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Take Action For Retirement


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Take Action For Retirement

  1. 1. Taking Action Toward Your Retirement Goals Investor Seminar
  2. 2. Neither UBS Financial Services Inc. nor any of its employees provide legal or tax advice. You should consult with their personal legal or tax advisor regarding your personal circumstances. 1
  3. 3. It is important that you understand the ways in which we conduct business and the applicable laws and regulations that govern us. As a firm providing wealth management services to clients in the U.S., we are registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services. Though there are similarities among these services, the investment advisory programs and brokerage accounts we offer are separate and distinct, differ in material ways and are governed by different laws and separate contracts. It is important that you carefully read the agreements and disclosures that we provide to you about the products or services we offer. While we strive to ensure the nature of our services is clear in the materials we publish, if at any time you seek clarification on the nature of your accounts or the services you receive, please speak with your Financial Advisor. For more information, please visit our website at 2
  4. 4. The Changing Retirement Landscape Bush Cites Plan That Would Cut Social Security April 29, 2005 Will Baby Boomers Go Bust? May 16,2005 “Health-care expenses are easily the largest underestimated cost in retirement.” May 9, 2005 Am I Ready To Retire? July 24, 2006 3
  5. 5. Do You Have Questions About Preparing for Retirement? Am I saving enough? Am I going to outlive my assets? What should I do with the assets in my employers plan? When should I take distributions from my retirement plan? Am I affected by estate tax issues? Should I be doing something to protect my beneficiaries? Who can help me address my concerns and plan for my needs? 4
  6. 6. Planning for Retirement: A 4 Stage Process Saving Receiving Managing Transferring Preparing Drawing Accumulating Eligible to to pass your Income Toward Withdraw Retirement from Savings Goals Assets from Assets to Retirement Qualified Plans Beneficiaries Savings 5
  7. 7. Saving Saving Am I saving enough? Will I have enough to retire? Am I going to outlive my assets? AccumulatingT oward Savings Goals 6
  8. 8. Saving What Do These Numbers Mean? 80 – 110 20 – 30 2–4 7
  9. 9. Saving How Much Income Will You Need? How do you picture yourself in retirement? 8
  10. 10. Saving Inflation Erodes Retirement Savings Annual Inflation for Retirement-Related Expenses 5.9% 6.0% 5.0% 4.6% 4.4% 3.8% 4.0% 3.2% 3.0% 2.6% 2.5% 2.4% 2.0% 1.0% 0.0% All items Eating Food Rent of Presc. Funeral Nursing Hospital out primary drugs/ costs home/ services residence medical adult supplies daycare Health care costs increased 8.7% in 2001 – an all-time high of 14% of GDP Source: U.S. Bureau of Labor Statistics; 10-year average annual inflation through 12/31/03. Nursing home and hospital service reflect 7-year through 12/31/03. 9
  11. 11. Saving Longer Life Means Longer Retirement FDR Signed the Social Security Act in 1935 Life Expectancy (at Birth) Life Expectancy Life Expectancy 1935 2007 Men – 59 Men – 74½ Women – 63 Women – 80 Source: Social Security Administration, Period Life Table, 2003 (updated July 2007) 10
  12. 12. Reasons to Save for Retirement The impact of inflation on your money Item 1980 Current First-Class Stamp $0.15 $0.411 TV Guide $0.40 $2.992 Loaf of Bread $0.52 $1.243 Average New Car $7,571 $28,4514 Average New Home $64,600 $298,5005 College Education $4,806 $13,5896 (4-year public annual tuition and room and board) 1As of August 2007 2TV Guide, January 2008 3U.S. Bureau of Labor Statistics, November 2007 4National Automobile Dealers Association, May 2007 5U.S. Department of Housing & Urban Development, November 2007 6Trends in College Pricing 2007, The College Board’s Annual Survey of Colleges, 2007-2008 11
  13. 13. The Effects of Inflation on Saving Retirement Income $164,000 $100,000 Income Needed 20 Years Later at Annual Average Inflation Rate of Anticipated Income 2.5% Needed at Retirement In Current Dollars Source: UBS Investment Research provided through UBS Securities LLC (2004) The forecasts or other information in this slide regarding the likelihood that various investment and economic outcomes might occur are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. In reviewing this information, please note that the analysis does not take into account actual market conditions which may severely affect the outcome of your goals over the long term. Past performance is not a guarantee of future returns. 12
