Envisioning Your Retirement_Flipbook_2024

How to Prepare Today for a More Fulfilling Tomorrow Envisioning Your Retirement

Retirement has often been viewed as an end to a working career, but today’s retirees and pre-retirees are more likely to see it as a new beginning — an opportunity for new adventures and to pursue their dreams. Whether retirement is many years away or right around the corner, it might help to envision your expectations for the future. Here are five key questions to consider: • When do you want to retire? • Do you want to stop working completely, or would you prefer to work part-time or in a different career? • Where do you want to live? • What activities do you look forward to enjoying? • What level of medical expenses do you expect? 65% Travel

What Kind of Lifestyle Do You Hope to Enjoy? With the freedom of retirement, the possibilities could be almost limitless. But keep in mind that some retirement activities cost more than others, and develop your savings strategy appropriately. 52% Spend more time with friends & family Volunteer 25% Pursue hobbies 45% Paid work 24% Hopes and Aspirations Percentage of workers who expressed the following hopes and aspirations for retirement (multiple responses allowed) Source: Transamerica Center for Retirement Studies, 2023

Before age 60 60–64 65 66–69 70 or older (or never retire) 32% 14% 22% 38% 28% 12% 13% 13% 23% Source: Employee Benefit Research Institute, 2024 Workers’ expected retirement ages Retirees’ actual retirement ages The age when you retire is a fundamental starting point for determining your retirement needs. If you are planning to retire in the next 10 years or so, you may already have a target date in mind. If retirement is further down the road, it might be difficult to identify a specific timeline — but it’s never too early to consider the challenges and opportunities that come with different retirement ages. When Will You Retire? 6% Current workers typically anticipate retiring at a later age than what is actually reported by retirees (see chart). People are living longer and staying healthy and active later in life. And many people may need to work longer to build assets after a late start or to make up for investment losses. It’s also important to consider the possibility that your career could be cut short at any time. Almost half of retirees say they left the workforce earlier than planned, with many citing health problems or company changes.

Early, Late, or Somewhere In-Between Retiring early could be a rewarding experience, but it typically requires a more aggressive saving and investment strategy in order to accrue sufficient assets in a shorter period of time. Don’t forget that the earlier you retire, the longer your retirement savings may need to last. Retiring later could give you a longer period of time to build your assets. But even if you are able and willing to work longer, you might be in a stronger position if you use an earlier target date for planning purposes.

Timing of Retirement and Social Security Social Security benefits could be a key component of your retirement strategy. You may want to consider how your claiming age could affect the size of your benefit. Age 62 — You will receive a benefit that is permanently reduced by 25% to 30% (depending on birth year), and your benefit may be further reduced if you continue to work. Full retirement age (66 to 67, depending on birth year) —You will receive your full benefit (Primary Insurance Amount), and any earnings from working will not affect your benefits. Age 70 — For each year you delay filing after reaching full retirement age, your benefit will increase by 8%. At age 70, you would receive your maximum benefit. Note: If you’re married, your claiming age could affect your spouse’s Social Security survivor benefits.

Average monthly Social Security benefit (2024) $3,033 Married couple, both receiving benefits Widow(er) receiving survivor benefits $1,773 $1,907 Retired worker Social Security Expectations It is generally wise not to place too much emphasis on Social Security in your retirement planning. The income you might receive is intended to supplement retirement savings, not to replace it. And Social Security faces serious fiscal challenges. The most recent trustees’ report (released in March 2023) indicates that Social Security should be able to pay current benefits until 2033. After that, the program might be able to pay about 77% of scheduled benefits, unless Congress takes action. To estimate your monthly Social Security benefit, go to socialsecurity.gov/estimator/. Source: Social Security Administration, 2024

Will You Continue to Work? Retirement has traditionally meant leaving the workforce altogether, but 75% of workers expect to continue working for pay after retiring. However, there is a large disparity between workers’ expectations and the actual experiences of retirees. Source: Employee Benefit Research Institute, 2024 75% 30% 73% 79% 74% 70% 80% 60% 40% 20% 0% 2016 2018 2020 2022 2024 27% 34% 27% 27% Percentage of workers who expect to work for pay in retirement Percentage of retirees who actually worked for pay in retirement

