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Schwab Retirement Plan Services 2
Today we’ll talk about
Debunking common assumptions
Putting your plan together
Managing your portfolio while you are waiting
Taking the next step
Schwab Retirement Plan Services
What are your assumptions about retirement? A few common misconceptions:
“I’ve heard I’ll only need 70-80% of my pre-retirement income.”
“When I retire I’ll be in a lower tax bracket.”
“I plan to keep working if I do not have enough.”
“I’ve built up a solid nest egg so interest and dividends will provide all I need in retirement.”
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Schwab Retirement Plan Services
Put your plan together
Information to consider:
Age now and when you want to retire
Tolerance for risk
Current income
How much you have saved now and plan to save each year
Estimated Social Security benefits – Learn more at SSA.gov
Estimated pension or other income
Expected annual spending
Review, adjust and manage your portfolio allocations
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Schwab Retirement Plan Services
Your plan: Will your budget support your goals?
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What are your goals?
What are your resources?
Do they match up?
Goals
•When do you want to retire?
• Have you planned for the life you envision?
• Do you want to leave a legacy?
Goals
Budget Income sources Income needs Match sources
to needs
Schwab Retirement Plan Services
When do you want to retire? Age:
Will your resources support your budget? Consider these important factors
Income:
What are your income sources and how much will they generate for you?
Expenses: What expenses will you have in retirement?
Have you saved enough to sustain your expenses throughout retirement?
Savings:
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Schwab Retirement Plan Services
Calculate your portfolio income requirements
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Estimated expenses Regular income sources
What your portfolio must provide
= –
Essential Housing Taxes Food and utilities Health Care and insurance Discretionary Travel and entertainment Gifts, hobbies,
memberships
Non-investment income Social Security Employment Rental income Pension Annuities
Investment income Principal Capital gains Interest and dividends Lump sums
Schwab Retirement Plan Services
Joe’s plan: Will he have enough? Find your retirement target
Annual Income Sources | Expenses
Essential expenses $60,000
Discretionary expenses $20,000
Total first-year spending $80,000
Less Social Security income ($25,000)
Less other non-portfolio income ($15,000)
First year withdrawal amount $40,000
X25
Retirement portfolio target $1,000,000
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These are hypothetical numbers shown for illustration purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax professional.
Schwab Retirement Plan Services
Joe’s plan: Will he have enough? Find your retirement target Assumptions:
Portfolio accumulation of $1,000,000
Income $80,000 / year
3% inflation
Social Security and other income unchanged
These are hypothetical numbers shown for illustration purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax professional.
Annual Income Sources
Social Security $25,000
Other non-portfolio $15,000
Portfolio – Initial X 4% $40,000
$80,000
Annual Income Sources
Social Security $25,000
Other non-portfolio $15,000
Portfolio – Year 2 X 3% $41,200
$81,200
Annual Income Sources
Social Security $25,000
Other non-portfolio $15,000
Portfolio – Year 3 X 3% $42,436
$83,436
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Schwab Retirement Plan Services
Tips to get you on the right track Follow these helpful guidelines and start saving for retirement
The percentages used in the above examples assume you're just starting to save and you’re planning to maintain your lifestyle over 30 years of retirement.
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If you’re starting to save in your 20s:
If you’re starting to save in your 30s:
If you’re starting to save in your 40s:
If you’re starting to save in your mid-40s or later:
• Target 10-15% of your income • Resist cutting back on savings
• Target 15-25% of your income • Track spending patterns • Continue funding retirement accounts
• Target 25-35% of your income • Cut back unnecessary expenses • Maximize contributions to retirement accounts
• Target at least 35% of your income • Maximize contributions to retirement accounts • Adjust retirement goals
Schwab Retirement Plan Services
Save more aggressively
Invest efficiently
Spend less in retirement
Delay retirement
Contribute more to retirement plans
Make annual savings adjustments
If you get a bonus, raise or promotion, don’t change your spending habits
Make catch-up contributions
Open additional retirement savings accounts
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Your plan: Ideas to boost savings
Dennis Getting ready for a long retirement
Get retirement ready
Hear from real people via multi-media experience
Schwab Retirement Plan Services
Your portfolio: Common questions
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I’m facing hard times, should I tap into my 401k?
