Two keys to a successful retirement: Generating income and managing inflation

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1 Two keys to a successful retirement: Generating income and managing Falling markets and rising prices worry everybody. For retirees, pre-retirees and advisors, they are understandably among the top concerns. * Investing in incomeproducing securities and deliberately managing a portion of your to beat are two strategies that can meet these challenges head-on. Recent volatility has demonstrated that market swings can have a sizable impact on the dollar value of retirement savings. If you need to sell investments to meet retirement expenses when the market is slumping, you could end up with a lot less than you bargained for. A safer course would be to avoid the necessity of selling investments in a declining market by generating income from dividend-producing stocks and bond interest payments to supplement other sources of retirement funds. Another threat to retirement peace of mind is more subtle than the large market swings that make the news. Even today s historically low rates will erode the purchasing power of retirement s over time. And rates are unlikely to remain this low indefinitely the outlook currently favors more, not less. Whether you re nearing retirement, only thinking about it or just starting to put money away for what seems like a distant goal, it helps to plan and invest with the challenges of income generation and in mind. *Source: J.P. Morgan Asset Management. Results based on a 2009 survey. Inflation has an especially large impact when rates are low Interest rates, yield and as of 12/31/11 Interest rate/yield After core 0.42% 0.25% 1.89% After, some traditional sources of income provide low or even negative yields today. If rises in the future, real (or -adjusted) yields and therefore purchasing power will erode further % -1.90% -0.26% 151 & CG10 6-month CD 2-year Treasuries 10-year Treasuries NOT black FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE CG10

2 Generating income Generating income in retirement requires more than just building a lump sum While estimates vary, a good rule of thumb is that 70% of pre-retirement income is needed in retirement. As the number of pension plans with fixed monthly payouts continues to decline, many retirees will need to supplement traditional sources of retirement income, such as Social Security. And in today s low rate environment, CDs and bonds may not generate enough. Taking a broader look across asset classes and countries can be beneficial for investors looking for income without surrendering the potential for capital gains. Income opportunities exist in the U.S. and overseas Equity Equity dividend yields yields vs. vs. 10-year 10-year government government bonds bonds REIT REIT dividend dividend yields yields vs. vs. 10-year 10-year government government bonds bonds High High Yield yield Bonds bonds 10.1% 10-year government bond yield 10-year government bond yield 8.5% 8.7% 7.2% 5.1% 5.1% 6.5% 6.1% 6.1% 5.6% 4.6% 4.5% 3.7% 3.5% 3.8% 2.2% 2.8% 2.7% U.S. France Australia U.K. Switzerland Canada Japan U.S. Singapore Australia Japan France Canada Global U.K. U.S. Europe Global Sources: FactSet, MSCI, J.P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index. Data are as of 12/31/11. In this persistent low rate environment, it has not been uncommon for a country s equity market dividend yield to exceed the yield on its long-term government bonds. At the end of 2011, the yield on U.S. was higher than that of 10-year Treasuries. Equity yields in major international markets were also often higher than their respective sovereign debt. The story is similar with dividends on higher than U.S. Treasuries and typically higher still outside the U.S. Income from CDs has fallen considerably Annual income from a $100,000 investment in a 6-month CD $5,240 $ Traditional safe sources of income, such as CDs and U.S. government bonds, are yielding a fraction of what they once did.

3 The timing of redemptions can be costly The S&P 500 declined 57% between October 2007 and March While the markets have gained back some of this lost ground, market volatility is likely with us to stay. Depending on how it is invested, a sizable lump sum in 2007 would have been worth much less in Retirees who withdrew from their investments to pay for necessities during the market s decline would have effectively reduced the potential for upside participation when the market rebounded. For example, assume a retiree has a $1.5 million nest egg when he retires at the beginning of He withdraws $60,000 per year (4% of his savings) for five years a total of $300,000 through the end of December Because of his withdrawals during the market decline, his participation in the subsequent market rebound was reduced. At the end of 2011, his was worth $1,377,773 that s $348,022 less than an identical with no withdrawals. Withdrawal effect: Reduced upside participation Balanced Balanced with $60,000/year withdrawal $1,725,795 $1,500,000 $348,022 difference with only $300,000 in withdrawals $1,377, Based on a hypothetical of stocks and bonds invested 60% in the S&P 500 and 40% in the U.S. Barclays Aggregate Bond Index, rebalanced annually, with monthly withdrawals and without the deduction of fees or taxes.

