Jeanne Dwyer's interview in "Plan Ahead, Get Ahead"


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Jeanne Dwyer's interview in Principal Financial's annual report "Plan Ahead, Get Ahead".

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Jeanne Dwyer's interview in "Plan Ahead, Get Ahead"

  1. 1. plan ahead SPRING 2010 get ahead youR ReSouRce foR RetIRemeNt SavINGS retirement INCOMEMAKE THELIFE TIPS THAT MAY FOR IMPOSSIBLE DREAM A SWEET REALITY 4 real-time RETIREMENT HELP 1 UnDerStanDinG BOnDS 3 12 mOney miStakeS TO AvOID 7 PROTECT YOuR rainy Day FuND 10 Jeanne Dwyer’s sudden job loss proved serendipitous when it prompted her to map out her unexpected retirement in earnest.
  2. 2. Act now! Help set the stage for a more comfortable retirement. even a modest increase in your contribution web site or mail the attached reply card. to your employer’s retirement plan could Remember, you can help make a difference mean a boost to your nest egg. call and in your retirement—if you act now. (cue speak to one of our representatives, visit our the applause.) ReductIoN IN addItIoNal PRojected extRa take-home coNtRIbutIoN SavINGS at RetIRemeNt Pay PeR week 3% $17.31 $18,100 4% $23.08 $24,100 5% $28.85 $30,200 7% $40.38 $42,200 Don’t wait! Call 1-877-788-7242, ext. 41872, visit or return the attached card today. this example is for illustrative purposes only. the assumed rate of return in this chart is hypothetical and does not represent the return of any particular investment option. this chart assumes a 25% tax bracket, which includes local, state and federal taxes. also assumes $40,000 in annual income, 10 years to retirement and an annual 8% rate of return. © 2010 Principal financial Services, Inc.
  3. 3. Financial professionals are sales representatives for the members of the Principal Financial Group® welcome PLAN AHEAD. GET AHEAD.® SPRING 2010 (The Principal®). Except under certain circumstances, they do not SMaRt MOVeS tO MaKe represent, offer or compare prod- ucts and services of other financial services organizations. Insurance products and plan administrative services are pro- vided by Principal Life Insurance 1 Company. Securities are offered through Princor Financial Services Corporation, 1-800-547- 7754, member SIPC. Princor® CONdUCt a teCh CheCKUP and Principal Life are members of the Principal Financial Group® Review your costs for phone, expanded cable and Internet services, then shop (The Principal®), Des Moines, IA 50392. around for savings. According to Consumer Reports magazine, savvy shoppers “Plan Ahead. Get Ahead.®” can save hundreds a year by consolidating all three services with one provider. is a registered service mark of Plans can be difficult to compare so do your homework. And be aware that Principal Financial Services, Inc., a member of the Principal bundling may not make sense if, for example, you do little long-distance calling Financial Group. The articles and or watch only basic TV. opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for 2 3 any individual. ©2010 Principal Financial Services, Inc. ©2010 Meredith StaY CONNeCted get ReaL-tIMe heLP Corporation. Products and services are Did you know you can have Check out our online source offered through the Principal Financial Group and its subsidiar- account updates from The for retirement planning, My ies. Not all products and services Principal® show up automati- Principal ® Edge Milestones, described are available in all states cally on your iGoogle home at of the USA, or elsewhere in the world. Bank products and services page? See how at principal. createplan.* It can help you provided by Principal Bank, com/planahead/signup. Or get identify shortfalls in retirement FDIC insured. Annuities, weekly email or text message savings and recommend next Insurance, Retirement Plans, Mutual Funds and Other updates on the day of the week steps for closing the gap. Securities are not insured by the and at the time you designate. *Not available online to all participants FDIC, are not obligations or deposits for Principal Bank nor guaranteed by Principal Bank and involve risk, including the possible loss of principal invested. 4 5 While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is WaRM UP WINteR Beat the IRa intended to provide general infor- SaVINgS deadLINe mation about the subject matter covered and is provided with the understanding that The Principal Install a programmable ther- Didn’t get around to mak- is not rendering legal, accounting mostat to help beat winter’s ing a 2009 IRA contribution? or tax advice. It is not a marketed opinion and may not be used to heating costs (and lower sum- There’s still time. You have avoid penalties under the Internal mer’s air conditioning bill until April 15, 2010, to make Revenue Code. You should consult as a bonus). According to an eligible contribution to a with appropriate counsel or other advisors on all matters pertaining, that one step Traditional or Roth IRA for to legal, tax or accounting obliga- can save a homeowner about last year. Learn more about tions and requirements. #9479122011 $180 a year. Find more energy- your options at saving tips at planahead/ira. planahead/tips. EE 8397 Q110C SPRING 2010 PLAN AHEAD. GET AHEAD. 1
