RETIREMENT PLANNING GUIDE
Getting you on the right track
Table of Contents
Why is a retirement plan important?
2
How much will you need?
4
How can your retirement plan help?
6
Where should you invest?
8
How can you develop an asset allocation strategy? 10
How can you stay involved?
12
Retirement
The word means different things to different people. For
some, it conjures up thoughts of travel, relaxation and
recreational activities. For others, it means free time to start
a new hobby, volunteer or take continuing education
classes. No matter what your vision of retirement, there is
one question that many people face:
“Will I have enough money to last throughout my
retirement?”
In this guide, we provide a framework to help you develop a
personal retirement plan — one that can help you answer
the question above and many others. We’ll also explain how
your company’s retirement savings plan can help you reach
your retirement goals. By the time you complete this guide,
you should have a clear understanding of the challenges
you’ll face in saving for retirement and an action plan for
meeting them.
GOLDMAN SACHS ASSET MANAGEMENT
1
1
Why is a
retirement plan
important?
Investing enough money to make your retirement dreams a reality doesn’t
happen overnight. It takes years of disciplined saving, perseverance and a
long-term investment plan. With a plan, you can determine how much money
you may need throughout retirement and focus on how to achieve your
financial goals.
Helps you control your financial future
When it comes to retirement planning, several factors are out of your control
including taxes, inflation and the performance of financial markets. But, there
are many elements that you can take charge of, including:
n
When to start saving for retirement
n
How much to save each year
n
Where to invest your savings
n
How to diversify your assets
Deciding on the answers to these questions will help you make a serious
commitment to your retirement future.
Provides you with a disciplined and consistent savings approach
Some people postpone retirement planning because they believe Social Security
will be enough. However, Social Security is only expected to replace about
40% of income for the average wage earner.* The rest will come from
personal savings — including the money you save in your company's
retirement plan.
The more years you have until retirement, the easier it can be to procrastinate.
With housing costs, saving for children’s education expenses and vacations,
putting money aside for retirement isn’t a priority for many people. But,
starting to save early is one of the most important factors in successful
retirement planning. Consider the following example:
THE BENEFITS OF STARTING EARLY
By starting early, you
maximize the power of
compounding.
Starting Early
Savings method
(30 year time horizon)
Total amount saved
Invest $3,000 annually for
the first 8 years
No additional contributions
$3,000 x 8 years = $24,000
Procrastinating
Do not invest for the first 8 years
Invest $3,000 annually for the
next 22 years
$3,000 x 22 years = $66,000
Value at the end
of 30 years
$218,768
$148,268
% of end value
from savings
11%
45%
This hypothetical example assumes annual contributions of $3,000 at an annual 8% rate of return and does not account for taxes.
It is for illustrative purposes only and is not indicative of any actual investment. Your return and principal value may be more or
less than your original investment.
* Source: Social Security Web Site, www.ssa.gov, Social Security Bulletin vol 68 No 2, 2008
2 GOLDMAN SACHS ASSET MANAGEMENT
2
Allows you to remain invested in all market environments
Investing over a longer period of time should also help you ride out the
inevitable fluctuations that take place in the financial markets.
THE BENEFITS OF LONG-TERM INVESTING
Staying invested for the
long term may reduce
investment volatility
over time.
The Percentage of Time Stocks Posted a Positive Return Over Rolling Time Periods From 1989-2009
75%
75%
82%
100%
1- Ye ar Pe rio ds
5- Ye ar Pe rio ds
10- Year Peri o ds
15- Year Peri o ds
Source: Goldman Sachs Asset Management.
The returns for Time Tested Principles 2 and 3 are based on the S&P 500 Index. The S&P 500 Index is the Standard & Poor’s 500
Composite Stock Prices Index of 500 stocks, an unmanaged index of common stock prices. The Index figures do not reflect any
deduction for fees, expenses or taxes. It is not possible to invest directly in an unmanaged index. Past performance is not
indicative of future results.
And staying invested can prove beneficial to your portfolio’s overall outcome.