4 Managing Managing the impact of can help preserve and grow retirement savings Compared to historic norms, is fairly low. But can be and historically has been volatile; even slowly rising prices can chip away at the purchasing power of retirement savings. It s important to consider not just the immediate impact of, but also its impact on purchasing power while you re saving and over what will hopefully be a very long retirement. Spending patterns typically change in retirement. For example, expenditures on healthcare are typically higher and have been (and are likely to remain) more susceptible to than broader measures such as the Consumer Price Index (CPI). Housing costs also have increased markedly over the last 20 years, and housing remains a sizable portion of total retiree expenses. As a result, the actual impact of future for those in retirement may be higher than aggregate numbers would suggest. When considering the impact of, it helps to look over extended time periods that include not just retirement, but also a portion of the period during which retirement savings accumulate. Someone who is close to retirement today would likely have started work around Inflation has greatly eroded purchasing power over time Impact of Annual Total 1966 price price increase increase Super Bowl Ticket $12.00 $ % 7,400% Aspirin $0.40 $ % 1,665% Breakfast Cereal $0.25 $ % 1,416% Cold Medicine $0.66 $ % 1,111% Bread $0.31 $ % 1,093% Candy Bar $0.09 $ % 1,018% Median Home Price $21,525 $224, % 941% Gallon of Gas $0.32 $ % 934% Consumer Price Index (CPI) % 594% Since 1966, we have seen considerable increases in the prices of household goods and services. In many cases, these increases have far exceeded the rise in the Consumer Price Index as a whole. Sources: Census Bureau, CNN, MCLIB (Morris County New Jersey Library)

5 While is fairly low today, it can change quickly and has varied substantially each decade. This volatility can have a significant impact on the purchasing power of savings. Inflation headlines: Volatility persists Headline CPI 6% 5% 6% 4% 5% 3% 4% 2% 3% 1% 2% 0% 1% -1% 0% -2% -1% June 2004 Strategies: Rising Inflation and Rising Stocks? Why Not? (NY Times) June 2004 Strategies: Rising Inflation and Rising Stocks? Why Not? (NY Times) May 2006 Stocks Tumble on Inflation Worries (Business Week) May 2006 Stocks Tumble on Inflation Worries (Business Week) Fear of U.S. Inflation Rises February 2006 Jitters About Inflation Put Investors in a Selling Mood (NY Times) February 2006 Jitters About Inflation Put Investors in a Selling Mood (NY Times) June 2008 Inflation Concerns Weigh on Investors (Chicago Tribune) April 2007 April 2007 Fear of U.S. Inflation Rises June 2008 Inflation Concerns Weigh on Investors (Chicago Tribune) November 2006 Bernanke Maintains That Inflation is a Big Risk (CNN) November 2006 Bernanke Maintains That Inflation is a Big Risk (CNN) February 2008 Stocks Rise as Investors Set Aside Inflation Concerns (USA Today) February 2008 Stocks Rise as Investors Set Aside Inflation Concerns (USA Today) October 2008 Inflation Jumps, Retail Slumps in September (CNBC) Fed s Bernanke Says Inflation October 2008 Problems Moderating (Forbes.com) Inflation U.S. Future Jumps, Inflation Retail Gauge Slumps in Plummets September to Six-Year (CNBC) Low (Seeking Alpha) Fed s Bernanke Says March Inflation2010 Problems Moderating (Forbes.com) The Next Wave of U.S. Future Inflation Inflation Gauge is on the Way Plummets to Six-Year (CNN Low Money) (Seeking Alpha) Reserve is Pushing on a March 2010 February String 2011 The Next Wave of Higher Inflation Inflation is on the is Way on the Way (CNN Money) February 2011 Higher Inflation is on the Way May 2009 The Big Inflation Scare -3% -2% Source: Headline CPI, Bureau of Labor Statistics. Data as of December The above chart is shown for illustrative purposes only. -3% Inflation by decade Changes in have 1970s been large 1980s 1990s 2000s Inflation by by decade High decade 13.29% 14.76% 6.31% 5.60% Low 1970s 2.71% 1980s 1.10% 1990s 1.38% 2000s -2.10% High Difference 10.58% 13.29% 13.66% 14.76% 4.93% 6.31% 5.60% 7.70% Low 2.71% 1.10% 1.38% -2.10% Difference 10.58% 13.66% 4.93% 7.70% May 2009 The Big Inflation Scare September 2011 With a Twist, the Federal Reserve is Pushing on a String September 2011 With a Twist, the Federal October 2010 Yield on Go Negative; Big Demand for Bonds Suggests Fed is Winning Deflation Battle October 2010 Yield on Go Negative; Big Demand for Bonds Suggests Fed is Winning Deflation Battle