It might be wise to look at the potential for working in retirement as a bonus rather than a necessity. Here are a few ideas to consider. Part-time work could be pleasant after a long career of working full-time. Consulting could be an option if you have skills or knowledge that you can utilize on a freelance basis. A second career could be exciting if you have the opportunity. Starting your own business is a popular retirement dream. (Be careful about investing capital that you may need to live on in retirement.) Nearly nine out of 10 retirees who work during retirement say one reason they do so is to remain active and involved. Source: Employee Benefit Research Institute, 2024

Where Will You Live? Source: Council for Community and Economic Research, 2023 (data through Q3 2023) Owning a home can be a smart financial decision for many reasons, and you may have a valuable asset when you retire. But don’t place too much emphasis on your home value in your retirement planning. Housing prices are unpredictable, so selling your home should be an option, not a requirement, when you retire. Here are some ideas to consider. Cost of Living Your money might go further in some cities and states than in others, so do your homework before relocating. Take into account not only the cost of housing, food, and utilities but also taxes. States have different rules for taxing pension and Social Security income. Property taxes and sales taxes may vary by state and by county. Cost-of-living index for selected U.S. cities (U.S. average = 100.0) 239.6 179.2 145.3 Manhattan Honolulu Washington New York Hawaii District of Columbia

Aging in Place Like many seniors, you may want to remain in your own home for as long as possible during retirement. Moreover, if your mortgage is paid off, staying in your home might be a wise financial move. You might use the money you once spent on your mortgage to travel, remodel to better meet your changing needs, and/or hire help to perform necessary maintenance tasks, such as landscaping. Downsizing Selling your home to buy a smaller, less expensive one could make life simpler and enable you to add some of your home equity to your retirement assets. Of course, this assumes that market conditions are conducive. If you do downsize, there are many options for where you might live: a small house or condo closer to your children and grandchildren; a vacationstyle home on the beach, in the mountains, or on a golf course; a home in a college town with cultural activities; a home in a retirement community; or even a home in a foreign country. 141.7 119.3 108.8 101.7 95.2 91.8 99.6 San Diego Portland Denver Phoenix Nashville Tampa San Antonio California Oregon Colorado Arizona Tennessee Florida Texas

Medicare offers valuable benefits, but retirees still have some out-of-pocket costs, including premiums, deductibles, copays, and prescription drug expenses not covered by Medicare. Then there are costs for uncovered services such as vision and hearing exams, eyeglasses, hearing aids, and dental care. It’s estimated that a 65-year-old couple who retired in 2023 might need $351,000 to cover their out-of-pocket medical expenses in retirement. Health Expenses in Retirement Man Woman Married couple These are the estimated savings amounts needed for 65-year-olds to have a 90% chance of covering their Medicare (Parts B and D), Medigap (Plan G), and median out-of-pocket prescription drug costs in retirement. Source: Employee Benefit Research Institute, 2024 How much might you need to save for medical care? $351,000 $217,000 $184,000

With increasing life expectancies, there is a good chance that you will spend 20 or more years in retirement. Your retirement savings strategy should include the possibility of a long life. Will Your Assets Last Throughout Your Lifetime? Source: Society of Actuaries, 2024 Probability that a healthy 65-year-old will live to the following ages Age 85 Age 90 Age 95 55% 66% 85% 64% 35% 23% 45% 34% Man Woman One member of a couple 15%

There is no great mystery to saving for retirement. If possible, start as early as you can and save as much as possible throughout your working career. Of course, life is often unpredictable, and your earnings must cover competing needs and wants. But keeping the basic principle in mind — save as much as you can as early as you can — may help you stay on track. For some people, procrastination could be the greatest enemy toward building retirement savings. Establishing a Savings Strategy $500,000 $400,000 $300,000 $200,000 $100,000 $0 25 30 35 40 45 50 55 60 65 Age Amy $451,745 Tina $278,393 Assumptions: 6% annual salary contribution 3% annual salary increase 6% average annual return Advantage of an Early Start Amy begins saving at age 25 and earns a $30,000 salary. Tina begins at age 40 with a $60,000 salary. At age 65, Amy’s savings total would be more than 60% higher than Tina’s total because Amy started saving 15 years earlier.

