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Picture Your Retirement Will you  Travel?  Pursue hobbies?  Start your own business?

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Presentation on theme: "Picture Your Retirement Will you  Travel?  Pursue hobbies?  Start your own business?"— Presentation transcript:

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3 Picture Your Retirement Will you  Travel?  Pursue hobbies?  Start your own business?

4 Do You Believe These Myths?  Social Security will be enough for me.  I won ’ t need much money when I retire.  I ’ ll be retired for only a short time.  I have plenty of time to save for retirement.

5 Retirement Myths  Social Security will be enough for me.  I won ’ t need much money when I retire.  I ’ ll be retired for only a short time.  I have plenty of time to save for retirement.

6 Your Retirement Income How much money will you need in retirement? Annual Income × 80% = Retirement Income Needed Example: $25,000 ×.80 = $20,000

7 Your Retirement Income Where will your retirement income come from?  Social Security  Personal savings and investments  Employer pension  Individual retirement accounts (IRAs)  Your retirement savings plan

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9 Your Plan ’ s Advantages  Tax-advantaged contributions  Tax-deferred earnings  Flexibility  Convenient savings

10 Your Plan ’ s Advantages  Tax-advantaged savings – Pretax contributions – Roth contributions  Flexibility  Convenient savings

11 Traditional Pretax vs. Roth Contributions BenefitTraditionalRoth PretaxContributions Tax-deferred Contributions? YesNo Treatment of Plan Earnings? Tax DeferredTax Free* Tax-free Distributions? NoYes* * Tax law requirements must be met.

12 Pretax or Roth Contributions?  Depends on personal situation  Factors include: – Current age– Expected retirement tax bracket – Expected retirement age– Amount of contributions – Current tax bracket  Consult professional advisor  No matter what, deciding to save is the key

13 The Spendable Pay Advantage Savings Through 401(k) PlanTaxable Savings Outside Plan Gross Pay $25,000$25, (k) Contribution –1,2500 Taxable Pay 23,75025,000 Income Taxes –5,938–6,250 FICA Tax (7.65%) –1,913–1,913 Non-401(k) Savings 0–1,250 Spendable Pay $15,899$15,587 Increase in Spendable Pay$312 Assumes contribution of 5% of pay, 25% income-tax bracket, and married filing jointly.

14 The Spendable Pay Comparison Traditional RothRoth Pretax (equal to pretax(reduced by amount)tax paid) Gross Pay $25,000$25,000$25,000 Less: Pretax Contribution –1,25000 Taxable Pay $23,750$25,000$25,000 Less: U.S. Income Tax –5,938–6,250–6,250 Less: FICA Tax (7.65% of gross pay) –1,913–1,913 –1,913 Less: Roth 401(k) Contribution 0–1,250 –938 Spendable Pay $15,899$15,587$15,899 Assumes an employee earns $25,000 a year, is in a 25% tax bracket, and can choose either pretax or Roth contributions.

15 Start Saving Now  It ’ s easier to save a little at a time throughout your working years.  Your plan can help you fund a long retirement and stay ahead of inflation.  Your money has more time to “ compound. ”

16 The Magic of Compounding Melanie ’ s Retirement Savings  Amount invested in plan at age 25: $3,000  Annual return: 6%  Amount at age 65: $30,857  Amount at age 70: $41,294 This is a hypothetical example. Your returns will be different. Total amount assumes no withdrawals and is calculated before any taxes due are deducted.

17 How Tax Deferral Helps Assume:  $1,200 annual retirement plan contribution.  $900 (amount remaining after paying tax on $1,200) is invested in a taxable savings program outside the plan. Earnings on the taxable investment are taxed annually.  Both the taxable savings program and the retirement plan earn 6% annually.*  The employee is in a 25% federal income-tax bracket. * This chart is only an illustration and is not intended to predict or guarantee the performance of any particular investment. Actual returns and principal values will fluctuate. The retirement plan balances shown reflect a reduction for ordinary income tax at 25% payable at the time the money is withdrawn from the plan (assuming pretax contributions are made).

