1. RETIREMENT
INSIGHTS
Guide to Retirement
2012 Edition

2. RETIREMENT
INSIGHTS
Table of contents
Setting the stage
Factors that may influence an individual’s ability to retire........................................................... 4
Saving
Behaviors and best practices in saving for retirement................................................................15
.
Spending
Behaviors and considerations for living in retirement................................................................. 21
Investing
Building a retirement portfolio....................................................................................................... 26
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3. RETIREMENT
INSIGHTS Page reference
Setting the stage Spending
5 Life expectancy probabilities 22 Typical wealth and sources of income at retirement
6 Older Americans in the workforce 23 Dollar cost ravaging — impact of market returns on distribution
7 Managing expectations of ability to work 24 Changes in spending
8 Social Security 25 Effects of withdrawal rates on a typical balanced portfolio
9 Inflation impacts on older Americans
10 Spending and inflation Investing
11 Cost of health care in retirement
27 Structuring a portfolio to match investor goals
12 Pension plan coverage
28 Diversification
13 Federal budget implications
29 Impact of being out of the market
14 Historical tax rates
30 Major asset classes vs. inflation
31 Asset class returns
Saving
16 savings checkpoints Appendix
17 Benefit of saving early
32 Traditional IRAs vs. Roth IRAs – 2011
18 Savings rate
33 Traditional IRAs vs. Roth IRAs – 2012
The
19 toxic combination of varied savings and loans or
34 Medicare definitions and information
withdrawals
35 Annuity basics
20 Evaluate a Roth IRA
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4. RETIREMENT
INSIGHTS
Setting the stage
Setting the stage
“Retirement” is different now than it was for previous generations. Many issues are interconnected which need
careful consideration when developing a retirement strategy.
Common misconceptions
“I’ll continue to work during retirement.”
• 70% of employed Americans plan to work beyond age 64 — but only 28% of current retirees actually did.
• number of factors can cause people to retire earlier than expected, including health problems, employer
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issues and family obligations. Page 7
“My spending patterns won’t change much.”
• he inflation rate is higher for retirement-age Americans who spend disproportionately more on items that
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rise fastest in price, such as health care. Pages 9 and 10
“My medical expenses will be covered.”
• Out-of-pocket medical costs make up 15% of a retiree’s total expenses. Page 10
• t is estimated that a woman retiring in 2020 without employer coverage would need as much as $357,000
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for insurance premiums and other health care costs. Page 11
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5. RETIREMENT
INSIGHTS Life expectancy probabilities
If you’re 65 today, the probability of living to a specific age
Setting the stage
100%
91% Women
Men
80% 75% Couple – at least one lives to specified age
Count on longevity: Life
65% expectancy tells only half
the story. Plan on the
60%
52% probability of living much
longer, perhaps 30 plus
years in retirement.
40% 37%
• For example, there is
24% a 52% chance that one
20% spouse will live to age 90.
4% 6%
2%
0%
80 years 90 years 100 years
Source: Society of Actuaries, “Key Findings and Issues, Longevity: The Underlying Driver of Retirement Risk,”
2005 Risks and Process of Retirement Survey Report, July 2006.
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6. RETIREMENT
INSIGHTS Older Americans in the workforce
Percent of people over 65 currently in the Labor Department projected percentage
civilian labor force, 1989 - 2010 change in labor force by age, 2010 - 2020
Setting the stage
18% 17.4% 100% 83.4%
16% 80% 67.7%
60%
14%
40% 25.8%
12% 20% 1.6%
It’s still off to work I go:
10% 0% More people are working
1990 1994 1998 2002 2006 2010 -12.4%
-20% 16 to 24 25 to 54 55 to 64 65 to 74 75+ beyond the age of 65 both
Major reasons why people work in retirement by choice and for financial
Decreased value of reasons.
savings or investments 26%
Buy extras 21%
Needs
Make ends meet 17%
Keep insurance
or benefits 15%
To stay active 60%
and involved
Enjoy working 59%
Wants
Job opportunity 26%
Try new career 6%
0% 10% 20% 30% 40% 50% 60%
Source (top left chart): Bureau of Labor Statistics. Data as of December 31, 2010. Latest available data through December 31, 2011.
