Disclosure Notice The presentation The Road to Retirement

Disclosure Notice The presentation (The Road to Retirement, ‘Charted Course or Aimless Wander’) and accompanying narrative was created by the Arkansas Securities Department. It is intended solely for educational purposes and cannot be copied, distributed, or used in any manner without the permission of the Arkansas Securities Department.

THE ROAD TO RETIREMENT ‘Charted Course or Aimless Wander’

Retirement Quotes “I’m retired – goodbye tension, hello pension. ” “Retirement: World’s longest coffee break. ” “Retirement - when you stop living at work and begin working at living. ” “Life begins at retirement. ”

Retirement Quotes “The question isn’t at what age I want to retire but, at what income. ” “Retirement: It’s nice to get out of the rat race, but you have to learn to get along with less cheese. ” “The retirement challenge is how to spend time without spending money. ” “Retirement is when the living is easy and the payments are hard. ”

87% - Workers Not Confident About Their Retirement 57% - Workers Reporting The Value Of Their Savings & Investments Is Less Than $25, 000 28% - Workers Saying They Have Less Than $1000 54% - Workers Who Haven’t Tried To Calculate How Much They Will Need To Save For A Comfortable Retirement

What Should You Expect From This Program? General information on the steps required to develop a ‘personal’ retirement plan, including: � � � � Establishing Basic Retirement Goals Sources of Retirement Income ‘Gaps’ and How to Close Leveraging Your Personal Retirement Savings With Tax. Advantaged Resources Price of ‘Procrastination’ Basic Investing – Your Investment ‘Profile’, Products, Principles Implementing My Plan – Who Do I Work With and What Should I Know? Resources You Can Use For Assistance

Developing a Retirement Plan Fundamental Steps � Establish Goals � Assess Current Situation � Develop Objectives and Strategies � Review and Update As Required

Developing a Retirement Plan Some Things To Remember � Initial plans are designed to provide a ‘general’ assessment of needs and a ‘basic’ course of action to achieve them. � Projections are estimates based on assumptions, which may or may not be valid over the horizon of the plan. � The nearer to retirement, the more precise the plan.

Developing Basic Retirement Goals When Do I Want To Retire? ‘My’ Retirement Age or Date. But, you may need to be flexible!

Developing Basic Retirement Goals How Much Income Will I Need? Food, Utilities, Clothing, Home, Auto Insurance – Home, Auto, Life, Healthcare Children – College and/or Support Mortgage / Credit Cards Travel & Fun Emergency Funds

Developing Basic Retirement Goals How Much Income Will I Need? AON/Georgia State University – ‘Replacement Ratio Study’ 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 88% 82% 79% 94% 85% 80%78% $20, 000 $40, 000 $60, 000 $80, 000 Single Age 65 Married Age 65/62 Assumptions: No Mortgage; No Dependent Children; Reduced Taxes; No Work-Related Expenses

Developing Retirement Goals Consider the Effects of Inflation $30, 000 OF INCOME TODAY $1 OF PURCHASING POWER TODAY 3 80 000 2, 43 2, 5 1, 5 70 000 54 183 60 000 1, 81 2 72 818 50 000 1, 34 40 000 3% 1 40 317 3% 30 000 20 000 0, 5 10 000 0 0 10 20 Years 30

Developing Retirement Goals Consider the Effects of Inflation $1 OF PURCHASING POWER TODAY 5 4, 5 4 3, 5 3 2, 5 2 1, 5 1 0, 5 0 $30, 000 OF INCOME TODAY 140 000 4, 32 129, 65 8 120 000 100 000 2, 65 80 000 2, 43 1, 63 79 599 3% 5% 1, 81 1, 34 72 818 48 867 54 183 40 000 40 317 20 000 60 000 0 10 20 Years 30 3% 5%

Developing Retirement Goals Consider the Effects of Inflation Historical Inflation Rates 16 14 12 10 8 % 6 4 2 0 1962 1972 1982 1992 2002 2012

Developing Retirement Goals Consider the Effects of Inflation Is the ‘Rate of Return’ on My Retirement Savings Staying Ahead of Inflation?

