Saving Early

The Road to a Secure Retirement

April 2012

The one vital component of retirement savings you can control is Saving Early: The Road to a Secure Retirement, March 2012 1 when you start saving

Letter of Introduction
The one vital component of retirement savings you can control is when you start saving. American families give themselves the best chance at a secure retirement by saving early. Even small monthly amounts of money deposited into a 401(k) or IRA early in life can make a real difference in an individuals ability to retire comfortably. In fact, small contributions today often matter even more than big contributions down the road. This is not to say that saving early guarantees a perfect retirement. There are a lot of factors about retirement we cannot control - including the state of the stock market, real estate prices, and health care costs. We saw these fluctuations during the 2008 economic crisis. But when individuals embrace saving early for retirement and make it a priority throughout their earning years, they put the power of compound interest to work in their favor. For example, saving just $50 more a month could mean hundreds of thousands of dollars of additional retirement savings.

The one vital component of retirement savings you can control is WHEN you start saving.
The financial services industry manages over $17 trillion of retirement savings and is actively helping people understand and secure their retirement futures. Many financial services companies provide life savings plans, retirement calculators, online consultations, plans designed just for women, audio podcasts, retirement readiness tests, and more. You will read about what twenty companies are doing in this paper alone.

Saving Early: The Road to a Secure Retirement, March 2012

If you have one takeaway from this report, let it be this: Save early. Its not a gimmick or a throw-away line. Its the truth. Please feel free to contact any of us if you have questions or comments. Best regards,

Mr. Steve Bartlett President and CEO The Financial Services Roundtable

Mr. Ronald OHanley President Asset Management and Corporate Services Fidelity Investments Chair, The Retirement Security Coalition

Mr. Dale Brown President and CEO The Financial Services Institute

Ms. Anna Cabral Former Treasurer of the United States Chair, The Retirement Security Coalition Advisory Board

Saving Early: The Road to a Secure Retirement, March 2012

Table of Contents
Growth of Private Retirement Accounts..5 Benefits of Starting Early...6 Resources for Starting Early....12 Sources16 About the Sponsoring Organizations..17

Saving Early: The Road to a Secure Retirement, March 2012

Growth of Private Retirement Savings Accounts

In 2011, 401(k) balances reached record highs as a result of contributions and earnings.

Our nation has witnessed a dramatic shift in how people plan and save for retirement. In years past, Americans relied primarily on defined benefit plans such as Social Security or pensions. Now, more and more Americans are relying on 401(k)s and Individual Retirement Accounts (IRAs) products that were not in existence even 30 years ago. The trend towards private retirement savings accounts is especially clear among non-retirees. Nearly two-thirds of non-retirees (64%) look to private retirement accounts like 401(k)s or IRAs as major funding sources when they retire. Only 26% plan to rely on Social Security, according to Gallup polling. (Of current retirees, the majority still depend on Social Security).

Confidence in private retirement savings accounts is matched by financial commitment. As of 2011, nearly three-fourths (73%) of non-retiree investors were invested in a 401(k) and nearly two-thirds (62%) had an Saving Early: The Road to a Secure Retirement, March 2012 5

IRA. Additionally, a vast majority of non-retirees were putting in more money (31%) or the same amount (42%) than they did the previous year. As a result, 401(k) balances reached record highs at the end of 2011, according to Fidelity Investments.

Benefits of Saving Early

One key feature of private retirement savings accounts is the ability to grow savings over time.

DID YOU KNOW? The number one way consumers can increase their retirement security is by saving early.

The number one way consumers can increase their retirement security is by starting to save early. This is worth repeating: the number one way consumers can increase their retirement security is by starting to save early. The power of saving early is due to the power of compound interest. Compound interest means that interest accrues not only on the base payments but also on the interest earned. As a result, a steady stream of payments can create exponential growth.

Saving Early: The Road to a Secure Retirement, March 2012

For example, if you put $5,000 into a retirement account today, and did nothing with that investment for 35 years, it would grow into $53,383 from compound interest alone, assuming a 6% growth rate.

Why Every Year Counts

Hypothetical Pre-tax Growth of one Annual IRA Contribution
$60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Today At Retirement (35 Years Later)
Source: Fidelity Investments

$53,383

$5,000

Saving Early: The Road to a Secure Retirement, March 2012

Small contributions made early can add up to even more money than large contributions made later. Consider the following example: When is $10,000 Greater than $30,000? Jane, a 25-year old, contributes $1,000 to her IRA for 10 years (for a total of $10,000 of contributions). Lance, another 25-year old, makes no contributions during those first 10 years, but then contributes $1,000 each year for the next 30 years (for a total of $30,000 in contributions). Who has more money when they are 65 years old, Jane or Lance? Jane (who contributes less money, but started saving earlier) winds up with more retirement savings, assuming a 7% annual growth rate.

