Building Your Retirement Roadmap
Today s Agenda Discuss a roadmap for saving to help you meet your retirement goals Look at key financial principles to follow Review action steps to consider How Fidelity can help 2
The Foundation for Your Retirement Roadmap STRIVE TO SAVE A MINIMUM OF 10% TO 15% OF YOUR GROSS INCOME ANNUALLY 1 2 3 Save for retirement first Reduce or eliminate bad debt and build a safety net Maximize tax-advantaged saving opportunities 3
Retirement Factors to Consider Outliving your savings Rising health care costs Rising cost of living Pension Uncertain Social Security Lifestyle changes 4
Two Important Saving Concepts Power of Compounding Start saving early Dollar Cost Averaging Save consistently 5
Ending Account Value Before Taxes Power of Compounding Earnings $1,800,000 $1,600,000 $1,641,122 HYPOTHETICAL EXAMPLE EARNINGS CONTRIBUTIONS $1,400,000 $1,200,000 $1,148,161 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 $1,411,122 $796,687 $943,161 $546,091 $616,687 $391,091 $230,000 $205,000 $180,000 $155,000 25 70 30 70 35 70 40 70 Start and End Age of Making Annual $5,000 IRA Contributions This hypothetical example assumes the following: (1) $5,000 annual IRA contributions on January 1 of each year for the age ranges shown, (2) an annual rate of return of 7%, and (3) no taxes on any earnings within the IRA. The ending values do not reflect taxes, fees, or inflation. If they did, amounts would be lower. Earnings and pretax (deductible) contributions from traditional IRAs are subject to taxes when withdrawn. Earnings distributed from Roth IRAs are income tax free, provided certain requirements are met. IRA distributions before age 59½ may also be subject to a 10% penalty. Systematic investing does not ensure a profit and does not protect against loss in a declining market. This example is for illustrative purposes only and does not represent the performance of any security. 6
Dollar Cost Averaging Share Price Investment Shares Purchased January $10 $100 10.0 February $7 $100 14.3 March $6 $100 16.7 April $8 $100 12.5 May $9 $100 11.1 Total $500 64.6 Average Cost Per Share = $7.74 Prioritize Your Goals Make Saving a Habit and This hypothetical example is based on monthly contributions made at the beginning of the month to a tax-deferred retirement plan. Your own plan account may earn more or less than this example, and income taxes will be due when you withdraw from your account. Dollar cost averaging does not ensure a profit or guarantee against loss in declining markets. 7
Understanding Your Goals and Priorities Fidelity s Savings Planner can help you: Create a personalized savings plan based on your priorities Identify your action steps illustrative purposes only 8
Building Your Retirement Roadmap 1 Save for retirement first Enroll in your workplace savings plan 2 3 Reduce debt while saving Maximize tax-advantaged saving opportunities 9
Benefits of Saving at Work Save for Retirement First Contact your employer s benefits office to: Enroll in your workplace savings plan Ease and convenience Tax-deferred savings Automatic payroll deductions Potentially lower taxable income Dollar cost averaging Take advantage of any employer match Free money 10
Building Your Retirement Roadmap 1 2 3 Save for retirement first Reduce debt while saving Maximize tax-advantaged saving opportunities Reduce or eliminate bad debt Build a savings safety net 11
Reducing Debt While Saving Pay off high-interest credit card debt Establish an emergency fund Reduce Debt While Saving while contributing enough to your workplace savings plan to capture your employer match 12
Reducing Debt While Saving Fidelity s Budget Snapshot can help you: Reduce Debt While Saving Understand where you spend your money Build a budget Fidelity s Savings Planner can help you: Evaluate your current situation See the impact of increasing the amount of your credit card payment Identify action steps illustrative purposes only 13
Building Your Retirement Roadmap 1 Save for retirement first 2 3 Reduce debt while saving Maximize tax-advantaged saving opportunities Save more for retirement Address other savings goals Pay off other debt 14
Save More for Retirement Maximize Tax-Advantaged Savings Increase contributions in your workplace savings plan to the maximum allowed Continue ease and discipline of payroll deduction 2011 & 2012 Contribution Limits * Age <50 Age 50+ $17,000 $22,500 * Can be limited by your compensation or the plan s design. 15
Save More for Retirement Maximize Tax-Advantaged Savings Open an IRA Complements your pretax retirement savings Offers broad investment options Provides tax-advantaged compounding If you qualify, consider a Roth IRA 16