Source (top right chart): Bureau of Labor Statistics. Data as of December 31, 2010. Latest available data as of January 31, 2012.
Source (bottom chart): Employee Benefit Research Institute and Mathew Greenwald Associates, Inc., 2010 Retirement Confidence Survey.
Data as of March 2010. Latest available data through December 31, 2011.
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7. RETIREMENT
INSIGHTS Managing expectations of ability to work
Current expectations of retirement vs.
experience of actual retirees Negative reasons cited for retiring earlier than planned
Setting the stage
100%
Retire before age 65
Health problems
Retire at age 65 or over or disability 63%
80% Forced retirement:
70% 69% Changes at Although more Americans
company 23%
(downsizing/closing) are working past age 65,
60% not everyone is able to.
Work-related 20%
reasons
40%
28% Care for spouse 18%
or family member
23%
20%
Outdated skills 8%
0%
Current workers’ Experience of 0% 10% 20% 30% 40% 50% 60% 70%
expectations actual retirees
Source: Employee Benefit Research Institute and Mathew Greenwald Associates, Inc., 2011 Retirement Confidence Survey.
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8. RETIREMENT
INSIGHTS Social Security
Social Security break-even analysis
Estimated total benefits if distributions begin at a certain age
Setting the stage
$900,000
$800,000 Start distribution at age 62
$700,000 Start distribution at age 66
$600,000 Start distribution at age 70 Planning opportunity:
$500,000 Delaying benefits means
$400,000 having more money to
$300,000 spend later, compensating
$200,000 for increased longevity.
$100,000
$0
62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86
Social Security break-even data
Age Start distribution at age 62 Start distribution at age 66 Start distribution at age 70
70 $180,384 $131,376 $0
75 $293,124 $295,596 $244,560
77 $338,220 $361,284 $342,384
79 $383,316 $426,972 $440,208
80 $405,864 $459,816 $489,120
85 $518,604 $624,036 $733,680
Source: Break-even calculated using Social Security Administration calculator and assumes maximum Social Security benefits are received for an individual
turning 62 in 2012 and assumes monthly benefit remains the same throughout lifetime. For illustrative purposes only. Data as of December 31, 2011.
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9. RETIREMENT
INSIGHTS Inflation impacts on older Americans
Comparison of inflation
Older households vs. younger households, 1985 = 100
Setting the stage
240
25 - 34 years of age
220 65 + years of age
Age and inflation: Inflation
impacts older households
200 more than younger ones.
Staying diversified may
help to overcome the
180 effects of inflation eroding
their purchasing power.
160
140
120
100
’85 ’90 ’95 ’00 ’05 ’10
Source: Estimates based on Consumer Price Index and Expenditure Surveys, BLS, J.P. Morgan Asset Management. Data as of December 31, 2011.
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10. RETIREMENT
INSIGHTS Spending and inflation
Spending by age and category
50%
Setting the stage
42%40% 25 - 34 years of age
40% 65 + years of age
30%
21%
20% 15% 16% 15% 16%
Losing ground: Inflation
10% 5% 4% 5% 6% 6% 5% 3%
2% 1% disproportionately affects
0% older Americans due to
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in those categories.
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Inflation by spending category, 1982 - 2011
6.0% 5.3% 5.2%
4.0% 3.0% 2.9% 2.7% 2.0%
2.0% 0.9% 0.9%
0.0%
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Source (Top chart): BLS, Consumer Expenditure Survey. Data as of December 31, 2011.
Source (Bottom chart): BLS, Consumer Price Index, J.P. Morgan Asset Management. Data represents annual percentage increase from December 1981 through
December 2010 with the exception of entertainment and education, which were first published in 1998. Other category consists of personal care products
(1.4%), reading (.4%), tobacco (.6%) and other miscellaneous (2.1%).