  4. 4. your money WHAT’S NEW—AND WHAT YOu NEED TO KNOW many happy returns If you’re throwing up your hands at the notion of crunching tax-return numbers yourself, it may be time to shop for a tax preparer. Here, Did you leave a job in 2009 but keep retirement savings in your courtesy of the Internal Revenue former employer’s plan? You’re not the only one who can move Service (IRS), are some pointers: on—your money can too. And you have many convenient choices • heck out any preparer you’re C considering with agencies such available to you, with benefits you’ll appreciate. as your local Better Business For example, did you know that with a direct plan-to-plan Bureau or the IRS Office of rollover, you need never handle the money yourself? Experienced Professional Responsibility. retirement professionals can start the paperwork right over the • xamine the preparer’s E phone and send you forms to review and sign. They also can explain professional affiliations and the potential taxes and penalties you may incur if you choose to credentials to make sure they suit your needs. For example, is the cash out of a former employer’s plan. What’s more, consolidating person accredited to represent retirement assets in one place may help you avoid duplicate account you before the IRS? maintenance fees and lets you more easily monitor how your • sk who will be doing the actual A investments are diversified. work on your return and how to Phone The Principal Client Contact Center at 1-877-788-7242, contact them. And it should go ext. 45347 to learn more about your rollover options. without saying: Steer clear of preparers who hold out promises or guarantees of more deductions or larger refunds. take it to TradiTional ira the limit This year you can contribute the and roTh ira 401(k) or 403(b) same maximums to your employer’s $5,000 (combined retirement plan or your IRA as in 2009 ConTribuTion limiT contribution to $16,500 (see chart at right). Also unchanged is for 2010 both cannot exceed the annual gift tax exclusion, which is $5,000) the maximum you can give someone without triggering tax consequences limiT on addiTional ($13,000 per individual or $26,000 for “CaTCh-up ConTribuTions” $1,000 $5,500 for Those 50 and older a combined gift from spouses). 2 PLAN AHEAD. GET AHEAD. SPRING 2010
  5. 5. Q&A to your credit randy welCh, direCTor of invesTmenT serviCes The news just keeps getting better for cardholders. The Credit Card for The prinCipal Accountability, Responsibility, and Disclosure (CARD) Act of 2009 won’t keep your credit card company from increasing your interest rate, but finanCial group, explains ® new provisions do seek to make issuers play more fairly. Among the how bonds behave. Q welcome changes: • ou’ll be notified at least 45 days before a rate jump, and you Y won’t see rate hikes on existing balances just because you’re behind i’ve always heard ThaT bonds on your mortgage or other payments. While retroactive rate increases go up when sToCks go down are largely banned, there are exceptions, and you could trigger one if and viCe versa. if ThaT’s True, whaT you’re 60 days late on a payment. But your lower rate can be restored happened in 2008? if you make timely minimum payments for six months. Traditional wisdom does indeed suggest that the • ills now need to be mailed at least 21 calendar days before B two markets behave differently. Usually when the payment is due, and that due date must be the same day each month. economic environment/conditions are deteriorating • here’s no longer any need to worry about over-limit fees since T and interest rates are falling, bonds perform well purchases that would exceed your credit limit will be rejected unless and stocks lag. Conversely, a rising-interest-rate you give prior authorization. environment tends to be not so good for bond • tatements will now offer an eye-opening tutorial: Issuers S returns and better for stocks. In 2008 we had a will explain the consequences of making only minimum monthly falling interest-rate environment, which means we payments, including the time it would take to pay off the entire might have expected bonds to perform well, but balance and the total cost. we actually saw bonds (with the exception of U.S. Note that some of these changes went into effect in 2009; the rest will Treasuries) as well as stocks drop. take effect this calendar year. The credit markets were the impetus for the downturn, and once that happened you started to see the consumer lack of confidence