Stock Market Brief Deck for "this does not happen often".pdf
IRA
1. Create the Opportunity for a Comfortable Retirement with an IRA Principal Financial Group John B. Sullivan A Simple Five-Step Action Plan
2. Creating a Comfortable Retirement What about a Comfortable Retirement? Define Comfortable
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4. Only 2 in 5 Workers Have Attempted to Calculate How Much Money They Will Need in Retirement Source: 2006 Retirement Confidence Survey, EBRI 42% 48% 53% 1998 1999 2000 44% 38% 43% 2001 2002 2003 42% 42% 42% 2004 2005 2006
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10. What is an IRA? A personal, tax-advantaged arrangement Benefits of an IRA: • Help you save on current and potentially future federal income taxes • Variety of investment options • Potential for powerful compound earnings
11. The Power of Tax-Advantaged Growth • $5,000 annual contribution • Hypothetical 8% annual rate of return • No additional distributions are made on the account • Assumes a 28% federal income tax bracket years until retirement John 20 years until retirement Kelly 30 years until retirement Marc 40
12. At Retirement. . . $164,743 $136,496 $407,819 $288,587 $932,603 $554,854 Marc 40 years until retirement Kelly 30 years until retirement John 20 years until retirement Investor IRA Balance Taxable Investment Balance
13. How Will You Get the Money To Invest? The average American home has more television sets than people.* Flat-panel TV sales rose to more than 17 million in 2006.** Consider * “Average home has more TVs than people,” usatoday.com, 9/21/2006. ** Tarr, Greg, “Flat-Panel TVs Begin to Dominate U.S. Market,” This Week in Consumer Electronics (twice.com), 3/26/2007. Will that T.V. you buy today be worth the potential of $400,000* in retirement later? Assumes: $5,000 annual contribution to a full tax-deductible traditional and/or Roth IRA into the account for 30 years Hypothetical 8% rate of return No distributions made on accounts Assumes a 28% federal income tax bracket and a 15% long-term capital gains rate 2.55 people per household 2.73 tvs per household
14. Creating a comfortable retirement with an IRA in five simple steps Establish your goals. Determine which IRA is right for you. Understand your options. Consider funding sources. Open an account and review it regularly. Step 1: Step 2: Step 3: Step 4: Step 5:
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17. Creating a Comfortable Retirement Traditional IRA • Get a tax break now and the opportunity for tax-deferred growth* Roth IRA • Make post-tax contributions now, and get federal tax-free growth and distributions on qualified withdrawals** * Not all investors eligible to receive federal tax deduction. Consult IRS Publication 590 or tax advisor to determine eligibility. Distributions prior to age 59½ may be subject to an IRS 10% penalty. ** Only qualified distributions are eligible for federal tax-free growth/distributions. Distributions that are not deemed qualified may be subject to income taxes and IRS penalty if removed prior to age 59½. Determine which IRA is right for you. Step 2:
18. Creating a Comfortable Retirement A traditional IRA is a simple solution with immediate tax advantages With a traditional IRA, you get: • Opportunity to lower your tax liability • Tax-deferred growth - you don’t pay taxes on your earnings until you withdraw money • A wide range of investment choices to meet your individual needs • Flexibility to invest as much as you’d like , up to annual limits *Based on your income level and other limitations; consult your tax advisor and financial professional for specifics. Determine which IRA is right for you. Step 2:
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24. Creating a Comfortable Retirement When is the deadline for contributing to an IRA? A: The tax-filing deadline (generally April 15), not the end of the calendar year. Open an account and review it annually. Q: A: Step 5:
28. Disclosures While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance issued by Principal Life Insurance Company. Principal Investors Funds, Inc A. B and C shares are distributed by Principal Funds Distributor, Inc. Other share classes of Principal Investors Funds, Inc. are distributed by Princor Financial Services Corporation, member SIPC. Principal Funds Distributor, Principal Shareholder Services, Principal Management Corporation, and Principal Investors Fund, Inc. are collectively referred to as Principal Funds. These companies are members of the Principal Financial Group ® , Des Moines, IA 50392. # 6564092009 PD3663-1
Editor's Notes
“ Comfortable.” What comes to mind when you hear this word? Comfortable clothes? A comfortable car? Maybe a comfortable recliner, or even friends who make you feel comfortable. What about a comfortable retirement? With comfort being so important in nearly all aspects of our lives, why should we want any less from retirement?
