Copyright T. Rowe Price. All Rights Reserved. The Road to Retirement Presented by:

Copyright T. Rowe Price. All Rights Reserved. 2 This presentation has been prepared by T. Rowe Price Retirement Plan Services, Inc., for informational purposes only. T. Rowe Price Retirement Plan Services, Inc., its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this presentation, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this presentation.

Copyright T. Rowe Price. All Rights Reserved. 3 What we’ll cover today: the big questions… How much do I need to save? How much can I withdraw? What should I invest in after retirement? How do I know if I am on track? If I am off track, what can I do?

Copyright T. Rowe Price. All Rights Reserved. 4 Retirement planning is all about trade-offs - finding the right balance between an appropriate withdrawal strategy, a time horizon, and an investment allocation.

Copyright T. Rowe Price. All Rights Reserved. 5 Sources of income in retirement – average retiree Source: Social Security Administration, Income of the Aged Chartbook, 2008, Page 16. Totals do not necessarily equal the sum of rounded components. Social Security 37% Wages 30% Retirement plans 18% Taxable savings 13% Other 3%

Copyright T. Rowe Price. All Rights Reserved. 6 The big question… How much do I need to save?

Copyright T. Rowe Price. All Rights Reserved. 7 Percentage you need to save in your retirement plan This chart shows the percentage of salary you should be saving in combination with contributions from your employer (if available) to replace about 50% of your current salary in retirement. The results are based on your age and how much you have already saved, assuming you retire at age 65. For example, if you are 45 years old and have already saved one-half of your salary, you need to save at least 37% of your salary each year from now until your retirement date. The chart assumes your salary increases 3% annually for inflation and that you earn 7% on your investments in a tax-deferred account before retirement. When you retire, it assumes your initial withdrawal amount will be 4% of your balance at that time. Amount You Have Already Saved For Retirement 0 no savings 1/2x annual salary 1x annual salary 1 1/2x annual salary 2x annual salary 2 1/2x annual salary 3x annual salary Current Age 45 41%37%34%30%27%23%20% 50 61%56%52%48%43%39%35% %95%89%83%77%71%65%

Copyright T. Rowe Price. All Rights Reserved. 8 Let’s take a closer look at your income that could come from your retirement plan Source: Social Security Administration Income of the Aged Chartbook, 2008, Page 16. Totals do not necessarily equal the sum of rounded components. Taxable savings 13% Social Security 37% Wages 30% Taxable savings 13% Other 3% Retirement plans 18%

Copyright T. Rowe Price. All Rights Reserved. 9 Current pretax salary Less Social Security payments Less amount being currently saved for retirement 100% Salary - 8% Social Security and Medicare* - 15% for retirement 77% salary (+/-) * The Social Security component of the 2011 FICA tax drops temporarily from 6.2% to 4.2% for employees only, while remaining at 6.2% for employers. The employee amount is scheduled to rise back to equal the employer amount again in The Social Security wage base limit of $106,800 and 1.45% tax portion for Medicare, which has no wage base limit, remain the same. This illustration demonstrates employee rates of 6.2% for Social Security plus 1.45% Medicare. Arriving at 75% replacement income Soc Sec 8% Income 77% Savings 15%

Copyright T. Rowe Price. All Rights Reserved. 10 The big question... How much can I withdraw?

Copyright T. Rowe Price. All Rights Reserved. 11 Rule of Thumb 4% of your balance the first year of withdrawals Assumes you begin withdrawals at age 65 Increase that dollar amount by 3% each subsequent year Example I have $500,000 saved 1 st year: $20,000 withdrawal ($500,000 x 4%) 2 nd year: $20,600 ($20,000 x 1.03) 3 rd year: $21,218 ($20,600 x 1.03) How much can I withdraw?

Copyright T. Rowe Price. All Rights Reserved. 12 Your recommended initial withdrawal percentage depends on your age when you begin withdrawals How much can I withdraw? Age when you begin withdrawals Recommended initial withdrawal percentage % % % % %

Copyright T. Rowe Price. All Rights Reserved. 13 Myth: “I should invest in conservative funds and keep a cash balance.” Fact: Think about an asset allocation strategy for a long retirement The big question… What should I invest in after retirement?

