EMPOWER
Retirement Strategies for Women
Helping to secure your future lifestyle
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Introduction
Looking back through the years…what were your
aspirations?
•
Did you ever think of
retirement as a goal?
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Agenda
1
Women are making strides
2
Retirement challenges
3
Retirement income sources
4
Workplace retirement plan
5
Investment planning
6
Where to go from here?
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Seminar materials
•
About your workbook and evaluation
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Women are making strides
“The future belongs to those who
believe in the beauty of their dreams.”
- Eleanor Roosevelt
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Women are making strides
•
There have been many great women in history
Susan B. Anthony
Amelia Earhart
Rosa Parks
Geraldine Ferraro
Sally Ride
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Women are making strides
Today, women are more financially successful
and independent
•
51%
50%
47%
38%
26%
Source: Women and Retirement Survey.
Insured Retirement Institute. January 2011.
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Retirement challenges
Retirement challenges
In today’s economy, women face unique
challenges when preparing for retirement
•
Longer
Life
Expectancy
Lower
Average
Earnings
Social
Security
Benefits
Life
Changing
Events
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Retirement challenges
Women benefit from greater average longevity, but it
comes with a financial reality
•
> Greater savings are needed in order for their dollars to last a lifetime.
> How long might that lifetime be?
Jeanne Calment
Ida May Fuller
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Retirement challenges
•
Did you know?
> There are over 80,000 centenarians in the U.S
> 85% of centenarians are women
> 90% of supercentenarians are women
•
You may live to be 100!
Source: Why study centenarians?
New England Centenarian Study. 2010
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Retirement challenges
With all those extra years in your future,
how will you pay for them?
•
80%
Estimated percentage of last
working year’s salary you’ll
need to maintain your lifestyle
in retirement
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Source: Retirement Benefits. SSA Publication No. 05-10035. Social Security Administration. January 2010.
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Retirement challenges
•
Living longer also brings additional costs
> Women are more likely to require care:
− 75% of nursing home residents are women
• 3 years of service on average for age 65+
− 66% of long-term care recipients are women
Source: Women and Retirement Survey.
Insured Retirement Institute. January 2011.
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Retirement challenges
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Women are less confident about retirement
10%
24%
18%
Percent of
women who
feel they will
have enough
money in
retirement
Percent of
women who
feel they will
have enough
money to
cover basic
expenses
Percent of
women who
feel they are
doing a good
job preparing
financially for
retirement
Source: Gender Comparisons Among Workers. Retirement
Confidence Survey. EBRI. March 2011.
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Retirement income sources
Retirement income sources
•
What are the sources of retirement income?
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Sources: Social Security Averages 40% of Income of Elderly in 2008. News from EBRI. June 3, 2010.
Deciding when to retire. Social Security Administration. SSA Publication No.05-10035. January 2010.
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Retirement income sources
Annual Social Security benefits as of January 2011
$28,392
$22,884
$14,088
Estimated average
annual benefit
for a retiree1
Estimated
average annual
benefit for a
retired couple1
Maximum annual
benefit for a retiree
at full retirement2
S A VSources:
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1 Understanding
2
the Benefits 2011. SSA Publication No. 05-10024. SocialSecurity.gov. Retrieved January 2011.
OASDI and SSI Program Rates & Limits 2011. SocialSecurity.gov. Retrieved January 26, 2011.
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Retirement income sources
•
The most common tax-qualified plans
> These plans offer a broad range of investment options
including annuity contracts and mutual funds.
> With a defined contribution plan, you choose the investments
and contribution amount.
403(b)
Public
schools and
nonprofit
457(b)
Government
and
Tax-exempt
401(k)
Nongovernment
employers
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Retirement income sources
•
The most common tax-qualified plans
> These plans offer a broad range of investment options including
annuity contracts and mutual funds.
> With a defined contribution plan, you choose the investments
and contribution amount.
403(b)
Public
schools and
nonprofit
401(k)
Nongovernment
employers
457(b)
401(a)
Government
and
Tax-exempt
Taxqualified
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Workplace retirement plan
“You just don't luck into things as
much as you'd like to think you do. You
build step by step, whether it's
friendships or opportunities.”
