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PLANNING FOR YOUR RETIREMENT INCOME. AdTrax #237855. 425823. How Much of Your Income Is Your Responsibility?. For today’s retirees, what percentage of their income comes from:. Social Security 20%. 41% From Outside Sources. Pension 21%. Increased Financial Responsibility.
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PLANNING FOR YOUR RETIREMENT INCOME AdTrax #237855 425823
How Much of Your Income Is Your Responsibility? For today’s retirees, what percentage of their income comes from:
SocialSecurity20% 41% From Outside Sources Pension21% Increased Financial Responsibility You may be responsible for nearly 60% of your income during retirement Your Savings19% 57% From Your Resources Your Income38% Source: Social Security Administration, Office of Policy, Income of the Aged Chartbook 2002, issued September 2004. Key Sources of retirement income for households with incomes of $40,982 or more per year. For illustrative purposes only.
Welcome Today’s Agenda: • Financial risks in retirement • Creating a retirement income plan • Action steps
What you don’t knowcan hurt you. 5 questions all retireesneed to address
How long will your savings & investments need to last? The Longevity Question 1
1 You May Be Retired for Over 30 Years Retirees need to plan for longer life expectancies 85 92 100 Male Age 65 Age 50% chance 25% chance 88 94 100 Female Age 65 Age 50% chance 25% chance 97 92 100 Couple (Both Age 65) Age 50% chance of one survivor 25% chance of one survivor Source: Annuity 2000 Mortality Table, American Society of Actuaries. Figures assume a person is in good health. For illustrative purposes only.
How much will I need to budget for health care expensesin retirement? 2 The Health Care Question
2 Health Care May Be Your Biggest Expense Health care and long-term care costs can derail your plan • Health care costs may rise substantially throughout your retirement years • A 65-year-old couple retiring in 2006 may need between $200,000 and $330,000 today to cover out-of pocket medical expenses during retirement1 • One out of every two retirees will likely spend time in a nursing home2 • Nursing home expenses average$35,000-$115,000 per year3 • Fidelity Employer Services Company; Health and Welfare Consulting; based on a couple retiring in 2006. An estimated $330,000 is based on planning ages 92 male and 94 female and an estimated $200,000 is based on life expectancy 82 male and 85 female. See back page for complete methodology. • Fidelity Investments, Viewpoint: Lifetime Income Planning, 2005 • 3. Genworth Financial 2005 Cost of Care Survey, May, 2005
How much will yourincome need to increaseover the span of your retirement? 3 The Inflation Question
3 $0.193 $2,2001 $5,0875 $19,5875 $0.504 $16,2402 $0.984 $28,0002 $56,1745 $117,6155 $58,6263 $2.053 Plan for Double the Income in 25 Years Impact of Inflation on the Cost of Goods over Time 1958 1979 2004 2029 1. U.S. Dept. of Commerce, Bureau of Economic Analysis 2. Motor Trend, “Average New-Vehicle MSRP Tops $28,000 for First Time,” July 2004. 3. Based on 3% inflation over 25 years from 2004 prices. 4. Actual price data from U.S. Dept. of Labor, Bureau of Labor Statistics. 5. U.S. Census Bureau. Median family income from 1947 to 2001. Data for 2004 and 2029 projected from 2001 median income based on 3% inflation.
What percentage of your retirement assets can you withdraw each year for retirement income? 4 The Withdrawal Question
4 14 Years 17 Years 20 Years 26 Years The Less You Withdraw, the Longer Your Assets Should Last If you withdraw this % of assets each year from a balanced portfolio: This is the number of years your portfolio may last in extended down markets: 7% 6% 5% 4% 0 5 10 15 20 25 30 For illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. See next slide for full methodology disclosure
4 The Less You Withdraw, the Longer Your Assets Should Last Source: Fidelity Investments. Hypothetical value of assets held in an untaxed portfolio of 50% stocks, 40% bonds, and 10% short-term investments with inflation-adjusted withdrawal rates as specified. Several hundred financial market return scenarios were run to determine how the asset mixes may have performed. The results for the Extended Down Market highlight the number of years the hypothetical portfolio would have lasted in 90%of the scenarios. Actual results may vary. This chart is for illustrative purposes only and is not indicative of any investment. If you withdraw this % of assets each year from a balanced portfolio: This is the number of years your portfolio may last in extended down markets: This exhibit is not intended to project or predict the present or future value of the actual holdings in a participant’s portfolio or of the performance of a given model portfolio of securities. Past performance is no guarantee of future results. The estimated returns for the stock and bond asset classes are based on a “risk premium” approach. The risk premium for these asset classes is defined as their historical returns relative to a 10-year Treasury bond. Risk premium estimates for stocks and bonds are each added to the 10-year Treasury yield. Short-term investment asset class returns are based on a historical risk premium added to an inflation rate, which is calculated by subtracting the TIPS (Treasury Inflation Protected Securities) yield from the 10-year Treasury yield. This method results in what we believe to be an appropriate estimate of the market inflation rate for the next 10 years. Each year (or as necessary), these assumptions are updated, to reflect any movement in the actual inflation rate. Risk premium estimates and volatility of stocks, bonds, and short-term asset classes is based on the historical annual data from 1926 through the most recent year-end data available from Ibbotson Associates, Inc. Stocks, bonds, and short-term are represented by S&P 500, U.S. Intermediate Term Government Bonds, and 30-day U.S. Treasury bill, respectively. Annual returns assume the reinvestment of interest income and dividends, no transaction costs, no management or servicing fees, and the rebalancing of the portfolio every year.