Developing Basic Retirement Goals How Long Will I Live? Average Life Expectancies 87 86 86 84, 9 85 84 84 83 82 81 83, 7 82, 3 Male Female 81 80 79 78 Age 60 Age 65 Age 70

Developing Retirement Goals How Long Will I Live? Life Expectancy Probabilities 60% 53% 50% 41% 40% 32% Age 85 30% 20% Age 90 20% 10% 0% Male Age 65 Female Age 65

Developing Retirement Goals How Long Will I Live? Life Expectancy Probabilities 80% 72% 70% 60% 50% 40% 30% 20% 53% 45% 41% Age 85 32% Age 90 20% 18% 10% 0% Male Age 65 Female Age 65 Married Couple Age 65 - One Person Living To Age 95

Sources of Retirement Income � Employee Pension � Social Security � Personal Savings

Sources of Retirement Income Social Security � Government program initiated in 1935 � Qualifying – Requires at least 40 ‘credits; ’ generally, 10 years in which you had earnings subject to social security taxes – Benefit based on highest 35 years of earnings � Benefit Ages – ‘Early’– Age 62 to ‘full’ retirement date (penalties apply) ‘Full’ – Birthday 1937 and earlier – Age 65 1938 to 1942 – Graded, Age 65, 2 mo. to 65, 10 mo. 1943 to 1954 – Age 66 1955 to 1959 – Graded, Age 66, 2 mo. to 66, 10 mo. 1960 + - Age 67 � ‘Delayed’ – ‘Full’ To Age 70 (additional benefits accrue)

Sources of Retirement Income Social Security � Social Security Benefit (2013) – ‘Average’ $1, 261/mo. – ‘Maximum’ $2, 533/mo. � Income Limits (2013) – Before ‘full’ benefit date, ‘earned income’ is limited to $15, 120 - For every $2 earned over the limit, $1 of benefit is withheld - No limit at or after ‘full’ benefit date � Taxation of Benefits – File Federal Taxes as: Individual - Income between $25, 000 and $34, 000 – Pay on up to 50% Income more than $34, 000 – Pay on up to 85% Joint – 50% Income between $32, 000 and $44, 000 – Pay on up to Income more than $44, 000 – Pay on up to 85% � Other Benefit Provisions: Disability Survivorship – Spouse and Minor Children

Sources of Retirement Income Social Security Concerns and Issues: � Social Security Trust Fund is Critically Underfunded – Projected to be Depleted in 2033 – Medicare in 2024 � Causes - Changing Demographics - Increasing Life Expectancies – Lower ‘Worker’ to ‘Retiree’ Ratio � Fixing the Problem – Raise Taxes – Lower Benefits � Bottom Line - Significant Changes ‘Must’ Occur

Sources of Retirement Income Personal Savings (USA) � � Past 10 Years = 3. 61% Range: � Low = 1. 86% (2005) � High = 5. 03% (2008) HOUSEHOLD SAVINGS RATE COMPARISON (2012) 18, 00% 16, 00% 14, 00% 12, 00% 10, 00% 8, 00% 6, 00% 4, 00% 2, 00% 0, 00% 16, 10% 12, 10% 11, 00% 6, 60% 4, 30% 3, 30% 1, 90% Japan Canada USA U. K. Germany Switzerland France AVERAGE PERSONAL SAVINGS RATE %

Sources of Retirement Income Personal Savings (USA) AVERAGE NET WORTH BY AGE GROUP AVERAGE HOUSEHOLD DEBT ($96, 173) Dollars 18475 52551 575 232 00 0 < 25 25 - 34 98 350 35 - 44 45 - 54 55 - 64 > 65 180 12 5 Mortgage 5 7707 694 6 732 Student Loans 68 283 7 694 Auto Loans Credit Card Other

Sources of Retirement Income Personal Savings (USA) AVERAGE NET WORTH BY AGE GROUP AVERAGE HOUSEHOLD DEBT PER INDEBTED Dollars 18475 52551 575 232 00 0 < 25 25 - 34 98 350 35 - 44 45 - 54 55 - 64 > 65 180 12 5 15 422 Mortgage 34 703 149 78 2 Student Loans Credit Card

