FINANCIAL FOOTNOTESRetirement Planning Newsletter Summer 2015

1 Financial Footnotes Summer 2015

Establishing your financial health — Early careerYour first real job, the one on which you may build your career, is often accompanied by a number of other firsts. Your first desk, your first conference room-based meetings, your first business trip — all of these are exciting. But they can’t hold a candle to getting your first real paycheck.

When that pay is deposited into your bank account, there may be a number of things you need to spend it on. Buying a dependable car may be a high priority. You may decide to save for the deposit on your first apartment, or some furniture to fill it. One of the first steps in a financially healthy life is to make conscious choices about how to spend your money. Don’t get to the end of the month wondering where your money went; instead, make a plan and do your best to stick to it.

y Everyone needs an emergency fund to help with those minor emergencies that come up. Three months’ worth of living expenses is a good place to begin. Six months’ worth is better.

Continued

No matter your age and stage of life, there are certain things you can do to get and stay on a financially healthy course. However, each decade of your life and career brings different challenges.

In this issue of Financial Footnotes, we’re going to talk about the early career period, with information about later career periods in future issues. No matter your career stage you’re sure to find something here you can use.

Set yourself up for success by making saving a priority. Where and how should you save?

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FINANCIAL FOOTNOTES

Establishing your financial health — Early career (continued from Page 1)

y If you have credit card debt, consider paying it off. And stop using your credit cards unless you will pay them off each month. This is simultaneously easy and difficult; you know that paying 18% (or more) in interest on debt you took on for — what was it again? — is expensive. But buying items for which you don’t have the cash is tempting. Make a pact with yourself: If I don’t have the money to buy it, I will wait until I save up for it.

y Consider contributing to a Roth account, if your retirement plan offers it. The big advantage of a Roth account is that you pay taxes on the money you contribute now, rather than paying them later when you take the money out. While that may seem like it isn’t advantageous, it may be if at the beginning of your career you are in a lower tax bracket than you expect to be later when you’re earning more. When you withdraw money from a Roth account and your distribution is qualified under the Internal Revenue Code, you won’t owe taxes on your contributions or on any earnings.

y Contribute as much as you can to your company’s retirement plan. There is one benefit available to you today that will be less and less available as time goes by: extra time to save. If you have a workplace retirement plan, putting away as much as you can now will allow your investment the potential to grow longer — and the power of compounding may mean significantly more retirement savings later.

If you are in the early stages of your working life, you are experiencing both the freedoms and the responsibilities of adulthood. Along with both comes the need to become financially aware.

Establish good financial habits now and you will likely find yourself more prepared for your future. Your 65-year-old self will be glad you did.

In our next issue, we’ll cover some helpful financial tips for those in the middle phase of their careers — and beyond.

Protect Your Financial Health at Every Age:

1. Make a plan for your money, and stick to it as much as you can.

2. Use credit sparingly, and pay it off aggressively.

3. Save early and often.4. Invest wisely, and ask for financial

advice if you don’t know how.

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FINANCIAL FOOTNOTES

Four questions to ask yourself for the rest of 2015Taking stock of your financial situation at midyear

It’s good practice to look back on the year so far to see what adjustments you may want to make in the months ahead. Here are four questions to consider:

1. How would I describe my financial situation? Revisit and evaluate your current financial situation, investment goals, time horizon and risk tolerance.

2. Is my portfolio in sync with my investment goals? The stock market has done very well over the past several years. Your asset allocation may have become too stock-heavy and, therefore, you may be taking on too much risk due to the appreciation in the value of your stock holdings. If so, this may be the right time to rebalance to get back to your desired allocation.1 Investment options may be available in your retirement plan to help keep your portfolio on a more consistent path. Ask your financial advisor for help determining which investments you may want to use.

3. Have I had any changes in my life that might affect how I’m investing for retirement? If you answer yes to any of the following questions, you may need to reconsider your current investment strategy.

y Have you or your spouse/partner lost a job, changed jobs or retired?

y Did you recently get married or divorced?

y Have you changed your anticipated retirement date?

y Are you financially supporting adult children or your parents?

y Have your health care needs changed, or those of your spouse or children?

y Are you planning to make any big purchases during the remainder of the year?