6 Investing to benefit from Because erodes the purchasing power of savings, gains that don t keep pace with could be construed as losses in real terms. This can, and does, occur even when is low. As a result, investing at least part of a in assets that have the potential to benefit from can improve the likelihood that overall returns will outpace and generate postitive real returns. Treasury Inflation-Protected Securities, or, are bonds whose principal is adjusted according to changes in the Consumer Price Index.* They remain popular for investors seeking to offset the threat of. But they can still lose value if one of the drivers of interest rates other than push rates higher (i.e., if real rates increase**). But other investments have the potential to weather as well and even to outperform it., direct real estate and commodities (linked to hard assets such as buildings, precious metals, crops and livestock) and even -sensitive, such as infrastructure and natural resources, may do more than partially offset the effects of. Since they all perform differently depending on the point in the cycle, the best way to use them is in combination within a diversified. This improves the likelihood of achieving returns over the level of, regardless of where may be today or tomorrow. *Principal is adjusted according to changes in the non-seasonally adjusted Consumer Price Index for all urban consumers (CPI-U). ** The real interest rate is the rate the investor expects to receive, after accounting for (i.e., if an investor anticipates of 2% and can lock in 3% interest over the next year, the real interest is 1%). A diversified can help offset and potentially benefit from a range of ary environments Low and rising (27% of the time) 13.4% 18.8% 12.6% 16.3% 13.3% Low and falling (33% of the time) 8.8% 21.5% 18.1% 3.5% 9.2% Constantly monitoring asset classes to increase exposure to promising markets and reduce allocations that appear overvalued can help capture upside and control downside risk. High and rising (20% of the time) High and falling (20% of the time) 27.5% 15.3% 2.2% 0.2% 14.0% 9.7% 5.4% 6.4% -3.9% -1.4% Source: J.P. Morgan Global Multi-Asset Group. Inflation-sensitive based on HSBC Gold Metal and Mining Index, REITS based on MS Index, based on BarCap US Index and based on GSCI. All returns monthly from January 1971 to December High determined by YOY Headline CPI greater than 4.0%. Rising Inflation defined as YOY CPI greater than prior 3 months. Next steps Position your for your future Meet with a financial professional to discuss your current investments and future goals. Decide if you have the appropriate mix of investments to help generate the income you need in retirement. Determine how much of your should be positioned to mitigate and potentially benefit from continued.

7 NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE Two keys to a successful retirement: Generating income and managing Contact JPMorgan Distribution Services, Inc. at for a fund prospectus. You can also visit us at Investors should carefully consider the investment objectives and risks as well as charges and expenses of the mutual fund before investing. The prospectus contains this and other information about the mutual fund. Read the prospectus carefully before investing. Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable. These views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Past performance is no guarantee of future results. IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties. There is no guarantee that companies that can issue dividends will declare, continue to pay or increase dividends. Diversification does not guarantee investment returns and does not eliminate the risk of loss. J.P. Morgan Funds are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA/SIPC. J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. JPMorgan Chase & Co., March 2012 SA-DRR IB 151 & CG10 black CG10