Average Annual Total Returns of the S&P 500 Index 1986-2006
8.20%
4.52%
-1.80%
-6.52%
Invested All
5,049 Days
Minus
10 Best Days
Minus
40 Best Days
Minus
70 Best Days
Source: Goldman Sachs Asset Management. Calculation is based on 5,049 days, excluding weekends and holidays.
2
How much will
you need?
Now that you’ve seen the benefits of starting early and investing for the
long term, it’s time to determine how much you should consider saving for
your retirement.
Many financial experts suggest that to maintain your standard of living in
retirement, you will need 70-80% of your final salary for each year of
retirement.* While this percentage may appear high, consider those factors
you can’t control, such as inflation. If your investment returns don’t stay
ahead of inflation, your savings could diminish over time.
Learn how to estimate your needs
Although there are many ways to estimate how much you’ll need to save for
retirement each year, the worksheet below can help you make an estimate.
First, estimate your retirement income gap.
Your retirement income gap is the difference between what you’ve currently
saved for retirement and the amount you will actually need to save for a
comfortable retirement.
-
1. First, how much income will you need in retirement?
Experts suggest you will need 75%-85% of your working
income to live comfortably in retirement. Depending on
your personal situation, you may want to multiply your
current income by more or less than this range.
(For example,
SALARY X .80)
$ _______________
2. Now, subtract the income you expect to receive
annually from Social Security. Use the number from
your Social Security Statement, or as a guide:
• If you currently earn under $25,000, enter $9,500.
• If you earn between $25,000 and $45,000,
enter $12,500.
• If you earn over $45,000, enter $15,500.
$ _______________
3. Next, subtract any other income sources. Include any
pension plan or rental property income that you may
have, or anticipated part-time income that you may
earn in retirement.
$ _______________
4. The total is your Retirement Income Gap.
Next, estimate how
much you need in
savings the day you
start your new life
as a retiree. This is
your Retirement
Savings Goal.
-
Line 4
$ _______________
5. Estimate the size of your Retirement Savings Goal
amount you will need after you retire, if you expect
to live:
• 20 years: Retirement Income Gap (line 4) x 14.3
• 25 years: Retirement Income Gap (line 4) x 16.5
• 30 years: Retirement Income Gap (line 4) x 18.3
Line 4 $__________ x $______ = $__________Line 5
*Source: Aon Consulting and the Georgia State University Center for Risk Management and Insurance Research, 1999.
4 GOLDMAN SACHS ASSET MANAGEMENT
6. Next, take credit for what you have saved so far. Multiply your savings to date by the
appropriate factor below. Using your Retirement Account Statement, include the savings in
your Account Balance. Also include any money you currently have set aside in IRAs.
Years to Retirement
6
Multiply by
Years to Retirement
Multiply by
-
8
10
12
14
16
1.27
1.37
1.48
1.60
1.73
1.87
18
20
25
30
35
40
2.03
2.19
2.67
3.24
3.95
4.08
Savings to Date $__________ x $______ = $__________
Line 6
7. Now subtract line 6 from line 5. The result is your Retirement Savings Goal:
$__________ – $______ = $__________
Line 5
Line 6
Goal
8. Figure your annual savings required to meet your Retirement Savings Goal.
Multiply the total from line 7 by the appropriate factor below.
$__________ x $______ = $__________
Line 8
Goal
Years to Retirement
6
Multiply by
Years to Retirement
Multiply by
-
8
10
12
14
16
.151
.109
.083
.067
.055
.046
18
20
25
30
35
40
.039
.034
.024
.018
.014
.011
9. Finally, calculate the PERCENTAGE amount you should contribute to your
plan to meet your Retirement Savings Goal. Divide your line 8 total by your
annual pay, then multiply by 100. Round your percentage UP to the nearest
whole number.
$__________
Line 8
÷
$_________ x 100 = ____________%
Annual
Annual
Pay
Contribution
The factors used in this worksheet were developed by actuaries (people who crunch numbers for a living).
