Retirement: Get Ready...1 Why planning makes sense...1 Where are you?...2 Getting Started: 20 s and early 30 s...3

Transcription

1 Retirement: Get Ready...1 Why planning makes sense...1 Where are you?...2 Getting Started: 20 s and early 30 s...3 On Your Way: Mid-30 s to early 40 s...4 Crunch Time: Mid-40 s to early 50 s...5 Just Around the Corner: Mid-50 s and 60 s...6 You ve Arrived: 60 s and beyond...7

2 Your Retirement Time Horizon You ll probably need percent of your working income during retirement, and your retirement income will likely come from a variety of sources. Below are some common sources of retirement income for today s retirees. Retirement: Get Ready Have you ever gone on a trip without knowing where you re going? It might make for an interesting excursion, but you can easily end up someplace that falls well below your expectations. While that can be fun for a short vacation, approaching retirement with the same whatever happens attitude could be disastrous. This is one trip where it makes sense to plan well ahead of time. Why planning makes sense Despite all the talk about preparing for retirement, the majority of today s workers haven t even taken the time to complete the first basic planning step a retirement needs calculation to determine how much money they ll likely need in retirement and how much they need to save to meet that goal. Sources of Retirement Income Social Security Employer-Provided Traditional Pension or Cash Balance Plan Investments/Savings Employer-Sponsored Retirement Savings Plan (such as 401(k) Individual Retirement Account (IRA) Employment 27% 45% 41% 40% 56% Source: Changing Expectations About Retirement, 2012 Retirement Confidence Survey. Employee Benefit Research Institute and Mathew Greenwald & Associates. 91% All Workers Thirty-five percent of all workers think they need to accumulate at least $500,000 by the time they retire to live comfortably in retirement. Eighteen percent feel they need between $250,000 and $499,999, while 34 percent think they need to save less than $250,000 for a comfortable retirement. 1 Retirement Needs Calculation Makes a Difference Attitudes change after completing a retirement needs calculation. In fact, workers who did were more than twice as likely as those who didn t (23 percent versus 10 percent) to expect they will need to accumulate at least $1 million before retiring. 1 Amount of Savings Workers Think They Need for Retirement by Doing a Retirement Needs Calculation 34% 27% 39% Under $250,000 19% 20% 22% 18% 19% 17% $250,000 to $499,999 $500,000 to $999,999 Workers who have done a retirement needs calculation tend to be considerably more confident about their ability to save the amount needed for retirement than those who have not done a calculation, despite the fact that those doing a calculation tend to name higher retirement savings goals. 1 14% 13% 9% 9% 10% 6% 5% 5% 5% $1,000,000 to $1,499,999 $1,500,000 or more Don t know or remember All Workers Did Calculation Did Not Do Calculation Percentages may not total 100% due to rounding 1 Source: Preparing For Retirement In America RCS Fact Sheet #3. Retirement Confidence Survey, Employee Benefit Research Institute and Mathew Greenwald and Associates, Inc. countryfinancial.com 1

3 Where Are You? Just starting to save for retirement? Almost there? Or somewhere in between? Each phase of your journey to retirement has specific actions you should address. The following information can help guide you as you prepare for your future. A few tips for all ages One of the best things you can do whether retirement is 30 years away or three is to live debt-free. Aside from a purchase like a home, if there s something you need or want, tuck away money each payday to save for it. Don t buy it until you can afford it. Funnel money into an emergency fund to cover unexpected expenses like mechanical work on your car or health bills not covered by insurance or if you suddenly find yourself without a job. Because this is money you may need on short notice, you should consider putting it in an easily accessible account with low investment risk, like a savings account. Investment Basics Invest in your future Have a well-thought-out investment plan. Consider your timeframe, risk tolerance, and future financial needs. Then make sure the investments you ve chosen are the right fit for you. Along the way, events in your life may change your tolerance for investment risk. Be sure to watch for signals that it s time to adjust your retirement investments. Focus on progress The amount you contribute toward your retirement when you begin is probably the most you can afford. As your income increases, plan to increase the amount you contribute, too. Over time, even a small increase can have a big impact. Keep your balance Along the way, your investments may become unbalanced if one type of asset performs very well or very poorly. As a result, your portfolio may be more aggressive or conservative than you would like. Adjusting your investments to correct the imbalance will get your portfolio back in shape. How much debt is too much? Debt includes: Your mortgage Credit card payments Child support Other loan payments Conventional lenders recommend your debt-to-income ratio not exceed 36% of your gross income (no more than 28% for your mortgage).* To calculate your maximum monthly debt: Annual Gross Income x Example: $100,000 annual gross income x = $3,000 monthly debt limit *Source: Wikipedia 2 countryfinancial.com

