Conrad Siegel Actuaries Retirement Planning Seminar

1. Conrad SiegelActuariesRetirement Planning Seminar READY, SET… RETIRE!

2. Who we are • Conrad Siegel Actuaries • Harrisburg based employee benefits firm • The Employee Benefits Company • Conrad Siegel Investment Advisors, Inc. • Independent investment consultants Conrad SiegelInvestment Advisors, Inc.(“CSIA”) is an SEC registered investment adviser with its principal place of business in the Commonwealth of Pennsylvania. CSIA and its representatives are in compliance with the current registration requirements imposed upon registered investment advisers by those states in which CSIA maintains clients. CSIA may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Any subsequent, direct communication by CSIA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of CSIA, please contact CSIA or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). For additional information about CSIA, including fees and services, send for our disclosure statement as set forth on Form ADV from CSIA using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

3. Questions we will address • What will be my level of expenses in retirement? • What will be my sources of income in retirement? • What risks are associated with my retirement expenses & retirement income? • What other issues should I consider in retirement?

4. Financial Goal in Retirement Retirement Expenses Retirement Income =

5. Financial Goal in Retirement Retirement Expenses Retirement Income = • Revisit When Major Changes Occur - Examples • Change in Marital Status • Change in Living Arrangements • Change in Physical Abilities

6. Financial Goal in Retirement Retirement Expenses Retirement Income = • Phases in Retirement • Phase 1 – Most active • Phase 2 – Decline in physical/mental abilities • Phase 3 – Least active and will need help

7. Estimating Retirement Expenses • Methods for Estimating Retirement Expenses: • 1. Replacement ratio method • 2. Detailed analysis method

8. Estimating Retirement Expenses 1. Replacement ratio method (Step A): Description Dollars Percentage Pre-Retirement Compensation $50,000 100%

9. Estimating Retirement Expenses 1. Replacement ratio method (Step B): Description Dollars Percentage Pre-Retirement Compensation $50,000 100% Expenses Eliminated Post-Retirement Employee Retirement Contributions – 5,000 – 10.00% Social Security Contributions – 3,825 – 7.65% State & Local Taxes – 2,500 – 5.00% Work - Related Expenses – 1,000 – 2.00% Personal Savings – 2,000 – 4.00% Subtotal 35,675 71.35%

10. Estimating Retirement Expenses 1. Replacement ratio method (Step C): Dollars Percentage Description Pre-Retirement Compensation $50,000 100% Expenses Eliminated Post-Retirement Employee Retirement Contribution s – 5,000 – 10.00% Social Security Contributions – 3,825 – 7.65% State & Local Taxes – 2,500 – 5.00% Work - Related Expenses – 1,000 – 2.00% Personal Savings – 2,000 – 4.00% Subtotal 35,675 71.35% Expenses Added Post-Retirement Health Insurance Costs + 4,000 + 8.00% Additional Leisure Time Activities + 4,000 + 8.00%

11. Estimating Retirement Expenses 1. Replacement ratio method: Description Dollars Percentage Pre-Retirement Compensation $50,000 100% Expenses Eliminated Post - Retirement Employee Retirement Contribution s – 5,000 – 10.00% Social Security Contributions – 3,825 – 7.65% State & Local Taxes – 2,500 – 5.00% Work - Related Expenses – 1,000 – 2.00% Personal Savings – 2,000 – 4.00% Subtotal 35,675 71.35% Expenses Added Post-Retirement Health Insurance Costs + 4,000 + 8.00% Additional Leisure Time Activities + 4,000 + 8.00% Post - Retirement Income Needed $43 ,675 87.35%

12. Estimating Retirement Expenses • 2. Detailed Analysis Method: • Use the Retirement Expenses Worksheet to Project Retirement Expenses • Sample Category Expense Items: • Housing Utilities • Food Transportation • Personal Appearance Entertainment • Savings Debt payments • Medical

13. Estimating Retirement Expenses • 2. Detailed Analysis Method: • Monthly Expenses can be further divided into: A. Fixed Expenses, for example: • Groceries • Utilities • Housing • Flexible Expenses that can be reduced if necessary, for example: • Travel • Hobbies • Entertainment