Using these factors simplifies the amount of work you'll have to do. These factors assume a hypothetical
average annual rate of return of 8% and an annual inflation rate of 4%. Rates of return do not reflect any
specific investment or savings strategy. In the real world, most 401(k) investments will move up and down
with the market over time, producing higher or lower actual returns. Returns are not guaranteed.
This worksheet simplifies several retirement issues such as projected Social Security benefits and earnings
assumptions on savings. You will definitely want to revisit this calculation at least annually as your salary
and circumstances change.
GOLDMAN SACHS ASSET MANAGEMENT
5
3
How can your
retirement
plan help?
With your estimated savings goal completed, the next step is to determine
where that money will come from. Fortunately, your company’s retirement plan
can help. The plan offers a number of important benefits that can help you
meet your retirement goals.
Every dollar goes to work for you immediately
Contributions to your company’s retirement plan are made on a pre-tax basis.
Simply put, that means that 100% of every dollar you contribute is invested in
your account — without first being subject to federal and, in most cases, state
taxes. In contrast, consider your non-plan retirement savings. If you’re in the
28% tax bracket, that dollar is whittled down to 72 cents before it can be
invested. Over time, the difference between the $1.00 and 72 cents can be
significant.
Taxes are deferred so you can increase your savings
Contributions to your retirement plan account come out of your paycheck
before they get taxed. This helps to lower the taxes that are deducted from each
paycheck. Consider the hypothetical example below:
THE BENEFITS OF TAX-DEFERRAL
Your company’s
retirement plan can help
you lower taxes and
increase your savings.
Suzanne
Melissa
Invests Before Taxes
Invests After Taxes
$3,000
$3,000
$200
0
$2,800
$3,000
-$784
-$840
$2,016
$2,160
After Tax Investment
0
$200
Net Take-Home Pay
$2,016
$1,960
Monthly Income
Plan Contribution
Taxable Income
Income Tax**
After Tax Income
** Assumes a 28% income tax rate. Does not take into account any state or local taxes.
Savings potentially grow faster through compounding
One of the most important investing concepts is the power of compounding.
This benefit is even more valuable when your money compounds tax-free.
And, when you save through your plan, all the earnings from your investments
are automatically reinvested into your account. These earnings are not taxed
until you make a withdrawal. When that time comes, you could be in a lower
tax bracket than you were during your working years.
6 GOLDMAN SACHS ASSET MANAGEMENT
THE BENEFITS OF COMPOUNDING
Your savings can
potentially grow tax free
while invested in the plan.
$300,000
250,000
200,000
$293,630
150,000
$192,391
100,000
50,000
0
0
5
10
15
20
25
30
Years
Tax-deferred
Taxable
This hypothetical example assumes annual investments of $2,400 with an 8% annual return. The investor in the taxable account is in the
28% tax bracket. This example is not intended to represent any actual investment. The value of your investment and return may vary.
The return on the taxable investment may be more favorable due to the lower maximum tax rates on capital gains and dividends,
thereby reducing the difference in performance between the accounts shown.
Investment decisions are in your control
Your company’s retirement plan offers a variety of investment vehicles to
choose from, and you have complete control in deciding how to invest your
contributions. In addition, your plan allows you to easily change the way you
allocate your investment dollars as your needs change. And, since your plan
assets are invested on a tax-deferred basis, there are no tax consequences when
you transfer between investments in the plan.
Contributions are automatic
Once you sign up for your retirement plan, you don’t have to remember to
make contributions each pay period — it’s all done for you. Your employer
handles the paperwork and makes sure contributions are deducted from your
paycheck. That way, you can take advantage of all the benefits of investing in
your plan automatically.
Every little bit counts
You may not think putting aside a few dollars a day can make a difference.
But, over time, it adds up. Consider these hypothetical examples:
THE BENEFITS OF INCREMENTAL SAVINGS
Saving just a few dollars a
day can add up over time.
Accumulated assets at the age of 65 when the
investment begins at
Savings per day
Age 25
Age 35
Age 45
$1.00
$102,120
$44,656
$18,039
$2.50
$255,300
$111,641
$45,098
$5.00
$510,600
$223,281
$90,197
$10.00
$1,021,201
$446,562
$180,394
This hypothetical example assumes an 8% annual return and does not account for taxes. It does not represent any actual
investment. The value of your investment and return may vary. Note: Some of the plan features and benefits described in this
section may not apply to your company’s retirement plan. Please refer to your plan’s disclosure document for further information.
