Disclosure Notice

Disclosure Notice

The presentation (The Road to Retirement, ‘Charted Course or Aimless Wander’) and accompanying narrative was created by the Arkansas Securities Department. It is intended solely for educational purposes

and cannot be copied, distributed, or used in any manner without the permission of

the Arkansas Securities Department.

THE ROAD TO RETIREMENT ‘Charted Course or Aimless Wander’

Retirement Quotes

“I’m retired – goodbye tension, hello pension.”

“Retirement: World’s longest coffee break.”

“Retirement - when you stop living at work and begin working at living.”

“Life begins at retirement.”

Retirement Quotes

“The question isn’t at what age I want to retire but, at what income.”

“Retirement: It’s nice to get out of the rat race, but you have to learn to get along with less cheese.”

“The retirement challenge is how to spend time without spending money.”

“Retirement is when the living is easy and the payments are hard.”

Retirement ‘Reality’ – The Numbers2013 Retirement Confidence Survey – Employee Benefit Research Institute

87% - Workers Not Confident About Their Retirement

57% - Workers Reporting The Value Of Their Savings & Investments Is Less Than $25,000

28% - Workers Saying They Have Less Than $1000

54% - Workers Who Haven’t Tried To Calculate How Much They Will Need To Save For A Comfortable Retirement

What Should You Expect From This Program?

General information on the steps required to develop a ‘personal’retirement plan, including:

Establishing Basic Retirement Goals Sources of Retirement Income Retirement Income ‘Gaps’ and How to Close Leveraging Your Personal Retirement Savings With Tax-

Advantaged Resources Price of ‘Procrastination’ Basic Investing – Your Investment ‘Profile’, Products, Principles Implementing My Plan – Who Do I Work With and What Should

I Know? Resources You Can Use For Assistance

Developing a Retirement PlanFundamental Steps

Establish Goals

Assess Current Situation

Develop Objectives and Strategies

Review and Update As Required

Developing a Retirement PlanSome Things To Remember

Initial plans are designed to provide a ‘general’ assessment of needs and a ‘basic’ course of action to achieve them.

Projections are estimates based on assumptions, which may or may not be valid over the horizon of the plan.

The nearer to retirement, the more precise the plan.

Developing Basic Retirement GoalsWhen Do I Want To Retire?

‘My’ Retirement Age or Date.

But, you may need to be flexible!

Developing Basic Retirement GoalsHow Much Income Will I Need?

Food, Utilities, Clothing, Home, Auto

Insurance – Home, Auto, Life, Healthcare

Children – College and/or Support

Mortgage / Credit Cards

Travel & Fun

Emergency Funds

Assumptions: No Mortgage; No Dependent Children;

Reduced Taxes; No Work-Related Expenses

Developing Basic Retirement GoalsHow Much Income Will I Need?

AON/Georgia State University – ‘Replacement Ratio Study’

Single Age 65 Married Age 65/62

0%10%20%30%40%50%60%70%80%90%

100%

88%94%

82% 85%79% 80%82%

78%

$20,000 $40,000 $60,000 $80,000

Developing Retirement GoalsConsider the Effects of Inflation

$1 OF PURCHASING POWER TODAY

$30,000 OF INCOME TODAY

10 20 Years

300

0.5

1

1.5

2

2.5

3

1.34

1.81

2.43

3%

10 20 Years

300

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

40,317

54,183

72,818

3%


$1 OF PURCHASING POWER TODAY

$30,000 OF INCOME TODAY

10 20 Years

300

0.51

1.52

2.53

3.54

4.55

1.341.81

2.431.63

2.65

4.32

3%5%

10 20 Years

300

20,000

40,000

60,000

80,000

100,000

120,000

140,000

40,31754,183

72,81848,867

79,599

129,658

3%5%


1962 1972 1982 1992 2002 20120

2

4

6

8

10

12

14

16

Historical Inflation Rates

%


Is the ‘Rate of Return’ on My Retirement Savings Staying Ahead of Inflation?

