Charting Your Course to Retirement (Detailed)
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Charting your course to retirement
Sample Company
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Strategic PARTNERS
Your employer has chosen a team of strategic business partners that work together to provide the services your plan needs. This team approach gives you all the resources you need to meet your retirement goals.
RANDALL & HURLEY | TPA • Compliance testing • Annual reconciliation • Plan design & consulting • Provides reports & forms • Provides website access
SAMPLE | CUSTODIAN • Holds plan assets
SAMPLE CO | SPONSOR • Ultimate service provider & fund
selection • Transmits information
SAMPLE | INVESTMENT BROKER • Advises fund selection • Monitors fund and plan
performance
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Planning Your route
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Retirement Plans 46%
Social Security 36%
Savings & Investments
16%
Other 2%
Retirement Income sources
Your retirement plan is a vital source of retirement income and provides several advantages to traditional savings accounts, including: • Personal income tax savings • Choice and flexibility in planning for
your future • Convenience of automatic
reductions from pay • Potential for employer contributions
to further bolster your savings Source: Fast Facts and Figures About Social Security, 2009, Social Security Administration
Today’s retirees rely on several income sources. Your retirement plan is a critical component of your retirement income because you are able to control how much is available to you at retirement. By planning ahead, you can achieve your goals.
Retirement Planning
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Start saving & Stay the course
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Experts agree that the best way to save for retirement is to start saving now. Traditional deferrals are made on a pre-tax basis (but are taxed later) while Roth deferrals are made on an after-tax basis (but aren’t taxed later).
WHY SAVE?
Use the table to see how it works. You can choose to save taxes now or at retirement based on how
you choose to defer.
Pre-Tax Deferral
Equal Contribution Roth Deferral
Equal Pay Roth
Deferral Gross Annual Pay $30,000 $30,000 $30,000
401(k) Contribution ($200/mo.) 2,400 2,400 2,040
Taxable Income 27,600 30,000 30,000
Federal Income Taxes (15%) 4,140 4,500 4,500
FICA (7.65%) 2,295 2,295 2,295
Net Take-Home Pay $21,165 $20,805 $21,165
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After one year of making retirement contributions, your total assets will likely grow due to investment returns and added tax savings.
ASSETS AFTER ONE YEAR
$28,964
Take Home Pay Taxes
+$26,650 -$5,850
Take Home Pay Taxes Tax Savings Retirement Interest Employer Contribs
+$23,985 -$5,265
+$585 +$3,250
+$169 $975
No plan Investment 10% invested in Plan
$26,650
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The earlier you start saving, the easier it will be to meet your goals. Starting to save now—even if it’s just a little bit—can make a big difference at retirement.
HOW LONG WILL IT TAKE TO SAVE $100,000?
Number of
Years
Monthly Savings
Required
10 $578 20 $192 30 $82 40 $38
Starting to save now makes it easier to achieve your retirement goals. When you
start saving early, your required savings amount is much smaller.
Illustrations assumes a 7% annual return.
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The earnings you accrue as your account grows makes a dramatic impact on your retirement savings. Many call this phenomenon the miracle of compound interest. No matter what you call it, it’s clear that the sooner you begin to save, the more you can rely on investment earnings—and not just contributions—to help you meet your retirement goals!
THE MIRACLE OF COMPOUND INTEREST
0
20
40
60
80
100
120
140
160
180
200
0 10 20 30 40
Tota
l Acc
ount
Val
ue ($
1,00
0)
Years
Contribs Earnings
Illustration assumes a 7% annual return.
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Making small changes to your spending habits makes it easier than you might think to meet your retirement goals. A LITTLE GOES
A LONG WAY Average
Spent Tax
Savings Retirement
Savings 10 Years 20 Years 30 Years
Coffee Break $4/day $58 $2,010 $27,660 $82,071 $189,107
Use a loyalty card Save $146 $2,018 $5,987 $13,795
Limit to twice/week Save $1,040 $14,370 $42,637 $98,243
Eating Lunch Out $148/mo $68 $2,368 $24,538 $72,808 $167,762
Brown bag it 3 times/week Save $1,154 $15,945 $47,310 $109,012
Dining Out $58/wk $232 $8,043 $111,126 $329,727 $759,748
Skip one happy hour/month Save $696 $9,616 $28,533 $65,745
Entertainment $225/mo $78 $2,700 37,304 $110,688 $255,044
Watch movies at home Save $300 $4,145 $12,299 $28,338
Digital Downloads $10/mo $3 $120 $1,658 $4,919 $11,335
INVEST IT INSTEAD WATCH YOUR ACCOUNT GROW
Illustrations assume contributions are made on a pre-tax bi-weekly payroll schedule, the 25% income tax bracket, and interest of 7%, compounded annually. Data Source: www.bls.gov, accountingprincials.com
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YOUR RETIREMENT NEEDS Experts recommend you will need 70% - 90% of your annual income to maintain the quality of life you enjoy now.
Annual Income at Retirement
Replacement Percent
Annual Retirement Need
No. of Years in Retirement
Total Retirement Savings Need
$50,000
80%
$40,000
20
$800,000
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Allocate your investments across multiple asset classes to achieve the right balance of growth and security for your risk tolerance. The following tips will keep you on course:
SELECTING INVESTMENTS
Focus on THE long-term goal
UNDERSTAND risk & return
Diversify YOUR PORTFOLIO
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FOCUS ON LONG TERM GOALS
How much time you have to save for retirement should impact how you investment your retirement plan account.
Years Until Retirement
<15 Long Term Investor You can afford to take some risks in hopes of a bigger payoff.
