RETIREMENTINSIGHTS             Guide to Retirement                   2012 Edition
RETIREMENTINSIGHTS             Table of contents              Setting the stage             Factors that may influence an ...
RETIREMENTINSIGHTS            Page reference   Setting the stage                                           Spending  5	  L...
RETIREMENT            INSIGHTSSetting the stage                         Setting the stage                         “Retirem...
RETIREMENT            INSIGHTS                         Life expectancy probabilities                    If you’re 65 today...
RETIREMENT            INSIGHTS                        Older Americans in the workforce                    Percent of peopl...
RETIREMENT            INSIGHTS                        Managing expectations of ability to work                    Current ...
RETIREMENT            INSIGHTS                        Social Security                    Social Security break-even analys...
RETIREMENT            INSIGHTS                       Inflation impacts on older Americans                    Comparison of...
RETIREMENT            INSIGHTS                           Spending and inflation                    Spending by age and cat...
RETIREMENT            INSIGHTS                         Cost of health care in retirement                    Present value ...
RETIREMENT            INSIGHTS                      Pension plan coverage                    Participation by plan type   ...
RETIREMENT            INSIGHTS                       Federal budget implications                    U.S. federal budget ou...
RETIREMENT            INSIGHTS                        Historic tax rates                    Historical view of top margina...
RETIREMENT    INSIGHTS                 Saving                 The single most important decision individuals can make abou...
RETIREMENT    INSIGHTS                         Retirement savings checkpoints                                             ...
RETIREMENT    INSIGHTS                     Benefit of saving early         Growth of savings accounts         $1,600,000  ...
RETIREMENT    INSIGHTS                     Savings rate         Personal savings rate         Annual, % of disposable inco...
RETIREMENT    INSIGHTS                     The toxic combination of varied savings and loans or withdrawals         Growth...
RETIREMENT    INSIGHTS                                                Evaluate a Roth IRA           Tax rates decrease 10%...
RETIREMENT      INSIGHTS                   Spending                   Determining your income needs during retirement is a...
RETIREMENT      INSIGHTS                     Typical wealth and sources of income at retirement           Wealth holdings ...
RETIREMENT      INSIGHTS                     Dollar cost ravaging – impact of market returns on distribution            Gr...
RETIREMENT      INSIGHTS                    Changes in spending           Average spending patterns of various age groups ...
RETIREMENT      INSIGHTS                             Effects of withdrawal rates on a typical balanced portfolio          ...
RETIREMENT      INSIGHTS                   Investing                   Invest for long-term growth potential and consider ...
RETIREMENT      INSIGHTS                        Structuring a portfolio to match investor goals                           ...
RETIREMENT      INSIGHTS                      Diversification            Maximizing the power of diversification, 1994 - 2...
RETIREMENT      INSIGHTS                      Impact of being out of the market            Returns of SP 500            $5...
RETIREMENT      INSIGHTS                       Major asset classes vs. inflation            Growth of one dollar, 1950 - 2...
JP Morgan Guide To Retirement 2012
JP Morgan Guide To Retirement 2012
JP Morgan Guide To Retirement 2012
JP Morgan Guide To Retirement 2012
JP Morgan Guide To Retirement 2012
JP Morgan Guide To Retirement 2012
JP Morgan Guide To Retirement 2012
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JP Morgan Guide To Retirement 2012

  1. 1. RETIREMENTINSIGHTS Guide to Retirement 2012 Edition
  2. 2. RETIREMENTINSIGHTS 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 2
  3. 3. RETIREMENTINSIGHTS 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 3
  4. 4. RETIREMENT INSIGHTSSetting 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 A 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 T 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 I for insurance premiums and other health care costs. Page 11 4
  5. 5. RETIREMENT INSIGHTS Life expectancy probabilities If you’re 65 today, the probability of living to a specific ageSetting 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. 5
  6. 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 - 2020Setting 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. 6
  7. 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 plannedSetting 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. 7
  8. 8. RETIREMENT INSIGHTS Social Security Social Security break-even analysis Estimated total benefits if distributions begin at a certain ageSetting 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. 8
  9. 9. RETIREMENT INSIGHTS Inflation impacts on older Americans Comparison of inflation Older households vs. younger households, 1985 = 100Setting 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. 9
  10. 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 e r v. g n n t l re en he ar in differences in spending tio tio be pa us m lc Ot ta ca d Ap in Ho ca an or u habits and price increases rta Ed di sp d Me te o an Fo En in those categories. Tr 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% e er v. g n n t l re en ar in tio io be h pa us t m lc Ot rta ca d Ap in Ho ca an u po rta Ed di od s Me te an Fo En Tr 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%). 10
  11. 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 coverageSetting 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. E 11
  12. 12. RETIREMENT INSIGHTS Pension plan coverage Participation by plan type Distribution of private-sector, active-worker participants, 1979-2010Setting 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. 12
  13. 13. RETIREMENT INSIGHTS Federal budget implications U.S. federal budget outlays - 2011Setting 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. 13
  14. 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. 14
  15. 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 I 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 U “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 T • tart saving early and regularly. Early withdrawals, loans and missed contributions can result in lower savings, S less compounding and fewer assets at retirement. Page 19 *Source: Employee Benefit Research Institute and Mathew Greenwald Associates, Inc., 2011 Retirement Confidence Survey. 15
  16. 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 aSaving 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. M (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. 16
  17. 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 $1,000,000Saving 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. 17
  18. 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. 18
  19. 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 retirementSaving $400,000 goals. $200,000 • aking loans and early T $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 I 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. 19
  20. 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 potentialSaving 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. 20
  21. 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 S 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 S — 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 W regularly. Page 23 • here is potential danger in investing too conservatively or withdrawing too aggressively. Either may increase T the risk of tapping into principal and running out of money. Page 25 21
  22. 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. 22
  23. 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. 23
  24. 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. 24
  25. 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. 25
  26. 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 D • et specific retirement goals upfront — and keep focused on the long term during periods of volatility S and uncertainty. Page 27Investing “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 R 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 26
  27. 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? PensionInvesting 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. 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. 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. 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 $9Investing $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

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