14. Major Risks - Retirement Expenses • 1. Unexpected Health Care Costs & Needs • 2. Loss of Ability to Live Independently • 3. Inflation

15. 1. Health Care Costs & Needs Ways to Reduce Risk of Unexpected Health Care Costs • Employer-Provided Plan • Medicare Program • Medicare Advantage Insurance • Medigap Insurance • Healthy Lifestyle

16. 1. Health Care Costs & Needs “Bridge” Medical Insurance Needed if Retiring Prior to Medicare Eligibility (Age 65) Options for “Bridge” Coverage • Employer COBRA coverage will be available for 18 months after retirement • Some employers (becoming less prevalent) will provide continued medical insurance coverage in addition to COBRA coverage • If your spouse is working, you may be able to purchase inexpensive coverage through your spouse’s medical insurance plan at work • Individual medical insurance policy may be purchased directly from insurance company

17. 1. Health Care Costs & Needs Medicare Program • Part A – Hospital Insurance • Part B – Medical Insurance • Part C – Medicare Advantage Plans • Part D – Prescription Drug Coverage • Information available at www.medicare.gov

18. 1. Health Care Costs & Needs Medicare Part A – Hospital Insurance • Qualify at age 65 if you or your spouse are eligible for Social Security Benefits • No cost if eligible for Social Security Benefits Key coverage • Hospital & Hospice care • Post-hospital extended care

19. 1. Health Care Costs & Needs Medicare Part B – Medical Insurance • Qualify for Part B if eligible for Part A • 2010 monthly premium is $96.40 or $110.50 if income is below $85,000 (single), or $170,000 (married) Key coverage • Services of physicians • Certain services of dental surgeons, optometrists, chiropractors, and podiatrists • Certain additional medical services

20. 1. Health Care Costs & Needs Medicare Part D – Prescription Drug Coverage • Prescription drug coverage (optional) • If you do not sign up at time of initial eligibility for Medicare, penalty may apply • Costs vary by plan

21. 1. Health Care Costs & Needs Medicare – When to Apply • Contact Social Security at least 3 months before you or your spouse reaches age 65 • Contact Social Security even if you don’t plan to retire

22. 1. Health Care Costs & Needs Medicare Part C – Medicare Advantage Plans • Combines Part A & Part B coverage • May Include Part D coverage (prescription drug) • Coverage provided by approved private insurance companies

23. 1. Health Care Costs & Needs Medicare Advantage Insurance • Sample Cost of Medicare Advantage Insurance in Addition to $96.40/$110.50 Monthly Premium for Medicare Part B –

24. 1. Health Care Costs & Needs Medigap Insurance • Supplement to Medicare benefits to cover gaps in Medicare coverage • Difference between Medigap & Medicare Advantage

25. 1. Health Care Costs & Needs Medigap Insurance • Sample Cost of Medigap Insurance in Addition to $96.40/$110.50 Monthly Premium for Medicare Part B –

26. 2. Inability to Live Independently What is Long Term Care? • Long-term care is a variety of services and supports to meet health or personal care needs over an extended period of time. • Most long-term care is help performing Activities of Daily Living (ADLs): Bathing, Dressing, Using the toilet, Transferring (to or from bed or chair), Caring for incontinence, and Eating

27. 2. Inability to Live Independently What are the risks and the costs of LTC? • About 60 percent of individuals over age 65 will require at least some type of long-term care. • Long term care is high in cost*: • $223 average per day ($81,395 per year) in a nursing home for semi-private room • $3,186 per month (average) in assisted living facility • $24 per hour (average) for a home health aide • * 2008 Pennsylvania Survey by Genworth Financial

28. 2. Inability to Live Independently What are ways to Fund Long Term Care? a. Long Term Care Insurance b. Medicaid c. Personal Assets d. Care by Family Members

29. 2. Inability to Live Independently What is the cost of LTC Insurance?

