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. 65-67 (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. 30-60%

B. 40-70%

C. 70-100%

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 www.vanguard.com

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. 30-60%

B. 40-70%

C. 70-100%

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…

Start Age 25 Age 35 Age 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 InflationThe Effects of Inflation

Today:Today:

Cost of 1 Gallon of Milk = $4.00Cost of 1 Gallon of Milk = $4.00

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The Effects of InflationThe 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 InflationThe 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???