4 Getting Started 20 s and early 30 s You ll probably have to pay for more of your retirement than earlier generations. That s why it s important to start planning as soon as possible. The good news is that time is on your side. Here are some tips that might help you get started: Considering your income level, age and amount of pre-retirement income you want to replace, try to save ten percent of your gross income for retirement more if you can afford it. If your employer offers a retirement plan, enroll in it. Automatic contributions make saving easy. If you re self-employed, consider opening a retirement plan. There are a lot of plan options SEP IRA, SIMPLE IRA, Solo 401(k). Contribute to an IRA. Even if you participate in an employer-sponsored retirement plan, you can probably contribute to an IRA. The more aggressively you invest, the greater your potential for losses and gains. If your tolerance for investment risk is high, you may want to invest aggressively because you have such a long time before you ll retire. Be sure, though, that you re comfortable with the level of risk. If you change jobs, don t be tempted to touch retirement assets. Leave them in the existing plan or roll them into an IRA. You ll avoid penalties and any immediate taxes by doing so. If your retirement plan is self-directed, learn as much as you can about investing. Financial security and knowledge go hand in hand. Don t go it alone. If you have questions, get the guidance of a trusted financial professional. Time is on your side... The Power of Compounding Value of $1,000 compounded at various rates of return over time. Years 4% 6% 8% 10% 10 $1,481 $1,791 $2,159 $2, $2,191 $3,207 $4,661 $6, $3,243 $5,743 $10,063 $17,449 This chart is for illustrative purposes only and is not intended to represent any particular fund or investment, nor does it address tax implications. Assumes reinvestment of earnings. COUNTRY Financial does not imply any guarantee of investment performance or benefits. The growth of your assets will be based on actual rates of return earned by the investment you choose. Past performance is not indicative of future results Projecting the growth of your pay You may not intend to retire for many years, but this is still a good time to plan. The sooner you take a hard look at your financial situation, the more time you ll have to make adjustments if you decide they re needed. For a rough estimate of your projected future income, just compare the retirement income you anticipate against your likely cost of living during retirement. countryfinancial.com Current Annual Pay x Growth Factor = Projected Future Income Average Annual Pay Increase Years to Retirement 10 3% % % % Example: $24,000 current annual pay 25 years to retirement 4% annual pay increase $24,000 x 2.67 = $64,080 3

5 On Your Way Mid-30 s to early 40 s If you re in your 30 s or 40 s, the idea of saving for retirement shouldn t be new to you. You re probably already participating in a work retirement plan and/or investing through an IRA. But you may have other conflicting financial goals, like saving for a new home or your child s education. Remember you can borrow money for a child s education and home; you can t borrow money for retirement. Consider these tips: With 25 to 30 years before you retire, you should consider placing a large portion of your retirement investments in securities such as stocks that offer the potential for higher returns. As always, your investment selections should match your tolerance for risk. Consider increasing your contribution to your retirement plan. If you don t already have one, consider opening an IRA. If you have money at a previous employer s retirement plan, you can leave it or consider rolling it into an IRA. If you have money from several previous employers retirement plans, consolidate them into one IRA. It will make your life easier, and it could save you money. When you get a raise or bonus, put some or all of it into your retirement plan. Even if it s available, be cautious about using your retirement plan s loan option. While it s true that you ll be paying the principal and interest back to yourself, you ll also be losing out on the growth potential of any funds you borrow. Retirement planning is getting more complicated. Get the help of a trusted financial professional. Where should I put my retirement money? Looking at the sources of retirement income on page 1 of this document, you can see the source of retirement income for current retirees. Of those, you can actively control three of them. Which one is best? It depends on your situation. Generally speaking, it often makes sense to follow this order: 1 Employer-sponsored retirement savings plan 2 Individual Retirement Account (IRA) 3 Personal investments/ savings Employer-Sponsored Retirement Savings Plan Ë Contributions and earnings aren t taxed until withdrawn. Ë Your salary is reduced by the amount you put in, so you owe less current income tax. Ë If your employer offers a matching contribution, that s free money. You re limited on the amount you can invest each year. You can t use the money before age 59½ without penalty except under certain circumstances. You usually have to start taking withdrawals after you turn 70½. Individual Retirement Account Traditional IRA Ë Contributions and earnings aren t taxed until withdrawn. Ë If you meet income limits, your salary is reduced by the amount you put in, so you owe less current income tax. Ë You can invest in a Traditional IRA, even if you participate in a retirement plan at work. Your income level determines if your contribution is tax-deferred. Earnings are tax-deferred no matter your income level. You re limited on the amount you can invest each year. You can t use the money before age 59½ without penalty except under certain circumstances. You usually have to start taking withdrawals after you turn 70½. Roth IRA Ë Earnings grow tax-free. Ë You can withdraw tax-free income after you turn 59½ if your account has been open at least five years Ë You never have to withdraw the money if you don t need it, which makes it a valuable estate planning tool. Contributions are not tax deductible There s a cap on how much you contribute each year Taxable Investments Ë No limit on how much you can invest. Ë No restrictions on when you can withdraw the money Ë The profit on an investment that increases in value when you sell it is taxed at the lower long-term capital gains rate, provided you own the investment more than a year (current maximum of 15%, depending on your income tax bracket) You ve already paid tax on the money you invest, and you pay taxes every year on most investment earnings 4 countryfinancial.com