These hypothetical examples of mathematical compounding are used for illustrative purposes only and do not represent the performance of any specific investment. They assume a monthly deferral of salary and monthly compounding of earnings. Fees, expenses, and taxes were not considered and would reduce the performance shown if they were included. Actual results will vary. What Percentage of Salary Should You Contribute? Financial professionals often suggest that you save at least 15% of your salary throughout your career. For those who start late, higher contribution rates may be necessary. Remember that if you are behind schedule, any savings increase is better than none. Many employer-sponsored plans offer an option to have your contribution rate increased automatically each year, typically by 1%, which could make a big difference over time. The Power of 1% Mark and Jason are hired at the same time with a $50,000 starting salary, and they both start contributing 6% to their retirement plans right away. Mark maintains the same 6% contribution level throughout his career, whereas Jason increases his contributions by 1% annually until he is contributing 15% of his income each year. After 30 years, Jason would have accumulated more than twice as much as Mark. $351,760 $757,502 Mark Jason Assumptions: 3% annual salary increase 6% average annual return 30-year time frame

How Much Do You Need to Save? A common guideline is that you may need to replace 70% to 80% of your pre-retirement income. This typically assumes that you will have paid off your mortgage, will be in a lower tax bracket, will no longer be saving a percentage of your income for retirement, and will not have work-related expenses such as commuting and business clothing. Of course, the amount you need to save will depend on many other factors, such as: • Years in retirement • Income sources • Lifestyle desired • Medical expenses

Retirement-Needs Analysis Only 52% of workers have tried to calculate how much they would need in order to live comfortably in retirement. It’s probably not surprising that those who have calculated their needs typically have higher savings goals than those who “guess.” Moreover, workers who have done a retirement-needs calculation tend to be more confident in their ability to achieve their goals. Source: Employee Benefit Research Institute, 2024 Your financial professional can help you develop a comprehensive and systematic retirement-needs analysis. Here’s a simplified example to help you get started. Try it with your own numbers. *Assumes a 3% after-tax rate of return; the 20-year factor is rounded. This hypothetical example is used for illustrative purposes only. Rates of return will vary over time, particularly for long-term investments. Investments seeking to achieve higher rates of return involve a higher degree of risk. Actual results will vary. There is no assurance that working with a financial professional will improve investment results, but a professional who focuses on your overall objectives can help you consider strategies that could have a substantial effect on your long-term financial situation. Example 1. Annual retirement income desired $70,000 2. Subtract expected retirement income from other sources such as Social Security or a pension – $25,000 3. Income you need to generate from savings and investments $45,000 4. Savings needed to provide desired income for 20 years (line 3 x 15)* $675,000 5. Savings needed to provide desired income indefinitely (line 3 ÷ 0.03)* $1,500,000

About 72% of U.S. households have tax-advantaged retirement savings accounts. These accounts generally fall into two categories: IRAs and employer-sponsored plans such as a 401(k) and a 403(b). Tax-Advantaged Retirement Accounts Percentage of U.S. households with tax-advantaged retirement savings plans IRA and employersponsored plan 37% IRA only 5% No IRA or employersponsored plan 28% Employersponsored plan only 30% Source: Investment Company Institute, 2023 (2022 data; most current available)

The Power of Tax Deferral Contributing to a tax-deferred account has two key advantages that may help you accumulate more for retirement. $90,191 $1,148,334 $794,752 $586,612 $451,089 $272,949 $231,062 $97,801 Assumptions: $7,000 annual investment 6% rate of return Taxable (24% rate) Tax deferred 10 years 20 years 30 years 40 years This hypothetical example is used for comparison purposes only and does not represent any specific investments. Investment fees and expenses are not considered and would reduce the results shown if they were included. Lower maximum tax rates for capital gains and dividends, as well as the tax treatment of investment losses, could make the taxable investment return more favorable, reducing the difference in performance between the accounts shown. Rates of return will vary over time, especially for long-term investments. Actual results will vary. 1. When you contribute to a tax-deferred account, you might be able to contribute more without reducing your cash flow because of the current-year tax savings. 2. Your pre-tax contributions and earnings have the opportunity to accumulate tax deferred, potentially increasing long-term savings growth. Even though you will be liable for income taxes when you make withdrawals from a tax-deferred account, you might be in a lower tax bracket when you retire. You should consider your investment time horizon, risk tolerance, and income tax brackets, both current and anticipated, when making investment decisions. Typically, a 10% federal income tax penalty may apply to distributions from a tax-deferred account prior to age 59½.