  14. 14. Saving Will I Outlive My Assets? Probability of Assets Lasting for 25 Year Retirement (Portfolio Allocation: 60% stocks/40% bonds) 100% 80% 60% 40% 20% 0% 4% 5% 6% 7% 8% Withdrawal Rate Source: UBS Quantitative Research Team (2004) based on historical return data for large-cap stocks and long-term Treasury bonds (from 1926-2003.) The forecasts or other information in this slide regarding the likelihood that various investment and economic outcomes might occur are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. In reviewing this information, please note that the analysis does not take into account actual market conditions which may severely affect the outcome of your goals over the long term. Past performance is not a guarantee of future returns. 13
  15. 15. Saving Retirement Savings Save and Diversify among 3 different tax baskets Pretax After-Tax After-Tax Tax-Deferred Tax-Deferred/Tax-Free Taxable Stocks Traditional IRAs Non-Deductible IRA Bonds Employer Plans: Roth IRAs/Roth 401(k) Mutual Funds 401(k) PS Tax Rates: Annuities 403(b) SEP Capital Gains Non-Qualified Plans 457 SIMPLE Dividends 14
  16. 16. Saving Are You Taking Advantage of Your IRA? Increased Limits over Age 50 Can Help You Catch Up! Traditional and Roth IRA Limits Year Under Age 50 Age 50+ 2007 $4,000 $5,000 2008 and after, as $5,000 $6,000 adjusted for inflation 401(k), 403(b), 457(b) Contribution Limits Year Under Age 50 Age 50+ 2008 $15,500 $20,500 15
  17. 17. Saving Have You Considered a Roth IRA? Added benefits if your MAGI is … Single Filers* Joint Filers* Less than $101,000 Less than $159,000 Contributions always non-deductible (after-tax) Can withdraw contributions at any time—no tax/penalty Qualified distributions from Roth are tax-free vs. tax-deferred For Owner and Beneficiaries — No required minimum distributions (RMDs) at 70½ *Eligibility for Roth contributions phase out for modified adjusted gross income (MAGI) between $101,000 to $116,000 (single filing), $159,000 to $169,000 (joint filing) for 2008. 16
  18. 18. Saving The Power of 401(k) Contributions How much can a 50-year old accumulate in a 401(k) before retiring at age 58? 50-year old earning $75,000* Annual 6% 8% 10% Contribution Rate of Return Rate of Return Rate of Return $4,500 (6%) $53,527 $59,036 $65,270 $10,000 (13.3%) $118,949 $131,190 $145,044 Max of $20,500 $243,846 $268,941 $297,341 Note: Starting at age 50, this hypothetical illustration assumes various contributions that are made at the end of each month and lasts for 9 years until retirement. *This illustration is hypothetical and does not represent the performance of any specific investment or security 17
  19. 19. Saving: Action Steps ―Crunch the numbers‖ to get a clear picture of Saving where you are today and what you need to do for the future Establish a formal financial plan that includes your retirement goals: Consider saving with all three tax baskets Maximize contributions to retirement plans AccumulatingT owards Savings Goals Explore Roth IRA option Implement the plan and review progress 18
  20. 20. Receiving Receiving Receiving Should I roll the assets over from my employer plan into an IRA What are my options? What are some key issues I Eligible to distribute should know? employer plans 19
  21. 21. When Can You Move Your Consolidate Consolidate Employer Plan Assets to an IRA? Traditional IRA or Company Plan Roth IRA* Retiring 401(k) 403(b) Rollover 457(b) Changing jobs IRA ESOP Profit Sharing While still employed In-service withdrawal Lump Sum Pensions—Access, if available, is typically only allowed at retirement. (Possibilities depend on plan provisions) * effective 2008 under the Pension Protection Act, eligible qualified plan distributions may be rolled directly into a Roth IRA. Income limits on conversions still apply until 2010. 20
  22. 22. Receiving Why Consolidate Assets in IRA? Advantages of IRA Consolidation Direct Financial Advisor Relationship for Guidance Greater Investment Flexibility and Choice More Flexibility in making Beneficiary Designations Access to Funds: Distributions and Withdrawals 21
  23. 23. Receiving Do you own company stock in your plan? Are there circumstances where taking a plan distribution and not rolling over to an IRA makes good planning sense? Qualified Plan Traditional Mutual Funds Rollover to IRA IRA Cash Distribute Shares After-Tax Company NUA Account Stock 22
  24. 24. Net Unrealized Appreciation (NUA)—Example $100,000 in company stock held in 401(k) account Standard 401(k) Take NUA Treatment on Distribution Distribution Company Stock Distribute in-kind and Cash out $100,000 sell shares Cost Basis Minus Ordinary income tax $100,000 x .33 = $33,000 $10,000 x .33 = $3,300 Taxes* 33% tax rate Appreciation Capital gains tax 15% tax rate $90,000 x .15 = $13,500 Equals Final $83,200 $67,000 Balance Total tax savings = $16,200 *Assumes a 33% ordinary income tax rate and 15% capital gains tax rate. Tax rates reflect federal taxes; state taxes may also apply. 23 There may be additional tax considerations. Neither UBS Financial Services Inc. nor its employees (including Financial Advisors) provide tax or legal advice. You should consult with your attorney and tax advisor regarding your personal circumstances.
