Generation Y Q & A Prudential Retirement Webinar Series SHOULD THINK ABOUT RETIREMENT A Gen Y guide to preparing for the future We ve selected some commonly asked questions from over 200 submitted during November s Gen Y Guide to Preparing for the Future webinar. Although this information can help you better understand general retirement investing principles, you should consult your own financial advisor for information about your specific situation. TABLE OF CONTENTS Retirement strategies... 2 Contributions... 4 Additional ways to save... 5 Loans & withdrawals... 5 Changing jobs... 5
RETIREMENT STRATEGIES Am I saving enough and when will I be able to retire? How much do I need in savings at retirement? Is there a general monetary goal such as X times your annual salary or half a million dollars by the time you re age 65? How can I figure out what my current savings will be worth when I m age 67? For Gen Y ers, what is a reasonable age to plan on retiring? 70? Is there a particular age when you [should] diversify your portfolio, instead of just having a 401(k)? What is the best way to make up for losses? I am not able to contribute to my account. My account is company sponsored and contributions are strictly by my employer. That depends on how much you re saving, how you re investing what you re saving, and when you plan on retiring. As someone participating in a retirement plan recordkept by Prudential Retirement, you can find out if you re doing enough by using the Retirement Income Calculator. Available on your online account, the Retirement Income Calculator will take your financial information and let you know how much you may have in retirement. And if there s a gap between where you re headed and where you d like to be, the Retirement Income Calculator will provide you with some strategies to help make up the difference. Many financial professionals estimate that you will need approximately 80% of your income to sustain your lifestyle in retirement, for every year that you will live in retirement. But how much you need in retirement really depends on how you plan on spending your time in retirement. If you plan on travelling, taking up new hobbies, or even going back to school, that will require more funding than if you plan on a quiet, modest retirement. To get an idea of how much you may need in retirement, spend some time with the Retirement Income Calculator. Available online, the Retirement Income Calculator can tell you how much money you may need in retirement and if you re doing enough for your retirement. The Retirement Income Calculator can help translate your current financial information, such as how much you re saving and how you re investing what you re saving into a clear picture of what you may have in retirement, based on any age you pick. You may also want to explore the Prudential Retirement Education & Planning website, PREP at www.prudential.com/prep. It s loaded with great calculators and tools to help you discover if your retirement planning strategy is working for you. That depends on your individual situation. For example, employees of a governmental agency may have pre-determined retirement ages. Most other organizations have no requirement, so when you retire is entirely up to you and your retirement planning strategy. To get an idea of what age is realistic for you, you may want to explore the Prudential Retirement Education & Planning website, PREP at www.prudential.com/prep. It s loaded with great calculators and tools to help you discover how your retirement planning strategy is working and when you may be financially prepared to retire in the manner you envision. Anytime is a good time to explore additional ways to save for retirement. And considering how time can be a great ally, the sooner you start, the better. For example, you may want to consider a Roth IRA, which offers the potential for tax free distributions at retirement. This will help you diversify your future tax liabilities, and can help balance out your overall retirement planning strategy. For more information, please talk to your tax advisor, or explore the Prudential Retirement Education & Planning website, PREP at www.prudential.com/prep. If you are referring to decreases in your account due to market downturns, often the most prudent approach is simply to leave your account alone as history has shown that the market tends to move in cycles and downturns are usually followed by upticks. And with you being a Gen Y er, you likely have plenty of time before retirement for recovery. So your losses, while disturbing, may only be temporary. If you are seeking additional ways to save more for your retirement, you can take advantage of other savings vehicles outside of your company-sponsored plan, such as a Traditional or Roth IRA,, which are savings vehicles that also offer tax advantages for savers. To learn more about IRAs, visit the Prudential Retirement Education & Planning website, PREP at www.prudential.com/prep or speak with a Prudential Retirement Counselor by calling 1-877-PRU-2100 (1-877-778-2100) about IRAs or additional ways to save. 2
Does Prudential Retirement offer advice on asset allocation? How do I distribute my money across the different funds available in my plan? Will the 401(k) contribution limit increase for 2011? How do I see my asset allocation? How do I know when to reallocate funds? What happens when you stop investing because of present financial problems? Does the money still keep on earning dividends or interest? I am 45 yrs old, and took a withdrawal due to financial difficulties. How can I catch up? Asset allocation is a helpful strategy when saving and investing for retirement. Unfortunately, Prudential cannot advise you on how to allocate your retirement assets. Prudential can provide you with insight and education regarding asset allocation concepts and strategies, through tools, articles, and self-paced learning sessions found on the Prudential Retirement Education & Planning website, PREP at www.prudential.com/prep. If you would like professional financial advice, consider contacting someone trained