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11. RETIREMENT
INSIGHTS Cost of health care in retirement
Present value savings needed to fund out-of-pocket health care costs for retirees without
employer medical coverage
Setting the stage
$400,000 Cover 90% of possible health
outcomes and prescription
drug expenses
$357,000
Cover 50% of possible health
outcomes and prescription Preventative care:
$300,000 $313,000
drug expenses Although estimates of
future health care costs
continue to change, it
$200,000 $213,000 is important to include
• If you have retiree medical
$187,000 coverage through your employer, potential medical expenses
$156,000 your out-of-pocket costs may be in your retirement planning
less and your plan benefits could
on a personalized and
$100,000 be greater.
$109,000 annual basis.
$93,000 • Only 27% of retirees report
$65,000 having access to employer
medical coverage.*
$0
Men Women Men Women
Retire in 2010 Retire in 2020
Source: Employee Benefit Research Institute. Issue Brief No. 351, December 2010. Monte Carlo simulation analysis performed to calculate with a 90% and
median certainty that a retiree will have enough savings to cover medical costs for Medigap, Medicare Part B Premiums and out-of-pocket health care costs for
life, if retiring at age 65. This simulation does not include long-term care expenses. Please note that this simulation is for illustrative purposes only. There is no
guarantee that the figures shown would be sufficient to cover out-of-pocket medical expenses.
Chart includes Medicare Part D premium.
* mployee Benefit Research Institute and Mathew Greenwald Associates, Inc., 2011 Retirement Confidence Survey.
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12. RETIREMENT
INSIGHTS Pension plan coverage
Participation by plan type
Distribution of private-sector, active-worker participants, 1979-2010
Setting the stage
80%
Defined contribution (DC) only
70% 69%
Create your own pension:
60%
More employers are
50% shifting from offering
traditional pension plans
40% to more employee-driven
Both DB DC options like 401(k) plans.
30% 24%
20%
Defined benefit (DB) only
10% 7%
0%
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: U.S. Department of Labor, Form 5500 Summary Report (summer 2004); EBRI estimates 1999-2010.
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13. RETIREMENT
INSIGHTS Federal budget implications
U.S. federal budget outlays - 2011
Setting the stage
Other
Non-defense 15% Adding it up: The budget
(discretionary) shortfall could impact
18%
government programs,
like Social Security and
Medicare, as well as impact
tax rates overall.
Defense
(discretionary)
19% Entitlements:
Social Security,
Medicare, Medicaid
42%
Net
interest
6% Total 2011 budget receipts: $2,303 billion
Total 2011 budget outlays: $3,599 billion
Surplus / deficit: - $1,296 billion
Source: Office of Management and Budget, J.P. Morgan Asset Management. Data as of December 31, 2011.
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14. RETIREMENT
INSIGHTS Historic tax rates
Historical view of top marginal tax rate
100%
Setting the stage
90%
80% Contingency planning:
Taxes could rise due to
70%
government deficits and
60% increasing mandatory
2012: 35% spending.
50%
40%
30%
20%
10%
0%
1913 1921 1929 1937 1945 1953 1961 1969 1977 1985 1993 2001 2009
Source: The Urban-Brookings Tax Policy Center, Historical Individual Income Tax Parameters. Data as of January 31, 2012.
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15. RETIREMENT
INSIGHTS
Saving
The single most important decision individuals can make about retirement is to take responsibility for funding it
themselves. Living expenses, health care costs, Social Security, pensions and future employment are all uncertain.
But saving today is one way to prepare for a more stable tomorrow.
Saving
Common misconceptions
“I’ve already started saving a little — I should be okay.”
• n 2011, only 42% of workers (and/or spouses) have tried to calculate how much money they will actually need
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to save for a comfortable retirement.*
• se the retirement savings checkpoint chart to see if you are on track to reach your goals. Page 16
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“Retirement is so far away — I have plenty of time to think about it.”
