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SAVING : INVESTING : PLANNING
EMPOWERRetirement Strategies for WomenHelping to secure your future lifestyle
•Looking back through the years…what were your aspirations?
Did you ever think of retirement as a goal?
Introduction
2
SAVING : INVESTING : PLANNING
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?
3
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Seminar materials
•About your workbook and evaluation
4
1 Women are making strides
SAVING : INVESTING : PLANNING
“The future belongs to those who believe in the beauty of their dreams.”
- Eleanor Roosevelt
•There have been many great women in history
Women are making strides
Susan B. Anthony
Amelia Earhart
Sally Ride
Rosa Parks
Geraldine Ferraro
7
•Today, women are more financially successful and independent
Women are making strides
8
Source: Women and Retirement Survey. Insured Retirement Institute. January 2011.
26%
38%
47%50%51%
2 Retirement challenges
Retirement challenges
•In today’s economy, women face unique challenges when preparing for retirement
LongerLife
Expectancy
Lower Average Earnings
Life Changing
Events
Social SecurityBenefits
10
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
11
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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•With all those extra years in your future, how will you pay for them?
Retirement challenges
Source: Retirement Benefits. SSA Publication No. 05-10035. Social Security Administration. January 2010.
80%Estimated percentage of last working year’s salary you’ll
need to maintain your lifestylein retirement
13
•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
Retirement challenges
Source: Women and Retirement Survey. Insured Retirement Institute. January 2011.
14
Retirement challenges
•Women are less confident about retirement
15
Source: Gender Comparisons Among Workers. Retirement Confidence Survey. EBRI. March 2011.
10%Percent of
women who feel they will have enough
money in retirement
24%Percent of
women who feel they will have enough
money to cover basic expenses
18%Percent of
women who feel they are doing a good job preparing financially for
retirement
3 Retirement income sources
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Retirement income sources
•What are the sources of retirement income?
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
Sources:1 Understanding the Benefits 2011. SSA Publication No. 05-10024. SocialSecurity.gov. Retrieved January 2011.2 OASDI and SSI Program Rates & Limits 2011. SocialSecurity.gov. Retrieved January 26, 2011.
Estimated average annual benefit
for a retiree1
$14,088
Estimated average annual
benefit for a retired couple1
$22,884
Maximum annual benefit for a retiree at full retirement2
$28,392
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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
19
401(k)Non-
government employers
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.
20
403(b)Public
schools and nonprofit
457(b)Government
and Tax-exempt
401(k)Non-
government employers
401(a) Tax-qualified
4 Workplace retirement plan
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“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
Workplace retirement plan
•Reasons women delay saving for retirement
““Supporting children and
parents”Workplace plan and
catch-up provision
“Saving for child’s college tuition”
Compound savings
“I’m too young”
Time is on your side
20s
“Too many expenses”
Pay yourself first
30s
40s
50s
23
Workplace retirement plan
•Participating in your workplace plan
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
•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 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 account, which would reduce the differences between the performance in these accounts. 25
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
26
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.
Workplace retirement plan
•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
27
Workplace retirement plan
•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
28
Workplace retirement plan
•Time is money, start saving early
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.
Cost to accumulate $300,000
29
$12,000 over a 5-year-period
Workplace retirement plan
•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*
30
*The 10% federal tax penalty does not apply to 457(b) plans.
Workplace retirement plan
•Rollover: assets moved from one tax-qualified plan to another
31*The 10% federal tax penalty does not apply to 457(b) plans.
5 Investment planning
Investment planning
•Know what to expect and need from your investments
>Establish your investment goals by ensuring they are:
− Written down
− Realistic
− Measurable
− Prioritized
33
How will the income from the investment be used?
How much money will you need?
When will the money be needed?
SAVING : INVESTING : PLANNING
Investment planning
•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
34
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Investment planning
Select investment options
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 classes does not guarantee the future performance of any investment.
StocksGrowth
BondsFixed income
Cash
Increasing risk of lossPossibly increasing return
through appreciation
Decreasing risk of lossPossibly decreasing return through loss of
purchasing power
35
SAVING : INVESTING : PLANNING
Investment planning
Diversification helps reduce investment risk by mixing a variety of asset classes in a portfolio
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.
36
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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.
Investment planning
•Strategic asset allocation
>Modern Portfolio Theory
37
Investment planning
•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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•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?
Investment planning
39
Investment planning
•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?
40
6 Where to go from here?
SAVING : INVESTING : PLANNING
“It’s never too late to live your own dream.”
- Oprah Winfrey
•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
Where to go from here?
43
SAVING : INVESTING : PLANNING
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
44
For more than half a century VALIC has helped Americans plan for and enjoy a secure retirement.
Where to go from here?
•“How sad would be November if we had no knowledge of the spring.”
•– Edwin Way Teale, Pulitzer Prize winner and author
45
Where to go from here?
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SAVING : INVESTING : PLANNING
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.
Copyright © The Variable Annuity Life Insurance Company.All rights reserved.VALIC.com
VC24228 (02/2012) J85250 EE
SAVING : INVESTING : PLANNING
THANK YOURetirement Strategies for Women
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