and see some firms go bankrupt. The ramifications of that affected not only the fixed-income markets but moved right into the stock market. moniTor your mix If a bond is coming under so much pressure Your asset allocation mix, that is. See if your mix is in line that the company can’t pay its obligations, not with your risk tolerance. Take our Investor Profile Quiz at only is that going to affect people holding the bonds, it’s also going to affect the people holding the [company’s] stock. In 2008 you started to see that mass hysteria of “[we] don’t want any type of exposure to risk,” so you saw the markets kind of SaVe that tax RefUNd capitulate with negativity. And that affected bonds, stocks, real estate—just about anything except for cash or Treasuries. Here’s a painless new savings strategy, courtesy of the IRS. You can now seamlessly purchase up to $5,000 worth of Series I u.S. savings bonds using your federal tax refund. Just specify the amount you’d like to buy on IRS Form 8888, which you’ll file with your other paperwork. The bond certificates will be mailed after the IRS processes your return. Don’t plan on giving bonds purchased this way as gifts. These low-risk investments can be issued only in your name or, if you’re married and filing jointly, in the names of you and your spouse. SPRING 2010 PLAN AHEAD. GET AHEAD. 3
  6. 6. WILL MY MONeY LaSt? BY GEOFF WILLIAMS PHOTOGRAPHED BY KATHRYN GAMBLE thAt’s the Question this new retiree is Asking herself. here’s how she And others ApproAching retirement cAn plAn A consistent monthly income for life. Jeanne dwyer found herself face-to-face with the need to plan her retirement income after an unexpected job loss.
  7. 7. JEANNE DWYER CAME FACE TO FACE WITH You can use the Retirement Estimator available at to ballpark your Social Secu- RETIREMENT LAST OCTOBER rity benefits and get a better picture of the trade-offs and when she was unexpectedly downsized in a company rewards of starting withdrawals sooner or later than your merger. Suddenly the 62-year-old found herself dealing full retirement age, which is somewhere between 65 and with the challenge of how to switch from a savings men- 67, depending on when you were born. As an example, tality to a spending mind-set. the difference on a monthly basis might be 25 percent less As Dwyer, who lives in Des Moines, Iowa, discovered, than full retirement benefits if you opt for age 62 or up to that’s when you have to decide how you’re going to make a third more if you wait until age 70—significant amounts the most of what you’ve already got. Ideally, that’s some- for some people. thing you’d have planned for with the help of a financial If you won’t need the income anytime soon and you’re professional in the years leading up to retirement. But, in good health, it may pay to hold off tapping Social Secu- unfortunately, many people are so focused on saving for rity for as long as you can (after age 70, there’s no financial retirement that they don’t consider how to manage their incentive to delay). David Littell, a professor of taxation retirement income until retirement is suddenly upon them. who specializes in retirement issues at The American Col- Others, like Dwyer, find themselves out of the workforce lege in Bryn Mawr, Pennsylvania, says, “Since [Social and facing the issue earlier than they expected. Security] is inflation-protected and provides essentially a Dwyer was a vice president in charge of human joint annuity for a married couple, more of us are talking resources for a health care company. She’d helped lots of today about encouraging clients to defer benefits to maxi- workers come to terms with their career mortality, but mize the income stream.” that didn’t prepare her for the shock of losing her own A financial professional can help you determine the best livelihood several years before she intended to retire. “It’s age at which to begin drawing Social Security. He or she a very scary thing when this happens to people,” Dwyer can also help you figure out the best way to maximize says. “You don’t ever think it’s going to be you.” benefits between you and your spouse. Much depends on Dwyer and her husband now have to put pencil to your specific situation—age, health and earnings (espe- paper and figure out how to live on what they’ve saved. cially if one spouse has a stronger earning history). Dwyer pocketed a healthy sum when she sold a family farm last year, but her savings in her employer’s retirement gUaRaNteed INCOMe plan is still on the rebound. It will be a few more yearsThere was a time when most workers could count on before she’s eligible for full Social Security benefits, and a traditional company pension to provide a guaranteed she’d like to keep her money working for her as long as monthly retirement income, but such pensions are increas- she can. Most important, she wants the peace