Fall 2014
FORWARD FOCUS
Investing in Tandem
T
andem bike riders need to
work together as a team to
reach their destination. If they
don’t cooperate, they won’t move
forward. Married couples are a little
like tandem bike riders. Teamwork
can help them move forward and
get to their financial goals.
as diversified* as you want to be.
If your combined retirement investments are “over invested” in one
investment type or asset class, you
could be exposing your investments
to more risk than you want. Or
together, your investments may
be too conservative to reach your
long-term goals.
Retirement Built for Two
You and your spouse may have talked
about how you want to spend your
time during retirement. Perhaps
you want to travel, pursue hobbies,
volunteer, or work at something
different. But have you discussed
your retirement investing strategy?
If you both have retirement plans
through your employers, you might
have chosen investments without
consulting each other. You could
be duplicating investments
in the same companies or
industries without even
realizing it. When you
look at your and your
spouse’s plan investments as a whole,
you might not be
Steering Your Strategy
To figure out an overall, coordinated
strategy for your retirement investments, each of you should consider
how comfortable you are with the
risk of investment losses. Look at
the number of years you each have
before you plan to retire. Decide on
an asset allocation strategy that fits
your risk tolerance, investing time
frame, and goals.
Next, consider the
specific investment
options available
in each of your
retirement
plans.
Review their objectives, fees and
expenses, risks, and past performance. You’ll then be ready to
decide how you want to invest
within each plan so that your
overall asset allocation reflects
your combined strategy.
Peddling Together
Your asset allocations don’t necessarily have to match. For example,
it may turn out that you put more
money in stock investments in one
plan and more into other types
of investments in the other plan.
Just make sure that your combined
portfolios reflect your coordinated
asset allocation strategy. Working
together as a team can help you
and your spouse reach your shared
retirement goals.
* Diversification does not ensure
a profit or protect against loss in a
declining market.
CAPTRUST Financial Advisors
4208 Six Forks Road, Suite 1700
Raleigh, North Carolina 27609
800.216.0645 toll free
919.870.6822 local
Passing the Test of Time
B
ack-to-school season means
new supplies, homework
assignments, and quizzes and
exams. Although you may no longer
be in school, there is one test you
still need to prepare for. Acing this
test means having enough savings
to last throughout your retirement
years. Here are some steps you
can take now to help make sure
your savings will get a good grade
when the time comes to retire.
Calculate Your Savings Goal
Have you thought about how you
want to live during retirement?
Do you plan to travel extensively
or relocate to an area with a higher
cost of living? If you have big
dreams, you’ll probably need more
money to live on than if you’re
aiming for a simpler lifestyle. No
matter what your plans for retirement are, keep in mind that over
time, inflation will likely increase
your living costs.
What sources of income do you
expect to have during retirement?
Remember that Social Security
benefits won’t replace all of your
earnings. The money you save in
your retirement plan could be an
important source of income once
you stop working. If you haven’t
already done it, now’s the time to
set a savings goal.
Do Your Homework
Your next assignment is to save as
much as possible in your plan to
help you accumulate the money
you’re going to need to finance
your retirement. Since your retirement could last well over 20 years,
you need to save a significant
amount during your working years.
If possible, try to increase the
amount you save each year.
You’re not done yet! Your last
assignment is to review your investment mix. Consider including stock
investments in your portfolio. While
stocks can experience short-term
volatility, they also have the potential for long-term growth. If retirement is many years in the future,
you have more time to recover from
any short-term investment losses
than if you plan to retire soon.
A Quick Quiz
ons
Learning the answers to the following questions
may help you prepare for your future.
Q. What’s the average life expectancy of a
65-year-old in 2014?
5,
A. About 20 years.* So, if you retire at age 65,
ovide
you may need your retirement savings to provide
income until you are age 85 or older.
urity
Q. What’s the average monthly Social Security
benefit received by retirees in 2014?
n
A. $1,294.* You probably will need more than
your Social Security benefit to maintain your
standard of living during retirement.
Q. What percentage of your preretirementt
income will you need to maintain your
standard of living once you stop working?
rn
A. Experts estimate at least 70%.** If you earn
a lower income, you may need 90% or more of
your preretirement income.
* Social Security Administration, Fact Sheet, 2014
** U.S. Department of Labor, Top 10 Ways To Prepare for Retirement, 2013
Any Questions?
Q. I have so many bills
to pay each month. I’m
thinking about saving
less for retirement so that
I have more money for
my monthly expenses.
Can I do that?
increase those day-to-day costs.
Social Security is not intended to
be your only source of retirement
income. Once you retire, much of
your income may need to come
from what you’ve saved over the
years. The more you’re able to
save now, the more you may have
to live on during retirement.