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19 Your Investment Choices Examples of Investment Types  Stocks  Bonds  Cash/Stable Value  Blended For illustrative purposes only. Your plan may not offer all these investment choices.

20 Your Investment Choices Stocks (equities)  Individual stocks  Stock funds (growth, equity income, index, etc.)

21 Your Investment Choices Bond investments  U.S. government bonds  Corporate bonds  Bond funds

22 Your Investment Choices Stable value investments  Guaranteed Investment Contracts (GICs)

23 Your Investment Choices Cash investments  Money market funds  Certificates of deposit (CDs)  Treasury bills

24 Your Investment Choices Blended investments  Balanced funds  Target retirement date funds

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26 This graph shows the relative risk and return characteristics of different investment types. Investment Risk

27  Principal risk  Interest-rate risk  Credit risk  Inflation risk

28 Inflation Risk Inflation can rob you of a comfortable retirement Half gallon of milk$2.38$4.30$7.76 First-run movie ticket$10.00$18.06$32.62 Dinner for two$48.00$86.69$ Subcompact car$15,700$28,356$51,214 Assumes 3% annual inflation. This table is for illustrative purposes only.

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30 Choosing Your Investments Diversification — Spreading your money among different investments

31 Choosing Your Investments Asset allocation — Deciding how much money to put in each investment class

32 Choosing Your Investments  Risk tolerance  Years until retirement  Other sources of retirement income

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34 What Type of Investor Are You?  Aggressive  Moderate  Conservative

35 Aggressive Stocks Bonds Cash/Stable Value Age 20-40Age 40-55Age These sample allocations are illustrations only. In applying any asset allocation model to your individual situation, you should consider your other assets, income, and investments (for example, your home equity, IRA investments, savings accounts, and other retirement accounts) in addition to the balance in this plan.

36 Stocks Bonds Cash/Stable Value Moderate Age 20-40Age 40-55Age These sample allocations are illustrations only. In applying any asset allocation model to your individual situation, you should consider your other assets, income, and investments (for example, your home equity, IRA investments, savings accounts, and other retirement accounts) in addition to the balance in this plan.

37 Conservative Stocks Bonds Cash/Stable Value Age 20-40Age 40-55Age These sample allocations are illustrations only. In applying any asset allocation model to your individual situation, you should consider your other assets, income, and investments (for example, your home equity, IRA investments, savings accounts, and other retirement accounts) in addition to the balance in this plan.

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39 Your Personal Investment Plan  You ’ re investing for the long term.  “ Safe ” investments may not keep pace with inflation.  Investments with the potential for earning higher returns involve more risk.  Long-term investment performance is more important than short-term fluctuations.

40 Rebalancing Your Portfolio Stock Funds Bond Funds Cash/Stable Value Funds Steve ’ s Original Asset Allocation Changes in Steve ’ s Asset Allocation Over Time These sample allocations are illustrations only. In applying any asset allocation model to your individual situation, you should consider your other assets, income, and investments (for example, your home equity, IRA investments, savings accounts, and other retirement accounts) in addition to the balance in this plan.

41 Your Personal Investment Plan  Years until your retirement  Amount you can afford to save  Your tolerance for risk  Your risk vs. potential return

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43 Questions and Answers Does the tax law limit how much money I can contribute to my retirement savings plan?

44 Questions and Answers Does the tax law limit how much money I can contribute to my retirement savings plan?

45 Questions and Answers Do I lose the money I contributed to the plan if I leave my job?

46 Questions and Answers When may I withdraw money from the plan?

47 Questions and Answers When may I withdraw money from the plan?

48 Questions and Answers What if I start participating in the plan and then decide to stop later on?

49 Questions and Answers Do I have to pay Social Security taxes on my plan contributions?

50 Questions and Answers How are my plan contributions and earnings taxed when I do withdraw the money?

51 Questions and Answers How are my plan contributions and earnings taxed when I do withdraw the money?

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