• he sooner you begin, the more time you have to maximize the power of compounding. Page 17
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• tart saving early and regularly. Early withdrawals, loans and missed contributions can result in lower savings,
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less compounding and fewer assets at retirement. Page 19
*Source: Employee Benefit Research Institute and Mathew Greenwald Associates, Inc., 2011 Retirement Confidence Survey.
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16. RETIREMENT
INSIGHTS Retirement savings checkpoints
Current Salary
$50,000 $75,000 $100,000 $125,000 $150,000 $175,000 $200,000 $250,000
Current Checkpoint Checkpoint Checkpoint Checkpoint Checkpoint Checkpoint Checkpoint Checkpoint
Age (x Current Salary) (x Current Salary) (x Current Salary) (x Current Salary) (x Current Salary) (x Current Salary) (x Current Salary) (x Current Salary)
30 2.3 3.1 3.6 3.8 3.8 3.8 3.8 3.8
35 2.8 3.8 4.4 4.7 4.7 4.7 4.7 4.7
Savings requirements
40 3.3 4.1 5.1 5.6 5.8 5.8 5.8 5.8 increase with salary:
45 3.5 4.4 5.9 6.3 6.9 7.2 7.2 7.2 Social Security covers a
Saving
50 4.2 5.4 6.4 7.8 8.3 8.6 8.9 8.9
lower portion of income
requirements.
55 4.8 6.3 6.7 9.1 9.7 10.3 10.6 11.0
60 5.7 7.0 8.3 9.8 11.3 12.0 12.7 13.7
65 6.6 8.0 9.9 11.6 13.4 14.2 15.1 16.2
How to use:
• Go to the intersection of your current age and your closest current salary.
• ultiply your salary by the checkpoint shown to get the amount you should have saved today.
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(For a 40 year old making $100,000: $100,000 X 5.1 = $510,000)
This chart is for illustrative purposes only and must not be used, or relied upon, to make investment decisions. J.P. Morgan’s model is based on J.P. Morgan
Asset Management’s (JPMAM) proprietary long term capital markets assumptions (10 - 15 years). This model represents the median outcome using a 60%
equity (SP 500 Index as a proxy) and 40% bond (Barclays Capital Aggregate Bond Index as a proxy) portfolio during work years and a 30% equity (SP 500
Index as a proxy) and 70% bond (Barclays Capital Aggregate Bond Index as a proxy) portfolio during retirement of 30 years, with 2.5% wage growth. The
resulting projections include only the benchmark return associated with the portfolio and does not include alpha from the underlying product strategies within
each asset class. Salary replacement rates based on Aon Consulting’s 2008 Replacement Ratio Study data which assumes individuals receive Social Security
payments in retirement. Calculations assume an individual earning $50,000 at retirement will need to replace at least 30% of their pre-retirement income;
individuals earning $75,000 will need to replace at least 37%; individuals earning $100,000 will need to replace at least 45%; individuals earning $125,000 will
need to replace at least 53%; individuals earning $150,000 will need to replace at least 61%; individuals earning $175,000 will need to replace at least 65%;
individuals earning $200,000 will need to replace at least 69% and those earning $250,000 will need to replace at least 74%. Allocations, assumptions, and
expected returns are not meant to represent JPMAM performance. Given the complex risk-reward trade-offs involved, we advise clients to rely on judgment as
well as quantitative optimization approaches in setting strategic allocations. References to future returns for either asset allocation strategies or asset classes
are not promises or even estimates of actual returns a client portfolio may achieve.
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17. RETIREMENT
INSIGHTS Benefit of saving early
Growth of savings accounts
$1,600,000 $1,511,000
$1,400,000 • Susan invests $5,000 • Bill invests $5,000 • Chris invests $5,000
annually between the annually between the annually between the
ages of 25 and 35 ages of 35 and 65 ages of 25 and 65 Saving fundamentals:
$1,200,000 • In total, she invests • In total, he invests • In total, he invests
$50,000 $150,000 $200,000
Harnessing the power of
compounding can greatly
$1,000,000
Saving
impact the amount of
$850,000
savings over the long term.