GOLDMAN SACHS ASSET MANAGEMENT
7
4
Where should
you invest?
So far, you’ve learned how much you may need to save for retirement and the
benefits of participating in your company’s retirement plan. Now you need to
decide where to invest your money.
Your company’s retirement plan allows you to select from a variety of mutual
funds. These funds can generally be grouped into three broad investment
categories: stocks, bonds and cash. Each of these investments carries different
risk and reward characteristics.
TYPES OF INVESTMENTS
Risk/Reward Potential
Stocks
Bonds
Cash
High
Moderate
Low
Highest reward
potential in return
for highest risk/
volatility
Features
Moderate income
potential with less
risk/reward than
stock funds
Low potential in
exchange for
maximum stability
Within each of these broad categories, there are a wide variety of investment
options, which are often classified by the way they diversify their assets. For
example, a stock fund may invest in U.S. large-cap growth stocks and a bond
fund may invest in intermediate-term, investment grade government securities.
In addition, there is another category of mutual funds called “asset allocation
funds.” These investments allocate their assets among a number of mutual funds
in order to seek a specific investment objective while potentially providing
maximum diversification.
Considering stocks for long-term growth
Over shorter periods of time, day to day, month to month, even year to year—
stock prices and returns can fluctuate dramatically. However, with a long-term
horizon, stocks and stock based mutual funds have historically offered investors
the wealth-building potential.
HOW STOCKS CAN BUILD WEALTH IN A CHANGING WORLD
$25,861,907
Total Return
(includes dividends
reinvested)
Reinvesting Dividends, a $22.7 Million Difference
A $10,000 investment from 1926 – 2009 would have grown to...
J $25,861,907 if you reinvested dividends
J $3,188,739 if you did not reinvested dividends
$10,000
It’s clear that dividend reinvestment can enhance the wealth
building potential of your investments over the long term.
1926
8 GOLDMAN SACHS ASSET MANAGEMENT
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2009
This example is for illustrative purposes only and is not intended as investment advice. Past performance is no guarantee of
future results. Your return and principal value may be more or less than your original investment. Stocks are represented by the
Standard & Poor’s (S&P) 500 Index, which is a market capitalization weighted price index composed of 500 widely held common
stocks. Prices of common stocks will fluctuate with market conditions and may involve loss of principal when redeemed. Source:
Goldman Sachs Asset Management as of 12/31/09. The returns of large-company stocks are based on the S&P 500 Index, a
market-weighted, unmanaged index of 500 of the largest U.S. stocks in a variety of industry sectors. The yearly returns reflect
dividends reinvested. The $3,188,739 value is derived using the S&P 500 Index values excluding dividends from 1950-2009 from
Morningstar. For all years prior to 1950, S&P Index returns excluding dividend reinvestment were not available.
Remember to diversify
It may be tempting to put all of your retirement assets in investments that
have recently provided the strongest returns. But historically, the financial
markets have continuously fluctuated. So, chasing today’s best performing
securities can be a losing proposition. That’s why you should consider
investing in a combination of mutual funds that have different investment
objectives or invest in different asset classes for your retirement portfolio.
This strategy is called diversification.
Your goal should be to strike a balance of investments that can help you
achieve your investment goals within your risk tolerance.
Balance market
fluctuations by diversifying
your savings.
Diversification does not protect an investor from market risk and does not
ensure a profit.
THE POTENTIAL BENEFITS OF DIVERSIFICATION
40
30
20
10
0
-10
-20
-30
-40
-50
1998
1999
U.S. Growth Stocks
2000
2001
International Stocks
2002
Bonds
2003
2004
2005
2006
2007
2008
2009
Cash
Past performance is no guarantee of future results. U.S. stocks are represented by the Russell 1000 Growth Index. International stocks are represented by the MSCI EAFE Index.