6 Crunch Time Mid-40 s to early 50 s More than half of Americans participating in a recent survey 1 said they are behind schedule when it comes to planning and saving for retirement. Almost a third said they are behind by a lot. Are you on track with your planning and savings? Here are some tips that might help: Contribute the maximum to your workplace retirement plan and/or IRA. Keeping the applicable annual contribution limits in mind, aim for 20% or more of your gross income if possible. Review your entire portfolio of retirement assets to make sure they re allocated appropriately for your risk level. This may be a good time to start becoming more conservative in your investment mix. However, if you can handle the risk, don t cut stocks out of your mix entirely. At age 50, take advantage of the catchup contribution that is available on most retirement plans. Consider purchasing long term care insurance. Meet with a financial professional to get a detailed analysis of your situation and determine if you re on target for a secure retirement. Behind in the Retirement Race? If you find that you re behind in meeting your retirement goals, here are a few ideas that might help you become more financially secure in retirement: Reduce expenses and put the extra money into your retirement fund. Take on a second job and invest that money in your retirement plan. Retire later. Refine your retirement goal. Can you live a less expensive lifestyle in retirement? Sell assets that aren t producing much income or growth undeveloped land or a vacation home. Invest the proceeds in income-producing assets Retirement Confidence Survey, Employee Benefit Research Institute and Mathew Greenwald and Associates, Inc. Close the Gap It might be hard at first, but just look at what an additional $200 a month can do for your account balance. With $200 a month additional investment at 5% per year over 10 years: Year Start Add Rate Year End 1 $40, $200/month 5% $44, $44, $200/month 5% $49, $49, $200/month 5% $54, $54, $200/month 5% $59, $59, $200/month 5% $64, $64, $200/month 5% $70, $70, $200/month 5% $76, $76, $200/month 5% $83, $83, $200/month 5% $89, $89, $200/month 5% $97, Source: Taking The Mystery Out of Retirement Planning, U.S. Department of Labor. For illustrative purposes only. Not indicative of any particular investment. Your results will be different. countryfinancial.com 5