$800,000
$600,000
$661,000
$400,000
$200,000
$0
25 30 35 40 45 50 55 60 65
Age
The above example is for illustrative purposes only and not indicative of any investment. Account value in this example assumes an 8% annual return.
Source: J.P. Morgan Asset Management.
Compounding refers to the process of earning return on principal plus the return that was earned earlier.
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18. RETIREMENT
INSIGHTS Savings rate
Personal savings rate
Annual, % of disposable income
12%
10% Remember retirement:
Recently, many have
increased savings to
8%
Saving
try to offset the decline
2011: 4.4% in household wealth,
but they still need to keep
6%
retirement a top priority.
4%
2%
0%
’59 ’64 ’69 ’74 ’79 ’84 ’89 ’94 ’99 ’04 ’09
Source: J.P. Morgan Asset Management, The Bureau of Economic Analysis. Personal savings rate is calculated as personal savings (after-tax income – personal
outlays) divided by after-tax income. Employer and employee contributions to retirement funds are included in after-tax income but not in personal outlays,
and thus are implicitly included in personal savings. Savings rate data as of December 31, 2011.
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19. RETIREMENT
INSIGHTS The toxic combination of varied savings and loans or withdrawals
Growth of a 401(k) investment
$1,800,000
$1,600,000 Portfolio with steady 8% contributions
Portfolio with varied contributions
$1,400,000
$1,200,000
$1,000,000 Avoid temptation:
$800,000 Consistent saving can help
$600,000 you meet your retirement
Saving
$400,000 goals.
$200,000 • aking loans and early
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$0 withdrawals from a 401(k)
25 30 35 40 45 50 55 60 65
Age account can drastically
Assumed 401(k) contributions impact your total savings.
20% Loan repayment Loan repayment
Varied contribution
Steady 8% contributions • nvesting with a steady
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10% contribution rate
0% over time may ensure
maximum growth
-10%
15k out to 10k for 10k pre- potential.
buy a house college loan retirement
-20% withdrawl
-20%
25 30 35 40 45 50 55 60 65
Age
Source: SP 500 Total Return Index, J.P. Morgan Asset Management. For illustrative purposes only. Hypothetical accounts are assumed to be
invested 100% in the SP 500 total return stock index from 1972-2011. Starting salary of $30,000 increasing by 2% each year.
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20. RETIREMENT
INSIGHTS Evaluate a Roth IRA
Tax rates decrease 10% in retirement Tax rates increase 10% in retirement
$600,000 $600,000
Dollar balance remaining in IRA
$500,000 $500,000
$400,000 $400,000 Consider your options:
A Roth IRA may be a
$300,000 $300,000 hedge against potential
Saving
future tax increases, which
$200,000 $200,000 may allow your savings to
last longer.
$100,000 $100,000
$0 $0
65 70 75 80 85 90 65 70 75 80 85 90
Age Age
Traditional IRA (taxed on way out) Roth IRA (taxed on way in)
For illustrative purposes only. Hypothetical accounts contribute $2,000 before tax ($1,600 to a Roth and $2,000 to a traditional IRA) from ages 25 to 65 with a
pre-retirement marginal tax rate of 20%. The assumed annual rate of return is 8%. In retirement, the person withdraws $45,000 after tax ($45,000 for Roth in
both scenarios, $50,000 in the 10% decrease scenario and $64,285 in the 10% increase scenario for the regular IRA) each year until the account is depleted.
The breakeven point in the 10% rate increase scenario will change depending on the specific circumstances of the individual and tax rates. Source: J.P. Morgan
Asset Management.
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21. RETIREMENT
INSIGHTS
Spending
Determining your income needs during retirement is a complex equation. During your working years, the goal was
to save and accumulate as much as possible for the future. Now the challenge becomes managing your portfolio
by withdrawing some money for today’s expenses and investing the rest for tomorrow.
Common misconceptions
“I’ve already hit my savings target. I should be fine in retirement with the lower cost of living.”