Bonds are represented by Barclays Aggregate Bond Index. Cash is represented by the U.S. 0-3 Month Treasury Bill. These returns do not represent any mutual fund and it is not
possible to invest directly in an index.
Don’t try to “time the market”
With your company’s retirement plan, you have the ability to change your
investment options whenever you wish. But, you should use this feature with
caution. It’s tempting to react to short-term market events and lose sight of
your longer-term retirement goal. Because the stock market can fluctuate
significantly, you could miss out on significant gains by trying to “time” the
market. Missing even a few days of strong performance can significantly
reduce your returns.
5
How can you develop
an asset allocation
Now that you have learned about the various types of investments, it’s time to
strategy?
decide how to allocate your retirement plan assets among the options offered
in your plan.
Step 1: Determine your risk tolerance
Before you begin to develop an asset allocation strategy, you should consider
your risk tolerance. Complete the questionnaire below to determine whether
you are a conservative, moderate or aggressive growth investor. Then refer to
the asset allocation examples that follow to see how your risk profile may
affect your investment strategy.
Points
1
4
7
10
16
EVALUATE YOUR RISK TOLERANCE
In how many years do you plan to retire?
l 1-3 years
l 4-5 years
l 6-10 years
l 11-15 years
l 16+ years
10
1
4
7
Will you need more than one-third of your retirement savings in the next 10 years for a
special financial need (e.g., buy a home, finance college)?
l No
l Yes, in 2-3 years
l Yes, in 4-6 years
l Yes, in 7-10 years
1
2
3
4
What percentage of your total assets (excluding your home) is invested outside your
company-sponsored retirement plan?
l Less than 25%
l 25-50%
l 51-75%
l More than 75%
1
2
3
4
How would you rate your experience level with stocks, bonds and mutual funds?
l No experience
l Some experience
l Fairly experienced
l Very experienced
Place
your
point
value
here
1
2
3
4
Total
When it comes to investing, how would you categorize yourself?
High
Low
l1
l2
l3
l4
I want to minimize fluctuations
in value, even if my return may
be lower as a result
l5
l6
I am comfortable with some
fluctuations in value for
somewhat better returns
l7
l9
I want my investments to grow
as much as possible, regardless
of possible fluctuations in value
If exposing yourself to additional market risk would definitely increase your chances
for higher returns, would you be:
l Unlikely to take on more risk?
l Willing to take on a little more risk with some of your money?
l Willing to take a little more risk with all of your money?
l Willing to take on a lot more risk with all of your money?
Once you’ve calculated your total points, match your score with the appropriate risk category:
0
5
10
Conservative Growth
6-19
15
20
25
30
Moderate Growth
20-33
35
40
45
Aggressive Growth
34-47
This questionnaire is intended to serve only as a guide and the result should not be considered
as investment advice. Please consult with your Investment Professional to discuss your specific
investment needs.
10 GOLDMAN SACHS ASSET MANAGEMENT
l8
50
Step 2: Diversify your assets
When it comes to financial goals and investment selection, no two people are
alike. And, neither are their asset allocation strategies. However, there are
some general guidelines to consider when you decide which approach to take.
n
Generally speaking, the closer you move toward retirement, the less
aggressive your overall portfolio may need to become.
n
Even during retirement, most financial experts recommend that you
continue to include some growth investments in your portfolio to help you
stay ahead of inflation.
n
If you’re investing for the long term, be careful not to overemphasize cash
investments in your portfolio.
Because stocks and bonds generally do not react identically to the same
economic, geographic or market events, combining these assets in different
ways can produce more attractive risk-adjusted returns for different types of
investors. Refer to the charts below to see some sample asset allocation
strategies based on various risk tolerance levels.
SAMPLE ASSET ALLOCATIONS
Conservative
10%
Moderate
15%
Aggressive
20%
20%
35%
40%
20%
25%
70%
60%
25%
55%
65%
40%
Cash
Fixed Income
Non-U.S. Equity
U.S. Equity
These examples are for illustrative purposes only and are not intended as investment advice. The asset allocation strategy you use
should reflect your individual goals and risk tolerance.