My portfolio keeps losing money, can I retire as planned?
Given the market’s moves, should I change my investment mix?
As a retiree, how big of a cash cushion should I have?
Can I count on dividends going forward?
Schwab Retirement Plan Services
Your portfolio: Models for nearing and in retirement
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Age 60 - 69 Age 70 - 79 Age 80+
Return: (1970 - 2012) Return: (1970 - 2012) Return: (1970 - 2012) Average annual return: 9.6% Average annual return: 9.1% Average annual return: 8.0%
Best year: 30.9% Best year: 27.0% Best year: 22.8%
Worst year: -20.9% Worst year: -12.5% Worst year: -4.6%
Source: Schwab Center for Financial Research with data provided by Morningstar, Inc. The return figures are the average, the maximum and the minimum annual returns of hypothetical asset allocation plans. The asset allocation plans are weighted averages of the performance of the indices used to represent each asset class in the plans and are rebalanced annually. The Conservative allocation is composed of 15% large-cap stocks, 5% international stocks, 50% bonds, and 30% cash. The Moderately Conservative allocation is composed of 25% large-cap stocks, 5% small-cap stocks, 10% international stocks, 50% bonds, and 10% cash. The Moderate allocation is composed of 35% large-cap stocks, 10% small-cap stocks, 15% international stocks, 35% bonds and 5% cash. The indices representing each asset class in the asset allocation plan are S&P 500®Index (large-cap stocks); Russell 2000® Index (small-cap stocks); MSCI EAFE ® net of taxes (international stocks); Barclays U.S. Aggregate Bond Index (bonds); and Citigroup U.S. 3-month Treasury bills (cash.
Long-Term Return Estimate: 5.1% Long-Term Return Estimate: 4.3% Long-Term Return Estimate: 3.5%
CRSP 6-8 was used for small-cap stocks prior to 1979, Ibbotson Intermediate-Term U.S. Government Bond Index was used for bonds prior to 1976, and Ibbotson U.S. 30-day Treasury bills was used prior to 1978. Results assume reinvestment of dividends and interest. Indices are unmanaged, do not incur fees or expenses and cannot be invested in directly. Past performance is no indication of future results. For more information on the methodology for the long-term return estimate calculations, see the Market Insight article “Q&A: Estimating Long-Term Market Returns”.
5%
60% 35%
Moderate Moderately Conservative
Equity Fixed Income Cash Investments
10%
40%
50%
20%
50%
30%
Conservative
Schwab Retirement Plan Services
Source: Schwab Center for Financial Research. The example assumes hypothetical inflation of 3% and 6% to explore how inflation may impact the purchasing power of a fixed $50,000 per year pension or annuity. Inflation is represented by the change in the Consumer Price Index for Al Urban Consumers (CPI-U). Historically, 3% is the average inflation from 1926-2012. 6.2% is the average inflation from 1970-1989. Past performance is no indication of future results.
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
0 5 10 15 20
Year
Nominal Purchasing Power
Real Purchasing Power With 3% Inflation
Real Purchasing Power With 6% Inflation
Lost 44% of purchasing power after 10 years
Lost 26% of purchasing power
Lost 45% of purchasing power
Lost 69% of purchasing power after 20 years
Your portfolio: Don’t forget about inflation
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Schwab Retirement Plan Services
Your portfolio: Importance of rebalancing Impact of market performance on initial 60% stocks, 40% bonds allocation
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January 2003 to October 2007
Too much risk before bear market
Source: Schwab Center for Financial Research with data from Morningstar, Inc. The portfolio above is composed of 60% stocks and 40% bonds on 12/31/2002, and is not rebalanced through 10/31/2007. It is rebalanced to 60% stocks and 40% bonds on 10/31/07 and not rebalanced through 02/28/2009. Asset class allocations are derived from a weighted average of the total monthly returns of indices representing each asset class. The indices representing the asset classes are the S&P 500 Index (stocks) and the Barclays Capital U.S. Aggregate Bond Index (bonds). Returns assume reinvestment of dividends and interest. Indices are unmanaged, do not incur fees and expenses, and cannot be invested in directly.