Spending
• ocial Security plays a big role for many current retirees, but the system’s future remains uncertain. Make
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contingency plans to prepare for potential reductions in traditional income sources like Social Security and
pensions. Page 22
• pending may not decrease at all in the first few years of retirement. Some expenses tend to decline with age
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— while others remain steady or increase. Page 24
“As long as I withdraw a steady amount, I will be okay.”
• ithdrawing assets in volatile markets early in retirement can ravage a portfolio. Adjust your plan and strategy
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regularly. Page 23
• here is potential danger in investing too conservatively or withdrawing too aggressively. Either may increase
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the risk of tapping into principal and running out of money. Page 25
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22. RETIREMENT
INSIGHTS Typical wealth and sources of income at retirement
Wealth holdings of a typical household Sources of retirement income
approaching retirement Average for age 65 and over
$700,000
Other 4%
$600,000
Defined Contribution 7% Creating your income
stream: What assets will
$500,000 you have to draw from in
Assets
20% retirement?
$400,000
Social Security
42%
Spending
Pension and
$300,000 Annuities
14%
$200,000 Work/Earnings
20%
$100,000
$0
Note: The “typical household approaching retirement” refers to the mean of the middle 10% of the sample of households headed by an individual aged 55-64.
Source (Left chart): Center for Retirement Research calculations from U.S. Board of Governors of the Federal Reserve System, 2007 Survey of Consumer
Finances, Washington, DC.
Source (Right chart): EBRI (Employee Benefit Research Institute) Databook on Employee Benefits, Chapter 7. Data as of December 31, 2010.
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23. RETIREMENT
INSIGHTS Dollar cost ravaging – impact of market returns on distribution
Growth of investment
1966-1995
$1,400,000 SP 500 annual return
Assumed rate of return = 8%
$1,200,000
$1,000,000
$1,400,000 SP 500 annual return
$800,000 Assumed rate of return = 8%
$1,200,000
$600,000
Sequence return risk:
$1,000,000
$400,000 Withdrawing assets in
$800,000
$200,000 volatile markets early in
$600,000$- retirement can ravage a
$400,000 61 65 69 73 77 81 85 89
Age portfolio. Adjust your plan
$200,000
Assumptions: Enter retirement at age 60 with $1,000,000 · Start with a 5.5% withdrawal of $55,000 · Increase dollar amount of withdrawal by and strategy regularly.
Spending
overall rate of$-
inflation (3%) each year
35.0% 61 65 69 73 77 81 85 89 • Results: Actual annual
Rate of return: Assumed vs. actual Age
25.0% average return of SP 500
1966-1995
15.0%
35.0% over sample period was
5.0%
25.0% 11%.
-5.0%
15.0% SP 500 annual return
-15.0% Assumed rate of return = 8%
5.0%
-25.0%
-5.0%
-35.0% SP 500 annual return
-15.0% 61 65 69 73 77 Assumed rate of return = 8% 89
81 85
Age
-25.0%
-35.0%
61 65 69 73 77 81 85 89
Age
Source: SP 500 Total Return Index, J.P. Morgan Asset Management, Convergent Retirement Plan Solutions, LLC. Returns are based on the SP 500 Total
Return Index. The assumptions are presented for illustrative purposes only. They must not be used, or relied upon, to make investment decisions. There is no
direct correlation between a hypothetical investment and the anticipated future return of an index. Past performance does not guarantee future results.
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24. RETIREMENT
INSIGHTS Changes in spending
Average spending patterns of various age groups
$55,000
$50,000 $48,253
$45,000 $42,603
$40,000 $36,462 What to expect: Some
$35,000 retirees find their spending
$28,218 does not decrease very
$30,000
much, if at all, for the
$25,000
first several years after
$20,000 retirement.
Spending
$15,000
$10,000
$5,000
$0
45-54 55-64 65-74 75+
Age
Apparel Transportation Other Household
Entertainment Food Beverage Utilities
Other Health Care Shelter
Estimates based on average consumer expenditure from the Consumer Expenditure Survey for each respective age group excluding pension and cash
contributions, BLS. Data as of December 31, 2011.