in personal finance. Start by looking online or in your local Yellow Pages. Or ask friends and relatives for a reference. Be sure the one you select has the proper credentials, such as CFP (Certified Financial Planner), RFP (Registered Financial Planner), or ChFC (Chartered Financial Consultant). Also consider visiting the FINRA website www.finra.org to do a Broker Check on anyone you are considering. No. The limit is the same as 2010, which is $16,500. And the limit for catch-up contributions (for those 50 and above) is an additional $5,500. You can log onto your online account at www.prudential.com/online/retirement. Or, check your monthly or quarterly account statement. You can also make changes to your allocations online or by calling 1-877-PRU-2100 (1-877-778-2100). In general, it s wise to review your asset allocation at least once per year to get an idea if your allocation strategy is working for you or needs to be refined. You can also use major life events marriage, the birth of children, milestone birthdays as great opportunities to review your allocation strategy and make necessary changes. If you find your asset allocation no longer fits your strategy, you may need to rebalance. Rebalancing your account enables you to put your desired asset allocation back on track. This can help you to ensure that your account remains invested in a way that s consistent with your long-term goals and investment objectives. But keep in mind that financial professionals generally do not advise that you change your investment allocation in reaction to shortterm developments in the financial markets. Yes. This is called compounding and it is the money s ability to earn interest on interest. The concept of compounding can really work in your favor when you start saving early because the longer your money is in the plan, the more potential it has to grow. So even if you have to stop making contributions to your plan, your existing balance remains invested and has the potential to continue to grow. If you re already contributing the maximum, which is $16,500 for the year 2011, there s not much else that you can do in the plan. You can take advantage of other savings vehicles, such as IRAs, to save even more than the amount permitted in your plan. Another option for catching up, though one that won t be available to you for five years, are catch-up contributions, which are available to plan participants age 50 and over. 3
I am 36 years old and have approximately $40,000 in my 401(k) plan. I am married with three young children. I would like to plan for not only my retirement, but also my children s education. What advice do you have for this situation? How much permanent monthly income can be generated per $100k saved at retirement and how is it done? A great place to start is to learn more, by visiting the Prudential education web site www.prudential.com/prep. You ll find articles such as The Family: Saving for Retirement and College http://www3.prudential.com/signature/saving-retirement-college.html and even an online course Saving for College http://www3.prudential.com/signature/includes/courses/college/default.html Unfortunately, Prudential cannot advise you on how to allocate your assets for all of life s priorities. Prudential is only prepared to offer you insight and assistance to your retirement planning strategy. If you would like professional financial advice, consider contacting someone trained in personal finance. Start by looking online or in your local Yellow Pages. Or ask friends and relatives for a reference. Be sure the one you select has the proper credentials, such as CFP (Certified Financial Planner), RFP (Registered Financial Planner), or ChFC (Chartered Financial Consultant). Also consider visiting the FINRA website www.finra.org to do a Broker Check on anyone you are considering. That s a difficult question, and depends on how your money is invested and your life expectancy. There are investment products available which can offer you a guaranteed income stream, so for more information please consult with a Prudential Retirement Counselor at 1-877-PRU-2100 (1-877-778-2100). CONTRIBUTIONS I m 24, and contributing the max allowed annual amount ($16,500 per year) to my 401(k). Is it worthwhile at this time, or should I cut back my contributions for more cashin-hand? What s better, Regular or Roth Savings? Do you recommend people invest more in a 401(k) or Roth IRA? Maxing out your retirement plan is always a good idea because, by contributing all you can, you re enjoying the maximum tax advantages. Plus, when you re younger and retirement is likely a long way off, your money has plenty of time to grow, so the more you can put in, the more you may have later. Whether you should cut back, however, is entirely up to your financial needs. If you do not have financial obligations that require you to have more liquid assets, you may be better off staying the course. If you re experiencing significant life changes, for example, getting married, having children, purchasing a home, you may find it necessary to allocate some funds to these other priorities. It s important, however, to find a balance. Make sure that, as other priorities arise, retirement remains atop your list and you never stop contributing, if at all possible. That depends on when you would like to enjoy your tax advantages. Generally, when you contribute to a 401(k) plan, you do so with before-tax dollars, causing you to pay less in taxes today, and putting off having to pay taxes on that money until you begin to make withdrawals in retirement, when you may be in a lower tax bracket. With Roth IRAs, you pay tax on that money today and not when you withdraw it. This could be advantageous if you estimate that you will be in a higher tax bracket in retirement. Keep in mind that some 401(k) plans allow for Roth after-tax contributions that will allow you to enjoy the same tax benefits as contributing to a Roth IRA. To learn more about the benefits of Roth IRAs or to find out if Roth contributions are available in your 401(k) plan, speak with a Prudential Retirement Counselor by calling 1-877-PRU-2100 (1-877-778-2100) or visit the Prudential Retirement Education & Planning website, PREP at www.prudential.com/prep. 4