of mind thatingly rare today. If you’re covered by one, it may provide comes with knowing her money will never run out. you (and your spouse) a fixed amount of income for life. Fortunately there are various options for people like For those without a pension, an income annuity can Dwyer. The difficulty isn’t so much in finding them but offer similar security. You purchase an income (or imme- “[annUi- in developing a retirement income plan that will generatediate) annuity with a lump sum the income needed to live. Usually that involves dipping of money that buys you a stream into several pots of money: Social Security, the assets in your employer’s retirement plan, traditional and/or Roth of monthly payments. “They’re pretty popular because they guar- tieS are] Individual Retirement Accounts (IRAs), other personal savings and investments, and perhaps a traditional pen- antee payments for life,” Danford says. Monthly payments often start pretty sion or part-time employment. within 30 days and never end, even pOpUlar BecaUSe if you live to be 100 or more. SOCIaL SeCURItY Think about how you want to “The Social Security issues cause unnecessary anguish,” receive payments before purchasing says Dan Danford, who heads the Family Investment Cen- an income annuity because you do they ter in St. Joseph, Missouri. “If we knew how long each have choices in how it’s structured. of us would live, we’d just multiply the various payment Some annuities pay a fixed rate dur- GUarantee schemes over our exact lifespans and choose the highest ing your life, while others offer a paymentS fOr life.” one. Since we don’t, we’re making a best-guess estimate, lower initial payment that increases and that really stresses people out.” over time to help offset inflation.* *Guarantees are based upon claims-paying ability of the issuing insurance company. SPRING 2010 PLAN AHEAD. GET AHEAD. 5
  8. 8. The percenTage of workers who say They haven’T yeT devised a plan for how They’ll Tap savings in reTiremenT. Source: The Principal Financial Well-Being Index, Third Quarter 2009 Littell is a fan of annuities for a portion of retirement (adjusted annually for inflation) in order to maximize the income. “If basic needs can be taken care of through likelihood that you won’t outlive retirement savings. guaranteed income,” he says, “other investments can be invested more aggressively, assuring both peace of mind get gOOd adVICe and a potential for growth on other assets.” How do you know which sources of retirement income to siphon first? When it comes to your retirement income, a PeRSONaL SaVINgS financial professional can help you figure out the propor- Your goal should be to tap your personal and retirement tions. You might, as an example, end up drawing approx- savings in the most efficient manner so you don’t overpay imately one-third of your income from Social Security, in taxes, while at the same time making withdrawals at a one-third from a guaranteed source, such as a pension level that can help ensure your retirement funds don’t dry or annuity, and the final third from systematic withdraw- up before you no longer need them. als taken from your personal and retirement savings and “For most people, retirement funds come in two big investments. Or you may also have income from part- categories—money that’s already been taxed or money time employment or from a rental. A retirement profes- that has not,” says Danford. “Taxable withdrawals should sional can help you draft a specific plan to help meet be targeted to years with lower income and, thus, lower your needs. tax brackets. The best answer for one year might not be As draining an experience as losing her job has been, the best in another.” Jeanne Dwyer has already seen the potential of having Some experts recommend letting money that has several income streams working for her. And she has time already been taxed (in Roth IRAs, for example) perco- on her side in deciding how to tap them until she’s eligible late as long as possible in order to allow compounding to for full Social Security benefits and Medicare. Meanwhile, potentially increase the pot. And when it comes to taxable she received a generous severance package, and her hus- assets, much depends on what you believe will happen to band, a Vietnam vet, receives disability. overall tax rates in the years to come, something no one Dwyer already has leads on a couple of part-time or 83% can reliably predict. consulting projects that could supplement her income. She A little easier to estimate is how much you might con- plans to meet with a financial professional and is continu- sider withdrawing each year. Whether retirement savings ing to contribute to a retirement savings account out of are in an IRA or your employer’s retirement plan (or her severance pay. “For the time being,” she says, “I’m both), the Principal Financial Group