- Barbara Bush
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Workplace retirement plan
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Reasons women delay saving for retirement
30s
“I’m too young”
50s
“Too many
expenses”
“Saving for child’s
college tuition”
Pay yourself first
Compound savings
Time is on your side
20s
“
“Supporting
children and
parents”
Workplace plan and
catch-up provision
40s
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Workplace retirement plan
•
Participating in your workplace plan
Easy
• Payroll
deduction
Time is on
your side
• Taxdeferred
growth
Small
changes
• Compound
interest
Income taxes are payable upon withdrawal; federal restrictions and a 10%
federal tax penalty might apply to withdrawals prior to age 59½.
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Workplace retirement plan
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The advantages of a tax-qualified plan
This chart compares the hypothetical results of contributing (1) $100 each month to a taxable
account and (2) $133.33 (since contributions are pretax) to a tax-qualified retirement investment
plan. The chart assumes a 25% federal marginal income tax rate and an annual rate of return of
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8%. Fees and charges, if applicable, are not reflected in this example and would reduce the
results shown. Income taxes are payable upon withdrawal. Federal restrictions and a 10%
federal tax penalty may apply to withdrawals prior to age 59½. This information is hypothetical
and only an example. It does not reflect the return of any investment and is not a guarantee of
future income. Lower maximum capital gains rates may apply to certain investments in a taxable
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account, which would reduce the differences between the performance in these accounts.
Workplace retirement plan
•
How much should you save for retirement?
> Create a household budget
− To determine essential and discretionary expenses
> Work with a financial advisor
− To develop an overall retirement strategy
15%
Estimated percentage
of income to save
annually to meet your
retirement goals
This percentage is only a guideline. The percentage may increase depending
on your investment goals and time horizon.
Source: Ultimate guide to retirement: How much should I save? CNNMoney.com. Retrieved February 22, 2011.
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Workplace retirement plan
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Contribution limits for 2012
> $17,000 annual contribution limit
− 403(b) and 401(k) combined limit
− 457(b) separate limit
Age-based catch-up contribution of
$5,500 for participants age 50 and older
•
> Available for 403(b), 457(b) government, 401(k)
> Does not apply to 457(b) tax-exempt organizations
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Workplace retirement plan
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Maximize your tax-deferred savings for 2012
> 403(b) retirement plan
− Up to $25,500 total deferrals
• $17,000 annual contribution limit
• $3,000 15-year rule catch-up (for qualifying plans)
• $5,500 age-based catch-up
Note: You can make both catch-ups in the same year, if eligible
> 457(b) retirement plan
− Up to $34,000 total deferrals
• $17,000 annual contribution limit
• $17,000 special catch-up (only in the three years before
the year you reach normal retirement age), or
• $5,500 age-based catch-up (governmental 457(b) only)
Note: You can’t make both catch-ups in the same year
> Combination plans
− Up to $59,500 total deferrals
• 403(b) and 457(b) annual deferrals
including catch-up contributions
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Workplace retirement plan
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Time is money, start saving early
Cost to accumulate $300,000
25-year-old
$200 monthly
for 5 years
8%
annual rate
of return
$300,000
by age 65
$12,000 over a 5-year-period
This hypothetical example illustrates the cost to accumulate $300,000 by age 65
with the assumptions indicated. Tax-qualified plan accumulations are taxed as
ordinary income when withdrawn. Federal restrictions and tax penalties may apply
to early withdrawals. This information is hypothetical and only an example. It does
not reflect the return of any investment and is not a guarantee of future income.
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Workplace retirement plan
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Withdrawals from your workplace plan
> Lump-sum withdrawal
− 20% immediate withholding
− Ordinary income taxes
− 10% federal tax penalty, if under age 59½*
> Systematic withdrawal
− Payments at regular intervals
− Ordinary income taxes
− 10% federal tax penalty, if under age 59½*
> Annuitization
− Periodic payments, irrevocable
− Ordinary income taxes
− 10% federal tax penalty, if under age 59½*
*The 10% federal tax penalty does
not apply to 457(b) plans.
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Workplace retirement plan
Rollover: assets moved from one tax-qualified plan to
another
•
Qualified Plan
IRA or new
qualified plan
• Direct rollover
Qualified Plan
• Indirect rollover
• Lump-sum
distribution
• 20% withholding
• No income taxes
• No penalties
• No withholding
60 days to rollover
• No income taxes
• No penalties
• Replace 20%
withholding
After 60 days
• Taxes are
due on entire
distribution
• 10% federal
tax penalty
may apply if
under age 59½*
*The 10% federal tax penalty does not apply to 457(b) plans.