7 Just Around the Corner Mid-50 s and 60 s You can see it: Retirement! Are you ready? Now is the time to firm up your retirement income specifics and get answers to your questions about Social Security and your retirement plan distribution options. Will you have enough to live on? Keep in mind that you could easily live 25 or more years in retirement. Here are some tips as you start rounding the bend: Review your sources of income investments, retirement plans, Social Security, and savings. If you don t have it, consider purchasing long term care insurance. Build up a cash reserve by putting aside two or more years worth of expenses in a cash account. Consider a more conservative asset allocation for your retirement money. If you re still working, contribute as much as you can to your retirement plan and take advantage of any catch-up contributions. Attend a retirement seminar. Review your options for healthcare coverage in retirement. Pay off debt. If you re ready to retire, contact a financial professional for help creating a plan that addresses your retirement distributions. Retirement Timeline Age 50 Age 59 ½ Age 62 Age 65 Age 66 Age 70 ½ Start making catchup contributions an extra amount that those over 50 can add to 401(k) and other retirement accounts. No more tax penalties on early withdrawals from retirement accounts. But leaving the money in means more time for it to grow. The minimum age to receive Social Security benefits. Delaying means a bigger monthly benefit, though. Eligible for Medicare Eligible for full Social Security benefits if you were born between 1943 and Start taking minimum withdrawals from most retirement accounts. Otherwise, you may be charged heavy tax penalties. Source: U.S. Department of Labor Early Retirement & Social Security Under current regulations, you can collect your Social Security if you retire at any time between age 62 and your Full Retirement Age. However, if you start taking your benefits before your Full Retirement Age, your benefit will be reduced by a part of a percent for each month before your Full Retirement Age. Your Year of Birth 1 Full Retirement Age Months between age 62 and full retirement age 2 At Age 62 3 A $1000 retirement benefit would be reduced to: 4 The retirement benefit is reduced by or earlier $ % and 2 months 38 $ % and 4 months 40 $ % and 6 months 42 $ % and 8 months 44 $ % and 10 months 46 $ % $ % and 2 months 50 $ % and 4 months 52 $ % and 6 months 54 $ % and 8 months 56 $ % and 10 months 58 $ % 1960 & later $ % 1 If you were born on January 1st, you should refer to the 3 You must be at least 62 for the entire month to receive previous year. benefits. 2 If you were born on the 1st of the month, your benefit (and 4 The $1,000 retirement benefit is for illustrative purposes your full retirement age) is figured as if your birthday was in only. Your benefit may vary. December of the previous year. 5 Percentages are approximate due to rounding. 6 countryfinancial.com

8 You ve Arrived 60 s and beyond You may be planning to head south for retirement, but you don t want your retirement plan to follow suit. Here are some tips to help: Contribute to your retirement accounts as long as you can. Before you retire, determine how much money to withdraw each year and from which accounts. You may want to tap taxable sources of income before you tap funds in tax-deferred accounts. After retiring, investing requires a different strategy from the one you used while you were working. You ll want to strike the right balance between growth and income potential. Consider consolidating all eligible retirement assets into one IRA. It will make your life easier and could save you money. Don t forget about required minimum distributions most retirement plans require that you must start taking them at age 70 ½ or face heavy tax penalties. If you meet the requirements, consider contributing to a Roth IRA. This type of IRA doesn t impose the age 70 ½ required minimum distributions rule. Review your estate plan. Consider an annuity for guaranteed monthly income. Contact the Social Security Administration to determine your eligibility date and request an estimate of benefits, if applicable. Where should I withdraw from first? You should consider individual asset performance, tax implications, minimum distribution factors, and account fees. But generally, this is our recommended order of liquidation: 1. Taxable accounts 2. Tax-free / municipal accounts 3. Roth IRAs 4. Tax-deferred accounts Individual situations differ, so contact your financial professional before you make a final decision. How much from Social Security? To qualify for Social Security retirement benefits, you must be fully insured. That means you need 40 credits about ten years of work. Your benefits are based on (1) your career average earnings covered by Social Security, (2) your age when you start your benefits and (3) the highest 35 years of work. The percent of your earnings that your benefit replaces goes down as your earned income goes up. That s in keeping with Social Security s mission of providing a basic level of financial support. Approximate Monthly Benefit at Your Full Retirement Age Your age in 2012 Your Present Annual Earnings $20,000 $40,000 $60,000 $80,000 $110,000 & Up 66 $956 $1,461 $1,960 $2,194 $2, $944 $1,440 $1,935 $2,167 $2, $965 $1,473 $1,979 $2,217 $2, $952 $1,456 $1,952 $2,188 $2, $941 $1,437 $1,929 $2,161 $2, $949 $1,454 $1,941 $2,177 $2, $956 $1,469 $1,951 $2,191 $2, $969 $1,493 $1,968 $2,213 $2, $977 $1,522 $1,980 $2,230 $2,607 Source: 2012 Social Security and Medicare Policies issued by COUNTRY Investors Life Assurance Company, Bloomington, IL. See your tax advisor. COUNTRY believes our annuity contract has been designed to comply with current income tax requirements. However, the company and our financial representatives cannot give tax or legal advice. Any information we provide reflects our understanding of current tax laws, which are subject to change and reinterpretation. Not FDIC Insured No Bank Guarantee May Lose Value Investment management, retirement, trust and planning services provided by COUNTRY Trust Bank countryfinancial.com 7