Filling the Retirement Income Gap

Transcription

1 Filling the Retirement Income Gap A prospectus for the Fund containing more complete information may be obtained from your authorized dealer or from Goldman, Sachs & Co. by calling 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. Goldman, Sachs & Co., member NASD. Copyright 2007 Goldman, Sachs & Co. All Rights Reserved. Date of First Use: September 14, NOT FDIC-INSURED May Lose Value No Bank Guarantee

2 Retirement saving behavior Retirement Saving Behavior The Good 69% consider saving for retirement top priority The Bad 52% have less than $25,000 saved The Ugly 2/3 of investors feel confident they are saving enough Source: 2005 Retirement Confidence Survey, EBRI and Mathew Greenwald & Associates, Inc. 1

3 Reality check: The setbacks People are living longer Social Security will not be enough Pensions are becoming less prevalent Inflation is constantly eroding the value of a dollar The rising cost of healthcare 2

4 People are living longer Number of Americans Age 65 or Older (in Millions) ACTION STEP To find out your life expectancy, visit Source: U.S. Bureau of Census 3

5 The 100 Club: Membership is rising Number of people age 100 years and over ,487 52,182 Year , , ,836 Source: Population Division, U.S. Census Bureau 4

6 Social Security will not be enough Retirement Income Sources Other 3% Pensions 19% Social Security 39% Asset Income 14% Earnings 25% ACTION STEP If you don t know how much your Social Security benefit will be, go to Source: Income of the Aged Chartbook, Social Security Administration, The website links provided are for your convenience only and are not an endorsement or recommendation by GSAM of any of these websites or the products or services offered. GSAM is not responsible for the accuracy and validity of the content of these websites. 5

7 Pensions are becoming less prevalent 114,000 Defined Benefit Plans 35, Today VS. 730, ,000 Defined Contribution Plans 1975 Today Source: EBRI Issue Brief No. 249, September

8 The pension elimination trend Sears Holdings ceased accruals to its pensions after December 31, 2005 IBM and Motorola stopped offering pensions to new hires in 2005 US Airways Group terminated the last of its pension plans in 2005 United Airlines also eliminated its pension plan in

9 The eroding influence of inflation Due to inflation, the cost of a stamp has grown over seven times: $.05 $.15 $.32 $

10 Healthcare costs are on the rise The total premiums paid by employers for health insurance have risen rapidly in the past few years. The Average Annual Healthcare Cost per Worker $7,009 $6,000 $4,000 $2,000 $ Projection Source: Hewitt Associates 9

11 Rising costs are leaving many without coverage Premium for a family health insurance policy $9,086 Median household income $42,409 Source: Health Insurance Premiums Crash Down on Middle Class, USA Today,

12 Prescription costs are also on the rise Brand name drug prices rose by: 4.1% 4.7% 6.1% 6.9% While inflation fell to: 3.3% 2.7% 1.6% 2.2% ACTION STEP For affordable prescription drugs visit Source: Affordable Prescription Drugs, AARP. 11

13 The result 1 in 5 workers ages 45 and older expect to retire later than they planned one year ago 1 in 4 retirees are working during their golden years to compensate for lack of income 56% expect to work until age 65 or older Source: EBRI Issue Brief No. 266, February

14 The solutions Maximizing Social Security benefits Traditional 401(k)s Roth 401(k)s Take advantage of asset allocation Draw-down Plan realistic systematic withdrawals 13

15 Maximizing Social Security benefits That s a $938 difference per month or a $11,256 difference annually! Jack Born: 1960 Pre-Retirement Salary: $35,000 Age Starts Receiving Social Security: 62 Monthly Benefit: $1,234 Annual Benefit: $14,808 Jane Born: 1960 Pre-Retirement Salary: $35,000 Age Starts Receiving Social Security: 70 Monthly Benefit: $2,172 Annual Benefit: $26,064 $2,172 $1,234 ACTION STEP To find out what your full retirement age is, visit Source: Social Security Online Calculator, Salary has not been adjusted for potential increases. 14

16 Postponing Social Security is not enough Jack Jane Pre-Retirement Salary: $35,000 Pre-Retirement Salary: $35,000 Social Security: $14,808 Your Responsibility: $20,192 Social Security: $26,064 Your Responsibility: $8,936 58% Income Gap 26% Income Gap ACTION STEP Want to learn more about retirement and family benefits? Access the Social Security Retirement Benefits brochure at or call to obtain a copy (Reference Publication # ). Source: 15

17 Traditional 401(k)s: What are they? Qualified plan established by the employer Employees and/or employers contribute to the plan Pre-tax contribution will be a percentage of compensation Benefits are paid out on contributions and any possible earnings Minimum distributions are required at age 70 ½ Withdrawals before age 59 ½ are subject to a 10% penalty 16

18 Traditional 401(k)s: The benefits Pre-tax contributions Reduction in annual taxable income Earnings grow tax-deferred Can contribute up to $15,000 in 2006 Can contribute an additional catch up contribution of $5,000 if age 50 or older Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. Investors should be aware that a determination of the tax consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with their own tax advisor regarding any potential strategy, investment or transaction. 17