> 5 SHORT Term Investor Your goal is to preserve capital. Your portfolio should be more risk-averse.
5 - 15 MID Term Investor You have enough time to take on some risk in search of higher-than-average returns.
Less Risk More Risk 5 10 15 20 25
AVERAGE RATE OF Return INVESTOR PROFILE
Conservative Moderate Balanced Growth Aggressive
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UNDERSTAND RISK & RETURN
How much time you have to save for retirement should impact how you investment your retirement plan account.
RISK/RETURN RELATIONSHIP Risk/RETURN BY ASSET CLASS
Risk
Retu
rn
Short Term Investments
Bonds
Large Cap
Mid Cap
Int’l.
Small Cap
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3.58%
Annual Range of Return (%)
Average Return 6.04% 7.90% 8.81% 9.42% 9.85%
-0.04
15.20 11.13
0.06 -17.67
31.06 17.24
-0.37
-40.64
76.57
23.14
-6.18
-52.92
109.55
27.27
-10.43
-60.78
136.07
31.91
-13.78
-67.56
162.89
36.12
-17.36
5%
25%
49%
21%
Data Source: Ibbotson Associates, 2011 (1926-2011). Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent actual or implied performance of any investment option.
RISK & RETURN BY PORTFOLIO
This chart illustrates how asset allocation can be created with different risk and return characteristics to meet your goals. You should choose your investments based on your particular objectives and situation.
Int’l. Stocks
Bonds Short-Term/Cash
Domestic Stocks
15%
60%
25%
70%
30%
10%
40% 35%
15% 30%
50%
14%
6%
Short-Term Conservative Balanced Growth Aggressive
Growth Most
Aggressive
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DIVERSIFY YOUR PORTFOLIO
By allocating your account across multiple asset classes, you balance your risk for a variety of market conditions.
Diversification does not ensure a profit or protect against a loss in a declining market.
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ASSET CLASS DIVERSIFICATION
Certain asset classes do better in different market conditions. For example, stocks tend to rise when bond rates fall.
Past performance is no guarantee of future results.
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SAMPLE ASSET ALLOCATIONS
The diagram below illustrates how asset allocations change based on your risk tolerance and time horizon.
10%
40% 50%
20%
40%
40% 30%
40%
30%
20%
50%
30% 40%
40%
20%
50% 40%
10%
70%
20%
10%
80%
20%
90%
10%
Long Term Investor 15+ Years
Short Term Investor 0 - 15 Years
Mid Term Investor 5 – 15 Years
Conservative Moderate Aggressive
Stocks Bonds Short-Term/Cash
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o Contact Information Is your street address and email current?
o Contribution Level Can you save a little more?
o Beneficiary Designations Marriage, divorce and children may necessitate a change.
o Investment Elections Is your current investment strategy a good fit for your long-term goals?
o Rebalance Options Should you rebalance your account to align with your investment strategy?
PERIODIC REVIEW At least once each year, you should complete a plan review to verify:
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ANYTIME ACCOUNT ACCESS
1-888-454-0334
VRU System (888) 454-0334
Basic Account Inquiry
Online & Mobile Website www.randall-hurley.com
Comprehensive Account Management
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YOUR PLAN HIGHLIGHTS
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YOUR PLAN HIGHLIGHTS
General Plan Information
Plan Type: 401(k) Plan
Trustees: John Smith
Effective Date: January 1, 2012 (for employer contributions)
Normal Retirement Age: Age 62 (with 5 years of participation)
Vesting Percent:
• Account balance from elective deferrals is 100% vested; • Account balance from employer 3% Safe Harbor Nonelective
contributions is 100% vested; • Account balance from Employer Profit Sharing and Matching
contributions is subject to a 6 year graded vesting schedule (0-1 years = 0%, 2 years = 20%, 3 years = 40%, 4 years = 60%, 5 years = 80%, 6+ years = 100%). Years of service start effective 1/1/2012.
Investments: Plan assets will be invested in accounts held at Thrivent. Participants will be able to direct 100% of their account balance and will have access to their account through Thrivent’s website.
Timing of Statements: Thrivent will issue monthly/quarterly participant statements. Plan assets are daily valued.
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YOUR PLAN HIGHLIGHTS
Plan Eligibility & Entry
Eligibility Requirements: Attainment of age 21 and one year of service (working over 1000 hours).
Entry Date: January 1 or July 1 following completion of eligibility requirements.
Contribution Types
Employee Pre-Tax or Roth Salary Deferrals:
Participants are allowed to elect pre-tax or Roth salary deferral contributions up to 100% of compensation not to exceed $17,000 (2012). Participants who are age 50 by December 31 may contribute an additional $5,500 “catch-up” contribution. These limits are adjusted each plan year.
Employer 3% Safe Harbor Nonelective Contribution:
The employer will make a Safe Harbor contribution to each eligible participant’s account equal to 3% of compensation.
Employer Discretionary Profit Sharing Contribution:
The employer may make a discretionary profit sharing contribution that will be a designated percentage of each participant’s compensation.
Employer Discretionary Matching Contribution: The employer may make a discretionary matching contribution.
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YOUR PLAN HIGHLIGHTS
Distributions from the Plan
In-Service Withdrawals: None permitted.
Distributions: Processed as soon as administratively feasible following termination of employment.
Forms of Payment: One-time Lump-sum of account balance that can be received as taxable income or rolled over (to an IRA or another qualified plan).
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CUSTOMER SERVICE
Monday – Friday 8 am – 5 pm PST
(888) 682-4406
[email protected] Messages will be routed
Monday – Friday, 8 am – 5 pm PST
www.randall-hurley.com For general questions, from the home page, click For Individuals/Resources.