Presentation on theme: "<< back to website Welcome H.R. Options 401(k) Plan."— Presentation transcript:
<< back to website Welcome H.R. Options 401(k) Plan
<< back to website Agenda The Importance of Saving for Retirement How Your Plan Works Asset Allocation Investment Options Under the Plan (Building an Investment Portfolio) Smart Investment Behavior
<< back to website Why Participate in Your 401K? % 65 years old Male Female At least one spouse Americans Are Living Much Longer !
<< back to website Why Participate in Your 401(k)? Today’s workers (Expected sources of retirement income) Today’s retirees (Actual sources of income) Social Security Pension plans Personal savings/other 43% 20% 36% 66% 20% 14%
<< back to website The Effects of Inflation Source: United States Postal Service ¢ 25¢ 33¢ 18¢ 29¢ 44¢ The Rising Cost of Postage
<< back to website Advantages of Your 401(k) Plan? Convenience – Automatically Done Through Payroll Deductions Tax Benefits – Pre-Tax - Immediately lowers your taxable income. Result: Less Taxes Now! – After-Tax (Roth) – Contribution and growth not taxed with qualified withdrawal. Result: No Taxes Later! – Tax-Deferred Growth – No Taxes Paid on Growth Until Withdrawal. Result: Faster Growth! Lower Cost Employer Match!!
<< back to website H.R. Options 401(k) Plan How Your Plan Works
<< back to website Plan Details Eligibility: – You must be at least age 21; and, – You must complete 500 hours of service during the Plan Year. – You may enter the plan on January 1 st, April 1 st, July 1 st, or October 1 st coinciding with or next following the date you meet this requirement.
<< back to website Salary Deferral Contributions $16,500 – The salary deferral limit is up to $16,500. – If age 50 or over, you may contribute an $5,500 additional $5,500 in catch-up contributions. Pre-Tax dollars, After-Tax (Roth) dollars Combination of Both – Your contributions can be Pre-Tax dollars, After-Tax (Roth) dollars or a Combination of Both (not to exceed the above limits) – You may change your deferral election anytime by visiting the recordkeeping website, How Your Plan Works
<< back to website How is a Traditional 401(k) contribution different from the Roth contribution? Pre-tax dollars Traditional 401(k) contributions are Pre-tax dollars. After-tax dollars Roth 401(k) contributions are After-tax dollars. Traditional 401(k) Deferrals postponed Traditional 401(k) Deferrals- Federal income taxes on the deferrals and the earnings to your account are postponed. – You will pay taxes on any distribution (withdrawal) from your standard 401(k) portion of your account. Roth Deferrals Roth Deferrals- Contributions are taxed at the time they are contributed. as well as the earnings – You will not be subject to taxation on these amounts as well as the earnings provided you receive a qualified distribution from your Roth account.
<< back to website Roth vs. Traditional At a Glance Type of AccountContributionsEarningsWithdrawals Traditional 401(k) Not Taxed (reduces current taxable income) Taxed at Withdrawal Taxed as current income Roth 401(k) Taxed as current income Not Taxed
<< back to website Plan Details Continued…. Employer Contribution $.20 3% – HR Options matches the funds you save in your 401(k) account with $.20 (twenty cents) on the dollar, up to 3% of compensation. – This matching contribution will be allocated to your account each pay period so you will be benefitting from dollar cost averaging throughout the year.
<< back to website Plan Details Continued…. Vesting – Your 401(k) contributions are always 100% vested. – The employer matching contributions are also 100% vested.Rollovers – Rollovers from other qualified plans are allowed.
<< back to website Plan Details Continued….Withdrawals – Termination of Employment – Financial Hardship – Attaining age 59 ½ – Retirement – Disability – Death The following may apply: 20% Federal tax withholding and state tax withholding. Additional federal and state taxes may be due. Federal and state penalties may also apply to certain distributions.
<< back to website How Your Plan Works (Cont’d) Accessing your account – Online access at Investor Questionnaire Links to Morningstar.com Personalized Rate of Returns Retirement Calculator Download Administration Forms & Documents including Summary Plan Description – 24 hour Voice Response Unit at – Quarterly statements will be mailed to your home address. You may also sign up for electronic delivery of this information with our eStatements.