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Investment planning
Investment planning
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Know what to expect and need from your investments
> Establish your investment goals by ensuring they are:
−
−
−
−
Written down
Realistic
Measurable
Prioritized
How will the income from the
investment be used?
How much money will you need?
When will the money be needed?
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Investment planning
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Investment considerations
> Investor profile
− What is your risk tolerance?
− When will you need the money?
> Risk tolerance
− Depends on a variety of factors
•
•
•
•
Emotional temperament
Current financial status
Time horizon
Prior investment experience
> Time horizon
− How long before you retire?
• Short-term, capital preservation
• Long-term, capital appreciation
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Investment planning
Select investment options
Stocks
Growth
Increasing risk of loss
Possibly increasing return
through appreciation
Bonds
Fixed income
Decreasing risk of loss
Possibly decreasing
return through loss of
purchasing power
Cash
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Asset classes and indexes from which their historical returns are derived are not managed funds,
have no identifiable objectives and cannot be purchased. They do not provide an indicator of how
individual investments performed in the past or how they will perform in the future. Performance of
indexes does not reflect the deduction of any fees and charges and past performance of asset 35
classes does not guarantee the future performance of any investment.
Investment planning
Diversification helps reduce investment risk by mixing
a variety of asset classes in a portfolio
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While diversification is a proven investment tool, it doesn’t guarantee a profit or
protect against loss. These illustrations are hypothetical and only an example.
They do not reflect the return of any specific investments and are not a
guarantee of future income. All investments involve risk.
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Investment planning
•
Strategic asset allocation
> Modern Portfolio Theory
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Neither asset allocation nor diversification ensures a profit or protects against market loss.
Source: Markowitz, H. The Journal of Finance, Vol. 7, No. 1. (Mar., 1952), pp. 77-91.
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Investment planning
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Putting it all together
> Women are making strides
− Large percentage of the working population
− Upward financial mobility
− Lack confidence for investing
> Retirement challenges for women
− Earn less than men
− Are primary caregivers
− Receive less in Social Security
benefits and pensions
− Live longer than men
> Retirement income sources
− Social Security
− Pensions
− Workplace plan
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Investment planning
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Putting it all together
> Workplace retirement plan
−
−
−
−
Participation is easy and automatic
You control the deferral amount
You choose the investments
Cost of procrastination
> Investment planning
− What is your risk tolerance?
− When will you need the money?
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Investment planning
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Reality check
Question
Yes No
I don’t know
Have you calculated how much income you’ll
need in retirement?
Do you know where your income for retirement
will come from?
Do you know how much you are currently
saving in your workplace retirement plan?
Are you contributing the maximum allowed?
Are you eligible for any catch-up contributions?
Are your assets properly allocated?
Are you confident that you will be able to
maintain your current lifestyle in retirement?
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Where to go from here?
“It’s never too late to live your own
dream.”
- Oprah Winfrey
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Where to go from here?
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Nothing is sweeter than knowing you’ve planned well.
> Some of the benefits of financial planning are:
−
−
−
−
−
Provides a big picture view of your current financial situation
Helps identify your financial goals and objectives
Allows you to understand the impact of your decisions
Offers you a course of action needed to achieve your financial goals
Ensures your goals stay on track, if reviewed regularly
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Where to go from here?
Consider working with a VALIC financial advisor
> A financial advisor can help you:
− Prioritize your investment goals
− Determine the time horizon needed to achieve your goals
− Determine a financial strategy to help meet your goals
For more than half a
century VALIC has helped
Americans plan for and
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enjoy a secure retirement.
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Where to go from here?
“How sad would be November if we had
no knowledge of the spring.”
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– Edwin Way Teale,
Pulitzer Prize winner and author
•
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Where to go from here?
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The information in this presentation is general in nature and may be subject to change. Neither VALIC
nor its financial advisors or other representatives give legal or tax advice. Applicable laws and
regulations are complex and subject to change. Any tax statements in this material are not intended to
suggest the avoidance of U.S. federal, state or local tax penalties. For legal or tax advice concerning
your situation, consult your attorney or professional tax advisor.
Securities and investment advisory services are offered by VALIC Financial Advisors, Inc.,
member FINRA and an SEC-registered investment advisor.
VALIC represents The Variable Annuity Life Insurance Company and its subsidiaries,
VALIC Financial Advisors, Inc. and VALIC Retirement Services Company.
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Copyright © The Variable Annuity Life Insurance Company.
All rights reserved.
VALIC.com
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Retirement Strategies for Women
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