Retirement Choices

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  • Good Morning/Afternoon/Evening. My name is <insert name> and I’m an Investment Representative with <NASD member firm name>. Today I’d like to talk to you about decisions that we make at life’s crossroads, and how they affect us in retirement. The crossroads we’ll be discussing specifically today are when you change jobs, or when you’re nearing retirement.
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  • Has anyone in the room ever changed job? According to the Bureau of Labor Statistics, in 2004, 48 million people will separate from service either through a job change or retirement. The average person will change careers eight times in a lifetime . When you change a career you will have come to a crossroad. The decisions you make each time you come to this crossroad may affect your retirement. Let’s review some of the things you need to take into consideration so you have a better understanding of your options when you arrive at this crossroad. Source: Department of Labor, Employee Tenure Summary, 2004
  • Most Americans understand the importance of saving for retirement, but many people spend more time planning for their vacations and social events than they do for retirement. About 7 in 10 Americans report that they and/or their spouse have saved for retirement. But do they “really” know how much they need to save? Roughly 4 in 10 workers have taken the time and effort to complete a retirement needs calculation: the basic planning step that can help individuals determine how much money they are likely to need in retirement. If you don’t have a plan, how can you make the right choices? For example, when you change jobs, are you taking into consideration your future goals with the money you have accumulated in your corporate retirement program? We think that it is important that you take a few minutes to create a customized retirement needs calculation, if you have not done so already.
  • What is a retirement needs calculation? Well, it’s a goal. It’s an estimate. And, it’s a challenge. There are many ways to calculate it. And, it often frightens most. Did anyone ever think you’d need a million dollars or more to retire? Well you might. For example, a married couple wants to know how much money they might need to retire comfortably at age 65. Consider this hypothetical example using the following assumptions based on the Social Security, inflation and longevity numbers previously discussed: The couple’s pre-retirement income is $100,000 They desire 80% of pre-retirement income: (0.80 x $100,000) equals $80,000 Financial experts estimate that you will need about 70% - 90% of your pre-retirement income to maintain your current lifestyle during retirement. That’s why we have estimated 80% We estimate that 39% of a retiree’s income is from Social Security. The remainder (61% ) must come from other sources (0.61 x $80,000) which equals $48,800 We estimate that they will spend 20 years in retirement. According to Bureau of Labor Statistics, 2004, over the past 20 years, inflation has averaged 3.0%. Assuming the couple’s $48,800 income must increase by 3.0% over 20 years, this couple would require: $1,350,612.
  • Wherever you stand today financially, there are still a lot options available to you. For example, whether you are just starting out or retiring soon, I can help find more ways for you to save, encourage diversification, or make adjustments and/or suggestions that can help you retire. Which brings us to our second crossroad: retirement.
  • If you are approaching retirement, there are more decisions you need to make that may affect your retirement. Again, let’s review some of the things you’ll need to take into consideration so you have a better understanding of your options when you arrive at this crossroad. With longer life expectancies, impending inflation, skyrocketing health care costs, and Social Security issues, what can we do today to protect our financial future. Well you may be able to create a comprehensive retirement plan that can address these realities. So, let’s take a closer look at each of these factors.
  • People are living longer today than in past generations, due to rapid advances in medical technology and health care. A male who reaches age 65 has a 50% chance of reaching age 85, and a 25% chance of reaching age 92. A female who reaches age 65 has an 50% chance of reaching age 88, and a 25% chance of reaching age 94. When a married couple reaches age 65, there is a 50% chance that one of the partners will reach age 92, and a 25% chance that he or she will reach age 97. This means that your retirement may last longer than you expected. Source: The National Underwriter Company, Tax Facts on Insurance & Employee Benefits, 2005.