With regard to before-tax contributions, how should I balance the benefits of before-tax contributions now, with the benefits of aftertax contributions (e.g. Roth 401(k))? Does Prudential offer a Roth 401(k) option with my plan? Your balance of before-tax and Roth contributions is an entirely personal decision and Prudential Retirement cannot offer advice or guidance on this topic. If you would like professional financial advice, consider contacting someone trained in personal finance. Start by looking online or in your local Yellow Pages. Or ask friends and relatives for a reference. Be sure the one you select has the proper credentials, such as CFP (Certified Financial Planner), RFP (Registered Financial Planner), or ChFC (Chartered Financial Consultant). Also consider visiting the FINRA website www.finra.org to do a Broker Check on anyone you are considering. Whether your plan allows for Roth after-tax contributions is completely up to your plan. To discover if yours does, speak with your plan sponsor or a Prudential Retirement Counselor by calling 1-877-PRU-2100 (1-877-778-2100). ADDITIONAL WAYS TO SAVE After I maximize my 401(k), is there another way to save for retirement? Can I max out my 401(k) plan at work AND also contribute the max to a Roth IRA? Absolutely. For example, both Traditional and Roth Individual Retirement Accounts (IRAs) are savings vehicles that also offer tax advantages for savers. To learn more about IRAs, visit the Prudential Retirement Education & Planning website, PREP at www.prudential.com/prep or speak with a Prudential Retirement Counselor by calling 1-877-PRU-2100 (1-877-778-2100) about IRAs or additional ways to save. Yes. These are two different savings vehicles each with their own maximum contribution levels. Generally for 2011, you are eligible to contribute to a Roth IRA if you have earned income below $179,000 if married filing jointly, and $122,000 if you are single. Partial contribution limits may apply depending on your income, so please check with your tax advisor or the IRS website at www.irs.gov for more information. LOANS & WITHDRAWALS What do you recommend about taking out a loan from your 401(k) account? We do not recommend taking loans from your 401(k) Plan. When you take a loan, you lower your balance for a period of time and have less money working for you in your account. And some plans may restrict you from making additional contributions to your account until the loan is repaid. What s worse, if you don t repay the loan, that money will be deemed an early withdrawal and will be subject to taxes and potential penalties. For these reasons, we recommend considering all other options before borrowing from your 401(k) Plan. If you must borrow from your account, make sure it is not for a frivolous reason. CHANGING JOBS I left my 401(k) at my last job, how do I switch it to Prudential? You can easily roll over assets from your 401(k) plan or from any other qualified retirement plan by calling 1-877-PRU-2100 (1-877-778-2100). You can roll those assets over into another qualified retirement plan, such as your Prudential Retirement account, if your current plan will allow it. By consolidating your assets, you ll simplify your retirement scenario because all of your reporting will be on one statement. In addition, it might cost you less since you ll potentially be avoiding additional account fees and you can take advantage of the other plan offerings. To initiate a rollover into your account, contact Prudential at 1 877 PRU 2100 and say consolidate. 5
What if I leave my job, what happens to my 401(k) account? As a plan participant in a Prudential sponsored retirement plan, you have many options. With most plans, if you re pleased with the plan, you can simply keep your money in the plan, though you won t be able to continue contributing to that account. If your new employer offers a qualified retirement plan, you can also rollover the assets in your account into that plan, if you wish, and continue building upon your savings. You can discuss your many plan options and the benefits of each by speaking with a Prudential Retirement Counselor by calling 1-877-PRU-2100 (1-877-778-2100). For plan specific questions, or questions about your personal retirement account, please contact your benefits or Human Resources office or speak with a Prudential Retirement Counselor by calling 1 877 PRU 2100. Still have questions? Call 1-877-PRU-2100 to speak with a Prudential Retirement Counselor. The Retirement Income Calculator is hypothetical and for illustrative purposes only and is not intended to represent performance of any specific investment, which may fluctuate. There is no assurance that retirement income objectives will be met. It is possible to lose money by investing in securities. This material has been provided for informational purposes only and should not be considered investment advice or a product recommendation. All investing involves various risks, such as fixed income (interest rate), default, small cap, international and sector including the possible loss of principal. Prudential is not responsible for the information contained in the external website(s) and makes no representations about information contained therein. The sites are provided to you for informational purposes only. Prudential is not a tax or legal advisor and encourages you to consult your individual legal or tax advisor with any specific questions. Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company, Hartford, CT, or its affiliates. Securities products and services are offered through Prudential Investment Management Services LLC (PIMS), Three Gateway Center, 14th Floor, Newark, NJ 07102 4077. PIMS is a Prudential Financial company. Retirement Counselors are registered representatives of PIMS. Prudential Retirement is a Prudential Financial business. Prudential, the Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. 0198214-00001-00 6 RSF1343 Published 03/2011