  25. 25. Receiving IRA to Roth IRA Conversion Tax-deferred Income Traditional IRA MAGI* under $100,000? Recently retired with lower income? Tax-free Income** Roth IRA *MAGI - modified adjusted gross income ** For all qualified distributions 24
  26. 26. Roth IRA Rollover: Receiving A New Opportunity in 2008 Employer-Sponsored Plan MAGI* under $100,000? Tax due on pre-tax contributions and earnings Opportunity for tax-free Roth IRA distributions in the future** * MAGI – Modified adjusted gross income ** For all qualified distributions 25
  27. 27. Receiving: Action Steps Discuss with your Financial Advisor, if Receiving applicable, the opportunities relating to:  Taking an in-service withdrawal from your qualified plan.  Consolidating your retirement assets in an IRA  Utilizing Net Unrealized Appreciation for your Eligible to Distribute from company stock Qualified Plans  Converting from a traditional to Roth IRA or rolling over a distribution from an employer- sponsored plan directly to a Roth IRA 26
  28. 28. Managing How can I take distributions without Managing penalties? When am I required to begin taking distributions? How can I structure my investments Taking to help provide the income I will income from need? IRA 27
  29. 29. Managing Managing—Taking Distributions from IRA Managing Taking Income from a Traditional IRA When can I… When do I have to… Age Age Age Pre 59½ Over 59½ 70½ + No more early IRC 72(t) Required withdrawal penalties Minimum Distributions 28
  30. 30. Managing Providing Enough Income In Retirement Individuals may be responsible for over 60% of their retirement income 22.9% Investment Income 40.9% Earned Income Pensions & Annuities Social Security Other 20.0% 14.6% 1.6% Individuals age 65+ with annual incomes of $50,000 or more Source: Employee Benefit Research Institute (EBRI) estimates of the March 2007 Current Population Survey 29
  31. 31. Managing Do My Savings Cover My Income Needs? Sources of Income Essential Social Security Housing Pensions Health Insurance Earned Income Food/Living Expenses Cash Flow Personal Investments: Discretionary Tax Deductible Travel Entertainment Tax-Deferred Hobbies/Leisure After Tax How should I invest – asset placement? Which assets should I withdraw from first? Am I being tax efficient with my capital gains and dividends? How should I withdraw income? Do I have a plan in place? Am I taking on an appropriate level of risk for my desired return? 30
  32. 32. Managing: Action Steps Work with your Financial Advisor to develop a Managing comprehensive strategy for:  Providing an income stream designed to support your desired retirement lifestyle  Managing retirement assets to last during your expected lifetime Taking  Ensuring you are set-up to take your income from IRA required minimum distributions 31
  33. 33. Passing Wealth Transferring Am I affected by Estate tax issues? Should I be doing something to protect my beneficiaries? Transferring retirement assets to beneficiaries 32
  34. 34. Beneficiary Designation— Transferring Advantages of a Stretch IRA What is the “Stretch IRA” Strategy? IRA Owner IRA Beneficiary Beneficiary has ability to take minimum required distributions from inherited IRA over his/her own life expectancy 33
  35. 35. An Example of the Stretch IRA Transferring Strategy at Work 34
  36. 36. An Example of the Stretch IRA Strategy Transferring at Work $300,000 initial balance in IRA pays total distributions of over $2.1 million over 46 years* * Asset growth is based on a 7% rate of return and assumes all generations receive their respective required minimum distributions as defined by the IRS on December 31 of each year distributions are required. This number assumes that each generation elected to take only the required minimum over the longest period allowed by current law. Should any recipient elect to take distributions greater than the minimum distribution or receive a lump sum at any point, this total would significantly change. This illustration is hypothetical and not meant to represent the performance of any specific investment or security. Actual returns will vary and principal value will fluctuate. Individual results will vary. Distributions are subject to income taxes. This illustration is based on current tax and regulations law (as of November 2005), which may change in the future. 35
  37. 37. Transferring Beneficiary Review Discussion Beneficiary designations are more important than ever! Make a beneficiary review part of your planning process: IRA accounts should have updated beneficiary designations on file- you should review your beneficiary plan with your legal advisor Review your beneficiary form to ensure it has been completed correctly  Primary listed  Contingent listed  Multiple beneficiaries—designate shares  Copy of Beneficiary Form to FA, Attorney  Review annually/life event changes 36
  38. 38. Transferring Transferring: Action Steps Transferring Set up meeting with your Financial Advisor and legal advisor to discuss:  Reviewing your will  Beneficiary Review  Titling of assets Preparing to  Life Insurance needs transfer retirement assets to beneficiaries 37
  39. 39. No Matter What Stage You’re In . . . Saving Receiving Managing Transferring The choices you make today will affect the quality of your retirement and the size of your estate. 38
  40. 40. ab UBS Financial Services Inc.