Preparing for Retirement
Chris Wilmerding Thayer Partners, LLC 100 High Street, Westwood, MA 02090 617-275-5432 Direct [email protected] www.ThayerPartnersLLC.com
Securi ties and advisory services offered by Commonwealth Financial Network, ® Member FINRA/SIPC, a Registered Investment Adviser. This material is provided for general informational purposes only and does not constitute either tax or legal advice.
The Resource Systems Group 401(k) plan:
» Generous company match: contribute 5% and RSG will give you 4% of your salary
» Low cost Vanguard index funds= good performance and more money in your pocket
» Easy to use retirement calculators and tools at: https://my.vanguardplan.com
» 401K Plan Customer Service: 866-794-2145
» 1:1 Retirement Planning Benefit: Chris Wilmerding 617-275-5432
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Understanding Your 401(k) Plan
Make the most of your 401(k) plan:
» Review your savings goal and consider saving more
» Remember catch-up contributions if you’re over 50
– $18,000 plus $6,000= $24,000 Maximum Contribution
» Savings Rule of Thumb: 15% of salary
» Review your investment allocation (now and annually) and make changes as needed
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Understanding Your 401(k) Plan
How much money do I need to save?
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Sources of Retirement Income
Social Security
Earnings
Asset Income
Private Pensions
Gov't Employee Pensions
Other
Source: Social Security Administration
Understanding Your 401(k) Plan
An example (if John Doe retires today):
» Total investments: $500,000 X 4%= $20,000/year
» Social Security (including spousal benefit): $40,000/year (For every year you wait, your benefits go up by $1,960.50 annually.)
» Teacher pension: $3,500/year
» Total Pre-Tax Income: $63,500/year in retirement
» Total After-Tax Income: ~$54,000/year in retirement
» Total Monthly After-Tax Income: $4,500
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Understanding Your 401(k) Plan
Understanding Your 401(k) Plan
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This is a hypothetical example and not intended to predict or project investment performance. Your own results will vary. It assumes systematic $4,000 pretax
contributions to a tax-deferred retirement plan account made annually on January 1 for the number of years indicated above and a 7% annual rate of return. No dis tributions were taken from the account during the entire period. This does not take into account taxes on distribution or fees and expenses. If account fees and expenses were deducted, performance would be lower. Pretax contributions and any earnings will be taxed at the time of distribution and may also be subject to an early withdrawal penalty i f distributed before age 59½. Systematic investing does not ensure a profit or protect against loss in a declining market.
Total contribution value*
Joseph $104,000 total invested
30 years
$293,935
$343,414
The Advantages of Starting Early
40 years 65 years
Susan $40,000 total invested
*Assumes a 7% annual rate of return
Susan Joseph
Pretax contribution $4,000 per year from ages 30 to 39 $4,000 per year from ages 40 to 65
Total amount contributed $40,000 $104,000
Total contribution value $343,414 (pretax) after 36 years $293,935 (pretax) after 26 years
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Saving and Investing in a 401(k)
How Do I Decide How Much Goes Where?
By finding out what kind of investor you are!
Asset Allocation
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Saving and Investing in a 401(k)
Sample Asset Allocation Portfolios n Cash n Bonds n Stocks
Generally, among asset classes, stocks may present more short-term risk and volatility than bonds or short-term instruments but may provide greater potential return over the long term. Al though bonds generally present less short-term risk and volatility than stocks, bonds contain interest rate risk (as interest rates ri se, bond prices usually fall), default risk, and inflation risk. Foreign investments, especially those in emerging markets, involve greater ri sk and may offer greater potential return than U.S. investments. These target asset mixes are hypothetical models and illustrate certain examples of many combinations of investment allocations that can help an inves tor pursue his or her goals; these target asset mixes do
not constitute investment advice under the Employee Retirement Income Security Act of 1974 (ERISA) . You should choose your own investments based on your particular objectives and situation. Remember, you may change how your account i s invested. Be sure to review your decisions periodically to make sure they are still consistent with your goals. Education on investment alternatives and servi ces does not generally constitute investment advice as defined under ERISA. Asset allocation does not ensure a profit or protect against loss. For illustrative purposes only.
Aggressive Growth
RISK SPECTRUM Decreasing investment risk and increasing inflation risk
Increasing investment risk and decreasing inflation risk
20%
75%
5% 5%
40%
55%
5%
60% 35%
5%
80%
15% 5%
95%
Conservative Moderate Balanced Growth
Make it simple
Target date funds:
» What year will you retire?
» Choose the fund with that year (or the nearest year) in the name
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Understanding Your 401(k) Plan
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Saving and Investing in a 401(k)
A sample retirement portfolio asset allocation grows more conservative—holding more bonds/cash and fewer stocks—as it approaches the target date.
Target-Date Portfolios—How They Work
This is a hypothetical example for illustrative purposes only. The chart represents potential ri sk and return and does not re flect actual retirement portfolio allocations. Investments in target retirement funds are subject to the ri sks of their underlying funds. An investment in a target retirement fund is not guaranteed at any time, including on or after the target date. Target retirement fund suggestions are based on an estimated retirement age of approximately 65. Should you choose to retire s ignificantly earlier or later, you may want to consider a fund with an asset allocation more appropriate to your situation .
Asset Class 45 35 25 15 5 At Target Date 5 15+
U.S. Equity Funds 66% 62% 60% 52% 38% 37% 32% 15%
International Equity Funds 24% 23% 22% 19% 14% 13% 12% 5%
Bond Funds 10% 15% 18% 30% 40% 40% 37% 40%
Short-Term Investment Funds 0% 0% 0% 0% 9% 10% 20% 40%
Years Before Retirement Years In
Retirement
More Aggressive Less Aggressive
Target-Date Funds Hypothetical Asset Allocation
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Saving and Investing in a 401(k)
Emotional Roller Coaster of Investing
Mar
ket
Pe
rfo
rman
ce
Positive
Negative
This hypothetical scenario is for illustrative purposes only and is not a prediction of future market conditions.
Riskiest time
Euphoric “I should quit my job and do this full time! Look at the money I ’m making!”
Confident
“I’ve already made money.
This is great.”
Nervous “What happened?
What is going on?”
Desperate “There’s no point in sell ing now; I ’ve lost too much.”
Defeated
“There go my dreams of an early retirement.”
Hopeful “Things seem like they’re turning around.”
Best opportunity to make money
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Saving and Investing in a 401(k)
» Never too late to start saving
» Savings Rule of Thumb: 15% of salary
» The 4% Rule
» Save for Retirement First (vs. pre-paying mortgage or college funds)
» Target Date Funds are the smart decision!
» Give your 401K a raise every year (every time you get a salary increase or make it a New Year’s Resolution)
» Review your investment allocation (now and annually) and make changes as needed
» Thayer Partners is here to help! Schedule a 1:1 retirement plan meeting
Key Points
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Understanding Your 401(k) Plan
Investors should consider the investment objectives, risks, and charges and expenses of the investment company carefully before investing.
The prospectus contains this and other information about the investment company. You can obtain a prospectus from your financial representative. Read the prospectus carefully before investing.
Questions?