The question then becomes—how do you create an opportunity for a comfortable retirement? I’m sure you’ve figured out that it doesn’t happen automatically. Now more than ever before, a comfortable retirement is no longer a “given.” Your parents or grandparents could probably count on their company pensions to deliver a retirement income that could sustain their goals and dreams. Times, however, have changed. You have more responsibility for creating your own comfortable retirement, and although it takes savings and discipline—it can definitely be done. As you plan for a comfortable retirement, take a moment to think about the following questions. Write your answers down on a sheet of paper. ｷ What do you want to do in retirement? ｷ How much money will you need to save? [facilitator pauses to let investors write down their answers]
If that second question kind of tripped you up, don’t worry—you’re not alone. In fact, according to a recent survey on retirement confidence, only 42 percent - about 2 in 5 - workers have attempted to calculate how much money they will need in retirement. We’ll talk about why this may be in a moment.
Here’s what we’ll accomplish in the presentation today. [facilitator reads through agenda]
Let’s go back to why people don’t save enough for retirement—or try to calculate how much savings they will need to accomplish their retirement goals. I’m going to give you some of the common excuses people give for not saving for retirement—and some considerations for each. If you’ve ever thought “I don’t make enough money” you may want to consider starting with smaller contributions, and you’ll want to think about how your contributions can help you with your current federal income taxes. For example, by contributing to a traditional IRA, you don’t pay taxes from your earnings until you withdraw money on your account. So if you’re in the 28 percent tax bracket and make a $3,000 contribution, you can save up to $840 in taxes. To be in the 28% income tax bracket your individual earned income must be minimum $77,100 - $128,500 What about “I’m too young to worry about something so far away.” If this is something you’ve thought, consider the power of compound earnings. Compounding means if you generate a positive rate of return earnings on both the original investment option and the reinvested earnings. The longer the earnings have to compound, the more retirement funds it may earn. On the other side of this coin is the excuse “I’m too old. It’s too late for me now.” Did you know that if you’re 50 years or older, you can contribute a catch-up deferral ($1,000 in addition to the contribution limit) to an IRA? You still have time to put your contributions to work for you.
“ It’s too risky” is another common excuse. The truth is, it doesn’t have to be. Spread retirement funds among several types of investment options, including an IRA. By diversifying, you help lessen your risk and potentially reduce volatility. Many people think “I can just work longer than most people before I retire. .” But consider that you may not have the option. According to Social Security statistics, two-thirds of workers plan to work in retirement, yet the average retiree retired at age 62. And many people have to leave the workforce earlier than planned due to health problems, disability, or company changes. Be prepared for the unexpected in case you leave the workplace earlier than expected. Many people have the mindset “I’m not willing to give up anything now just to have more later.” Many people believe in living only for today, not thinking about retirement. But there are ways to invest for retirement without feeling like you’re sacrificing a lot today, such as contributing your federal tax refund directly into an IRA. I can work with you on the little adjustments that could make a big difference later.
“ Saving is too confusing.” If this sounds like you, help is on the way! Understanding how to invest can be overwhelming. That’s why I’m here. When you walk into a doctor’s office, the doctor doesn’t expect you to understand everything about the human anatomy. I don’t expect you to know everything about investing either. I can help you make sense of your options and create the right savings plan for your situation. It’s easy sometimes to think, “Something will happen and I’ll be ok.” It would be great if we could count on a sudden windfall from an inheritance, one big investment, or even winning the lottery. However, with these situations being very unlikely, the responsible thing to do is plan on something that’s a given—you’ll need money for retirement. I can help you find a way to save that you’re comfortable with. “ Why save when I can borrow?” Remember that debt has a downside: It’s costly and borrowing is not always available during crises. Debt not only keeps people from saving now, but it may be an added expense—even into retirement when income will be limited. You may think, “The government and/or my employer will be there to take care of me.” According to the Social Security Administration, in 1950 the ratio of workers per retiree was 16 to 1. It’s fallen to 3 to 1 today, and projected to be 2 to 1 within 40 years.* That means the number of workers available to support government programs, such as Social Security, may not be there. You really need to look out for your own future. *2005 Frequently Asked Questions About Social Security’s Future at http://www.ssa.gov.qa.htm
I want to talk to you about a savings tool that can help get you on track toward your retirement goals – the Individual Retirement Arrangement, or IRA.
You probably figure you have a good idea of what an IRA is. If you are like most people, you see it as a way to put money aside for your retirement with a tax advantage, and you would be right. But there is more than one type of IRA, and they all work a little differently. IRAs have been around for over 30 years. They were originally introduced with the 1974 Employee Retirement Income Security Act (ERISA). The Individual Retirement Arrangement (the original name for IRA) was originally set up as a tax-sheltered plan to assist people who did not have a company pension. Today, an IRA is a personal, tax-advantaged arrangement that can help you save on current and potentially future taxes while taking advantage of compound growth. Outside of a 401(k) or other employer-sponsored retirement plan, an IRA is one of the most powerful tools you can use to save money for your future. Let’s go over some of the benefits of an IRA. An IRA can help you save on current and potentially future taxes by either deferring taxes until you take distributions or paying taxes on contributions now for the potential for federal tax-free withdrawals later. An IRA also lets you choose which investments you would like to invest in, such as stocks, bonds, annuities, CDs, or mutual funds. With an IRA, you also have the potential for powerful compound earnings. Compound earnings are fueled by time. The longer your money has to accumulate compound earnings, the more growth potential there is.
