Taking action toward your financial future

Participate in your retirement plan

1. Estimate your need

With the average life expectancy increasing, uncertainty around Social Security, rising healthcare costs and inflation continuing to erode the purchasing power of your money, participating in your retirement plan is more important than ever.

The amount you need in retirement income could play a significant role in reaching your future financial goals. It is important to take the time to look at your specific situation and retirement income needs before determining how much to contribute to your retirement account.

All individuals are fictitious and all numeric examples are hypothetical. These hypothetical investment returns are for educational purposes only and are not indicative of any particular investment or performance. Hypothetical returns assume reinvestment of earnings. Actual returns or principal value will vary. Balances shown are before reduction for taxes.

Determine a suitable amount for your situation by using the “Retirement Income Strategy” tool.

THE COST OF WAITING

It is important that you start preparing to reach your retirement income goals early, because waiting even one year can make a big difference.

David
Age 25

$1,500 annual contribution

Assumptions:

• Earns $30,000/year
• Will retire at age 65
• 6% rate of return

Total at age 65 if contributions begin at:

• age 25 = $246,072
• age 26 = $230,643

Cost of waiting one year:
$15,429 total contribution

Lisa
Age 40

$3,000 annual contribution

Assumptions:

• Earns $50,000/year
• Will retire at age 65
• 6% rate of return

Total at age 65 if contributions begin at:

• age 40 = $174,469
• age 41 = $161,594

Cost of waiting one year:
$12,875 total contribution

2. Determine your contributions

It is a smart idea to participate in your retirement plan as soon as possible. If you start contributing right away, your account may have more time to grow or weather ups and downs.

Your retirement plan contributions The money you contribute to your retirement account is automatically deducted from your paycheck — before taxes are taken out. It goes directly into your retirement account, so your paycheck is actually less than it would have been. This means you are paying less in current income taxes for the year. This can help reduce the impact of contributing to your retirement plan on your take-home pay.

Put tax deferral to work for you Tax deferral simply means the contributions to your retirement plan are not currently taxed. You are putting off paying taxes on that money until you withdraw it from your retirement account.

How can putting off paying taxes be a benefit? Not only are your contributions invested, but the deferred taxes allow your money to stay invested.

THE BENEFITS OF COMPOUNDING

Compounding occurs when the initial investment generates a gain that is reinvested and experiences an additional earning. When the new balance (the original investment plus the gain) generates further earnings, the initial gain increases the total return of your initial investment. When the following gains are reinvested, future positive earnings are further compounded.

COMPOUNDING EXAMPLE

Thanks in part to compounding, the difference between the contributions to Michael’s account and his actual account balance at retirement is $151,149!

Michael
Age 25

$100
monthly contribution
over 40 years

$48,000
total contribution

$199,149
at retirement

This hypothetical investment return and fictitious name is designed to demonstrate the impact of compounding returns and is not indicative of any particular investment or performance. Hypothetical returns assume reinvestment of earnings and a 6 percent average return on investment. Actual returns or principal value will vary. Balance shown is before reduction of taxes.

3. Choose your investments

An important and sometimes confusing step in retirement preparation is choosing which options to invest in. Because each investor has different goals and different circumstances, there is no set strategy that works for everyone.

INVESTMENT TYPES

There are different types of investments in which you may choose to invest your retirement plan contributions. The three main types are:

1. Stocks have historically had the greatest risk and highest returns among the three major investment types.
2. Bonds are generally less volatile than stocks but offer more modest returns.
3. Cash equivalents — such as certificates of deposit, treasury bills and money market funds — are generally the most conservative investments, but offer a lower potential for return than the other major investment types.

Another type of investment, called an Asset Allocation investment, provides investors with a blended portfolio of different types of investments in a single option. These investments are a good option for investors who would prefer to allow professional money managers to make adjustments to their investments as the market fluctuates.

AUL’s Retirement Services products offer flexibility and diversity in investment options through our group annuity contract to help plan participants reach their retirement goals. Participants invest in an AUL separate account, which in turn invests in underlying funds. Plan participants are credited with units of the AUL separate account, not shares of any underlying fund.

UNDERSTANDING RISK AND RETURN

Investment risk is the potential for an investment to lose value. Return is the change in value on an investment. Higher returns are usually associated with greater risks, while investments with lower returns generally have a lower risk level. Understanding the relationship between risk and return is very important as you develop your investment strategy.

The amount of investment risk you are willing to take, also known as your “risk tolerance,” is a personal decision, which can be shaped by many factors including the amount of time you have until retirement, also known as your “time horizon.”

• Risk tolerance — Some people are comfortable taking on the risk of frequent ups and downs of the stock market in return for potentially greater longterm returns. Others prefer the possibility of a slow, steady return with lower risk investments. Understanding your personal attitude toward risk can help you find the right mix of investments for your portfolio.
• Time horizon — The longer you have until retirement, the more risk you can potentially afford to take.

MIXING IT UP WITH DIVERSIFICATION

Because different investment types have varying levels of risk and return, it is important to make sure you have a good mix of investments in your portfolio. This strategy, called diversification, aims to balance risk and reward by allocating assets according to your goals, risk tolerance and investment horizon.

Each group of investments carries its own unique risks. Before investing, please read each fund prospectus for a detailed explanation of the risks, fees, and costs associated with each underlying investment. Although you might reduce volatility and risk with diversification, you can’t eliminate investment risk altogether. The use of asset allocation and diversification does not ensure a profit or protect against loss.

Bond funds have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the fund.

Money Market funds are not typically insured or guaranteed by the Federal Deposit Insurance Corporation or any other federal government agency. Although they seek to preserve the value of your investment at $1.00 per share, it’s possible to lose money by investing in money market funds.

WHAT TYPE OF INVESTOR ARE YOU?

Based on your personal situation and comfort level with investing, this questionnaire can help you select your investor profile. Answer these questions and total your score at the bottom. The total score recommends which of the five risk profiles is most appropriate for you.