One of a suite of individual retirement education modules created for Nationwide Financial, the Retirement Income Education Module helps a plan participant understand the types of income available at retirement and realize the potential income gap.
The module system gives retirement specialists the ability to create longer, fully customizable presentations by allowing them to mix, match and combine individual modules in the suite. This enables the sales force a greater flexibility in planning meetings and answering individual plan and participant needs.
5. Retirement Income
5
Qualified retirement plans, deferred compensation plans and individual
retirement accounts are all different, including fees and when you can
access funds. Withdrawals may be subject to surrender charges, other
fees and/or a 10% tax penalty if withdrawn before age 59½.
6. Retirement Income
6
Source: 2012 RCS Fact Sheet #2, EBRI, March 2012
27%
of retirees
actually do
70%
of retirees
expect to keep
working in
retirement
How do you plan for and build your retirement income sources now so you'll have enough income to retire when you are ready? And what are the sources of retirement income anyway? [Transition]We’re here today to talk about just that: the building blocks of your retirement income.
More so than current retirees, workers are likely to anticipate piecing together their retirement income from several sources. When asked what they plan to rely on for retirement income, current workers surveyed said they will rely on:• Social Security (79 percent), • employment (79 percent), • 457(b), 401(k) and 403(b) and similar plans (72 percent), • IRAs (64 percent), • other personal savings (62 percent), and • traditional pension plans (56 percent).1Let me point out that the survey, from the respected Employee Benefits Research Institute, included respondents from the private and nonprofit sectors, where traditional pension plans are not as prevalent. That said, it suggests that workers need to consider income resources beyond pensions and Social Security.[Transition]Let’s take a closer look at the three primary sources of retirement income – starting with Social Security.1 Changing Expectations about Retirement, 2012 RCS Fact Sheet #2, EBRI, March 2012
The foundation of many workers’ retirement income is Social Security. Most workers who have paid FICA taxes for at least 40 quarters (about 10 years) qualify for at least some benefit. Your benefit is determined by: (1) Your earnings averaged over most of your career. (2) Your age when you start collecting benefits. You can apply to collect Social Security benefits as early as age 62, but the monthly payment will be reduced by about 20%. Full benefits become available when you attain “full retirement age,” generally between 65 and 67. Your benefit could be increased for each month you delay benefits between full retirement age and up to age 70.Some public and educational employees are exempt from FICA taxes and may not qualify for any benefit. If you do qualify, your benefit may be reduced by federal laws covering the relationship between public pensions and Social Security. For an explanation of your eligibility or benefits, go to the web address shown on the screen. Consult your legal or tax advisor before making decisions about your retirement.[TRANSITION]Now let’s talk about the second building block – a traditional pension.
If you’re like most public employees, your most important source of retirement income may be your pension plan. It is sometimes referred to as a “defined benefit plan” because the benefit amount is defined by a known formula that usually takes into account the number of years you worked for the employer that sponsors the plan, and your average salary over a specified period. In most cases, the payments you receive continue for the rest of your life. While Nationwide can help you understand how the different building blocks of retirement income fit together, you should contact your benefits department to discuss the specifics of your employer’s pension plan.[Transition / change of thought]You might be wondering how much retirement income is enough. A generally accepted rule of thumb is that you should have at minimum 80 percent of yearly earnings while working.So, if you made 50,000 a year while employed, you should have at least 40,000 per year available during retirement.1[Transition]If that seems like a lot to plan for, let’s talk about personal savings. It’s often the biggest block of all and also the one you have the most control over.1Retirement Savings Rule of Thumb, www.debt.org/retirement/how-much-do-i-need-to-save/, accessed Dec. 3, 2012
An employer-provided retirement program, such as the 457 deferred compensation plan, can help workers bridge the gap between “just getting by” and “living comfortably” in retirement. Your contributions are tax-deferred – you pay ordinary income tax on them and any earnings as you make withdrawals. [Presenter: If the plan does not offer Roth 457, omit this sentence.] If your plan offers a Roth 457 option, you may be able to make after-tax contributions, so that contributions and any earnings grow and may be withdrawn tax-free. Traditional IRAs allow you to contribute after-tax dollars and take a tax deduction when you file your federal income tax return. You pay ordinary income taxes when and as you withdraw from your account. Roth IRAs allow no tax deduction but any earnings grow and may be withdrawn tax-free. IRAs may be structured within an annuity or other savings product. Many people also add to their long-term resources by investing in stocks, bonds, cash accounts and mutual funds.Remember, each of these plans and investment options is different, including fees and when you can access your money. Assets may be subject to surrender charges, other fees and/or a 10% tax penalty if withdrawn before age 59½. With certain exceptions, you invest your contributions through the plan. Investing involves market risk. You could lose what you contribute. As you get participate in the deferred comp plan, we’ll help you understand market and other risks you may face, and strategies that may help you deal with them. [Transition] There is another retirement income option that many people consider: working, either full or part-time.
In June 2012, about one in every six U.S. residents collected Social Security benefits. Why is this important? Because people are living longer and need retirement income to support them for much longer than legislators who wrote the Social Security Act envisioned.1Continuing to work beyond your normal retirement age may seem like a good option to consider as it increases the amount of social security benefits a worker is eligible for. But, consider this: In 2012, research revealed that while 70% of baby boomers expect to work in retirement, only 27% of respondents had actually done so.2You should also consider that your ability to work beyond a certain age may be restricted by other factors such as health issues or an unfavorable job market. While it may be easy to see yourself working past retirement age, that possibility may not be entirely within your control.[Conclusion]The good news is that you have options for retirement income. Today we’ve only had time for a broad overview of some of the more common options. If you have additional questions or would like to discuss your particular situation, I’d be happy to speak with you after this presentation or set up a one-on-one appointment to review your account. 1Benefits Paid by Type of Beneficiary, Social Security Administration, www.ssa.gov/OACT/ProgData/icp.html, accessed Dec. 4, 20122Changing Expectations about Retirement, 2012 RCS Fact Sheet #2, EBRI, March 2012