  • A comprehensive retirement plan has to effectively deal with inflation: the silent enemy that eats away at your purchasing power. For example, if someone retired in 1950 with $100,000—which was a very sizable nest egg back then—that portfolio would have the purchasing power of just $13,000 today after taking into account the 3.89% annual inflation (as measured by the CPI) during this period. Source: Bureau of Labor Statistics, 2004
  • A comprehensive retirement plan has to effectively deal with rising cost, specifically a skyrocketing healthcare issue. We’ve put together some hypothetical projections for the future prices of common expenditures such as energy, food, and medical commodities and services. Projections are based on the average annual rate of inflation calculated from prices from 1984 to 2004 or the past 20 years. The average annual rate of increase for Energy: 2.18%, Food: 3.02%, and Medical Commodities and Services: 5.43%. With all things being equal, if we use these annual rate of increase for Energy, Food, and Medical Commodities and Services we can try and project the average rate of inflation over the next 20 years into the future. Read Chart With double-digit increases predicted for the next two decade, the cost of health care has started appearing more frequently in the news. The cost crisis is that health care costs have historically grown at about twice the rate of the Gross Domestic Product or the general rate of people's paychecks. This means that it's getting harder and harder for people to pay the cost of the health care. This illustration is purely hypothetical and the actual inflation rate may be higher or lower than what we’ve indicated, these are just projections that can be used to get an idea of how much things might cost based on past inflation. Source: Ned Davis Research, April 2005.
  • Some people plan to rely heavily on Social Security during retirement believing that it will replace the majority of their current income. In 2005, the maximum Social Security benefit for an individual is $1,939 a month, which is $23,268 a year—hardly a windfall. The more money you earn, the lower the percentage of your pre-retirement income that Social Security will replace. For example, if someone earns $30,000 before retirement, the maximum benefit of $23,268 would replace 77.5% of his or her income. When the salary level jumps up to $60,000, the maximum Social Security benefit only replace 38.7%, and for those earning $90,000 a year, the maximum Social Security benefit only replaces 25.8%. Your retirement plan needs to account for how to make up for the shortfall in your income because Social Security by itself won’t do it. Source: Social Security Administration, 2005
  • Now, that you understand some of the obstacles Americans encounter along the way to retirement, you may have a better appreciation on how the decisions regarding your retirement assets are crucial. You’ll have a number of options to explore when you reach life’s crossroads, such as changing jobs or transitioning into retirement. You’ll need to know what’s best for you and whether taking a full cash distribution from your former 401(k) account, leaving your assets in your former 401(k) account, or rolling over your assets from your former 401(k) account into an IRA is right for you. Fortunately, your investment representative can help you sort through the advantages and disadvantages of these options, helping you make the necessary decisions as your needs, risk-tolerance, and time horizon change.
  • The first option that you have is cashing out your from your former 401(k) account. Let’s review the advantages and disadvantages of doing this. Read slide. If you separate from service with your employer during or after the year you reach age 55, any distribution you take from your employer’s qualified plan will not be subject to the additional 10% tax penalty.
  • While the thought of cashing out your retirement plan now to meet your current living expenses may be appealing, the reality is that you forfeit a good deal of your money to taxes and penalties. All distributions taken in cash from a qualified plan are subject to 20% mandatory federal withholding, and , with few exceptions, if you withdraw money before age 59½ you must pay income taxes plus a 10 percent penalty. What's more, lost time for compounding may substantially shrink your nest egg. (If you separate from service with your employer during or after the year you reach age 55, any distribution you take from your employer’s qualified plan will not be subject to the additional 10% tax penalty). Let’s take a look at some examples so we can see just how heavy the penalties are for cashing out now. Read slide.
  • While the thought of cashing out your retirement plan now to meet your current living expenses may be appealing, the reality is that you forfeit a good deal of your money to taxes and penalties. All distributions taken in cash from a qualified plan are subject to 20% mandatory federal withholding, and , with few exceptions, if you withdraw money before age 59½ you must pay income taxes plus a 10 percent penalty. What's more, lost time for compounding will substantially shrink your nest egg. (If you separate from service with your employer during or after the year you reach age 55, any distribution you take from your employer’s qualified plan will not be subject to the additional 10% tax penalty). Let’s take a look at some examples so we can see just how heavy the penalties are for cashing out now. Read slide.
  • The second option available for your nest egg is to leave your money behind in your former employer’s qualified plan. N ormally this happens because we don’t know what to do with our money so we just leave it alone. There are advantages and disadvantages of this choice. Read slide.