Individual Retirement Accounts (IRAs) IRAs typically have more investment options than employer-sponsored plans. However, IRAs have lower federal contribution limits: $7,000 combined annual limit, or $8,000 for those age 50 and older in 2024. If you file a joint return, you and your spouse can each make an IRA contribution even if one spouse has no earned income, as long as joint earned income exceeds the combined annual contribution. You have until the April tax filing deadline to make IRA contributions for the previous tax year. There are two basic types of IRAs: traditional and Roth. If you want a current-year tax deduction and expect to be in a lower tax bracket in retirement, a traditional IRA might be an appropriate choice. If you prefer a tax-free source of retirement income, you might contribute after-tax dollars to a Roth IRA. Roth IRA Conversions Assets in a traditional IRA (or in a former employer’s retirement plan) can be converted to a Roth IRA to benefit from tax-free distributions in retirement. The amount converted is taxable as ordinary income in the conversion year, which might move you into a higher tax bracket. Although the tax liability could be significant, under current law (and if all conditions are met), the Roth account will incur no further income tax liability for the rest of your lifetime or the lifetimes of your account beneficiaries, regardless of how much growth the account experiences.

More than 3 in 10 American households own at least one traditional IRA. About 1 out of 4 own at least one Roth IRA. Many households own both. Source: Investment Company Institute, 2023 (2022 data; most current available) Withdrawals from either type of IRA prior to age 59½ may be subject to a 10% income tax penalty, with certain exceptions. No age restrictions, but you must have earned income (from wages) to contribute to a traditional IRA. No age restrictions, but you must have earned income (from wages) to contribute to a Roth IRA. No income eligibility phaseouts except those discussed below regarding deductibility of contributions. Income eligibility phaseouts to contribute to a Roth: $146,000–$161,000 for single filers in 2024 $230,000–$240,000 for joint filers in 2024 Contributions are generally tax deductible. But if you are an active participant in an employer-sponsored retirement plan, the deduction is phased out at higher income levels: $77,000–$87,000 for single filers and $123,000–$143,000 for married joint filers in 2024. Contributions to a Roth IRA are not tax deductible. Because they are made with after-tax dollars, your contributions can be withdrawn tax-free and penalty-free at any time, for any reason. Distributions are taxed as ordinary income. Qualified distributions of earnings after age 59½ and meeting the five-year holding requirement are tax-free. You must begin taking required minimum distributions starting in the year you turn age 73 (75 for those who reach age 73 after December 31, 2032). If you are the original Roth IRA owner, you are not subject to required minimum distributions. Traditional IRA Roth IRA

In 2023, 63% of American workers had access to a defined contribution plan such as a 401(k), 403(b), or 457(b) plan. Source: U.S. Department of Labor, 2024 Employer-Sponsored Retirement Plans Employer-sponsored retirement plans such as Section 401(k), 403(b), and 457 plans offer higher contribution limits than IRAs. In 2024, you can contribute up to $23,000, plus an additional $7,500 if you are age 50 or older. You generally contribute a percentage of your salary using pre-tax funds (or after-tax funds to a Roth account), and you don’t have to pay current taxes on contributions or any earnings until you take withdrawals in retirement. Employers may offer to match a percentage of your employer-plan contributions with additional funds. Distributions from tax-deferred employer-sponsored retirement plans are taxed as ordinary income. (Roth employer plan distributions are tax-free.) Withdrawals taken prior to reaching age 59½ may be subject to a 10% federal income tax penalty. Generally, required minimum distributions (RMDs) from employer-sponsored plans must begin for the year in which you reach age 73 (75 for those who reach age 73 after December 31, 2032).