<< back to website How to Enroll in the Plan Online Enrollment – Log onto – Input your Social Security # as your initial User ID and the last four digits of your Social Security # as you default Password. The system will immediately prompt you to change these security items after this initial log in. – Verify your Personal Information including home address. Input an address and answer the Verification Question. – Designate a Beneficiary (both primary and secondary) – Input your salary deferral amount. – Select your investments. – The sooner you enroll, the sooner your are on your way to meeting your financial goals!
<< back to website What is Asset Allocation? Asset allocation is the process of combining asset classes in a portfolio to reduce volatility and potentially increase returns. Stocks Bonds Cash
<< back to website ,000 $10, Stocks, Bonds, Bills, and Inflation 1926–2009 $12,231 $2,592 $84 $21 $12 Compound annual return Small stocks 11.9% Large stocks Government bonds Treasury bills Inflation
<< back to website Potential to Reduce Risk and/or Increase Return 1970–2009 Lower risk portfolioHigher return portfolioFixed income portfolio Return:8.0% Risk:5.8% Return:8.9% Risk:7.8% Return:8.0% Risk:7.8% 15% 85% 19% 27% 37% 12% 44%61% Stocks Bonds Cash Returns above are annualized returns. “Risk” is standard deviation. Roughly 2/3 of the time, returns are within one standard deviation of the return number listed above.
<< back to website The Case for Diversifying 50% Return –10 –20 Year Compound annual return 1.9 Stocks 50/50 portfolio Bonds 8.5% 5.8
<< back to website Choosing Your Asset Allocation What To Consider –Personal Need, Willingness and Ability to take Risk –Retirement Time Horizon How long until you retire? How long will you be in retirement? –Expected Rate of Return Risk Reward Trade-Off
<< back to website Building An Investment Portfolio
<< back to website Investment Options Under the Plan Building an Investment Portfolio
<< back to website Vanguard Target Retirement 2015 Vanguard Target Retirement 2025 Vanguard Target Retirement 2035 Vanguard Target Retirement 2045 Vanguard Target Retirement 2050 These Vanguard funds invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire in or within a few years of the funds indicated year. Vanguard Target Retirement Funds Building An Investment Portfolio
<< back to website Target Retirement Glide Path Asset Allocation Funds (Age Based)
<< back to website T. Rowe Price Capital Appreciation Seeks long term capital appreciation. Invests approximately 60% of assets in equities (stocks) and 40% of assets in debt securities (bonds). Suitable for a moderate investor. Building an Investment Portfolio Balanced Fund
<< back to website Wells Fargo Galliard Stable Value Seeks to provide current income while maintaining liquidity and a stable share price of $1. Invests primarily in high-quality, short-term money market instruments. Stable Value Fund Building an Investment Portfolio
<< back to website Vanguard Intermediate-Term US Treasury Seeks to provide a moderate and sustainable level of current income. Normally invests at least 80% of assets in U.S. Treasury bills, notes and bonds issued by U.S. Treasury. Bond Funds Building an Investment Portfolio Vanguard Inflation Protected Securities Seeks to provide inflation protection. Invests in inflation indexed U.S. government bonds.
<< back to website PIMCO Total Return Seeks total return consistent with preservation of capital. Normally invests at least 65% of assets in debt securities, including U.S. government securities, corporate bonds, and mortgage-related securities. Mainstay High Yield Corporate Seeks total return consistent with preservation of capital. Normally invests at least 80% of assets in high yield bonds. Bond Funds- Cont. Building an Investment Portfolio
<< back to website Vanguard Windsor II Seeks long-term capital appreciation and income. Invests mainly in mid- and large-capitalization companies whose stocks are considered by an advisor to be undervalued. Domestic Large Company Funds Building an Investment Portfolio Vanguard 500 Index Seeks results corresponding with the total return of common stocks represented by the SP 500 index. Normally invests at least 80% of assets in equity securities of companies included in the index.