  • In the end, because the average person may change careers often, we end up with several accounts scattered about in several financial institutions. When you turn five tax-deferred-saving accounts into one, it can make things so much easier. Would it be easier to have your investments all in one place, receive just one statement, maintain just one secret code to access your account, one toll-free customer-service number, one Web-site logon. More importantly, if your investments are all in one place you can create one comprehensive plan to reach one comprehensive goal.
  • And this brings us to the third option available for your retirement nest egg or eggs and that is to roll it over to an IRA. What are the advantages and disadvantages of this choice? Before consolidating, it’s important to take expenses and sales charges into account. Know if you will incur sales charges and/or penalties for selling an investment, and find out if you will be charged additional sales charges for buying a new one. Rolling tax-deferred-saving accounts to an IRA allows you to take a more active role in managing your funds. When you do, you have access to wide array of investment choices. And, at the same time, you preserve your money’s income-tax-deferred status. If you wish to keep saving, rather than beginning to take income, this may be a good option as well. Read slide.
  • The Hartford Mutual Funds are offered exclusively through investment professionals because we believe that all investors can benefit from professional advice. Read slide.
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  • Retirement Choices

    1. 2. Variable annuities are long-term investment vehicles designed for retirement where all interest, dividends, and capital gains accumulate tax deferred. Taxable distributions and certain deemed distributions are subject to ordinary income tax and if taken prior to age 59½ may also be subject to a 10% federal income tax penalty. Early surrender charges may also apply. In addition to tax deferral, variable annuities offer death benefits, income protection benefits, annuity payout options, and professionally managed equity based and fixed income investment options. Please note that there are certain fees and charges associated with variable annuities such as mortality and expense risk charges, administrative charges, and fund operating expenses. As with other variable investments, the investment return and principal value of an investment will fluctuate, therefore when redeemed, an investor's units, may be worth more or less than the original cost. In addition, any guarantees associated with the variable annuity are based on the claims-paying ability of the issuing company and do not apply to the investment performance or safety of the underlying funds in the variable annuity. A mutual fund is an investment vehicle that pools the money of many investors, and has varying degrees of risk depending upon the fund’s portfolio. Mutual funds may invest in stocks, bonds, or cash and include the opportunity for the investor to purchase shares with various pricing arrangements designed to meet their needs. There are fees and expenses associated with investing in mutual funds, including portfolio management fees and expenses and sales charges, which will affect the return on your investment. These fees and charges may be front- or back-end sales charges or annual expenses. In addition, mutual funds generally allow shareholders to sell shares at any time and receive current market value. Mutual fund investments, when held outside of a qualified retirement plan, are subject to tax. You should consult with a qualified tax advisor before investing. The investment return and principal value of an investment will fluctuate so that shares when redeemed, may be worth more or less than their original cost. This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice.
    2. 3. Have you ever changed jobs? <ul><li>The average person: </li></ul><ul><li>Changes jobs every 4 years </li></ul><ul><li>Changes careers 7 to 8 times during his/her lifetime </li></ul>The decisions you make each time you change jobs affect your retirement. Source: Department of Labor, Employee Tenure Summary, 2004
    3. 4. Source: ERBI Retirement Confidence Survey, 2004 The “Have” and “Have Not” Planned
    4. 5. ARE YOU SAVING ENOUGH? Assumes income must increase by 3% over 20 years. How much will your retirement cost? $3,376,531 $250,000 $2,701,225 $200,000 $2,025,919 $150,000 $1,012,959 $1,350,612 $75,000 $100,000 Assets Needed for 20 yr Retirement Pre-Retirement Income
    5. 6. Are you retiring soon?
    6. 7. Does Your Retirement Plan Address These Realities? Longer Life Expectancies Inflation Rising Health Care Costs Social Security
    7. 8. Retirement may last longer than you expected 97 92 100 AGE 90 94 88 100 AGE 50% Chance 25% Chance 90 92 85 Male Age 65 Female Age 65 Couple Both Age 65 100 95 AGE 90 50% Chance of one survivor 25% Chance of one survivor 95 50% Chance 25% Chance Source: The National Underwriter Company, Tax Facts on Insurance & Employee Benefits, 2005.