Copyright T. Rowe Price. All Rights Reserved. 14 Life expectancy factor is increasing Age in 2010 Life expectancy age Source: 2010 IRS Publication 590

Copyright T. Rowe Price. All Rights Reserved. 15 Inflation is the “silent risk” Investing in stocks during retirement may help to counter the long-term effects of inflation What Does $1,000 Really Buy You in the Long Run? Inflation Rate During Each Year of Retirement Year #0%3%4% 1$1,000$971$962 5$1,000$863$822 10$1,000$744$676 15$1,000$642$555 20$1,000$554$456 25$1,000$478$375 30$1,000$412$308 35$1,000$355$253 Assuming a 4% inflation rate, in 15 years, $1,000 may buy about 1/2 of what it could buy today. And in 30 years, that $1,000 may be reduced to about 1/3 of its original value.

Copyright T. Rowe Price. All Rights Reserved. 16 You want to figure out how long your savings will last – and what you can do to make it last longer. Let’s take a look at an example… The big question… How do I know if I am on track?

Copyright T. Rowe Price. All Rights Reserved. 17 Example: Mary, a pre-retiree Mary can put in her current Information: Age, Salary, Expected retirement date, Expected retirement income.

Copyright T. Rowe Price. All Rights Reserved. 18 Mary’s retirement projections …and see if it will create a sustainable retirement income See Monte Carlo disclosure for the assumptions used in this example

Copyright T. Rowe Price. All Rights Reserved. 19 Mary has a 32% chance of running out of money in retirement! See Monte Carlo disclosure for the assumptions used in this example

Copyright T. Rowe Price. All Rights Reserved. 20 Mary can look at the impact of different activities By making changes such as: Increasing contributions, Delaying retirement, or Changing asset allocation, Mary can have a big impact on her retirement Income. See Monte Carlo disclosure for the assumptions used in this example

Copyright T. Rowe Price. All Rights Reserved. 21 And see how they would affect her ultimate retirement success See Monte Carlo disclosure for the assumptions used in this example

Copyright T. Rowe Price. All Rights Reserved. 22 Monte Carlo Disclosure Page 1 Monte Carlo Simulation Monte Carlo simulations model future uncertainty. In contrast to tools generating average outcomes, Monte Carlo analyses produce outcome ranges based on probability, thus incorporating future uncertainty. In this example, savings data are based on average outcomes and retirement income data on Monte Carlo analysis. Material Assumptions The investment results shown in the charts on slides 30 and 31 were developed with Monte Carlo modeling using the following material assumptions: The underlying long-term expected annual return assumptions for the asset classes indicated in the charts are not historical returns but are based on our best estimates for future long-term periods. Our annual return assumptions take into consideration the impact of reinvested dividends and capital gains. We use these expected returns, along with assumptions regarding the volatility for each asset class, as well as the intra-asset class correlations, to generate a set of simulated, random monthly returns for each asset class over the specified time. These monthly returns are then used to generate thousands of simulated market scenarios. These scenarios represent a spectrum of possible performance for the asset classes being modeled. The success rates are calculated based on these scenarios. We do not take any taxes or required minimum distributions (RMDs) into consideration, and we assume no early withdrawal penalties. Investment expenses in the form of an expense ratio are subtracted from the expected annual return of each asset class. These expenses are intended to represent the average expenses for a typical actively managed fund within the peer group for each asset class modeled. Material Limitations Material limitations of the investment model include: Extreme market movements may occur more frequently than represented in our model. Some asset classes have relatively limited histories. While future results for the three asset classes in the model may materially differ from those assumed in our calculations, the future results for asset classes with limited histories may diverge to a greater extent than the future results of asset classes with longer track records.

Copyright T. Rowe Price. All Rights Reserved. 23 Monte Carlo Disclosure Cont. Market crises can cause asset classes to perform similarly over time, reducing the accuracy of the projected portfolio volatility and returns. The model is based on the long-term behavior of the asset classes and therefore is less reliable for short-term periods. The model assumes there is no correlation between asset class returns from month to month. This means that the model does not reflect the average periods of “bull” and “bear” markets, which can be longer than those modeled. Inflation is assumed to be constant; variations in inflation levels are not reflected in our calculations. The analysis does not take into consideration all asset classes, and other asset classes not considered may have characteristics similar or superior to those being analyzed. Model portfolio Construction Seven model portfolios were designed for effective diversification among asset classes. Diversification theoretically involves all asset classes: equities, bonds, real estate, foreign investments, commodities, precious metals, currencies, and others. Because investors are unlikely to own all these assets, we selected those most appropriate for long-term investors: stocks, bonds, and short-term bonds. We then chose seven sub-asset classes for the model portfolios: large-cap, small-cap, and international stocks and short-term, investment-grade, high yield, and international bonds. We did not consider real estate because of its illiquidity and investors' potential exposure from homeownership. We believe the selected fixed income sub- asset classes fairly represent the domestic capital markets. Short-term investment-grade bonds were chosen for stability, eliminating a cash allocation because investors are best able to decide that according to their near-term needs. The portfolios were built using the complementary behavior of sub-asset classes over long periods of time, enabling more efficient investment mixes through low correlations.The initial withdrawal amount is the percentage of the initial value of the investments withdrawn on the first day of the first year. In subsequent years, the amount withdrawn grows by a 3% annual rate of inflation. Success rates are based on simulating 10,000 market scenarios and various asset allocation strategies. The underlying long-term expected annual return assumptions (without fees) are 10% for stocks; 6.5% for intermediate-term, investment-grade bonds; and 4.75% for short-term bonds. Net-of-fee expected returns use these expense ratios: 1.211% for stocks; 0.726% for intermediate-term, investment-grade bonds; and 0.648% for short-term bonds.