4. Is there anything I can do to minimize the negative effects of stock market swings? If you anticipate needing money in the next year or two and have experienced market volatility in your portfolio, then you may be positioned too aggressively. If you have 10 or more years until you need the money, a little volatility may not be such a bad thing (especially if we experience more and higher up markets than down markets).

You can dampen the effects of significant bouts of volatility by increasing your allocation of bond funds (which are less risky than stock funds, but also have historically offered lower returns).

If your plan offers access to a financial advisor, meeting with him or her during the year can be an important step to assessing your financial situation, investment time frame and risk tolerance. Doing so can also help you take the steps needed to get back on a solid financial footing.

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Does your investing style give away your age? Generally speaking, we don’t want people to easily guess our age. If the way you invest aligns with the advice of many experts, though, people may just be able to guess your age.

Asset allocation, the way you distribute your investments among different asset classes, has a lot to do with investing success.1 And it isn’t static; in fact, experts generally recommend that your asset allocation strategy should change as you grow older and closer to retirement. To find out why, let’s briefly examine the basics of each class of assets.

Stock fundsWhen you invest in stock funds, you are purchasing shares of a company. When the company does well, the value of its stock may go up. Each share you own becomes worth more, and so does your total investment portfolio. However, companies may also lose value. When the economy declines, or when a new competitor enters the scene, or for a variety of other reasons, the company in which you have invested may lose value — and so will your shares of it. Although stocks have a great potential for increase, they also have a great potential for loss.

Bond fundsBond funds are similar to loans. Investors loan money to a government or other organization in exchange for a promise to repay the loan, plus a given rate of interest. The investment return may be lower than the potential return on a given stock, but the risk of loss is lower, too.2

Cash alternatives3

Investment portfolios often include a small percentage of cash alternatives to provide a degree of liquidity, which is often used to purchase other investments. To some investors, keeping a significant portion of their account in cash alternatives seems wise because they worry about the potential of losing money in other investments. Experts generally recommend against this strategy, because cash alternatives can decline in value; as inflation drives the prices of goods and services higher, each dollar buys less and less. Over the long term, a portfolio invested mostly in cash is unlikely to keep pace with inflation.

With the increased risk of investing in stock funds often come greater returns. With 40 or more years to invest for retirement, people in their 20s may have more time to recover if their investments decline; that’s why many experts recommend investing a significant portion of their accounts in stock funds. For example, a 25-year-old may choose to invest 80% in stock funds, 15% in bond funds and 5% in cash alternatives. As retirement gets closer and the length of time to recover from losses decreases, he or she may reduce the portion of the account invested in stocks. At 45, the portfolio may be closer to 65% in stocks, 30% in bonds and 5% in cash. By age 65, the allocation might be 45% stocks, 50% bonds and 5% cash.4 Click here for help determining an asset allocation that may meet your retirement needs.

Continued

5 Summer 2015

FINANCIAL FOOTNOTES

Does your investing style give away your age? (continued from Page 4)

If you are concerned about your asset allocation, take a few minutes to review it and make any necessary changes. You may want to consult with a financial advisor. Or, if your retirement plan makes an age-based fund, sometimes called target-date or lifecycle funds, available to you, consider letting the fund make the changes for you.5 The date in a target-date fund’s name represents an approximate date when an investor is expected to retire (which is assumed to be at age 65) and/or begins withdrawing money. The principal value of the funds is not guaranteed at any time, including the target date. When you choose this kind of fund, it will automatically adjust your asset allocation as retirement gets closer. A target date fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date (which is the assumed retirement date for an investor).5

How do I boost my credit score?Your FICO score helps determine the amount of money you will be allowed to borrow and the interest rate you likely will pay. These results, which lenders use to qualify loan recipients, attempt to identify which borrowers are likely to repay on time. Having a healthy (high) score could help you lower your payments on a car or house purchase by hundreds or even thousands of dollars over the life of the loan. A low score from late payments on loans and credit cards can hurt your ability to qualify for loans in the future.You can easily work to improve your FICO score. Spending less on your credit cards and paying off balances each month can improve your score in as little as one payment period. Making these ritual actions can strengthen your ability to manage other debts and can help build your credit history over time.