Let’s take a moment to look at why tax-advantaged growth can be so powerful to your retirement savings. One of the top reasons people say they don’t save for retirement is “I’m too young to worry about something so far away.” The fact is, the younger you are, the easier it will likely be to reach your retirement goals and the bigger impact those tax advantages will have on your retirement savings. Let’s look at an example. Three people will each begin contributing to an IRA at the same time. Each will contribute $5000 annually to either a traditional IRA or Roth and will, for the sake of this illustration, earn an 8% annual rate of return. No additional distributions will be made on the accounts. Other assumptions are at time of distribution all are in the 28% income tax bracket. John is 20 years from retirement, Kelly is 30 years away from retirement, and Marc is 40 years from retirement.
In 20 years when John retires, how much do you think his IRA will be worth? [facilitator pauses for answers] His IRA will be worth $164,743. If this would’ve been a taxable investment, it would only be worth $136,496. What about Kelly? When she retires in 30 years, what can she expect her IRA to be worth? [facilitator pauses for answers] Her IRA will be worth $407,819. If this would’ve been a taxable investment, it would only be worth $288,587. Now let’s look at Marc, who had 40 years until retirement. What do you think his IRA will be worth when he retires? [facilitator pauses for answers] His IRA will be worth $932,603. A taxable investment would’ve only given him $554,854. So you can see that, even though John, Kelly, and Marc all contributed the same amounts each year to their IRAs, compound earnings worked to Marc’s advantage, making his retirement balance four times greater than John’s, who retired 20 years earlier, and nearly twice as much as that of Kelly, who retired just 10 years before Marc.
Okay, you might be thinking to yourself, “I don’t have $5,000 a year to contribute to an IRA. Where am I supposed to get that kind of money?” First of all, you don’t HAVE to contribute the maximum. I can show you how you can make a lower contribution to an IRA. But I can also help you look for places in your current budget where retirement savings could occur. For example, consider the cost of some items we may consider “necessities” for our lifestyle, when in reality the money we use to purchase these items would go much farther if invested in your future. Let’s take TVs for example. Did you know that the average American home now has more TV sets than people? According to Nielsen Media Research, there are 2.73 TVs in the typical home and 2.55 people.* And the TVs people are buying don’t come at a cheap price. In fact, sales of flat-panel TVs rose to more than 17 million in 2006. What if you invested $4000 in an IRA instead of a new TV set? In 30 years, your TV probably won’t work anymore, and if it does, it will most likely be outdated. However, your IRA will likely have increased to be worth much more than your original investment.
I am going to show you a simple approach to starting a plan for retirement by utilizing an IRA. (Read Steps on screen) After we have completed this demonstration, I can meet with you to personalize your plan to meet you and your family’s needs.
Investing in an IRA can be a powerful way to save more money for your retirement. However, you first need to determine which type of IRA suits you best. Today I’m going to go over 5 easy steps to help you create a starter plan by utilizing an IRA. Then I can meet with you in a one-on-one to create a plan that is personalized for you and your family’s needs. The first step is to establish your goals. In order to do that, you must be able to answer some questions and understand how to deal with some risks. First of all, you must define your retirement. In other words, how do you want to spend your retirement years? Traveling? Taking up a new hobby? Spending more time with family and friends? Take a minute to write down this down. [facilitator pauses] Now you have to consider the time you have until you retire. Write down whether you consider yourself a short-term investor (those who will invest five years or less), intermediate-term investor (those who have 5–10 years to invest), or long-term investor (those who expect to invest at least 10 years). Your timeline may determine the type of investment that best fits your needs. I can work with you to determine which investment strategy makes the most sense for your situation.
Aside from helping fund your retirement, an IRA can be used to accomplish other financial planning goals. Think about if any of these statements relate to you. If so, an IRA can help you meet these goals while setting up a comfortable future for you and your loved ones. [facilitator reads through statements on slide]
Now that you’ve established your goals, let’s take a closer look at IRAs. There are two basic types of IRAs: traditional IRAs and Roth IRAs. Each type has its own unique tax benefits, limitations, and savings opportunities. Let’s a closer look at the differences between a traditional IRA and a Roth IRA. Both a traditional IRA and Roth IRA have tax advantages, but they are very different.