Copyright T. Rowe Price. All Rights Reserved. 24 Monte Carlo Disclosure Cont. IMPORTANT: The projections or other information generated by the T. Rowe Price Investment Analysis Tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The simulations are based on a number of assumptions. There can be no assurance that the projected or simulated results will be achieved or sustained. The charts present only a range of possible outcomes. Results may vary with each use and over time, and such results may be better or worse than the simulated scenarios. Clients should be aware that the potential for loss (or gain) may be greater than demonstrated in the simulations. These results are not predictions, but they should be viewed as reasonable estimates. Source: T. Rowe Price Associates, Inc.

Copyright T. Rowe Price. All Rights Reserved. 25 Adversity is a fact of life. It can’t be controlled. What we can control is how we react to it.

Copyright T. Rowe Price. All Rights Reserved. 26 What are two things in your control if you are not on track? Source: Social Security Administration Income of the Aged Chartbook, 2008, Page 16 Totals do not necessarily equal the sum of rounded components. Social Security 37% Wages 30% Retirement plans 18% Taxable savings 13% Other 3%

Copyright T. Rowe Price. All Rights Reserved. 27 Myth: “You should start taking Social Security payments as soon as possible.” Delaying the age that you begin receiving Social Security payments can help reduce your biggest risk as a retiree: Running out of money during your retirement years! The benefit of delaying Social Security income

Copyright T. Rowe Price. All Rights Reserved. 28 The impact of delaying Social Security benefits Social Security benefits calculated using the Quick Calculator on the ssa.gov web site (assuming assa.gov 0% Relative Growth Factor). This assumes an individual who is age 62 in 2011 (with a full retirement age of 66) who is continuing to work and earning $100,000 each year until benefits begin. Each year this individual continues working, his annual retirement income from Social Security would increase by about 8% (plus annual Cost Of Living Adjustments from the Social Security Administration) - regardless of how much of he saves or market performance. Sources: T. Rowe Price Associates; Social Security Administration. Age Initiating Social Security Benefits Current DollarsInflated Dollars Annual Benefits % Increase Over Age 62Annual Benefits % Increase Over Age 62 62$20, $20, $22,3687%$22,6328% 64$24,34816%$25,24820% 65$26,35226%$28,08034% 66$28,30835%$31,08048% 67$30,64846%$34,65665% 68$32,97657%$38,44883% 69$35,30468%$42,456102% 70$37,63279%$46,692123%

Copyright T. Rowe Price. All Rights Reserved. Impact of delaying Social Security Total Security Benefits Received, in Current Pretax Dollars, Depending on Age of Onset Assuming $20,976 Annual Benefit at age 62; and $37,632 at age 70.

Copyright T. Rowe Price. All Rights Reserved. 30 Impact of working longer % Increase in retirement income (current dollars) The Impact of Working and Saving Longer on Retirement Income Cumulative percentage gain in retirement income from investments at two savings rates (current dollars) The study assumes an annual salary of $100,000 with $500,000 in tax-deferred savings as of age 62 and an inflation rate of 3%; an asset allocation of 40% stocks, 40% bonds, and 20% short–term bonds and cash; and a 90% probability that income will be sustained until at least age 95. Portfolio performance based on Monte Carlo probability analysis.

Copyright T. Rowe Price. All Rights Reserved. 31 Combined impact

Copyright T. Rowe Price. All Rights Reserved. 32 Make adjustments now for benefits later Contribution rate Investment strategy Consider future adjustments Part-time work in retirement Standard of living in retirement Delay your retirement date Not on track?

Copyright T. Rowe Price. All Rights Reserved Conclusion Remember: Focus on what you can control! More Resources: Social Security Administration ssa.gov Retirement Income Calculator troweprice.com/ric