Roth vs. Traditional IRA Maximize Tax-Advantaged Savings Roth IRA Earnings may grow * federally tax free Penalty-free contribution withdrawals * No minimum required distribution during the lifetime of the owner Traditional IRA Earnings and contributions taxed at time of withdrawal No penalty for withdrawal after age 59½ Minimum required distributions begin at 70½ * A distribution from a Roth IRA is tax-free and penalty-free provided that the five-year aging requirement has been satisfied and one of the following conditions is met: age 59 ½, death, suffer a disability, or qualified first time home purchase. 17
Save More for Retirement Maximize Tax-Advantaged Savings At Fidelity s IRA Center you can: Open an IRA Contribute to your IRA Use an IRA Contribution Calculator Get answers to FAQs illustrative purposes only 18
Save More for Retirement Maximize Tax-Advantaged Savings Consider a Deferred Annuity Complements your workplace savings plan and IRA No contribution limits* Earnings grow tax-deferred Taxes deferred until withdrawal Variable or fixed rate options Principal value and investment returns of a variable annuity will fluctuate and you may have a gain or loss when your money is withdrawn. * Fidelity reserves the right to limit contributions. Taxable amounts withdrawn from an annuity prior to age 59½ may be subject to a 10% IRS penalty. 19
Address Other Savings Goals Maximize Tax-Advantaged Savings Saving for retirement should be a top priority Financing options for other goals, not retirement Important to balance your competing needs to save appropriately 20
Saving for College Maximize Tax-Advantaged Savings Consider a 529 College Savings Plan or Coverdell Education Savings account 529 College Savings Plans Can be used at virtually all accredited colleges nationwide Qualified distributions are free from federal income taxes No income restrictions High contribution limits Coverdell Education Savings Qualified distributions are free from federal income taxes $2,000/year contribution limit 21
Saving for College Maximize Tax-Advantaged Savings At Fidelity s online College Planning Center you can: Compare college savings options Watch a video on the benefits of a 529 plan Get answers to FAQs Open a 529 plan account illustrative purposes only 22
Address Other Savings Goals Maximize Tax-Advantaged Savings Pay off other debt such as home mortgage or car loan after you establish a foundation for retirement savings 23
Retirement Roadmap 1 2 3 Save for retirement first Reduce or eliminate bad debt and build a safety net Maximize tax-advantaged saving opportunities Enroll in your workplace savings plan Take full advantage of any employer match Pay off high interest rate credit card debt Set aside 90 days worth of living expenses Increase your contribution in your workplace savings plan to the maximum allowed Then open an IRA or other tax-advantaged retirement savings vehicle Address other savings goals (e.g. college) Pay off other debt (e.g. mortgage) 24
Key Financial Principles Identify your goals and priorities Simplify your finances by consolidating accounts Review and rebalance your investments 25
Reasons to Consolidate Key Financial Principles Easier to manage your assets Keep all of your assets in one place Fewer statements Diversification may be easier Track overall performance Maintain investment strategy of choice Past performance is no guarantee of future results. 26
The Importance of Asset Allocation Key Financial Principles Allocate your investments strategically across the asset classes to: Help reduce portfolio risk and volatility Match your investment strategy to your time horizon, financial situation, and risk tolerance Enhance potential for increased and more consistent returns Tap into market opportunities Avoid the pitfalls of market timing Short-term Stocks Bonds Note: Implementing this type of strategy exposes your portfolio to market risk and does not ensure a profit or protect against losses. 27
Where to Consolidate? Key Financial Principles 1. Move your money to an IRA 2. Move your money to your current employer's retirement plan 3. Leave your money in your old employer's plan Keep in mind that fees may apply when closing and consolidating accounts. 28