encourages limit- putting as much money away as I can.” ing yearly withdrawals to 4.5 percent of the total assets Next StePS whaT Can you do Today To help seCure a she can also help you estimate how much income you’re sTeady reTiremenT inCome Tomorrow? likely to require each month. If you don’t have a financial Randy Bachman, Assistant vice President, Retirement professional, The Principal can connect you with one. Income Solutions at the Principal Financial Group, sug- Meanwhile, check out the valuable tools available at gests you begin by asking yourself these questions: that can help you face • How comfortable am I with market risk? major retirement challenges, including: • Will I have a lot of ongoing expenses such as rent, • The risk of outliving your savings mortgage or car payments? • The risk of your savings being outpaced by inflation • Will I have income from a pension plan, rental • The high and rising cost of health care property or a small business? My Principal® Edge Milestones at • How important is having a lifelong guaranteed planahead/createplan may help you figure out if you’re income stream to me? on track to meet your retirement goals.* Answer a few • How actively do I want to manage my retirement quick questions and you can estimate the income you may savings? need in retirement and whether or not you’re on track to Next, consider the help of a financial professional. achieve your goals. You can also see the potential impact This person can help you sort through your answers to of boosting your savings rate or postponing retirement by a find solutions that make the most sense for you. He or few years. * Not available online for all participants 6 PLAN AHEAD. GET AHEAD. SPRING 2010
  9. 9. MONeY MISStePS “You know that saying, ‘learn from your mistakes’? It’s better to learn from other people’s mistakes. It’s less expensive.” we couldn’t agree more. so we polled four financial experts and asked them to come clean about their biggest mistakes. by dave kirChner ed slott CPa, hOSt Of the WeBSIte irahelp.cOm aNd aUthOR Of StaY RICh fOR LIfe!: gROWINg & PROteCtINg YOUR MONeY IN tURBULeNt tIMeS MY MIStaKe: “Oh, that’s easy. Not OtheR PeOPLe’S MIStaKe: Not RetIReMeNt MIStaKe: Not having starting early enough to put away for opening a Roth IRA. “Any young per- a financial professional who under- retirement. When I was in my 20s, I son now—or any person, really—who stands ways to distribute savings once worked for a small accounting firm, is not taking advantage of the Roth is you retire. “It’s the way you take it out and one of the guys told me—you’ve missing a huge opportunity to keep [at that determines how much you get to got to start putting away for retire- least some of] their retirement money keep and how much goes to the gov- ment. I said nah, I won’t be able to tax-free. When you’re in retirement, ernment.” Slott is in the business of touch that money till I’m 59½. By then that’s when you need every cent the training financial professionals through I’ll be ready for the nursing home.” most. That’s the worst possible time his IRA Leadership Program. It’s an Today at age 55, Slott says he’s had to have to share every dollar you take opportunity for them to learn how to to put the pedal to the metal to make out with the government.” better help their clients hold on to and up for those lost years. “Now every manage their money in the distribu- time I put money away, I say I wish tion phase. I could have done that when I was in my 20s.” SPRING 2010 PLAN AHEAD. GET AHEAD. 7
  10. 10. MY MIStaKe: Not staying involved. retirement rolls around and money “When I first went to Wall Street as a is tight? I like to talk about this in lawyer in the beginning of my career, terms of time travel: The decision to my husband and I decided we would spend today for something you want divide up financial responsibilities, as has an effect on the future, when you many couples do. My husband [also may not be able to buy something you a lawyer] took on the task of making need. But most of us don’t think of it investment decisions. He made some that way.” quick profits and nearly abandoned his practice to become a full-time day RetIReMeNt MIStaKe: Not un- trader. But luckily, as it turned out, derstanding that retirement is a joint some profits turned to losses before venture. In her practice, Jason tells JUlIe JAsoN he made that crucial move, saving his law career and preserving our nest clients that spouses need to work alongside each other in retirement, PRINCIPaL Of jaCKSON, egg.” Lesson learned: Before you take almost as if they were running a busi- gRaNt INVeStMeNt adVISeRS, INC. aNd aUthOR the back seat on investment decisions, ness. “Successful retirees view it that Of the aaRP RetIReMeNt make sure you are in sync on risksway; couples who don’t have a much SURVIVaL gUIde and goals. bigger struggle. Plus, one