A Traditional IRA is a simple solution with immediate tax advantages. With a traditional IRA, you get: Read bullets on screen.
The Roth IRA was created to let you earn retirement money free of federal taxes on your investments. With a Roth IRA, you get: [facilitator reads through bullets]
Let’s go through some statements. If many of these describe you, a Traditional IRA may be right for you. [facilitator reads through statements] My spouse and/or I have earned income. Eligibility to contribute to an IRA is having earned (from employment) income Under age 70 ½. You can begin taking penalty free distributions from your traditional IRA after age 59 ½. However, withdrawals made prior to age 59 ½ may be subject to a 10% IRS penalty. You must begin taking distributions the year after you reach age 70 ½. My tax bracket in retirement may be lower than my tax bracket now. With a traditional IRA, you defer paying taxes on the earnings until you withdraw money from your account. An immediate federal income tax deduction would help me out greatly. A traditional IRA is a simple solution with immediate tax advantages, depending on your income and other retirement plan coverage, you may be able to lower your current taxes by deducting your contributions on your federal income tax returns.. If you and your spouse are not currently covered by an employer-sponsored plan, you can full deduct your contributions from your federal income taxes. If you are covered by an employer-sponsored plan and household AGI is below $53,000 (single) or $85,000 (married)*, you can full deduct your contributions. * Based on 2008 tax year
Now let’s look at these statements. If many or all of these describe you, a Roth IRA may best suit your needs. [Facilitator reads through list] My spouse and/or I have earned income. o Eligibility to contribute to an IRA is having earned (from employment) income Our annual gross income is lower than $99,000 (single) or combined less than $156,000 (married). o In order to contribute the maximum amount, you annual gross income must not exceed $101,000 (single) or combined less than $159,000 (married). I believe that my tax bracket in retirement will be higher than my tax bracket now. o Your qualified distributions are federal tax free, which may be a significant advantage if your tax bracket will be higher in retirement. Being able to access my contributions before age 59 ½ without penalties is important to me. o You can withdraw your contributions at any time. o You can withdraw your earnings federally tax-free if you have held the assets in your Roth IRA for over 5 years and you have reached age 59 ½. I prefer the potential for federal tax-free growth on qualified distributions in the future. o With a Roth IRA, contributions are made with after-tax dollars. o If you don’t need the tax break right now or don’t qualify to deduct traditional IRA contributions, a Roth IRA can potentially give you more after-tax income and more withdrawal flexibility than a traditional IRA I plan on working past 70½. You also don’t have to take mandatory distributions upon turning 70½ (a rule of Traditional IRAs).
Once you’ve determined which type of IRA is right for you, it’s important to decide how you’ll fund your IRA. First, let’s talk about how much you can contribute. For 2008, you can contribute up to $5,000 to any IRA or a combination of IRAs. And thereafter the limit will be indexed for inflation annually in $500 increments. And if you’re 50 or older, you can contribute an extra $1,000 annually to help catch up your retirement savings!
There are a few ways you can fund your IRA: lump sum contributions, monthly contributions, or now you can even directly contribute your Federal tax refund into your IRA. I can help you determine what resources you can use to fund your IRA. Possible sources are savings or checking account, CDs, rollover from an employer-sponsored retirement plan, such as a 401(k), 403(b), 457, or pension), or an inheritance of an IRA or employer-sponsored retirement plan. If you are a beneficiary of an employer-sponsored retirement plan, you can possibly now roll assets into an Inherited IRA. If this is an option for you, I can show you how easy it can be.
After you decide which IRA is best suited for your immediate and long-term goals, you are ready to open an account and start saving! In a one-on-one meeting, I can help you fill out the necessary paperwork required to set up and begin funding your account. Who knows when the deadline is for contributing to an IRA? [facilitator waits for answers] It is not the end of the calendar year, but instead the tax-filing deadline, which is generally April 15. Contributing to your IRA can be an important part of your income tax strategy, and I can help you work with your tax professional to determine how to make the best use of your IRA opportunities.
Remember, it’s also important to review your account and revisit your goals each year because changes with your job, income, marital status, expenses, health, and retirement outlook can all warrant changes in your savings strategy. I can sit down and review and update your account(s) on a regular basis. Doing so can help you stay on track to creating a comfortable future.
Let’s go over what we’ve talked about today. [facilitator reads through summary slide]
Thank you for attending this presentation on Creating a Comfortable Retirement with IRAs. I’d love to make an appointment with you to discuss your retirement goals and how an IRA could help make those a reality. I’ll be here for a few minutes to answer any questions you may have.