How should you invest your assets once you retire? 5 The Asset Allocation Question
5 Being Too Conservative Can Be Risky These are the estimated number of years your portfolio may last in an extended down market or an average market: If your portfolio is allocated like this: 6% 5% 4% Extended down 18 23 30 Conservative (20% stock; 50% bonds, 30% short-term) 22 28 39 Average Market Balanced (50% stock; 40% bonds, 10% short-term) 17 20 26 25 33 51 Growth (70% stock; 25% bonds, 5% short-term) 15 18 23 25 34 54 Aggressive Growth (85% stock; 15% bonds) 14 17 20 25 35 53 For illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. See next slide for full methodology disclosure
5 Being Too Conservative Can Be Risky Source: Fidelity Investments. For illustrative purposes only. This exhibit is not intended to project or predict the present or future value of the actual holdings in a portfolio or the performance of a given model portfolio of securities. Investors may be charged fees when investing in an actual portfolio of securities, which are not reflected in illustrations utilizing returns or market segments. For Several hundred financial market return scenarios were run to determine how the asset mixes may have performed. The Average Market and Extended Down Market results are based on 50% and 90% confidence levels, respectively. The results for the Average Market highlight the number of years the hypothetical portfolio would have lasted in 50% of the scenarios. The results for the Extended Down Market are based on a 90% confidence level highlighting the number of years the portfolios would have at least lasted until in 9 out of 10 of the scenarios generated. The purpose of these hypothetical illustrations is to show how portfolios may be created with different risk and return characteristics to help meet one’s goals. You should choose your own investments based on your particular objective and situation. Remember, you may change how your account is invested. Be sure to review your decisions periodically to make sure they are still consistent with your goals. You should also consider all of your investments when making your investment choices. The estimated returns for the stock and bond asset classes are based on a “risk premium” approach. The risk premium for these asset classes is defined as their historical returns relative to a 10-year Treasury bond. Risk premium estimates for stocks and bonds are each added to the 10-year Treasury yield. Short-term investment asset class returns are based on a historical risk premium added to an inflation rate, which is calculated by subtracting the TIPS (Treasury Inflation Protected Securities) yield from the 10-year Treasury yield. This method results in what we believe to be an appropriate estimate of the market inflation rate for the next 10 years. Volatility of the stocks, bonds, and short-term asset classes is based on the historical annual data from 1926 through the most recent year-end data available from Ibbotson Associates, Inc. Stocks, bonds, and short-term are represented by S&P 500, U.S. Intermediate Term Government Bonds, and 30-day U.S. Treasury bill, respectively. Annual returns assume the reinvestment of interest income and dividends, no transaction costs, no management or servicing fees, and the rebalancing of the portfolio every year. Although past performance does not guarantee future results, it may be useful in comparing alternate investment strategies over the long term. Performance returns for actual investment swill generally be reduced by fees or expenses not reflected in these hypothetical illustrations.
What you can do today to betterprepare for retirement. 4 Stepsto your Retirement Income Plan
Work with your investment professional to create your retirement income plan: What it is… A detailed written plan that you and your investment professional create for how to use your assets to generate income that may continue for the rest of your life • What it can do for you… • Help minimize the risk you may outlive your assets • Help maximize the potential for living the life you want • Help simplify your financial life throughout retirement
4 Steps to Building Your Retirement Income Plan Managing the 5-key risks begins with a plan 1 Estimate your expenses and resources. 2 Earmark resources for essential expenses. 3 Extend the life of discretionary assets. 4 Examine your plan each year.
1 Estimate Your Expenses • Distinguish between essential and discretionary expenses • Consider which expenses may increase ordecrease during retirement • Consider one-time expenses or the ending of a payment • Consider long-term care alternatives
1 Estimate Assets & Income Sources • Inventory your assets and how they are invested • Identify lifetime income sources: • Social Security • Pensions • Annuities • Identify other income sources: • Part-Time Employment • Rental Income • Real Estate
2 Earmark Income Sources for Essential Expenses Use lifetime income sources… …to pay for essential expenses
2 Cover any gap in essential expense coverage …consider converting a portion of your assets into lifetime income. Purchase an income annuity to guarantee lifetime income* OR Set up a systematic withdrawal plan to generate income Consider long-term care and life insurance to cover potential health cost needs and *Guarantees are subject to the claims-paying ability of the issuing insurance company.