Step 3: Begin the allocation process
At this point, you are ready to begin developing your personalized asset
allocation strategy. To learn which investments are being offered in your
company’s retirement plan, refer to the listing contained in the accompanying
enrollment materials. If you need further assistance in developing your asset
allocation strategy, you may wish to consult with your Investment
Professional.
GOLDMAN SACHS ASSET MANAGEMENT 11
6
How can you
stay involved?
After you have enrolled in your retirement plan, you should monitor your
investments and periodically make adjustments if needed.
Conduct annual check-ups
Over time, you may want to adjust your retirement plan portfolio. This may
be necessary for reasons including:
n
New retirement goals and objectives
nA
lifestyle change, such as the birth of a child, marriage or divorce
n
A shift in your retirement time frame
n
A change in your sensitivity to market risk
n
The performance of your investments
nA
shift in your portfolio’s asset allocation mix due to market movements
Consider getting help
Track your performance
As you’ve seen, deciding how to invest your retirement savings requires your
time and knowledge. Many investors choose to work with an experienced
Investment Professional who can help analyze their needs and develop a
personalized investment plan. An Investment Professional can also help you
adjust your plan as needed and, in some cases, offer comprehensive services
such as estate and tax planning.
There are many ways to track the
investments in your plan account:
Quarterly account statements
Check your account balance,
portfolio composition and other
investment information.
Web site
Access your savings and review
investment performance. You
can also revise your investment
allocation and change your
contribution amount.
Interactive voice response system
Use the telephone to access the
same information provided on
the Web site.
Newspaper
Review fund performance
information in the business section.
12 GOLDMAN SACHS ASSET MANAGEMENT
Start today
You’ve learned about the importance of developing
a retirement plan and how starting early can help
you to achieve your goals. Now, take the first step
by enrolling in your retirement savings program.
Enclosed you will find complete information on the
plan, including details on your investment options.
As you review these materials, speak with your
Investment Professional if you have questions.
A prospectus for the Goldman Sachs Funds containing more complete information may be obtained from your
investment representative or from Goldman, Sachs & Co. by calling 800-526-7384. Please consider a Fund’s
objectives, risks, and charges and expenses, and read the prospectus carefully before investing. The prospectus
contains this and other information about the Fund.
IRS Circular 230 Disclosure: Goldman Sachs does not provide legal, tax or accounting advice. Any statement contained in this communication (including any
attachments) concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant
taxpayer. Clients of Goldman Sachs should obtain their own independent tax advice based on their particular circumstances.
The S&P 500 Index is the Standard & Poor’s 500 Composite Index of 500 stocks, an unmanaged index of common stock prices. The Index is unmanaged and the figures for
the Index do not include any deduction for fees, expenses or taxes. It is not possible to invest directly in an unmanaged index.
The Russell 1000 Growth Index is an unmanaged market capitalization weighted index of the 1000 largest U.S. companies with higher price-to-book ratios and higher
forecasted growth values. The Index is unmanaged and the figures for the Index do not include any deduction for fees, expenses or taxes. It is not possible to invest
directly in an unmanaged index.
The unmanaged MSCI EAFE Index (unhedged) is a market capitalization-weighted composite of securities in 21 developed markets. The Index is unmanaged and the
figures for the Index do not include any deduction for fees, expenses or taxes. It is not possible to invest directly in an unmanaged index.
The Barclays Aggregate Bond Index represents an unmanaged diversified portfolio of fixed-income securities, including U.S. Treasuries, investment-grade corporate
bonds, and mortgage-backed and asset-backed securities. The Index figures do not reflect any deduction for fees, expenses or taxes. It is not possible to invest directly in
an unmanaged index.
Goldman, Sachs & Co. is the distributor of the Goldman Sachs Funds.
Copyright © 2010 Goldman, Sachs & Co. All Rights Reserved. Date of First Use: April 1, 2010 10-33454.MF.TMPL
NOT FDIC-INSURED
May Lose Value No Bank Guarantee
RETIMGUIDE/2.5K/04-10