstar. All Rights Reserved.
Strategies in Saving for Retirement Volatility Strategies to help lessen market volatility Asset allocation/diversification One-stop investment portfolios Asset rebalancing Dollar cost averaging New features to meet changing needs Diversification, asset allocation, dollar cost averaging, and rebalancing do not guarantee a profit or protect against loss in a declining market.
Strategies in Saving for Retirement A sample portfolio allocation changes over time 21% 16% 37% 26% Bonds Small-Cap Stocks International Stocks Large Cap Stocks These charts are hypothetical and for illustrative purposes only, and not indicative of any investment. Rebalancing does not guarantee a profit or protect against loss in a declining market. Past performance is no guarantee of future results. 22
Strategies in Saving for Retirement Market Timing Risk
Market-Timing Risk The effects of missing the best month of annual returns 1970 2013 40% Return 30 20 10 0 10 20 Return if invested for the whole year 30 Return if the best month is missed Annual return Annual return minus best month 40 1970 1975 1980 1985 1990 1995 2000 2005 2010 Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 2014 Morningstar. All Rights Reserved.
Key Considerations When Choosing a Retirement Plan
Key Considerations When Choosing a Retirement Plan A Retirement Plan and the Bottom Line Build Your Nest Egg Tax Deductions and Tax Deferred Growth Potential A carefully chosen retirement plan can Attract qualified candidates Retain key staff Minimize cost of plan administration
Choosing a Retirement Plan
Choosing a Retirement Plan Key Considerations Types of Retirement Plans Defined Contribution (ERISA) Other Profit-Sharing Plan New Comparability Plan 401(k) Plan Pension Plan Simplified Employee Pension Plan (SEP) SIMPLE IRA Traditional 401(k) Safe Harbor 401(k) SIMPLE 401(k) Owners 401(k) Roth 401(k)
Choosing a Retirement Plan Questions to Think about Before Deciding If the practice has full-time employees Will employees contribute to the plan? Would you like to contribute to employees accounts? Is the practice required to contribute to employees accounts? How much tax-deferred contributions are possible in the plan? How much will the plan cost to the practice, to you, to your employees? How much administrative responsibility will be involved?
The Members Retirement Program Designed Exclusively for NSBA Members Easily customized Tax-deferred savings Tools and educational materials An annuity contract that is purchased to fund a qualified retirement plan should be purchased for the annuity s features and benefits other than tax deferral. For such cases, tax deferral is not an additional benefit for the annuity. You may also want to consider the relative features, benefits, and costs of this annuity with any other investment that you may have in connection with your retirement plan or arrangement. The Members Retirement Program (contract form # 6059) is funded by a group variable annuity contract issued and distributed by AXA Equitable Life Insurance Company(NY,NY).
Next Steps Make a List of your top reasons for starting or changing a retirement plan then: Visit us at the meeting Call a Retirement Program Specialist at (800) 523-1125 Fill out the online questionnaire at www.axa.com/mrp
The Members Retirement Program Important Information Annuities are long-term financial products designed for retirement purpose. In essence, annuities are contractual agreements in which payment(s) are made to an insurance company, which agrees to pay out an income or a lump-sum amount at a later date. There are contract limitations and fees and charges associated with annuities, which include, but are not limited to, mortality and expense risk charges, sales and withdrawal charges, administrative fees, and charges for optional benefits. Amounts in a variable annuity s investment portfolios are subject to fluctuation in value and market risk, including loss of principal. A financial professional can provide cost information and complete details. The Members Retirement Program (contract form #6059) is funded by a group variable annuity contract issued and distributed by AXA Equitable Life Insurance Company, New York, NY. AXA Equitable does not provide tax or legal advice and is not affiliated with the NSBA. Clients should consult with their attorneys and/or tax advisors before purchasing a contract.