3 Extend the life of assets for discretionary expenses Use income from remaining assets… …to cover discretionary expenses
Your Investment Strategy Your Income Strategy How you allocate your assets across asset classes How you structure withdrawals fromassets Planning Your Income Stream To help maximize the use of your assets, you and your investment professional may balance:
Develop an Income Strategy Possible income strategies to explore: SystematicSet up pro-rata withdrawals across a Withdrawalswell-balanced portfolio BridgeSegregate some assets for immediate income and invest the balance to potentially replenish income sources Interest OnlyCover discretionary expenses with interest, dividends, and capital gains from your investments
Develop an Investment Strategy Target Asset Allocation: Balanced Portfolio Target Asset Allocation: Conservative Portfolio 40% 50% 20% 50% 10% 30% Target Asset Allocation can be modified throughout retirement Stocks Bonds Short-Term Source: Strategic Advisers, Inc., a registered investment adviser and a Fidelity Investments company. These model portfolios are provided by Strategic Advisers, Inc. These models do not represent a personalized recommendation or endorsement of any fund for an investor's individual circumstances and are based on generally accepted investment principles. Each model illustrates only one of many combinations of investment classes that can help the investor pursue his or her goals, and should not be construed as investment advice under ERISA or serve as the primary basis for making investment decisions. There are multiple products and services from Fidelity that provide asset allocation, and various investment methodologies are used. These products and services may yield different investment strategies. Fidelity continues to review and may modify the investment methodologies that drive the asset allocation, which means that the model portfolios may change over time. Fidelity suggests that investors review their financial situation at least once a year and rebalance their portfolios as their circumstances change.
Develop a Withdrawal Strategy The type of account you tap first has tax consequences Generally, retirement income should come from your accounts in the following order: Taxable accounts Tax deferred accounts Tax free accounts
Let’s Get Started Ready to turn information into action? • Complete your expenses/resources worksheet • Schedule your one-on-one consultation • [insert Rep name, phone #, website address, e-mail address] Creating a comprehensive retirement income plan may be simpler than you thought and more reassuring than you dreamed!
IMPORTANT - READ THIS BEFORE USING THESE MATERIALS. 1. These materials are made available to you as a client (the Client) of National Financial and National Financial Services LLC as Broker/Dealer (NF). 2. In choosing to utilize any materials, the Client may be permitted to customize certain elements of the material, to the extent such customization is permitted by NF. The extent such customization is permitted is within NF’s sole discretion. 3. NF has not and will not review any of the materials for compliance with any regulatory or governmental authority, regulations, guidelines or laws (including, without limitation, the Investment Advisers Act of 1940, and Rule 2210 of the Conduct Rules of the National Association of Securities Dealers, Inc.). The provision of any of the materials by NF to the Client should not be construed as legal advice or legal opinion and the materials are distributed to the Client with the understanding that NF is not engaged in legal, regulatory, or other professional advice. The Client should consult with its legal or compliance advisor to determine the applicability or effect of any laws, regulations or rules on the Client’s use, production and/or distribution of Program materials in any form. NF assumes no liability for the Client’s failure to comply with such regulations, guidelines, or laws. It shall be the Client’s responsibility to: (a) obtain all necessary regulatory, legal, governmental or other consents, licenses, releases, approvals or authorizations for the use, production and/or distribution of all Program materials; and (b) protect NF against claims for the Client’s noncompliance with section 3(a). 425823 0606 National Financial Services LLC, Member NYSE, SIPC
Content provided is general in nature and is for informational purposes only. Content is not intended to be, and should not be construed as, (i) legal or tax advice or (ii) a legal opinion. Fidelity Investments (Fidelity) does not provide legal or tax advice. Laws of a particular state or laws which may be applicable to a particular situation may impact the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. Clients should consult their legal or tax investment professionals regarding their specific legal or tax situations prior to taking any action based upon information provided herein. Assumptions for the health care estimate: These estimates assume life expectancy at age 65 of 17 and 20 years, for males and females, respectively. A health care cost inflation rate of 7% is used; underlying this assumption are cost of service increase rates that vary by type of service, ranging from 4% to 9%. The estimates are representative of the amount needed in a taxable account. A 5% after-tax rate of return is assumed on savings in retirement. Medical costs are assumed to be incurred uniformly in each year in retirement after age 65. Estimates are calculated for an “average” retiree. Actual costs will vary depending on actual health status, area, and longevity. Individuals who deviate from this average could require a smaller or larger amount of savings. These estimates assume that there is no employer-sponsored post-retirement health care coverage. These estimates assume that the retiree has traditional Medicare coverage, elects Medicare Part D, and, by virtue of their income level, continues to receive the current government Part B subsidy. These savings amounts do not consider the expected costs of expenses related to over-the-counter drugs, dental care, or nursing home care. Fidelity cannot guarantee that the content furnished is accurate, complete, or timely. Fidelity makes no warranties with regard to the provided information or results obtained by its use. Fidelity disclaims any liability arising out of an individual’s use (or the results obtained from interpretations made as a result of, or any tax position taken in reliance on information provided pursuant to, such individual’s use) of the information furnished herein. 425823 0606 National Financial Services LLC, Member NYSE, SIPC