When is $10,000 Greater than $30,000?

Savings upon Retirement $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 $10,000 Jane contributes Lance does not $10k over the first contribute over the 10 years and stops. first 10 years but contributes $30k over the next 30 years. $30,000 $107,749 $72,254 Investment Earnings Contributions

Source: The Financial Services Roundtable

Saving Early: The Road to a Secure Retirement, March 2012

The cost of waiting to save can be tens of thousands even if you wait only a few years. Consider another example: Cost of Waiting Only 5 Years: $84,099: Based on a $30,000 salary and 6% annual contribution with an assumed 8% average rate of return, one starting to save today will have earned over $331,000 after 30 years. One starting in 5 years from now will have earned an estimated $247,000. The cost of waiting just 5 years to save is dramatic an $84,000 difference.

Cost of Waiting: $84,099

$331,416.00 $350,000.00 $300,000.00 $250,000.00 $200,000.00 $150,000.00 $100,000.00 $50,000.00 $0.00 Account after 30 years if Account after 30 years if you start saving today you wait 5 years to begin saving $247,317

Source: America Funds

Saving Early: The Road to a Secure Retirement, March 2012

Thats a lot of scenarios pointing to the same conclusion - the greatest bang-for-your-buck is to put away whatever money now. Of course, this impact can be compounded by how much money you put away early. Take the example of contributing just $50 more a month. The results show even this small amount monthly can add up to hundreds of thousands of dollars if it is invested over a long period of time.

Contributing just $50 more per month can make a big difference
Hypothetical pre-tax account values after monthly contributions from age 25 to 70

$1,200,000
$200/mo $250/mo

$1,000,000 $816,788 $800,000 $653,430 $600,000

$954,788

$763,830

$400,000

$200,000 $110,400

$138,000

$Total Contributions Total Contributions + + Earnings Earnings Balance at age = = Balance at age 7070
This hypothetical example assumes the following: (1) monthly $250 and $200 IRA contributions made on the first of each month beginning at age 25 and continuing through age 70, (2) annual rate of return of 7%, compounded monthly, and (3) no taxes on any earnings within the IRA. The ending values do not reflect taxes, fees or inflation. If they did, amounts would be lower. Earnings and pre-tax (deductible) contributions from Traditional IRAs are subject to taxes when withdrawn. Earnings distributed from Roth IRAs are income tax free provided certain requirements are met. IRA distributions before age 59 1/2 may also be subject to a 10% penalty. Systematic investing does not ensure a profit and does not protect against loss in a declining market. This example is for illustrative purposes only and does not represent the performance of any security. Fidelity Brokerage Services, Member NYSE/SIPC 900 Salem Street Smithfield, RI 02917

Source: Fidelity Investments

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90% of people have more money in their 401(k) now than they did at the market top of 2007.

It is important to note that when you start saving is only one factor impacting retirement savings. There are numerous other factors to consider, including deferral amounts, asset allocation, and determining how long you plan on working. Additionally, there are other factors outside of a savers control, such as real estate prices, health care costs, costs of living, or the market. Historically, the upside of the market has been substantially larger than the downside, but there are still inherent risks in stocks and bonds. Retirement investors must recognize the importance of investing for the long term when it comes to retirement savings. We all witnessed the dramatic market volatility of the past few years. However, since the financial crisis, it is important to note that the vast majority of private retirement accounts have recovered lost balances. In fact, over 90 percent of people with 401(k) retirement accounts have more money in their accounts than they did at the 2007 market top due to increased contributions and market growth, according to the Employment Benefit Research Institute.

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Resources for Starting Early

Financial services companies are offering innovative tools and services to help consumers understand how long (and how much) they should be saving for their desired retirements. A selection of resources is as follows: Allstate provides easy to follow Life Track savings plans to guide your savings throughout each life stage and event.

Allstate offers Life Track Savings Plans go guide your savings throughout each life stage

AXA Equitable offers virtual retirement savings consultations that guide you through a step-by-step process to estimate how long your retirement savings may last. Bank of America created Retirement Contact Centers to help simplify the retirement process and handle customer inquiries. BB&T provides retirement tips and solutions called, "Learn & Plan," which is complete with audio podcasts on a host of issues, ranging from estate planning to calculators for budgeting and saving for retirement. BBVA Compass offers a retirement calculator to help determine your projected shortfall or surplus at retirement age. Diversified provides participants with their Retirement Outlook, an intuitive measure of retirement readiness that is provided online and via a short and straightforward report. Diversified also provides a number of easy to use calculators to help participants save and invest wisely. Fidelity Investments helps you determine your retirement readiness in five easy steps. HSBCs The Future of Retirement program is a world-leading independent study into global retirement trends, surveying 110,000 people worldwide since its inception in 2005. The latest report is Why Family Matters. Additionally, HSBCs YourMoneyCounts.com offers a valuable resource

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for those searching for answers to specific questions or simply looking to improve their general level of financial education.