Developing Basic Retirement Goals Initial Retirement Plan Example ‘John’ Single - Age 45 Started With Current Employer - Age 35 Assumptions: Planned Retirement Date - Age 65 $35, 000 Current Annual Salary - Has Traditional Pension Plan Inflation – 3% Replacement Ratio – 85% 90) Planned Retirement Years – 25 (Age Savings $35, 000 in Bank CD’s Avg. Rate of Return – 3%

Developing Basic Retirement Goals Retirement Plan Example Initial Projected Retirement Income Replacement Need: $35, 000 @ 3% inflation for 20 years X 85% = Sources of Retirement Income: Pension Plan – Estimated $2, 200 per month, or Social Security – Estimated $1, 140 per month, or year $53, 732 per year $26, 400 per year $13, 680 per year $40, 080 per year ($13, 652) per Personal Savings - $35, 000 @ 3% for 20 Years = $63, 725 Years to Deplete @ 13, 652 per year with a 3% rate of return = 5. 1 years 25 (years in retirement) – 5. 1 years (funded) = 19. 9 years (income deficient) Retirement Income ‘Gap: ’ $13, 652 X 19. 9 years =

Developing Basic Retirement Goals Retirement Plan Example Initial Projected Retirement Income Replacement Need: $35, 000 @ 3% inflation for 20 years X 85% = Sources of Retirement Income: Pension Plan – Estimated $2, 200 per month, or Social Security – Estimated $1, 140 per month, or year $53, 732 per year $26, 400 per year $13, 680 per year $40, 080 per year ($13, 652) per Personal Savings - $35, 000 @ 3% for 20 Years = $63, 725 Years to Deplete @ 13, 652 per year with a 3% rate of return = 5. 1 years 25 (years in retirement) – 5. 1 years (funded) = 19. 9 years (income deficient) Retirement Income ‘Gap: ’ $13, 652 X 19. 9 years = $ 271, 675

Closing Income ‘Gaps’ Options � Save More � Increase Rate of Return on Savings � Adjust Retirement Date � Consider Working In Retirement

Closing Income ‘Gaps’ What about our ‘example’ situation? ‘Gap’ = $271, 675 Save More – = $381. 59 (26 times per year) ($9, 921. 34 per year) @ 3% for 20 years $271, 676

Closing Income ‘Gaps’ What about our ‘example’ situation? ‘Gap’ = $271, 675 Save More – = $381. 59 (26 times per year) ($9, 921. 34 per year) @ 3% for 20 years $271, 676 Increase Rate of Return – Total Savings Required = $341, 300 ($13, 652 X 25 years) Rate of Return = 6% on all savings (including existing $35, 000 ) $35, 000 + $224. 50 (26 times per year) ($5, 837 per year) @ 6% for 20 years = $341, 306

Closing Income ‘Gaps’ Leveraging Your Retirement Savings Dollars Payroll deducted retirement savings programs – 401 k, 403 b and 457 b � Tax-advantaged savings - Contributions are made with pre-tax dollars ($1 of contribution reduces paycheck by less than $1) � Tax-deferred growth – Gains or earnings ‘deferred’ � Contribution limits – $17, 500, plus additional $5, 500 if over age 50 � Some employers may make contributions or offer ‘matches’ � Investment options – Fixed income and mutual funds � Distributions – 401 k/403 b – Age 59 ½ or, 55 & ‘separation from service’ 457 b – ‘separation from service’ � In-Service Withdrawals – 401 k/403 b – Specified purposes, check w/plan 457 b - Only for ‘extreme financial hardship’

Closing Income ‘Gaps’ Leveraging Your Retirement Savings Dollars What about our ‘example’ situation ? Previous ‘after-tax’ contribution scenario Rate of Return = 6% on all savings (including existing $35, 000) $35, 000 + $224. 50 (26 times per year) ($5, 837 per year) @ 6% for 20 years = $341, 306

Closing Income ‘Gaps’ Leveraging Your Retirement Savings Dollars What about our ‘example’ situation ? Previous ‘after-tax’ contribution scenario Rate of Return = 6% on all savings (including existing $35, 000) $35, 000 + $224. 50 (26 times per year) ($5, 837 per year) @ 6% for 20 years = $341, 306 Using ‘pre-tax’ contributions of $224. 50 = net paycheck reduction of $175. 11 ($4, 552. 86 per year)