spouse will undoubtedly predecease the other, so OtheR PeOPLe’S MIStaKe: Over- both have to be prepared.” Just one consumption, plain and simple. example: If one spouse tends to over- “When you look around, you see spend, that alone can undermine the people acquiring things they want success of a retirement portfolio. but don’t need. What happens when “t decision to he spend today for something you want has an effect on the future, when you may not be able to buy something dAllAs sAlIsBURY you need.” PReSIdeNt aNd CeO, eMPLOYee BeNefIt ReSeaRCh INStItUte (eBRI) MY MIStaKe: “My biggest blunder OtheR PeOPLe’S MIStaKe: Au- is just not having saved enough early tomatically assuming that all of the enough.” Having just turned 60, Salis- investment advice you see in the me- bury sees with hindsight that it would dia pertains to your situation. “It’s have been better to gradually double not one size fits all,” Salisbury says. his savings rate between the ages of “People really need to ask the ques- 20 and 40, instead of having to qua- tion: Does this apply to me? ” He druple it at 40. He says that, although points out that among workers with he and his wife have always been sav- employer-sponsored retirement plans, ers, it wasn’t until about age 40 that nearly 60 percent have total assets of they started putting actual numbers less than $20,000. Advice that applies on future costs such as health care and to individuals with high net worths long-term care. is one thing. But, Salisbury says, ask 8 PLAN AHEAD. GET AHEAD. SPRING 2010
  11. 11. MY MIStaKe: “It’s pretty easy for gest problem after a washout like we me to identify that one,” Tyson says. had in the financial markets is that “Not doing due diligence on the com- people become risk-averse precisely at panies you do business with.” In the the time when they should be taking early ’80s and fresh out of college, he more risk. When stocks were down found himself with a couple thousand 50 percent globally, weren’t they dollars to invest. Having seen ads in less risky than they were just a few The Wall Street Journal and The New years earlier?” York Times for a firm that traded in gold bullion, he jumped onboard. RetIReMeNt MIStaKe: Watching And lost every cent. “The next thing I the retirement plan balance sink and knew, it was all over the news that the then trying to rebound by timing the company had been shut down. Basi- market. Tyson says that whenever cally it was a fraud and a scam.” This there’s a downturn, pundits surface, taught Tyson at a young age that just claiming they predicted the collapse because a company’s ads may appear and promising they can help you avoid in respected publications, you still future calamity by following their ad- have to do your homework. vice on when to buy and when to sell. “The biggest danger is that people will OtheR PeOPLe’S MIStaKe: “I don’t throw out time-proven meth- have hard data to back it up, but my ods of investing and will latch sense is that the biggest mistake peo- onto a guru like that. Nobody has ple are making today is letting past a crystal ball. I just see too many years’ events color their view of the people trying to time the future.” Coming off of a reversal like market, and they’re in- we’ve just gone through, Tyson says, evitably going to be it’s easy to retrench and miss out on disappointed.” “t biggest problem he investment opportunities. “The big- after a washout like we eRIc tYsoN had in the financial markets SYNdICated COLUMNISt aNd aUthOR Of the BeStSeLLINg BOOK, is that people become risk - PeRSONaL fINaNCe fOR dUMMIeS averse precisely at the time when they should be taking more risk.” “What we know from the data is that the vast majority aren’t saving enough, and clearly they’re yourself this: “If I’m moderate income, investment allocation and low assets, low savings rate and low they may not even open not planning.” net worth, should I really be taking their statements. The EBRI’s the same level of total portfolio risk most recent Retirement Confi- as this other person?” dence Survey contains the sobering statistic that, even at retirement, only RetIReMeNt MIStaKe: “Not pay- 44 percent of workers say they’ve ever ing attention,” Salisbury says. By that made any attempt at calculating how he means that too many workers much money they’ll need to retire. don’t regularly monitor and increase “What we know from the data is that the percentage of their pay that they the vast majority aren’t saving enough, contribute to their employer’s retire- and clearly they’re not planning.” ment plan, they don’t re-evaluate their SPRING 2010 PLAN AHEAD. GET AHEAD. 9