ING U.S. offers a comprehensive resource, www.RetireWithING.com, that provides free retirement saving

PNC helps consumers build a personalized checklist of action steps to help them achieve their retirement goals.

information and education, along with access to a financial professional. ING also offers a number of online planning and savings tools to the public, including www.INGCompareMe.com which lets an individual compare themselves financially to their peers.
LPL Financial Retirement Partners has a Retirement Partners tool suite for advisors, which tracks plan successes and quickly compares plan fees and design. PNC Financial Services Group offers the Next Step Guide to Retirement. The Next Step Guide assists consumers in building a personalized checklist of action steps to help them achieve their retirement goals. It also offers quick and easy access to robust retirement-related tools including a Retirement Savings Calculator and a Debt & Retirement Analyzer.

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Putnam Investments provides a state-by-state tax rate map and retirement-income tool calculator. Raymond James offers a free online guide for making the best retirement decisions for your individual situation. State Farm publishes easy-tounderstand retirement advice in its Retirement Learning Center and also provides its own savings calculators to help answer many individuals retirement questions. In addition, State Farm agents offer a robust platform of financial literacy and retirement seminars in the communities they serve. SunTrust publishes a monthly Retirement e-newsletter, integrated with LiveSolid.com, which includes helpful articles about retirement, videos, tips and more. The Principal Financial Group offers My Principal Edge Milestones. Participants whove used Milestones save an average of 39% more for retirement than those who havent used the tool. That could mean an additional $150,000 at retirement. Transamerica Retirement Services offers brief videos that are designed to educate individuals on retirement planning. In addition, you are also able to access investment calculators to help you determine how much you will need to save in order to reach your retirement goal. Wells Fargo offers retirement planning by age groups and offers Beyond Today, a retirement site for women with tools by ages and stages, checklists and blogs from nationally-recognized authors. Saving Early: The Road to a Secure Retirement, March 2012 14

Wells Fargo offers a retirement site just for women

This is just a selection of the resources available to consumers for helping to increase retirement savings. Ultimately, it is up to the consumer to take the right step and start putting money away early.

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Sources
Bloomberg. Retirement Calculator. http://www.bloomberg.com/personalfinance/calculators/retirement/ Correia, Margarida. "Cerulli Predicts U.S. Retirement Market Will Exceed $22 Trillion by 2016 . Bank Investment Consultant. January 30, 2010. Employee Benefit Research Institute, "Retirement Research." August 2011. Holden, Sarah, and Daniel Schrass. "ICI Research Perspective." ICI. November, 2011. Jacobe, Dennis. Investors Look Beyond Social Security to Fund Retirement, Gallup, March 25, 2011 Mercado, Darla. Expectations-Retirement-Funding. January 30, 2012. Reuters, Fidelity Releases Quarterly Snapshot on 401(k)s Showing Average Savings Inched Higher in 2011, February 9, 2012. Washington Post, Fidelity: Average 401(k) balances end 2011 largely unchanged, despite higher contributions. February 9, 2012.

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About the Sponsoring Organizations

The Financial Services Roundtable represents 100 of the largest integrated financial services companies providing banking, insurance, and investment products and services to the American consumer. The mission of The Financial Services Roundtable is to protect and promote the economic vitality and integrity of its members and the United States financial system. Roundtable member companies provide fuel for America's economic engine, accounting directly for $92.7 trillion in managed assets, $1.2 trillion in revenue, and 2.3 million jobs. More information about the Roundtable and its research can be accessed at www.fsround.org. The Financial Services Institute (FSI) is an advocacy organization for independent financial services firms and independent financial advisors. Established in January 2004, we have well over 100 broker-dealer members and over 35,000 financial advisor members. Our member firms have upwards of 180,000 financial advisors affiliated with them. Our mission is to create a more responsible regulatory environment for independent broker- dealers and their affiliated independent financial advisors through effective advocacy, education and public awareness. And our strategy includes involvement in FINRA governance, constructive engagement in the regulatory process and effective influence on the legislative process. For more information, please visit www.financialservices.org. The Retirement Security Coalition (RSC) is a project of the Financial Services Roundtable that is concerned with improving Americas retirement readiness. Guided by an Advisory Board made up of the nations leading financial literacy and retirement security nonprofits, the RSC is dedicated to increasing the totality of the nations retirement security by empowering individuals to take responsibility for their own retirement security. For more information, please visit http://retirementsecuritycoalition.wordpress.com/.

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