Lost recovery potential before bull market
November 2007 to February 2009
40% 60%
30%
70%
60% 40%
Beginning Allocation (Balanced portfolio)
Ending Allocation (No rebalancing)
Schwab Retirement Plan Services
Your next steps
Gather information and complete the “Getting Retirement Ready” worksheet
Utilize the retirement calculator
Check out all the retirement resources available online
Check out your My Retirement Progress™ score
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Schwab Retirement Plan Services
Utilize the calculators
Find the retirement calculators on your home page on schwab.com/workplace
Calculators available for those individuals saving for retirement or retiring soon
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Schwab Retirement Plan Services
Leverage the online resources available to you
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Access to electronic services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.
schwab.com/realliferetirement
schwabsavingsfundamentals.com
schwabmoneywise.com
Schwab Retirement Plan Services
Determine your retirement readiness
Check out how you are doing
Log on to schwab.com/workplace – View account/Overview
Feature is designed to measure your progress toward preparing for retirement
Calculations based on combination of inputs from your employer
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Schwab Retirement Plan Services
We are here to help
Go online to enroll, change contribution rate, access education, etc. www.schwab.com/workplace
Talk to someone - contact your Schwab Advice Consultant 800-724-7526 Ask question or enroll
in advice
Review your quarterly statement
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Schwab Retirement Plan Services
Important information Apple, the Apple logo, and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. System availability and response times are subject to market conditions and mobile connection limitations. Android is a trademark of Google Inc. Use of this trademark is subject to Google Permissions. Amazon, Kindle, Kindle Fire, the Amazon Kindle logo, and the Kindle Fire logo are trademarks of Amazon.com, Inc. or its affiliates.
The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.
The information in this presentation is for informational purposes only. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.
Schwab Retirement Plan Services, Inc. provides recordkeeping and related services with respect to retirement plans and has provided this communication to you as part of the recordkeeping services it provides to the Plan.
The material contained herein is proprietary to Schwab Retirement Plan Services, Inc. ("SRPS”) and for informational purposes only. None of the information constitutes a recommendation by SRPS. The information is not intended to provide tax, legal, or investment advice. SRPS does not guarantee the suitability or potential value of any particular investment or information source. Certain information presented herein may be subject to change. Neither the presentation nor any information or material contained in it may be copied, assigned, transferred, disclosed, or utilized without the express written approval of SRPS.
Schwab Retirement Planner® provides participants with a retirement savings and investment strategy, a major component of which is a discretionary investment management service furnished by Morningstar Associates, LLC, an independent registered investment advisor and wholly owned subsidiary of Morningstar, Inc. Morningstar Associates is not affiliated with or an agent of Schwab Retirement Plan Services, Inc., Charles Schwab & Co., Inc., a federally registered investment advisor, or their affiliates. There is no guarantee a participant's savings and investment strategy will provide adequate income at or through their retirement. Fees are charged for Schwab Retirement Planner, including its discretionary investment management service, based on the participant's account balance.
Advice Consultants are not employees of Morningstar and act solely as facilitators to participants accessing the Morningstar service.
My Retirement Progress™ percentage is calculated by Schwab Retirement Plan Services, Inc. ("SRPS"), based on and using the data formulated by Morningstar Associates, LLC, an independent registered investment advisor and wholly owned subsidiary of Morningstar, Inc. Morningstar Associates formulates and provides estimated monthly income projections in retirement using savings and investment data and assumptions which include, but are not limited to, current retirement plan balance and savings rate, projected date of and estimated years in retirement, and 100% post-tax replacement income. SRPS cannot alter or influence any of the calculations that Morningstar Associates provides. SRPS then uses the projections formulated by Morningstar Associates to express the potential gap in retirement savings as a percentage that is made available as part of the retirement plan record keeping and related services provided by SRPS. Morningstar Associates is not affiliated with or an agent of SRPS, Charles Schwab & Co., Inc., a federally registered investment advisor, or their affiliates.. To obtain more information about how the percentage is calculated or to provide additional information that can impact My Retirement Progress calculations visit schwab.com/workplace or call 800-724-7526.
26 © ©2014 Schwab Retirement Plan Services, Inc. All rights reserved. (0214-0332)