  12. 12. your edge KEYS TO HELP MAKE YOu A SuCCESSFuL SAvER tlc for your rainy day fund The skittish economy has prompted many of us to reserve even more ready cash. Experts traditionally recommend an emergency fund of three to six months of living expenses. But today, depending on family circumstances, some people feel more comfortable with a year’s worth. With an emergency fund of that size, it’s important to seek the best available rate of return while still maintaining safety and liquidity. Here are some things to consider: • afety. Savings accounts and CDs are insured by the Federal Deposit S Insurance Corporation (FDIC), and most credit union accounts are covered by the National Credit Union Administration (NCUA). Money market mutual fund accounts are not insured by the FDIC.* • iquidity. You probably won’t need all of your emergency cash at once, so L it may make sense to put some in accounts you can access immediately and the rest in short-term-maturity CDs for a better overall rate of return. • ate of return. Compare rates at online banks as well as your bricks-and- R mortar bank and credit union. Sites such as can help you comparison-shop. * FDIC & NCuA limits the insured amount to $250,000 per depositor, per insured bank/credit union from 10/3/2008 through 12/31/2013. After 12/31/2013, the insured amount may return to $100,000. a SMaRt WaY tO StaggeR CdS Certificates of deposit (CDs) have long been a top choice for basic savings. But there is a downside: You lock up your money for the term of the CD. And in today’s rock-bottom interest rate environment, what if rates begin to trend upward? A divide-and-conquer approach called laddering offers flexibility. Here’s an example of how it works: Let’s say you divide up your money into five equal “pots” and put 20 percent into a 59% PERCENTAGE OF WORKERS WHO SAY THE ECONOMY HAS LED THEM TO CuT BACK ON TOTAL SPENDING OvER one-year CD at the current rate, another 20 percent into a two- THE LAST TWO MONTHS. year CD and so on. Your last 20 percent will go into a five-year CD. When the first CD matures in a year, reinvest in a five-year What it means to you: Although this figure indicates the CD at the current rate. Do the same with the two-year CD when economy is still a top-of-mind concern, it’s appreciably it matures. Given today’s low rates, you might want to start out lower than it was even three months ago. This increase in with even shorter maturities. The key in either case is to reinvest consumer confidence is one signal that the economy may for the same interval so you’ll have some money periodically indeed be on the rebound. available to reinvest for a greater return if interest rates rise. Source: The Principal Financial Well-Being Index, Third Quarter 2009 10 PLAN AHEAD. GET AHEAD. SPRING 2010
  13. 13. principal points Overlooked WHAT yOUr Statement IS TELLING YOu Insurance Needs Whether it arrives in the mail or you access it online, the statement you receive from your employer’s retirement plan is filled with valuable Homeowners, auto and health insurance are practically givens. information. If you’re used to glancing only at the bottom line and then But here are two other coverages filing it away, read on for help that may improve your bottom line. that are especially important in today’s economy: account balance. This area 1 Life Insurance. If your only gives you an at-a-glance look life insurance is provided by your at the total value of savings, employer, do you know if it’s which can help you see if adequate to provide for all of your you’re on track to reach your family’s needs? You may want to retirement goals. consider a supplemental policy. sample And if you should lose your job, Rate of return. Here’s where a supplemental policy may even you’ll find the percentage provide cash value you can borrow change in the value of the against in the interim. account since the previous 2 Disability Insurance. Many statement. This rate reflects people believe their most valuable the specific plan investment asset is their home. Actually, it’s options you’ve chosen. their income. According to the Council for Disability Awareness, educational messaging. 71% of American workers live Spending a moment in these from paycheck to paycheck, yet areas can reward you with 20% can expect to be out of work pointers on ways to help for a year or more before turning boost retirement savings, 65 due to illness or accident. news of just-added account features available online, timely plan information and much more. aLSO INCLUded WIthIN the StateMeNt aRe: account summary. This table gives you a snapshot of the contributions (yours and your planahead employer’s, if applicable) that make up the account balance. Seeing the amount that your employer contributes continue to grow may prompt you to contribute more yourself until you secure the full company match. are you proTeCTed? Find out if your present life activity by individual investment. This is where you can track the performance of the and disability coverages are holdings in each of your elected investment options over the statement period. Just as adequate for your situation important, if you’ve made changes to your investment options since the last statement, in just a few clicks. Run the you’ll now see them reflected and can begin to monitor how they’re doing. insurance calculators at Investment performance. Look here for a comparison of how all of the investment insurance. options available in your employer’s plan have performed over time. Remember that an option’s past performance is not an accurate predictor of how it will do going forward. Simplify your life by signing up for online statements at SPRING 2010 PLAN AHEAD. GET AHEAD. 11