19 Traditional 401(k)s: How do they work? Enroll Determine your contribution percentage Select investments offered by your plan Contribution percentage is automatically deducted from your paycheck on a pre-tax basis Contributions are invested in your selected investments Earnings grow tax-deferred ACTION STEP Before determining your contribution, you should consider how much income you will need at retirement. A good place to start is by accessing a retirement calculator at aarp.org Also, if your plan has a match, remember to try to maximize its advantages by increasing your contribution. 18

20 Roth 401(k)s: What are they? Similar to traditional 401(k)s. Key differences: Contributions are subject to current annual taxation (after-tax money) Withdrawals are not taxed after age 59 ½ and if it s been at least five years since the account was opened Allowed to rollover assets into a Roth IRA 19

21 Roth 401(k)s: The benefits Can contribute up to $15,000 in 2006 Can contribute an additional catch up contribution of $5,000 if age 50 or older Withdrawals are not taxed after age 59 ½ and if it s been at least five years since the account was opened Tax-free withdrawal Avoid minimum distributions at any age because of ability to rollover into a Roth IRA if you leave your company 20

22 Roth 401(k)s: How do they work? Enroll Determine your after-tax contribution percentage Contribution percentage is automatically deducted from your paycheck Contributions are invested in your selected investments Earnings grow tax-deferred 21

23 Asset allocation: What is it? Potential Lower Reward Low Risk CASH FIXED INCOME STOCKS Potential Higher Reward Higher Risk This chart does not illustrate or predict the risk or return of any specific investment. Investments may fluctuate with market conditions and results may be worth more or less at redemption. Stocks have tended to be more volatile than bonds. Bonds fluctuate in value with changes in interest rates. An investment in a money market portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market portfolio seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in a money market portfolio. 22

24 Asset allocation: The benefits Stocks 100% VS. Cash 30% Stocks 40% Fixed Income 30% For Illustrative Purposes Only. 23

25 Asset allocation: How does it work? Sample Asset Allocations Using Goldman Sachs Asset Allocation Portfolios Conservative Moderate Aggressive Balanced Strategy Growth and Income Strategy Growth Strategy Equity Growth Strategy Cash Fixed Income Equity Sample allocations are as of July 1, Holdings and allocations shown are unaudited, and may not be representative of current or future investments. Holdings and allocations may not include the Fund's entire investment portfolio, which may change at any time. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. 24

26 The Goldman Sachs Asset Allocation Portfolios : Making portfolio selection simpler LOWER Risk HIGHER Equity Growth Strategy Growth Strategy Growth and Income Strategy Balanced Strategy (100% equity) (80% equity/20% fixed income) (60% equity/40% fixed income) (40% equity/60% fixed income) Percentages represent the approximate allocation of equities and bonds in the portfolio. The underlying investments and portfolio allocation ranges are subject to change from time to time without shareholder approval. 25

27 What defines Goldman Sachs Asset Allocation approach? Other Approaches Decision-making based on historical returns & correlations (Backward looking) Identify highest expected return & overweight (Lose risk/return balance) Rebalance portfolios based on performance (Sell the winners = Potential cap gains) Our Approach Decision-making based on expected future returns & correlations (Forward looking) Constant focus on how tactical adjustments impact risk profile (Never lose sight of original goal) Reallocate portfolios based on current views (Sell the losers = Offset potential cap gains) 26

28 The Draw-Down Phase: Avoiding a shortfall STEP 1 When withdrawing, think systematically STEP 2 Explore tax-efficient withdrawal solutions STEP 3 Avoid the hype and invest more aggressively DURING retirement 27

29 Systematic Withdrawals Benefits include: Allows you to schedule payments on a monthly, quarterly, semi annual or annual basis Payments can be taken out of a managed account, mutual fund, qualified retirement plan or IRA You can make changes or cancel at any time 28

30 Tax-Deferred vs. Taxable Tax-Efficient Withdrawal Strategies Can Provide More Income During Retirement 700 Dollars Remaining (in thousands) Tax-Deferred First In this hypothetical example,* making withdrawals from taxable investments first provides the investor eight additional years of assets and more than $415,000 of additional retirement income. Taxable First Years in Retirement * Example assumes initial fully taxed investments of $250,000 and tax-deferred investments of $250,000, withdrawals of $20,000 after taxes, increased for 3% inflation. This illustration assumes a hypothetical 7% average annual investment return, a hypothetical 35% income tax rate applicable to tax-deferred account distributions, and a hypothetical 28% income tax rate (reflecting blended ordinary income, qualified dividend and long-term capital gains tax rates) applicable to taxable account earnings (taxed yearly). Not meant to imply the actual performance of any particular investment. Your own portfolio may earn more or less than this example. 29

31 Stomping out the conservative retiree myth Being Too Safe May Leave You Sorry $230,000 $210,000 $190,000 $170,000 $150,000 $130,000 $110,000 $90,000 $70,000 $50,000 $30,000 $10,000 Balanced Conservative Short Balanced 50% Stock/ 40% Bond/ 10% Short Conservative 20% Stock/ 50% Bond/ 30% Short 100% Short-term $131,847 $88,60 $36,61 $124,796 $56,365 $22, Working Years Retirement Years 30

32 Need more information? Those that fail to plan, plan to fail so plan with your financial advisor today. *Old Military Adage 31