A.
Yes, you can contribute less
to your plan, but should you? The
truth is that you really shouldn’t
save less for retirement. If you
reduce the amount you’re contributing to your retirement plan
account, it might be more difficult
to live comfortably once you stop
working. Instead of cutting back
on contributions to make ends
meet now, try cutting back on
spending in other areas of your
budget. Your financial future
may very well depend on your
continuing to save in your plan.
Your Future Matters
While you have many expenses
now, you’ll also have expenses
once you stop working. And,
over time, inflation will probably
Saving Made Easy
Your employer’s retirement plan
makes it easy to save. The amount
you’ve decided to contribute is
automatically taken out of your
paycheck each pay period and
deposited in your plan account.
The money is put aside before you
even get your paycheck and are
tempted to spend it.
More for Your Money
Since your pretax contributions to
your employer’s plan are made
before taxes are taken out, more
of your money is invested. You pay
no income tax on your retirement
plan contributions until you withdraw money from the plan.* And
all of the investment earnings in
your plan account compound
on a tax-deferred basis. Over
your career, tax-deferred compounding of your contributions
and investment earnings can make
a big difference in the amount
of money you have available
during retirement.
* Some retirement plans also offer
a Roth contribution option. Unlike
pretax contributions, Roth contributions do not offer immediate
tax savings. However, qualified
Roth distributions are not subject
to federal income taxes when all
requirements are met.
Impact of Saving Less
Consider the retirement savings accounts of
two employees. Each saves $150 a month for
the first five years. One continues to save
$150 a month for the next 25 years, but the
other employee saves only $100 a month for
the next 25 years.
This is a hypothetical example used for illustrative purposes only. It is not representative of any investment
vehicle. It assumes monthly compounding and an
average annual total return of 6% over 30 years. Your
investment results will be different. Account balances
will be taxed on withdrawal.
Source: DST
Account Balance After 30 Years
$150,677
$116,028
Annual Contribution
of $1,800
Annual Contribution
of $1,200
Years 6 - 30
Years 1 - 5
Employee 1
Employee 2
A Portfolio Full of Flavor
T
he menu at your favorite
restaurant probably provides a
variety of selections. You may
start out with a pumpkin soup, make
your way through a porterhouse
steak, and end with a chocolate
soufflé. Combining different flavors
can make your dining experience
more satisfying.
You can enjoy the same satisfying
experience when you participate
in your employer’s retirement plan.
The plan provides a variety of
options on its investment menu.
You choose the investments that
suit your financial goals, risk tolerance, and time horizon.
A Zest for Diversification
Diversification* is the strategy of
putting your money into several
different investments. It’s an effective way to manage investment risk.
If you spread your money among
different investments, you reduce
your chance of suffering an overall
loss if the value of one investment
declines sharply.
Investing in just one stock
is risky. A company’s
stock price can rise or
fall due to industry developments, unexpected
financial results, a merger,
or some other news or
event. Stock funds (or
portfolios) invest in a
number of stocks. The
performance of other
stocks may cushion the
loss if one stock price drops.
growth and returns that outpace
inflation. However, stocks also have
You can achieve greater diversification by investing in other types of
assets, such as bond funds and
funds that hold cash alternative
investments (e.g., Treasury bills).
the highest potential for losses.
Bonds typically offer lower potential
returns than stocks, but they have
less risk of loss. However, bond prices
may fluctuate due to interest rate
Pay Attention to Portions
changes.
How should you divide your investments among the different asset
types? That depends on your
tolerance for risk and time frame.
While there’s little risk of loss with
cash alternatives, it is possible to
lose money by investing in them.
* Diversification does not ensure
Of the three major asset classes,
stocks generally provide the best
potential for long-term capital
a profit or protect against loss in a
declining market.
Taste Test
15%
Stocks
100%
Bonds
40%
60%
50%
35%
Cash Alternatives
Amount Invested
$1,000
$1,000
$1,000
Portfolio Value If Stock Prices Drop 15%*
$850
$910
$925
Portfolio Value If Bond Prices Drop 15%*
$1,000
$940
$949
* Assumes no changes in the value of other asset classes
This is a hypothetical example used for illustrative purposes only and does not represent any specific investment product. Your investment
performance will be different.
Source: DST
This publication is designed to provide useful information about retirement plans and investing your account savings.
Before acting on any of the information provided, consult your professional advisor. CAPTRUST does not render legal, accounting,
or tax advice. This material has been prepared solely for information purposes and is not a solicitation or an offer to buy
any security or instrument or to participate in any trading strategy. Copyright 2014 by DST.