Advantages and Considerations Key Financial Principles Rollover IRA Roth IRA Old Employer s Plan Current Employer s Plan Tax-deferred savings X X X Tax-free growth potential Tax-free withdrawals Broad range of investment choices X X Penalty-free withdrawals * for qualified expenses/purchases X X X X X No required minimum withdrawals X X No plan restrictions X X Plan-specific investments/pricing X X Ability to take a loan X X * Withdrawals from a Roth IRA are penalty-free provided that the five-year aging requirement has been satisfied and you reach age 59½ or make a qualified first time home purchase. 29
Rebalancing Your Portfolio Is Important Because a portfolio s allocation can drift over time Key Financial Principles Asset Allocation % 50.00% 40.00% 64.63% 29.39% 59.40% 35.67% 10.00% 5.98% 4.93% 1991 2001 2011 Stocks Bonds Short-term Data Source: Ibbotson Associates, 2012. Stocks are represented by the S&P 500 Index, and bonds are represented by the Barclays Capital U.S Aggregate Bond Index for bonds. Barclays Capital U.S. Aggregate Bond Index is a market value weighted index that covers the U.S. fixed-rate investment grade bond market with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with maturities of one year or more. Short-term instruments are represented by U.S. Treasury bills, which are backed by the full faith and credit of the U.S. government. S&P 500 Index is a market capitalization weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Indices are unmanaged and you cannot invest directly in an index. Past performance is no guarantee of future results. This chart is for illustrative purposes only. 457643.8.0 30
Review Your Portfolio Once a Year Key Financial Principles Make sure the amount you re saving matches your target saving rate Compare your current asset allocation with your target allocation Make adjustments as needed 31
Dave Saving Goals Reached 6 Reduce additional payments to his mortgage, put money toward his retirement savings. 5 Start a 529 for his children s college education. Key Financial Principles 1 Enroll and start contributing to his Workplace Savings Plan at least to the company match. DAVE S NEXT STEPS TO CONSIDER 4 Open a Roth IRA. 2 Open an IRA to consolidate all his old workplace savings plans. 3 Make sure high interest debt is paid off and an emergency fund is established. 32
Jessica Key Financial Principles 1 Start contributions in her workplace savings plan at least to the company match. Saving Goals Reached 3 Open a Roth IRA. JESSICA S NEXT STEPS TO CONSIDER 2 Contribute more to her workplace savings plan, up to her maximum. 33
Put Your Plan into Action at Fidelity Fidelity.com Visit us online Local Investor Centers Work with a Fidelity Representative Professional Management Let us do it for you Research resources Online planning tools Account monitoring Convenience Guidance consultations Knowledgeable representatives One-on-one meetings Informative seminars Ongoing, active management Exclusive, personal service In-depth review Trust services Although consultations are one on one, guidance provided by Fidelity is educational in nature, is not individualized, and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions. 34
Important Information Before investing, consider the investment objectives, risks, charges, and expenses of the fund, 529 plan or annuity and its investment options. Contact Fidelity for a prospectus or fact kit or, if available, a summary prospectus containing this information. Read it carefully. The tax and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation. Retirement Income Planner, Retirement Quick Check and Portfolio Review are education tools. The tool s illustrations result from running a minimum of 250 hypothetical market simulations. The market return data used to generate the illustrations is intended to provide you with a general idea of how asset mixes have performed historically. Our analysis assumes a level of diversity within each asset class consistent with a market index benchmark that may differ from the diversity of your own portfolio. Please note that the projections do not reflect the impact of any transaction costs or management and servicing fees (except variable annuities); if these had been included, the projected account balances would have been lower. IMPORTANT: The projections or other information generated by Fidelity s Suite of Guidance tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time. Fidelity Portfolio Advisory Service is a service of Strategic Advisers, Inc., a registered investment adviser and a Fidelity Investments company. This service provides discretionary money management for a fee. Brokerage services are provided by Fidelity Brokerage Services, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917. 514228.6.0 35
Thank you for your time. We hope you found this presentation informative. 36