30. 2. Inability to Live Independently Medicaid (Different from Medicare) • Medicaid is available only to people with limited income • For specific information about Medicaid (eligibility, coverage and services) contact your state’s Medicaid office

31. 3. Inflation Risk $54,183 At Age 85 $30,000 At Age 65

32. 3. Inflation Risk Longevity: Source: Society of Actuaries Retirement Participant 2000 Table

33. Estimating Retirement Income • Sources of Retirement Income: • 1. Social Security • 2. Employer Retirement Plan • 3. Personal IRA • 4. Home Ownership • 5. Other Personal Assets • 6. Part-time Employment

34. Estimating Retirement Income • 1. Social Security Retirement Benefits: • Contact your local Social Security office, or go to www.ssa.gov to request an estimate of your Social Security retirement benefits.

35. Estimating Retirement Income 1. Social Security Full Retirement Age:

36. Estimating Retirement Income • 1. Social Security – Tax on Retirement Benefits • 50% of Social Security benefits are taxable if income is between: • $25,000–$34,000 (single) • $32,000–$44,000 (married) • up to 85% of Social Security benefits are taxable if income is over: • $34,000 (single) • $44,000 (married) • Income thresholds not adjusted for inflation

37. Estimating Retirement Income • 1. Social Security – Reduction if Working • No reduction after attaining full retirement age • If you are under full retirement age and receiving Social Security benefits, those benefits will be reduced: • Prior to the year you reach full retirement age – Reduction of $1 for each $2 you earn above $14,160 • In the year you reach full retirement age – Reduction of $1 for each $3 you earn above $37,680 for income received prior to the month that you reach full retirement age

38. Estimating Retirement Income • 2a. Employer Defined Benefit Pension Plan • Guarantee of lifetime monthly income starting at retirement age • Benefits vary significantly by employer • This type of benefit is becoming less prevalent • Investment and longevity risks assumed by employer

39. Estimating Retirement Income • 2b. Employer Defined Contribution Retirement Plan • 401k, 403(b), profit sharing, ESOP, or money purchase pension • Funded by employer and/or employee contributions • No guarantee of lifetime income • Benefit described in terms of an account balance • This type of benefit is becoming very popular

40. Estimating Retirement Income • 3. Personal IRA • Similar to defined contribution retirement plan • Investments controlled by individual • Funded by personal contributions or rollover from employer plan • No guarantee of lifetime income • Benefit described in terms of an account balance

41. Estimating Retirement Income • 4. Home Ownership • Some people are counting on this asset to assist in retirement • Be realistic about how much of your home equity might be available…..you will always need housing • Reverse Mortgages – how do they work? • Payments made to you while living • Loan repaid at death or upon sale of home

42. Estimating Retirement Income • 5. Other Personal Assets • Inheritance • Collectibles • Investment Real Estate • Other investments

43. Estimating Retirement Income • 6. Part-Time Employment • Phased retirement • Supplement income • Still allow time for other activities

44. Major Risks - Retirement Income 1. Asset Allocation 2. Longevity: Outliving Your Retirement Resources

45. 1. Asset Allocation Phases of Retirement Investing

46. 1. Asset Allocation • Dilemma with Investment of Account • Invest Too Conservatively – run risk of not keeping up with inflation and not accumulating sufficient retirement assets • Invest Too Aggressively – run risk of severe stock market decline around retirement age and having insufficient assets for remainder of retirement

47. 1. Asset Allocation Risk Due to Sequence of Investment Returns During Transition Phase • Account balance at retirement - $100,000 • Annual withdrawal - $5,000 initially adjusted for 3% inflation each subsequent year. • Each withdraws a total of $134,380 over 20 years. Annual Investment Returns

48. 1. Asset Allocation • Account balance after 20 years Sue John

49. 1. Asset Allocation Factors Affecting Asset Allocation • Investment Objective - Retirement • Time Horizon - Retirement age and later • Risk Tolerance - What type of risk taker are you? • Personal Situation – Other personal factors to consider?

50. 2. Longevity Outliving Your Retirement Resources Source: Society of Actuaries Retirement Participant 2000 Table