The Cost of ‘Procrastination’ 300 000 252 532 250 000 202 891 200 000 150 000 116 740 124 607 132 631 140 821 149 178 157 700 Dollars 100 000 50 000 0 Plan Input 1 2 3 4 Years 5 10 15

What If I Don’t Have A Pension Plan Or Don’t Have Much Time Until Retirement? What’s Your Choices? Accept retirement ‘as is’ – Develop a plan to adjust Be ‘flexible’ on your retirement date Consider a ‘post-retirement’ career Start doing something's to ‘cushion’ the financial impact of less money in retirement What Can I Do? Start reducing debt Start thinking about unnecessary expenses Start saving or save more Utilize ‘tax-advantaged’ programs Focus on ‘take-home pay’ reductions ‘Pay yourself first’ - Increase savings amount each year or with each salary increase you get

Questions?

Basic Investing What’s My Investing ‘Profile’? Some Questions to Consider: � How do I feel about taking ‘risk’ with my money? � Do I understand the ‘risk / reward’ relationship? � How well do I tolerate fluctuations in the value of my assets? � What’s my time horizon? � What’s my investing experience?

Basic Investing Sometimes the ‘Need’ Dictates the ‘Risk’ � Conservative investments/contributions ≠ objective � ‘Forced’ to look at higher risk/higher reward options � ‘Last Resort’: � Adjust Retirement Date � Work In Retirement

Basic Investing Some Principles To Consider � All Investments Carry Some Level of Risk � Investments With Potentially Higher Returns Are Generally Accompanied By Higher Risk Factors � Diversification – Investing In A Variety Of Assets To Minimize Risk � Asset Allocation - Balancing Risk Versus Reward By Adjusting The Percentage Of Each Asset In An Investment Portfolio According To Goals, Risk Tolerance, And Time Horizon � Successful Investing Requires Periodic Monitoring And Adjustments

Basic Investing Investment Choices � Certificates of Deposit � Money Market Funds � Bonds – Government , Corporate � Stocks – Preferred, Common � Mutual Funds – Bond, Stock, Index, ‘Hybrid’ � Options

Basic Investing Historical Rates of Return Average Rate of Return - 1926 thru 2010 � U. S. Small Company Stocks : +12. 1% � International Stocks: +10. 1% � U. S. Large Company Stocks: +9. 9% � Balanced Stock/Bond Portfolio: +8. 3% � Bonds: +5. 5% � Money Market: +3. 6% Inflation : 3%

Basic Investing Implementing My Plan Who Should I Work With and What Should I Know? � Work Only With Licensed / Registered Companies and Representatives � Be Informed About Your Investments – Stay In Charge of Your Money � Understand The ‘Fine Print’ – Terms, Fees, Ability and Cost to Access Money � Never Sign Anything Until You Are Completely Sure � Demand Periodic Statements and Representative Reviews � Be On Guard For ‘Too Good To Be True’ Deals

Retirement Planning Resources Retirement Planning: U. S. Department of Labor – ‘Taking The Mystery Out Of Retirement Planning’ www. dol. gov/ebsa/Publications/nearretirement. html Sources of Retirement Income: U. S. Social Security Administration Benefit Calculator - www. ssa. gov/planners/calculators. htm Traditional ‘Pension Plan’ – See Your Employer Leveraging Retirement Savings Dollars: ‘Tax-Advantaged Savings Programs – See Your Employer Implementing My Plan: Financial Industry National Regulatory Association (FINRA) – Broker Check – www. finra. org/Investors/Tools. Calculators/Broker Check

Questions?

“Would you tell me which way I ought to go from here? ” asked Alice. “That depends a good deal on where you want to get, ” said the Cat. d “I really don’t care where” replied Alice. “Then it doesn’t much matter which way you go, ” said the Cat.

‘If you don’t know where you’re going, it doesn’t matter which road you take. ’

THE ROAD TO RETIREMENT ‘Charted Course or Aimless Wander’