    8. 9. Inflation: The Silent Enemy The Effect of Inflation Since 1950 Value of $100,000 Source: Bureau of Labor Statistics, 2004. (In Thousands) (Years) $66,000 $45,000 $30,000 $20,000 $100,000 $13,000
    9. 10. Skyrocketing Healthcare Source: Ned Davis Research, April 2005 Projections are based on the rate of inflation calculated from prices from 1984 to 2004. Annual rate of increase for Energy: 2.18%, Food: 3.02%, and Medical Commodities and Services: 5.43%. This illustration is purely hypothetical and the actual inflation rate may be higher or lower than what we’ve indicated, these are just projections that can be used to get an idea of how much things might cost based on past inflation. Energy Food Medical Commodities and Services
    10. 11. Social Security: The More You Earn, The Less It Replaces Social Security Income Income that needs replacing Annual Income of $30,000 Annual Income of $60,000 Annual Income of $90,000 $23,250 $6,750 $23,208 $23,220 $36,792 $66,780 Source: Social Security Administration, 2005
    11. 12. Decisions at Life’s Crossroads Will Affect Your Retirement <ul><li>Cash out now and use the money 1 </li></ul>Understanding Your Options What Could You Do With the Money in Your Employer Plan: Leave your assets with your previous employer Roll over your assets to an IRA, or to your new employer’s qualified plan 1 If you separate from service with your employer during or after the year you reach age 55, any distribution you take from your employer’s qualified plan will not be subject to the additional 10% tax penalty. 1 Taxable distributions (and certain deemed distributions) are subject to ordinary income tax, and if made prior to age 59½, may also be subject to a 10% federal income tax penalty. Early surrender charges may also apply.
    12. 13. Cash distribution from employer’s plan which is then taxed as ordinary income. <ul><li>Advantages </li></ul><ul><li>Immediate access to cash. </li></ul><ul><li>No restriction on investment choices. </li></ul><ul><li>Disadvantages </li></ul><ul><li>Distribution subject to 20% mandatory federal withholding. </li></ul><ul><li>10% early withdrawal penalty may apply. 1 </li></ul><ul><li>Loss of tax-deferred accumulation. </li></ul>UNDERSTANDING YOUR OPTIONS: Taking a Cash Distribution 1 1 Taxable distributions (and certain deemed distributions) are subject to ordinary income tax, and if made prior to age 59½, may also be subject to a 10% federal income tax penalty. Early surrender charges may also apply. If you separate from service with your employer during or after the year you reach age 55, any distribution you take from your employer’s qualified plan will not be subject to the additional 10% tax penalty.
    13. 14. The Penalties of Cashing Out INVESTOR 1 Taxable distributions (and certain deemed distributions) are subject to ordinary income tax, and if made prior to age 59½, may also be subject to a 10% federal income tax penalty. Early surrender charges may also apply. If you separate from service with your employer during or after the year you reach age 55, an distribution you take from your employer’s qualified plan will not be subject to the additional 10% tax penalty. Hypothetical Illustration: This example assumes a 28% federal income tax bracket and 10% federal income tax penalty. It does not take into consideration potential state or local taxes. $25,000 $15,500 5. Cash Distribution After Taxes & Penalties -$2,500 4. 10% Premature Distribution Penalty Tax (If You’re Under the Age of 59 1/2) -$5,000 2. 20% Mandatory Federal Income Tax Withholding $25,000 1. Distribution Amount From Retirement Plan -$2,000 3. Additional Federal Income Tax $2,500 $20,000 $18,000 $15,500
    14. 15. The Advantage of a Rollover IRA $67,760 $41,440 $15,500 $25,344 1. IRA Rollover - A $25,000 distribution is rolled over as a qualified exchange. The full amount is allowed to accumulate tax deferred for the corresponding time periods. Ending value will be subjected to an applicable ordinary income tax rate upon withdrawal. 2. Cash Distribution - A $25,000 distribution is taken in cash. The distribution incurs a 28% federal income tax liability and 10% federal income tax penalty. The resulting $15,500 is invested in a taxable investment. The earnings from this initial investment will be taxed each year at 28% and deducted from the balance. This hypothetical illustration assumes a $25,000 eligible rollover distribution, a 7% interest rate and a 28% tax bracket. Start 10 Years 20 Years 30 Years 1 Taxable distributions (and certain deemed distributions) are subject to ordinary income tax, and if made prior to age 59½, may also be subject to a 10% federal income tax penalty. Early surrender charges may also apply. . $25,000 $35,408 $69,654 $137,020 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 $25,000 $35,408 $69,654 $137,020