<< back to website American Funds Growth Fund of America Seeks to provide long-term growth of capital through a diversified portfolio of common stocks. Invests primarily in common stocks, convertibles, preferred stocks, U.S. government securities, bonds and cash. May invest up to 10% of assets in debt securities rated below investment grade. Building an Investment Portfolio Domestic Large Company Funds cont’d
<< back to website Janus Perkins Mid-Cap Value Seeks long-term growth of capital and income Invests mainly in the stocks of medium size U.S. companies, choosing stocks considered to be undervalued and trading at prices that the advisor feels are below average. Vanguard Mid-Cap Index Seeks to track the performance of a benchmark index that measures the investment return of mid-capitalization stocks. It attempts to replicate the target index by investing all, or substantially all, of assets in the stocks that make up the index. Building an Investment Portfolio Domestic Mid-Sized Company Funds
<< back to website Baron Asset Seeks capital appreciation. Invests in common stocks of middle sized growth oriented companies. Domestic Mid-Sized Company Funds-Cont. Building an Investment Portfolio
<< back to website Royce Pennsylvania Mutual Seeks long-term growth of capital. Invests at least 65% of assets in the equities of small- and micro-cap companies. Domestic Small-Sized Company Funds Building an Investment Portfolio T. Rowe Price New Horizons Seeks long term capital growth. Invests in a diversified group of small, emerging growth companies.
<< back to website American Funds EuroPacific Growth Seeks long-term growth of capital. Primarily invests in securities of issuers located in Europe and the Pacific Basin. Designed for investors seeking capital appreciation and diversification through investments in stocks of issuers based outside the United States. International Funds Building an Investment Portfolio
<< back to website Columbia Acorn International Select Seeks long term capital appreciation. Invests in middle to small sized companies outside the U.S. that are considered growth oriented. International Funds – Cont. Building an Investment Portfolio
<< back to website Cash 5%: Wells Fargo Galliard Stable Return Bonds 15%: PIMCO Total Return Large Company Stocks 35%: Vanguard 500 Index Mid-Small Company Stocks 20%: Vanguard Mid-Cap Index(10%), T. Rowe Price New Horizons(10%) International Stocks 25%: American Funds EuroPacific Growth (20%), Columbia Acorn Intl Select (5%) Building An Investment Portfolio Sample Portfolio – Moderately Aggressive
<< back to website More Funds Does Not Always Mean Greater Diversification! Equity portfolio B Deep-value Core-value BlendCore-growth High-growth Micro Smal l Mid Large Gian t Equity portfolio A Deep-value Core-value BlendCore-growth High-growth Micro Smal l Mid Large Giant Building An Investment Portfolio
<< back to website Dos and Don'ts of Smart Investing Don’t Try to Time the MarketDon’t Try to Time the Market Don’t Be Too ConservativeDon’t Be Too Conservative Diversify, DiversifyDiversify, Diversify Contribute RegularlyContribute Regularly Re-BalanceRe-Balance Navigate the NoiseNavigate the Noise
<< back to website Smart Investment Behavior: Don’t Try to Time the Market! $0 $2 $4 $6 S&P 500S&P 500 minus best 10 monthsTreasury bills $4.84 $2.04 $2.12 Hypothetical value of $1 invested from 1990–2009
<< back to website Smart Investment Behavior: Don’t Be Too Conservative! (After Taxes) $1, $12.05 $6.51 $15.96 $36.22 $ Compound Annual Return Stocks 7.7% Municipal bonds Government bonds Treasury bills Inflation
<< back to website Smart Investment Behavior: Re-Balance Some investments will grow faster than others Rebalance is inherently contrarian “Buy Low” and “Sell High” Sell assets that have appreciated Purchase assets that have underperformed Returns portfolio to a comfortable level of risk
<< back to website Importance of Rebalancing 1988– % 53 % 47% 70% 30 % 69% 31% 63% 37% % Stock allocation Bond allocation Year End
<< back to website 1.Market Timing is a losing strategy – Risk of selling low and buying high; you have to be right twice 2.Investors have been rewarded for taking risk – Risk isn’t always rewarded in the short term 3.Playing it “safe” can lead to a shortfall – Cash may be safe in the short term, but is risky in the long run 4.Emotional decisions often lead to regrets – Staying calm can help you avoid making moves you later regret Feeling Panicky? 4 Reasons Not to Overreact