Age 60 Age 65 Age 7078

79

80

81

82

83

84

85

86

87

81

82.3

83.784

84.9

86

MaleFemale

Developing Basic Retirement GoalsHow Long Will I Live?

Average Life Expectancies

Developing Retirement GoalsHow Long Will I Live?

Life Expectancy Probabilities

Male Age 65 Female Age 650%

10%

20%

30%

40%

50%

60%

41%

53%

20%

32%Age 85Age 90

Developing Retirement GoalsHow Long Will I Live?

Life Expectancy Probabilities

0%

20%

40%

60%

80%

41%53%

72%

20%32%

45%

0.18

Age 85Age 90Age 95

Sources of Retirement Income

Employee Pension

Social Security

Personal Savings

Sources of Retirement IncomeSocial Security

Government program initiated in 1935

Qualifying – Requires at least 40 ‘credits;’ generally, 10 years in which you had earnings subject to social security taxes – Benefit

based on highest 35 years of earnings

Benefit Ages – ‘Early’– Age 62 to ‘full’ retirement date (penalties apply)

‘Full’ – Birthday 1937 and earlier – Age 65 1938 to 1942 – Graded, Age 65, 2 mo. to 65, 10 mo.

1943 to 1954 – Age 66 1955 to 1959 – Graded, Age 66, 2 mo. to 66, 10 mo. 1960 + - Age 67

‘Delayed’ – ‘Full’ To Age 70 (additional benefits accrue)


Social Security Benefit (2013) – ‘Average’ $1,261/mo. – ‘Maximum’ $2,533/mo.

Income Limits (2013) – Before ‘full’ benefit date, ‘earned income’ is limited to $15,120 - For every $2 earned over the limit, $1 of benefit is withheld - No limit at or after ‘full’ benefit date

Taxation of Benefits – File Federal Taxes as:Individual - Income between $25,000 and $34,000 – Pay on up to 50% Income more than $34,000 – Pay on up to 85%

Joint – Income between $32,000 and $44,000 – Pay on up to 50% Income more than $44,000 – Pay on up to 85%

Other Benefit Provisions:DisabilitySurvivorship – Spouse and Minor ChildrenDisabled Adult Children


Concerns and Issues:

Social Security Trust Fund is Critically Underfunded – Projected to be Depleted in 2033 – Medicare in 2024

Causes - Changing Demographics - Increasing Life Expectancies – Lower ‘Worker’ to ‘Retiree’ Ratio

Fixing the Problem – Raise Taxes – Lower Benefits

Bottom Line - Significant Changes ‘Must’ Occur

Sources of Retirement IncomePersonal Savings (USA)

AVERAGE PERSONAL SAVINGS RATE

HOUSEHOLD SAVINGS RATE COMPARISON (2012)

Past 10 Years = 3.61%

Range: Low = 1.86% (2005) High = 5.03% (2008)

Japa

nUSA

Germ

any

Fran

ce0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%

1.90%3.30%

4.30%

6.60%

11.00%

12.10%

16.10%

%


AVERAGE NET WORTH BY AGE GROUP

AVERAGE HOUSEHOLD DEBT($96,173)

1,475 8,525

51,575

98,350

180,125

232,000

Dollars

< 2525 - 3435 - 4445 - 5455 - 64> 65

68,283

7,694

6,732

5,770 7,694

Dollars

MortgageStudent LoansAuto LoansCredit CardOther


AVERAGE NET WORTH BY AGE GROUP

AVERAGE HOUSEHOLD DEBTPER INDEBTED

1,475 8,525

51,575

98,350

180,125

232,000

Dollars

< 2525 - 3435 - 4445 - 5455 - 64> 65

149,782

34,703

15,422

Dollars

MortgageStudent LoansCredit Card

Developing Basic Retirement Goals

Initial Retirement Plan Example

‘John’ Single - Age 45

Started With Current Employer - Age 35

Assumptions:

Planned Retirement Date - Age 65 Current Annual Salary - $35,000

Has Traditional Pension Plan Inflation – 3%

Replacement Ratio – 85% Planned Retirement Years – 25 (Age 90)

Savings $35,000 in Bank CD’s Avg. Rate of Return – 3%

Not Currently Saving For Retirement

Developing Basic Retirement Goals Initial Retirement Plan Example

Projected Retirement Income Replacement Need:

$35,000 @ 3% inflation for 20 years X 85% = $53,732 per year

Sources of Retirement Income:Pension Plan – Estimated $2,200 per month, or $26,400 per yearSocial Security – Estimated $1,140 per month, or $13,680 per year

$40,080 per year ($13,652) per year

Personal Savings - $35,000 @ 3% for 20 Years = $63,725Years to Deplete @ 13,652 per year with a 3% rate of return = 5.1 years25 (years in retirement) – 5.1 years (funded) = 19.9 years (income

deficient)

Retirement Income ‘Gap:’

$13,652 X 19.9 years =

Developing Basic Retirement Goals Initial Retirement Plan Example

Projected Retirement Income Replacement Need:

$35,000 @ 3% inflation for 20 years X 85% = $53,732 per year

Sources of Retirement Income:Pension Plan – Estimated $2,200 per month, or $26,400 per yearSocial Security – Estimated $1,140 per month, or $13,680 per year$40,080 per year ($13,652) per year

Personal Savings - $35,000 @ 3% for 20 Years = $63,725Years to Deplete @ 13,652 per year with a 3% rate of return = 5.1 years25 (years in retirement) – 5.1 years (funded) = 19.9 years (income deficient)

Retirement Income ‘Gap:’

$13,652 X 19.9 years = $ 271,675

Closing Income ‘Gaps’Options

Save More

Increase Rate of Return on Savings

Adjust Retirement Date

Consider Working In Retirement

Closing Income ‘Gaps’

What about our ‘example’ situation?

‘Gap’ = $271,675

Save More – $381.59 (26 times per year) ($9,921.34 per year) @ 3%

for 20 years = $271,676

Closing Income ‘Gaps’

What about our ‘example’ situation?

‘Gap’ = $271,675

Save More – $381.59 (26 times per year) ($9,921.34 per year) @ 3% for 20

years = $271,676

Increase Rate of Return – Total Savings Required = $341,300 ($13,652 X 25 years)

Rate of Return = 6% on all savings (including existing $35,000 )

$35,000 + $224.50 (26 times per year) ($5,837 per year) @ 6% for 20 years = $341,306

Closing Income ‘Gaps’Leveraging Your Retirement Savings Dollars

Payroll deducted retirement savings programs – 401k, 403b and 457b

Tax-advantaged savings - Contributions are made with pre-tax dollars ($1 of contribution reduces paycheck by less than $1)

Tax-deferred growth – Gains or earnings ‘deferred’

Contribution limits – $17,500, plus additional $5,500 if over age 50

Some employers may make contributions or offer ‘matches’

Investment options – Fixed income and mutual funds

Distributions – 401k/403b – Age 59 ½ or, 55 & ‘separation from service’ 457b – ‘separation from service’

In-Service Withdrawals – 401k/403b – Specified purposes, check w/plan 457b - Only for ‘extreme financial hardship’


What about our ‘example’ situation ?

Previous ‘after-tax’ contribution scenario -Rate of Return = 6% on all savings (including

existing $35,000)



What about our ‘example’ situation ?

Previous ‘after-tax’ contribution scenario -Rate of Return = 6% on all savings (including

existing $35,000)


Using ‘pre-tax’ contributions of $224.50 = net paycheck reduction of $175.11 ($4,552.86 per year)

The Cost of ‘Procrastination’

Plan Input

1 2 3 4 Years

5 10 150

50,000

100,000

150,000

200,000

250,000

300,000

116,740124,607132,631140,821149,178157,700

202,891

252,532

Dollars

What If I Don’t Have A Pension Plan Or Don’t Have Much Time Until Retirement?