    15. 16. Leave Your Money in an Employer’s Plan <ul><li>Advantages </li></ul><ul><li>Avoid current income taxes and 10% early withdrawal penalties. </li></ul><ul><li>Money remains invested and tax-deferred. </li></ul><ul><li>Disadvantages </li></ul><ul><li>Investment options are limited. </li></ul><ul><li>Plan may limit withdrawals and exchanges between investments. </li></ul><ul><li>Plan may assess additional fees for maintaining your account. </li></ul>UNDERSTANDING YOUR OPTIONS: Leave Your Money in an Employer’s Plan
    16. 17. Are Your Nest Eggs Scattered? Before consolidating, it is important that you take expenses and sales charges into account. You should know if they will incur sales charges and/or penalties for selling an investment, and also find out if they will be charged additional sales charges for buying a new one.
    17. 18. <ul><li>Advantages </li></ul><ul><li>Preserve 100% of your assets so they can continue to grow tax-deferred. </li></ul><ul><li>Flexibility to choose from a wide range of investment options. </li></ul><ul><li>Easy access to your IRA account(s) via 72(t) distributions. </li></ul>Roll Your Money Over From Your Employer’s Plan <ul><li>Disadvantages </li></ul><ul><li>Distributions are taxed as income; early withdrawals may result in tax penalties. </li></ul><ul><li>IRA’s don’t permit loans—can’t borrow against your assets.   </li></ul><ul><li>Contributions aren’t permitted after age 70 ½. </li></ul>UNDERSTANDING YOUR OPTIONS: Roll Your Money Over From Your Employer’s Plan
    18. 19. Make an Appointment Today to Discuss These Topics: <ul><li>Changing Jobs </li></ul><ul><li>Retiring Soon </li></ul><ul><li>Extending Your Legacy </li></ul><ul><li>Multiple Retirement Savings Accounts </li></ul><ul><li>Retirement Planning </li></ul><ul><li>In between Jobs </li></ul><ul><li>Inheriting an IRA </li></ul><ul><li>Retiring Early </li></ul>
    19. 20. <ul><li>Portfolio Guidance </li></ul><ul><li>Planning Expertise </li></ul><ul><li>Help You With Your Retirement Needs </li></ul>
    20. 21. <ul><li>195 years of wisdom </li></ul><ul><li>World-class money </li></ul><ul><li>management </li></ul><ul><li>Resources to build </li></ul><ul><li>your Plan to Live </li></ul>“ The Hartford” is The Hartford Financial Services Group, Inc. and its subsidiaries, including the issuing companies of the Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company.
    21. 22. This presentation is only a general overview. Tax Laws are complex, subject to change and may apply differently to your particular circumstances. This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice. Variable annuities are issued by Hartford Life Insurance Company and by Hartford Life and Annuity Insurance Company. Variable annuities are underwritten and distributed by Hartford Securities Distribution Company, Inc. The Hartford Mutual Funds are underwritten and distributed by Hartford Investment Financial Services Company, LLC. You should carefully consider investment objectives, risks, and charges and expenses of The Hartford Mutual Funds before investing. This and other information can be found in the fund's prospectus, which can be obtained from your investment representative or by calling 888-843-7824. Please read it carefully before you invest or send money. You should carefully consider the investment objectives, risks, and charges and expenses of Hartford variable annuities and their underlying funds before investing. This and other information can be found in the prospectus for the variable annuity and the prospectuses for the underlying funds, which can be obtained from your investment representative or by calling 800-862-6668. Please read them carefully before you invest or send money. PTL_RC 2/06
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