Planning for Retirement N.C. Department of Environment and Natural Resources

Why is Retirement Planning Important? Good Question! Here are some more questions…..Pop Quiz!

At what age do you plan to retire? A. Never! I’ll have one foot in the office and the other in the grave! B. 70 or above C (or age when I’d get full social security benefits) D. 60 or below

How Long Will You Be In Retirement? (What is your life expectancy)

Fill in the Blank: The general rule of thumb is that retirement income will need to replace ____% of your working income. A % B % C %

In 2008, the average replacement percentage of average final compensation for all new retirements in the N.C. Teachers and State Employees’ Retirement System was ____%. A. 85% B. 65% C. 45% D. 25%

Time to Answer All of Our Questions!

At what age do you plan to retire?  This answer depends on your personal goals, but:  Beware of “Never”: you still need to plan for retirement even if you never plan to retire!  Remember, the earlier you plan to retire, the more planning you have to do!

How Long Will You Be In Retirement? (What is your life expectancy?)  Did You Know?  A 65-year-old man has a 20% chance of living to age 90.  A 65-year-old female has a 32% chance.  For married couples, there is a 45% chance that one spouse will live to this age.  Source: Vanguard Investments at  Underestimating life expectancy can derail any retirement plan!

Fill in the Blank: The general rule of thumb is that retirement income will need to replace ____% of your working income. A % B % C %

In 2007, the average replacement percentage of average final compensation for all new retirements in the N.C. Teachers and State Employees’ Retirement System was ____%. A. 85% B. 65% C. 45% D. 25%

How are you going to fund the other 26-56% ?  Social security?  Personal savings?

So, why do you need to be saving for retirement in addition to your pension plan? To Bridge the Gap! And when should you get started? NOW!

The Compounding Effect  Start saving early! Time matters… StartAge 25Age 35Age 45 Total Contributions $1,000 X 40 $40,000 $1,000 X 30 $30,000 $1,000 X 20 $20,000 Value at 65 at 6% $154,762$79,058$36,786 Earnings $114,762$46,058$16,786

The Compounding Effect  Plus, the longer you wait, the more it “costs” to save:  To match the $154,762 retirement balance of the 25-year-old in the example, the person who waited until 45 would have to :  Save ________ per year, or  Generate annual earnings of ______ per year, or  Retire at the age of ___!

Tax-Advantaged Retirement Accounts for State Employees  NC 401(k) plan  NC 457 plan (Deferred Compensation)  Traditional IRAs  Roth IRAs

Individual Retirement Accounts (IRAs)  Types:  Traditional (potential for tax savings now)  Roth (potential for tax savings in retirement)  Contribution Limits for 2009  $5,000 if under age 50  $6,000 if age 50+ ($5,000 limit plus $1,000 catch-up provision)  Contribution Deadline  January 1 of current year – April 15 of following year

RETIREMENT SAVINGS PLAN Save for retirement Use an available tax- advantaged account  Decide how to invest my savings

Investing Basics  Considerations when choosing investments:  Diversification  Time Horizon  Risk Tolerance ** Past performance is not a guarantee of future returns.

Diversification  Avoid putting all of your eggs in one basket!!  An easy way to diversify: mutual funds!  Anatomy of a mutual fund:  Stocks (equities)  Bonds (fixed income)  Short-term investments

So What is a Mutual Fund?  A pool of investors’ money used to purchase hundreds of securities such as stocks, bonds, and short-term investments  Mutual funds provide instant diversification, thus reducing risk.

Taking Risks  Why should I Put My Money At Risk?  When saving long-term, you are battling a little monster named: INFLATION

The Effects of Inflation Today: Cost of 1 Gallon of Milk = $

The Effects of Inflation  In the 1960’s, $4.00 would have bought you:  1 gallon of milk ($.60)  2 dozen oranges ($.90)  10 gallons of gas ($.25/gallon = $2.50)  You could also buy: ¨ A new house for $15,000 ¨ A Ford Mustang for $2,368

The Effects of Inflation If the cost of milk were to increase over the next 50 years at the same rate that it has increased since 1960, the price of milk would be….

Bottom Line…  Investing in securities provides the potential for returns that can outpace inflation over time.  If you will be investing for the long-term, you may want to consider investing in securities such as mutual funds.

Am I on track for retirement? No way to know for sure. Keep in mind:  You are responsible for providing at least a portion of your own retirement income  You might live beyond your life expectancy  Starting early is the key!!!!  When markets are down your dollars purchase more shares: stay the course and keep investing!

ANY QUESTIONS???