6 of 61 Retirement can last 20 - 30 years The evolution of retirement planning 1900 - 1935 Retirement was only for the wealthy and those few with pensions 1900 - 1935 Retirement was only for the wealthy and those few with pensions 1935 - 1975 Social Security, pensions, defined contribution plans, IRAs, tax incentives to save 1935 - 1975 Social Security, pensions, defined contribution plans, IRAs, tax incentives to save 1975 - Present Living longer, retiring earlier, expecting more in retirement 1975 - Present Living longer, retiring earlier, expecting more in retirement
7 of 61 Medical costs are increasing faster than inflation 6.98% 16.75% 21.38% 25% 20% 15% 10% 5% 0%
9 of 61 Ageless Explorers: View retirement as an exciting new phase Feel very financially prepared Developed an overall investment strategy to achieve financial independence Saved for an average of 24 years Have taken numerous steps to prepare for retirement 27% of those surveyed
10 of 61 Comfortably Contents: Are enjoying their golden years and the rewards of good financial planning Have saved and invested well and have an overall financial strategy Extremely satisfied with retirement Feel very financially prepared Saved for an average of 23 years 19% of those surveyed
Live for Todays: Fun, active and adventuresome Are anxious about retirement due to lack of financial planning Worried they will not have enough money Saved for an average of 18 years Wish they could change how they prepared 22% of those surveyed
12 of 61 Sick and Tireds: Have the worst possible retirement Are inactive, unfulfilled and worried about the future Saved very little for an average of 16 years Not financially prepared for retirement and do not have an overall strategy Little they can do to improve their situation - just trying to hang on 32% of those surveyed
14 of 61 What can we learn from this study? Save more, save longer Have a plan Get assistance
15 of 61 Lesson 1: Save more, save longer 11 19 24
16 of 61 Lesson 1: Save more, save longer The cost to accumulate $300,000 $ This example compares the total out- of-pocket costs required to fund the retirement goals of three investors who started contributing $200 a month at different ages. An additional $67 is deposited to the tax-qualified retirement plan each month as a result of current income tax savings, assuming a 25% federal income tax bracket and an 8% annual rate of return. Tax-qualified plan accumulations are taxed as ordinary income when withdrawn. Federal restrictions and tax penalties may apply to early withdrawals.
17 of 61 Lesson 1: Save more, save longer (continued) Save tax deferred Thousands ($) The chart assumes a 25% federal marginal income tax rate and an 8% annual rate of return. Fees and charges, if applicable, are not reflected in this example and would reduce the amount shown. Income taxes are payable upon withdrawal. Federal restrictions and tax penalties may apply to early withdrawals. Investment values may fluctuate so that an investor’s shares, when withdrawn, may be worth more or less than the original cost.
18 of 61 Lesson 2: Have a plan More than 40% of people who have conducted a retirement calculation have made changes in their retirement planning as a result. Source: EBRI 2004 Retirement Confidence Survey
19 of 61 Lesson 2: Have a plan (continued) Does your asset allocation look like a goal post?
20 of 61 Lesson 2: Have a plan (continued) Asset allocation
22 of 61 Lesson 3: Get assistance Revisioning Retirement: Who received assistance? 60%38% 47%22% Ageless ExplorersLive for Todays Comfortably Contents Sick and Tireds
23 of 61 Revisioning retirement The secrets to financial freedom according to financially prepared retirees Think positively toward retirement Desire and achieve active goals in retirement Work toward freedom and flexibility Start saving early Develop an overall investment strategy Get professional assistance in developing a financial plan
24 of 61 In the past, planning for retirement meant: Saving money Paying off the mortgage Taking a trip Today, planning for retirement means: Creating and sticking to a financial plan Paying off the mortgage — or not Reinventing yourself
25 of 61 In the past, planning for retirement meant: Relying on Medicare to cover large medical expenses Today, planning for retirement means: Saving more for higher medical costs and long-term care expenses
26 of 61 In the past, planning for retirement meant: Relying on pension and Social Security to supplement retirement income needs Today, planning for retirement means: Relying on a employer-sponsored retirement plan to supplement a significant portion of retirement income More decisions to make; more choices available
27 of 61 What’s next? Have you enrolled in your retirement plan? Are you contributing enough? Is the money in your plan invested in the best possible way? Have you done your short-term and your long-term retirement calculations? Is it time to seek assistance with your retirement planning?
28 of 61 These may be the most important years of your retirement.
29 of 61 Your 403b Program at Foothill-De Anza Community College District
30 of 61 403b Contribution Limits 100% of Includible Compensation up to $15,500 Age Based Catch Up of $5,000 for employees age 50 and over
31 of 61 403b Benefits to Employees Contributions made on a “Pre-Tax” basis Defer current income taxation on contributions and earnings Salary Reduction -- Easy to participate!
32 of 61 403(b) Withdrawal Restrictions Availability of funds generally subject to: Separation from service Age 591/2 Disability Death Hardship
33 of 61 403(b) Tax Penalties on Early Withdrawals Withdrawals prior to age 591/2 generally subject to 10% federal tax penalty except: Death Disability Separation from service at age 55 Payout through a substantially equivalent payment stream Tax-Deductible Medical Expenses Qualified domestic relations order (QDRO) Payment to IRS on account of federal tax levy
34 of 61 403(b) Taxability Pre-tax contributions Tax-deferred earnings Taxed as ordinary income when withdrawn Subject to minimum distribution rules at age 70½
35 of 61 Other Plan Features Loans are available Special Catch up provisions for employees with 15 years of service who qualify Portable to 403(b), 401(k) or IRAs at separation from service
36 of 61 403b Contribution Example Employees less than 50 years old: $15,500 Employees age 50+: $15,500 + $5,000 = $20,500 Employees age 50+ with 15 years of service that qualify for cap expansion: $15,500 + $5,000 +$3,000 = $23,500
37 of 61 ROTH 403b Contributions on an After-Tax basis No Taxes up distribution Subject to all regular 403b plan provisions: Same contribution Limits Same investment choices Portable to ROTH IRAs
38 of 61 Your 457 Program at Foothill-De Anza Community College District
39 of 61 457 Benefits to Employees Supplement retirement income Defer current income taxation on contributions and earnings Able to “double up” on contribution deferrals - Now can contribute to both 403b and 457 at the same time!
40 of 61 457(b) Contribution Limits 100% of compensation not to exceed $15,500 in 2007 Age 50 + catch up is $5,000 in 2007
41 of 61 457(b) Contribution Limits continued “3-year” catch-up prior to normal retirement equal to 2 times the annual dollar limit ($31,000 in 2007) Must have been eligible for this plan and must consider prior year pre-tax deferrals with this ER Cannot use age 50 and 3 year catch up together
42 of 61 457(b) Withdrawal Restrictions Availability of funds generally subject to: Attaining age 70½ Separation from service (any age with no pre-59 1/2 withdrawal penalty) Unforeseen emergency
43 of 61 457(b) Taxability Pre-tax contributions Tax-deferred earnings Taxed as ordinary income when withdrawn Subject to minimum distribution rules at age 70½
44 of 61 Other Plan Features Loans are available Portable to 403(b), 401(k) or IRAs at separation from service Unforeseen Emergency Withdrawals are available