FICO Score ChartScore Range Credit Rating760–850 Excellent700–759 Very Good660–699 Good620–659 Below Average580–619 PoorBelow 579 Very Poor

The Fair Credit Reporting Act requires that each of the nationwide credit reporting companies — Equifax, Experian and TransUnion — provide you with a free copy of your credit report upon request once every 12 months. By staggering your requests, obtaining a report from one bureau at a time every four months, you will be sure you know exactly what items are included on your reports and can take steps to correct any errors. For more information about how to order your free credit reports, visit www.consumer.ftc.gov/articles/0155-free-credit-reports.

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FINANCIAL FOOTNOTES

Retirement in motionTips and resources that everyone can use

Retiree Corner: Issues affecting participants as they approach retirement Will you still need me when I’m 64 — or is it 65?

Some birthdays are more important than others when it comes to retirement. Here are some milestones to remember.

Age 50 More money can be placed in your retirement plan this year. Put an additional $6,000 into your retirement plan and an extra $1,000 into your Roth or traditional IRA.

Age 59½ There is no longer an early withdrawal penalty for taking money out of your tax-advantaged retirement plan.6

Age 62 You can claim Social Security, but your benefits will only be 75% of what you could collect at full retirement (age 66 for people born between 1943 and 1954).7

Age 65 Time to enroll in Medicare, Part A, which covers hospitalization and costs nothing.

Age 70 You qualify for the maximum Social Security benefits — there is no advantage in delaying any longer.

Age 70½ This is when you must start annual required minimum distributions from your retirement plan and IRAs.

Tools and Techniques: Resources to help guide your retirement planRule of thumb for gauging retirement income

Check your retirement progress by adding up all of your savings and applying a 4% annual portfolio withdrawal rate, equal to $4,000 a year for every $100,000 saved. This is a conservative way to project the annual income that your savings will produce. Should you be saving more?

Corner on the Market: Basic financial terms to knowLongevity risk

Longevity risk is the chance that you could outlive your life savings. The best way to protect yourself from this unknown is to save enough to be financially secure in retirement, taking into account your health and spending needs. To estimate how long you are likely to live, check out the Life Expectancy Calculator on the Social Security website at www.socialsecurity.gov/planners/lifeexpectancy.html.

1 Assetallocationandrebalancingdonotensureaprofitanddonotprotectagainstlossindecliningmarkets.2 A bond fund’s yield, share price and total return change daily and are based on changes in interest rates, marketconditions,economicandpoliticalnews,andthequalityandmaturityofitsinvestments.Ingeneral,bondpricesfallwheninterestratesriseandviceversa.

3 Cashalternativesarenotfederallyguaranteedandmaylosevalue.Cashalternativeportfolioshaveinterestrate,inflationandcreditrisksthatareassociatedwiththeunderlyingassetsownedbytheportfolio.

4 Theseexamplesareforillustrativepurposesonly.Allocationsarebasedonaninvestmentstrategybased onriskandreturn.Seektheadviceofaprofessionalforanassetallocationdesignedforyourpersonalneeds.

5 Assetallocationandbalancedinvestmentoptionsandmodelsaresubjecttotherisksoftheunderlyingfunds,whichcanbeamixofstocks/stockfundsandbonds/bondfunds.

6The10%earlywithdrawalpenaltydoesnotapplyto457planwithdrawals.7 InformationisfromtheU.S.SocialSecurityAdministration(www.ssa.gov)andissubjecttochange.

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Please note: This newsletter does not constitute investment or financial planning advice. Please consult with your financial planner, attorney and/or tax advisor as needed.

Core securities, when offered, are offered through GWFS Equities, Inc. and/or other broker dealers. GWFS Equities, Inc., Member FINRA/SIPC, is a wholly owned subsidiary of Great-West Life & Annuity Insurance Company. Empower Retirement refers to the products and services offered in the retirement markets by Great-West Life & Annuity Insurance Company (GWL&A), Corporate Headquarters: Greenwood Village, CO; Great-West Life & Annuity Insurance Company of New York, Home Office: White Plains, NY; and their subsidiaries and affiliates. The trademarks, logos, service marks, and design elements used are owned by GWL&A. ©2015 Great-West Life & Annuity Insurance Company. All rights reserved.

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