What’s Your Choices?Accept retirement ‘as is’ – Develop a plan to adjustBe ‘flexible’ on your retirement dateConsider a ‘post-retirement’ careerStart doing something's to ‘cushion’ the financial impact of less money in retirement

What Can I Do?Start reducing debtStart thinking about unnecessary expenses

Start saving or save moreUtilize ‘tax-advantaged’ programsFocus on ‘take-home pay’ reductions‘Pay yourself first’ - Increase savings amount each year or with each salary increase you get

Questions?

Basic InvestingWhat’s My Investing ‘Profile’?

Some Questions to Consider:

How do I feel about taking ‘risk’ with my money?

Do I understand the ‘risk / reward’ relationship?

How well do I tolerate fluctuations in the value of my assets?

What’s my time horizon?

What’s my investing experience?

Basic InvestingSometimes the ‘Need’ Dictates the ‘Risk’

Conservative investments/contributions ≠ objective

‘Forced’ to look at higher risk/higher reward options

‘Last Resort’: Adjust Retirement Date Work In Retirement

Basic InvestingSome Principles To Consider

All Investments Carry Some Level of Risk

Investments With Potentially Higher Returns Are Generally Accompanied By Higher Risk Factors

Diversification – Investing In A Variety Of Assets To Minimize Risk

Asset Allocation - Balancing Risk Versus Reward By Adjusting The Percentage Of Each Asset In An Investment Portfolio According To Goals, Risk Tolerance, And Time Horizon

Successful Investing Requires Periodic Monitoring And Adjustments

Basic InvestingInvestment Choices

Certificates of Deposit

Money Market Funds

Bonds – Government , Corporate

Stocks – Preferred, Common

Mutual Funds – Bond, Stock, Index, ‘Hybrid’

Options

Basic InvestingHistorical Rates of Return

Average Rate of Return - 1926 thru 2010

U.S. Small Company Stocks : +12.1%

International Stocks: +10.1%

U.S. Large Company Stocks: +9.9%

Balanced Stock/Bond Portfolio: +8.3%

Bonds: +5.5%

Money Market: +3.6%

Inflation : 3%

Basic InvestingImplementing My Plan

Who Should I Work With and What Should I Know?

Work Only With Licensed / Registered Companies and Representatives

Be Informed About Your Investments – Stay In Charge of Your Money

Understand The ‘Fine Print’ – Terms, Fees, Ability and Cost to Access Money

Never Sign Anything Until You Are Completely Sure

Demand Periodic Statements and Representative Reviews

Be On Guard For ‘Too Good To Be True’ Deals

Retirement PlanningResources

Retirement Planning:U.S. Department of Labor –

‘Taking The Mystery Out Of Retirement Planning’ -www.dol.gov/ebsa/Publications/nearretirement.html

Sources of Retirement Income:U.S. Social Security Administration -

Benefit Calculator - www.ssa.gov/planners/calculators.htm Traditional ‘Pension Plan’ – See Your Employer

Leveraging Retirement Savings Dollars:‘Tax-Advantaged Savings Programs – See Your Employer

Implementing My Plan:Financial Industry National Regulatory Association (FINRA) –

Broker Check – www.finra.org/Investors/ToolsCalculators/Broker Check

Questions?

“Would you tell me which way I ought to go from here?” asked Alice.

“That depends a good deal on where you want to get,” said the Cat.

“I really don’t care where” replied Alice.

“Then it doesn’t much matter which way you go,” said the Cat.

d

‘If you don’t know where you’re going, it doesn’t matter which road you

take.’

THE ROAD TO RETIREMENT ‘Charted Course or Aimless Wander’

Documents

Disclosure Notice