  14. 14. my way LESSONS FROM SuCCESSFuL SAvERS RuNNING THE SavinGS MARATHON tOdaY jaCK WOLf IS aBLe tO LaUgh at some of His second smart move? Wolf realized he the investment mistakes he made early in his life. When he needed help managing his money. “I decided was in his late 20s, “I spent way too much money investing it didn’t matter how much of The Wall Street in real estate trusts and oil wells,” he says. “I should have Journal I read every day,” he says. The financial just taken that money up in an airplane and thrown it out professional Wolf turned to helped him imple- the window.” ment an investment strategy that relied on a bal- Now the 56-year-old executive with the Dallas-area Di- anced portfolio. It proved a smart move: rective Corporation is on a much surer path. In fact, he’s The two have worked together for on track to realize his goal of an early retirement at age 60. 22 years. So what happened between then and now to account for Over those years, Wolf has seen such a reversal of fortune? firsthand what compounding may Two things, actually. Once he turned 30, Wolf had the do, so it’s not surprising that he V8 moment when he realized that he alone was responsible stresses the importance of de- for his financial future. “I [knew] that I should not depend veloping a regular savings on Social Security,” he says. “I decided I wasn’t going to habit early. “You start early keep doing stupid things with my money. I was going and you do whatever you to be more disciplined and put whatever I could put can do, whether it’s $25 or a hundred dollars,” he away every month.” says. “It’s not a sprint. It’s That was about the time Individual Retirement Accounts a marathon.” (IRAs) became available, and Wolf began contributing to one. Soon after, he enrolled in the retirement savings plan his company had recently introduced. Now he saves the JaCk wolf believes maximum in the plan at Directive Corporation and takes that not every increase in your salary should advantage of the yearly catch-up contributions available equate to an increase in to those over 50. your lifestyle. The next issue of Plan Ahead. Get Ahead will only be available electronically! To make sure you receive yours, go to and log in to confirm or provide your email address. What WILL YOU dO tO SaVe MONeY ON thIS YeaR’S faMILY VaCatION? your inVestor profile Shop more carefully for the best airfares and hotel rates. What it says about your comfort level Still visit favorite destinations, but When the market stumbles, do you lose sleep worrying about your investment options? travel in the off-season. Or do you take fluctuations in stride, preferring to focus on the long term? Those kinds of questions help determine your risk tolerance, something all investors should assess Take a staycation and explore periodically because it can change over time—due to age, life circumstances and your attractions close to home. retirement horizon. To see where you currently stand, take the Investor Profile Quiz at In minutes you’ll be aligned to one of five hypothetical Skip this year’s vacation. investor profiles that can help you plan a mix of investment options. gO tO PRINCIPaL.COM/PLaNahead/POLL tO VOte aNd VIeW ReSULtS. YOU MaY ChOOSe MORe thaN ONe ReSPONSe. 12 PLAN AHEAD. GET AHEAD. SPRING 2010
  15. 15. Call today! 1- 877-788-7242 ext. 45346 ROCK AND ROLLOVER ! Tired of multiple statements and paperwork hassles from your different retirement accounts? Roll them over to The Principal®. Take center stage with a single retirement account statement and easily monitor how investment options are diversified. Setting up an account is convenient, easy and only takes a few minutes. We will start the paperwork over the phone and send you the forms to review and sign. Don’t miss a beat on your retirement savings! Contact The Principal today at 1-877-788-7242, ext. 45346 to learn more about your rollover options. A single retirement statement is sweeter than a back- stage pass to the hottest ticket in town. Call today for your rockin’ rollover! Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 800-547-7754, member SIPC. Princor® and Principal Life are members of the Principal Financial Group®, Des Moines, IA 50392. ©2010 Principal Financial Services, Inc.