Rollovers If you leave your employer, you can generally keep your vested assets in your former employer’s plan as long as your account meets minimum balance requirements (typically $7,000). You may also have an opportunity to move the assets to a new employer’s plan, roll them over to a traditional IRA, convert them to a Roth IRA, or withdraw them.* If you choose a traditional IRA rollover, be sure it is executed correctly to preserve the tax-deferred status of the funds. To avoid current taxes, penalties, and withholding, you can generally arrange a direct rollover (also called a trustee-to-trustee transfer) by contacting the administrators of your old employer-sponsored plan and your IRA. You are limited to one indirect IRA-to-IRA rollover in a 12-month period, regardless of how many IRAs you have. The once-per-year rule does not apply to rollovers/transfers from an employer-sponsored plan to an IRA, Roth IRA conversions, or trustee-to-trustee transfers between traditional IRAs. *Distributions taken prior to age 59½ may be subject to a 10% federal income tax penalty, with certain IRS exceptions.

Investing your retirement savings offers the potential for growth, but it also involves risk. Your risk tolerance may depend on your personal preference, your overall financial situation, and the time frame you have before retirement. Building Assets Through Investment A typical approach is to invest more aggressively earlier in your career and gradually shift to more conservative investments as you approach retirement.

This hypothetical example is used for illustrative purposes only. The returns shown do not include taxes, fees, and other expenses typically associated with investing. Past performance is no guarantee of future results. Actual results will vary. Source: London Stock Exchange Group, 2024, for the period 1/1/2004 to 12/31/2023. Stocks are represented by the S&P 500 composite index total return; bonds by the Citigroup Corporate Bond Composite Index; and cash alternatives by the Citigroup One-Month Treasury Bill Index. The performance of an unmanaged index is not indicative of the performance of any specific security. Individuals cannot invest directly in an index. T-bills are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. The return and principal value of an investment in stocks and bonds fluctuate with changes in market conditions, and, when sold, these securities may be worth more or less than the original investment amounts. Keep Expectations in Check Because your financial strategy depends on the performance of your investments, it’s important to be realistic about the return your portfolio may yield from one year to the next. Inflated expectations may cause you to fall short of your goals. As you can see from the 20-year performance below, the aggressive portfolio experienced a 29.65% loss in its worst-performing year, compared with a 15.76% loss for the conservative portfolio. Younger investors who experience losses during their accumulation years may have a better opportunity to recover. However, losses experienced as you approach retirement could have a significant impact on the longevity of a retirement portfolio. Sample Portfolio Performance, 2004 to 2023 Best year 20.22% Worst year –15.76% Avg. annual 6.19% Best year 28.33% Worst year –29.65% Avg. annual 8.70% Stocks Bonds Cash Aggressive Moderate Conservative Conservative portfolio 50% 30% 20% Older investor Younger investor Aggressive Moderate Conservative 20% 75% Aggressive portfolio 5%

Overcoming Retirement Challenges Like many of life’s journeys, the road to retirement is seldom smooth. No matter how carefully you prepare, it’s likely that you will encounter obstacles that may derail your retirement savings plans. Here are four potential setbacks with suggestions on how to get back on track. Saving too little or too late If you are behind schedule, remember that any savings increase is better than none. You may need to adjust your lifestyle and spending in order to save more for retirement. Handling market volatility Though a declining market can be scary, markets tend to be cyclical, and the wisest approach may be to keep making regular savings contributions regardless of market conditions. Remember that all investments are subject to market fluctuation and the potential for loss. Experiencing a traumatic event A job loss, unexpected medical expense, death of a loved one, or divorce might make it difficult to save for retirement. Having an emergency savings account could put you in a stronger position. Try to avoid tapping your retirement savings before retiring, especially tax-deferred IRAs and 401(k)s. Balancing college and retirement A variety of college funding options are available, but there is no “scholarship” for retirement. The key is to balance your children’s needs with your own retirement goals and find an appropriate strategy.

Common Obstacles When Saving for Retirement Failure to save early enough Health problems Divorce Job loss Paying for college

Preparing for retirement requires commitment, perseverance, and a plan. Taking the appropriate steps today could help make your retirement vision a reality. Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Solutions, Inc.