1. An Educational Guide
for Individuals
Retire confidently
Planning for retirement Retirement risks and numbers to know
starts with you
If you want to retire confidently, having a plan is a step in
Longevity Risk is the possibility
the right direction. Your plan should be tailored to meet your
of outliving retirement assets.
needs, time horizon and risk tolerance and include some People are living longer and may
63%
important criteria: spend 20 or 30 years or more in Probability that one person
retirement, which means a longer from a couple, both age 65,
• A Predictable Income Stream that is reliable and period of time to stretch lives to age 90.1
can help you avoid unwanted surprises functioning retirement assets.
smoothly in good markets and bad. Inflation Risk is a reduction in
purchasing power over time. At a
$264.12
• Access to assets for flexibility to meet your changing minimum, your income needs to The amount needed in 2010
needs over time. keep pace with inflation to help to match the buying power of
maintain your standard of living. $100 in 1980.2
• Growth opportunities so your income has the
Cost of Health Care has risen
potential to keep pace with inflation helping you
dramatically in recent years, 8.3%
maintain your standard of living. sometimes even exceeding the Average annual price
rate of inflation. This may become increase of prescription
Incorporating these criteria into your plan can also help a significant challenge during the drugs from 1994–2005.3
you address some of the important risks that could have a later years of retirement.
Market Risk is the potential you
significant impact on your retirement.
may lose money that you’ve
4
invested. Investment losses will Number of years the S&P 500®
Developing a sound retirement plan is integral leave you with less money to live Index had a negative return
on in retirement. from 2000–2009.4
to retiring with confidence.
Excessive Withdrawals Risk
70%
is withdrawing too much too Percentage of people that
quickly which could result in believe they can safely
running out of money. withdraw 10% or more a year
from their retirement savings.5
Source footnotes are located on back page
NOT A BANK OR CREDIT UNION DEPOSIT OR OBLIGATION • NOT FDIC OR NCUA INSURED • NOT INSURED BY ANY FEDERAL
GOVERNMENT AGENCY • NOT GUARANTEED BY ANY BANK OR CREDIT UNION • MAY GO DOWN IN VALUE
2. Fundamental components of your retirement strategy
A sound plan includes a retirement strategy that addresses to react to life’s needs without withdrawing from other assets
essential planning criteria with three fundamental components: that could impact your predictable income stream. Note: When
• Predictable income stream choosing assets for this component, please consider any fees or
• Access to your liquid assets; and penalties for early withdrawals.
• Growth potential
Growth potential
Actively managing the allocation of your retirement savings to Growth is an important aspect of your retirement strategy
these three components is a key to retiring confidently. because it provides you with the most opportunity to sustain
your long-term needs. It can also help you maintain your
Predictable income stream standard of living. However, typically the greater the
This component uses financial vehicles that provide reliable potential for growth, the greater the investment risk.
income in both good markets and bad. For that reason, it
Future growth, if any, provides you with:
provides a solid foundation for your plan. Once you create
your predictable income stream, you’ll be in a much better • The opportunity to purchase additional predictable
position to address other needs or goals, such as health care income as needed to potentially outpace inflation.
or legacy planning. • The ability to leave a legacy to your heirs.
• Maximum flexibility to help ensure a
By using a portion of your retirement assets to create
confident retirement.
predictable income you:
• Always have the benefit of income you can count on.
A retirement strategy with predictable income,
• Create a “floor” to help cover your basic living
expenses, such as food, housing and transportation.
access to your money and growth potential
• Allow the growth portion of your portfolio to can form the basis for a sound plan.
accumulate more efficiently by reducing the amount
or the need to withdraw money from it. Working Years
For an added layer of protection against longevity risk you
Retirement 11+ years
can purchase financial vehicles that provide guaranteed
Long-term strategy
lifetime income.
The guarantees associated with an annuity are based on the Growth
claims-paying ability of the issuing company. Focused
Access to your liquid assets
This component of your retirement strategy uses conservative, Access Predictable
liquid financial vehicles for emergencies and special needs. Income
If you choose to, you can also set aside assets in longer-term
conservative financial vehicles for supplemental income needs ·· Longest investment time horizon.
or discretionary spending. The access component allows you ·· Generally has the largest growth allocation to support
future predictable income needs.
3. Your retirement strategy should reflect your needs
Now that you understand the fundamental components of No matter how distant your retirement, your strategy will
a retirement strategy, to get started, ask yourself two eventually transition to a near-term strategy. For this reason,
important questions: you want to be sure your strategy is flexible enough to meet
1 | When do I need to start receiving income? your changing needs.
2 | How much predictable income do I need to cover my
Key considerations for designing your strategy
basic living expenses?
Once you identify your retirement horizon you can begin
Planning when you will begin taking income and how much to design your strategy and start choosing funding vehicles
you will need are the critical factors in determining how to for each of its components. These will vary based on your
allocate your money among the income, access, and growth needs, preferences, time horizon and risk tolerance.
components of your retirement portfolio.
Your risk tolerance is an important element in determining
Retirement strategies generally fall into three scenarios: the aggressiveness of your investment selections, the balance
• Long-term – for people who need income in 11 or of assets among the three components of your strategy and
more years. the need for guarantees.
• Intermediate-term – for people who need income
within 6 to 10 years.
When you need to start receiving income,
• Near-term – for people who need income immedi- how much income you’ll need and your risk
ately or within the next 5 years. tolerance will be key influences on your
retirement strategy design.
Retirement
Retirement 6 – 10 years Retirement Now – 5 years
Intermediate-term strategy Near-term strategy
Growth Growth
Predictable
Access Predictable Access Income
Income Focused
·· Retirement crunch time – results in these years can ·· May require more assets allocated to predictable income to
significantly impact retirement. cover basic living expenses.
·· Careful balance between growth and access. These ·· Access component offers longer-term conservative assets
assets can be re-allocated to provide a predictable available for supplemental income needs.
income stream.