Source: J.P. Morgan Asset Management.
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25. RETIREMENT
INSIGHTS Effects of withdrawal rates on a typical balanced portfolio
Years of sustainable withdrawals for a portfolio of 60% equities and 40% bonds
Projected outcomes for typical markets Projected outcomes for extended poor markets
(50% confidence level) (75% confidence level)
$600,000 $600,000
Be cautious: Increasing
$500,000 $500,000
your withdrawal rate can
significantly reduce the
$400,000 $400,000
Account balance
number of years your
retirement savings
$300,000 $300,000
will last.
Spending
$200,000 $200,000
$100,000 $100,000
$0 $0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
6% 5% 4% 6% 5% 4%
These charts are for illustrative purposes only and must not be used, or relied upon, to make investment decisions. Hypothetical portfolios are composed of
Large Cap Growth for equity and US Aggregate for fixed income with projected compound returns projected to be 8% and 3%, respectively. J.P. Morgan’s model
is based on J.P. Morgan Asset Management’s (JPMAM) proprietary long term capital markets assumptions (10 - 15 years). The resulting projections include
only the benchmark return associated with the portfolio and does not include alpha from the underlying product strategies within each asset class. The yearly
withdrawal amount is set as a fixed percentage of the initial amount of $500,000 and is then inflation adjusted over the period. Allocations, assumptions, and
expected returns are not meant to represent JPMAM performance. Given the complex risk-reward trade-offs involved, we advise clients to rely on judgment as
well as quantitative optimization approaches in setting strategic allocations. References to future returns for either asset allocation strategies or asset classes
are not promises or even estimates of actual returns a client portfolio may achieve.
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26. RETIREMENT
INSIGHTS
Investing
Invest for long-term growth potential and consider investing in a broader mix of assets. Financial risks don’t end
when careers do. If you’re going to enjoy a long, rewarding retirement, you must anticipate and overcome the
obstacles that are likely to arise along the way.
Common misconceptions
“The market is too volatile. I’m going to sit on the sidelines for a bit so I don’t lose everything.”
• on’t wait to invest in volatile times. It can cause you to miss out on potential market rallies. Page 29
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• et specific retirement goals upfront — and keep focused on the long term during periods of volatility
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and uncertainty. Page 27
Investing
“I should invest conservatively so I don’t run the risk of losing my retirement assets.”
• etirement-age investors have potentially long time horizons, due to rising life expectancies. By maintaining
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an exposure to equities in retirement, you may better keep pace with rising prices, protecting their standard of
living throughout retirement. Page 30
• well-diversified portfolio may provide a smoother ride over the long term. Pages 28 and 31
A
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27. RETIREMENT
INSIGHTS Structuring a portfolio to match investor goals
Considerations Potential solutions
What is the time horizon Equities
not only of yourself, but Alternatives*
also of your heirs or
Legacy endowment?
Building your plan: It
may be useful to match
Increasing risk/return
What are your Equities dependable income
desires/wants? Bonds sources with fixed
Wants How much risk are retirement expenses,
you willing to take?
while coordinating other
investments with more
What are your Social Security discretionary expenses.
basic needs? Pension
Investing
Needs What income sources Annuities
do you have or will you
need to create? Bonds
Cash Instruments
For illustration purposes only. Source: J.P. Morgan Asset Management. Bonds are subject to interest rate risks. Bond prices generally fall when interest rates
rise. The price of equity securities may rise, or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly
or unpredictably. Equity securities are subject to “stock market risk” meaning that stock prices in general may decline over short or extended periods of time.
Investing in alternative assets involves higher risks than traditional investments and are suitable only for the long term. They are not tax efficient, and have
higher fees than traditional investments. They may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential
for investment loss or gain.
*Equity, fixed income and cash are considered “traditional” asset classes. The term “alternative” describes all non-traditional asset classes. They include private
and public equity, venture capital, hedge funds, real estate, commodities, distressed debt and more.
27

28. RETIREMENT
INSIGHTS Diversification
Maximizing the power of diversification, 1994 - 2011
8%
26% 8% Mix it up wisely:
30%
8% Diversification may
provide better returns
55% 4% with less risk.
13% 22%
15%
9%
Return: 6.75% Return: 7.09%
Investing
Standard Deviation: 10.94% Standard Deviation: 9.97%
Indexes and weights of the traditional portfolio are as follows: U.S. stocks: 55% SP 500, U.S. bonds: 30% Barclays Capital Aggregate, International stocks: 15%
MSCI EAFE. Portfolio with 25% in alternatives is as follows: U.S. stocks: 22.2% SP 500, 8.8% Russell 2000; International Stocks: 4.4% MSCI EM, 13.2% MSCI
EAFE; U.S. Bonds: 26.5% Barclays Capital Aggregate; Alternatives: 8.3% CS/Tremont Equity Market Neutral, 8.3% DJ/UBS Commodities, 8.3% NAREIT Equity
REIT Index. Return and standard deviation calculated using Morningstar Direct.
Charts are shown for illustrative purposes only. Past returns are no guarantee of future results. Diversification does not guarantee investment returns and does
not eliminate risk of loss. Data as of December 31, 2011.
28

29. RETIREMENT
INSIGHTS Impact of being out of the market
Returns of SP 500
$50,000
$44,587
(7.81% return)
$45,000
$40,000
This chart shows performance of a $10,000 Plan to stay invested:
$35,000 investment between December 31, 1991 and Trying to time the market
December 31, 2011 when some of the best
$30,000 days were missed. and missing a few of the
$22,252 best days can significantly
$25,000 (4.13% return)
affect returns.
$20,000 $15,198
(1.70% return)
$15,000 $10,477
(-0.39% return)
$7,122
$10,000 (-2.29% return)
Investing
$4,981
(-4.02% return) $3,939
(-5.62% return)
$5,000
$0
Fully Missed 10 Missed 20 Missed 30 Missed 40 Missed 50 Missed 60
Invested best days best days best days best days best days best days
This chart is for illustrative purposes only and does not represent the performance of any investment or group of investments.
Source: Prepared by J.P. Morgan Asset Management using data from Lipper. 20-year annualized returns are based on the SP 500 Total Return Index, an
unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Past
performance is not indicative of future returns. An individual cannot invest directly in an index. Data as of December 31, 2011.
29

30. RETIREMENT
INSIGHTS Major asset classes vs. inflation
Growth of one dollar, 1950 - 2011
$10,000
Small Cap Stocks
$2,483
$1,000 Large Cap Stocks Risk averse: Cash may not
$631 be an effective long-term
solution.
$100
Bonds
$44
Treasury Bills
$16
$10 Inflation
$9
Investing
$1
1950 1960 1970 1980 1990 2000 2010
Source: Morningstar, Inc., Financial Communications © 2012. All rights reserved. Used with permission.
Hypothetical value of $1 invested at year-end 1950. Assumes reinvestment of income and no transaction costs or taxes.
Small Company Stocks—represented by the fifth capitalization quintile of stocks on the NYSE for 1950–1981 and the performance of the Dimensional Fund
Advisors, Inc. (DFA) U.S. Micro Cap Portfolio thereafter; Large Company Stocks—Standard Poor’s 500®, which is an unmanaged group of securities and
considered to be representative of the stock market in general; Government Bonds—20-year U.S. Government Bond; Treasury Bills—30-day U.S. Treasury Bill;
Inflation—Consumer Price Index. Government Bonds and Treasury Bills are guaranteed by the full faith and credit of the United States government as to the
timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes. Small-capitalization stocks
typically carry more risk than stock funds investing in well-established “blue-chip” companies since smaller companies generally have a higher risk of failure.
Historically, smaller companies’ stock has experienced a greater degree of market volatility than the average stock. This is for illustrative purposes only and not
indicative of any investment. Past performance is no guarantee of future results. An investment cannot be made directly in an index. CDs, savings accounts and
money market deposit accounts are insured by the FDIC for up to $100,000.
30