Bringing retirement into focus mybmoretirement.com

Educated

For retirement plan participants Volume 16, Issue 1, 2014

When you’re in your 20s and early 30s, few things are further from your thoughts than retirement. Planning for the future more likely involves figuring out where to meet up with friends or planning your next vacation. Yet, each year you put off saving for retirement increases the likelihood you’ll have to sock away that much more in the future.

The fact is, when you’re young and just starting your career, you have something your older colleagues don’t have — and that’s the advantage of time and how it can help you meet far-off goals like saving for retirement. By time, we mean the decades in front of you to save and invest. Waste it, and you’re throwing away an irreplaceable resource — something you can’t ever get back.

Okay, but what’s a decade when you have your best earning years ahead of you? Wouldn’t it be much

easier to postpone saving for retirement until you have a bigger paycheck? Not necessarily.

Time allows the market to work for you. This, combined with the fact that your money is growing untouched by taxes, means you’ve got a powerful combination for retirement success. For example, let’s say you start saving $100 per month for retirement at age 25. By age 65, you would have $200,145 in your account, assuming you earn a six percent average annual return. $152,145 of that amount would be due to investment returns. That’s the power of time.

Still not convinced that it pays to get an early start? The following chart shows that waiting just five years may cost you more than you might think.

Getting started Developing the habit of savingIs this you?

72.5 percent of retirement plan participants save at or above their company match.2013 Universe Benchmarks: Measuring Employee Saving and Investor Behavior in Defined Contribution Plans

Most of us would agree that the goal for a successful retirement is to be happy, healthy and financially secure. But what, specifically, does financial security mean?

Having “enough” for retirement means something different to each of us. That’s why developing retirement habits that align with your hopes and dreams for the future will determine the resources you’ll need once you retire.

This issue of Educated Investor is dedicated to helping you define retirement readiness on your terms. Here, you’ll find tools and tips to help you set clear goals, plus easy-to-implement steps that can put retirement readiness into sharper focus as your life situation reveals different needs and wants along the way.

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This hypothetical example assumes a $100 monthly contribution, a six percent average annual return, compounded monthly and reinvestment of all interest and/or dividends. It does not reflect the performance of any specific investment. Past performance does not guarantee future results. Systematic investing does not ensure a profit or protect against loss. You should carefully consider your ability to invest consistently in up and down markets.

As you can see from the chart, start saving early and the magic of compounding makes it easier to accumulate money. Start late, and it becomes much more difficult.

If you’re not “into” math, here’s the bottom line. The difference between starting at age 25 and age 35 is just $12,000 ($48,000 – $36,000) in contributions. The difference in the amount you could have at retirement? Nearly $57,000. That’s the high cost of procrastination.

Are you ready to start planning? Here are four helpful tips:

1. Enroll in your employer-sponsored retirement plan now. Contact your benefits department or, if available, enroll online at mybmoretirement.com or call 1-800-858-3829. If you’re not sure how to invest your contributions, speak to a BMO Retirement Services Specialist at 1-800-858-3829 or use the handy Asset Allocation planner at mybmoretirement.com.

2. Put yourself on autopilot. Aim to save 15 percent of your income each year, starting in your 20s. If your employer offers this feature, elect automatic annual increases until you reach your target. Research shows that workers who use this “set-it-and-forget-it” approach end up with substantially larger balances.

3. Save what you can. If you’re lucky enough to have an employer who contributes to the plan, save as much as you need to maximize the company match. If you’re concerned about whether you can afford to boost your contribution rate, try the Salary Deferral Take-Home Pay calculator at mybmoretirement.com. It can help you see exactly how a bump in your contribution rate will impact your take-home pay.

4. Work your way up. When you get a raise or bonus, use that event to increase your retirement plan contributions.

The high cost of waiting

Beginning age

Account balance at age 65

Years lost by waiting

Lost earnings

25 $200,145 0 $ 0

30 $143,183 5 $56,962

35 $100,954 10 $99,191

40 $69,646 15 $130,499

45 $46,435 20 $153,710

50 $29,227 25 $170,918

55 $16,470 30 $183,675

60 $7,012 35 $193,133

The BMO retirement app — a hands-on way to access information

BMO Retirement Services is preparing to make it even easier for you to manage your retirement savings with the launch of a new mobile app. The app will be available in early 2014 and will allow you to:

• Check your account balance• View personal rates of return• Review contribution information, and• Monitor plan investment performance

We are excited to be able to offer a new, hands-on way for you to monitor your retirement savings.

Check out our new mobile app icon! The tree within the icon symbolizes the planning and care that must be taken, over time, to establish a strong financial foundation for retirement.

Is this you?Nearly three in four (73 percent) workers age 50 or older are at least somewhat confident they will be able to pay for basic expenses during retirement.

Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc. 2013 Retirement Confidence Survey: A Secondary Analysis of the Findings from Respondents Age 50+

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PrioritizingOvercoming distractionWe all know the importance of saving for retirement while we’re young. However, as life speeds up, new needs and wants are revealed that can make it even more challenging to achieve retirement readiness. With competing demands on your money, it’s easy to get sidetracked by shorter-term goals, like buying or renovating a house or funding a child’s education. Yet one of the best things you can do for your future is to make sure you are saving enough for retirement.

Here are five steps you can take now to keep you on track:

1. Sharpen your vision. Some people dream of buying a boat and sailing the seas when they retire; others see themselves staying closer to home. Make a list of the activities you’d enjoy and the places you’d like to visit during retirement. What do you see yourself doing daily? Monthly? Yearly? Then, consider how those activities might shift in retirement. Focusing on the specifics of your retirement can reveal a clearer picture of where you’re headed; it can also help you understand what expenses may be involved.

2. Think dollars and cents. According to the Employee Benefit Research Institute’s 2013 Retirement Confidence Survey, more than half of Americans haven’t calculated how much money they need to save for a comfortable retirement. It’s great to have dreams and goals for the future, but you also need to have the financial means to fulfill them. Rather than living on hope, do some research to determine what your dreams will cost, then begin to create a budget. The Retirement Budget Estimate is an easy-to-use tool at mybmoretirement.com that can help you get started.

3. Pinpoint your progress. How far along are you on the road to retirement readiness? Take a moment to tally all your sources of retirement savings, including past employer plans and Social Security (for a quick estimate of your future benefits, try the Social Security calculator at mybmoretirement.com).

Not sure you’re saving enough? The Retirement Savings planner at mybmoretirement.com can help you determine if you’re on track to meet your projected retirement expenses. If you’re not, now is the time to adjust your plan.

4. Set priorities. Sometimes it can be hard to think about the future, especially when you have other financial goals that you’re working on. If you’re worried about college expenses for your kids, for example, consider this. Your kids have lots of options for funding college, including scholarships and low-cost student loans. Retirement doesn’t work that way. If you can’t cover your living expenses in retirement, you may wind up having to dramatically scale back your lifestyle in retirement. Whatever you do, avoid loans (if available) and other withdrawals from your retirement plan. Taking cash out of your retirement plan will not only set back your savings, it may also subject you to taxes and early withdrawal penalties.

5. Get on it. Increase your regular contributions annually until you’re saving 15 percent of your pay or more. When you have your money automatically diverted to your retirement plan account, you won’t be tempted to spend it first. To understand the impact on your take-home pay, try the Salary Deferral Take-Home Pay calculator at mybmoretirement.com.

Remember, retirement planning is an ongoing process — one that takes time, patience and strategy.

Is this you?69 percent of workers say they plan to work for pay after they retire.

Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc. 2013 Retirement Confidence Survey

Tips for setting goalsGoal setting is a crucial step in achieving the lifestyle you want in retirement. But for goals to become reality, you need to do more than scribble some ideas on a piece of paper. Goals need to be complete and focused. The following six questions will help you get started:

1. What are your goals for retirement? To simplify the process, group them into five main categories: Family and Home;

Financial; Spiritual, Health and Well-being; Social; Educational and Cultural. Setting goals in each area and writing them down will help ensure that you give attention to each of these key parts of a healthy and balanced lifestyle in retirement.

2. Are they specific? To be successful, goals need to be clear and measurable. An example of a nonspecific goal is: Spending more time with my

children and grandkids. An example of a specific goal? Visiting my children at least four times a year.

3. Do you have a timeframe? Timelines can help strengthen your commitment for achieving your goals. For example, it’s a wonderful goal to want to lose 25 pounds, if you need to. However, your timeframe will dictate whether or not that goal is doable.

Snap a picture of this QR code to use the Salary Deferral Take-Home Pay calculator.

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Dreams unfoldingNearing retirementYour goals and needs are likely to become considerably clearer as retirement draws nearer. At this stage, it’s very important to look more closely at what you have and how much you’ll need to live a fulfilling retirement.

Next, you should take the crucial step on the road to retirement readiness: making a realistic projection for how much you’ll be able to spend. If you fall short of what you need to live the life you desire, you still have a little time to make adjustments.

Get real about retirement. To sharpen some of your assumptions about the future, including when you want to retire, how much income you’ll need and what your current retirement savings are projected to be once you reach retirement age, you should:

• Identify your sources of income for retirement. Don’t forget to take another look at your projected Social Security benefits with the Social Security calculator at mybmoretirement.com.

• Assess what your monthly expenses will be.

• Create a strategy for tapping your savings. To understand how long your retirement savings may last, given different withdrawal rates, go to our easy-to-use Depletion calculator at mybmoretirement.com.

Simplify your finances. If you have retirement savings with former employers, consider consolidating these plans into your current employer’s retirement plan (if permitted) or an Individual Retirement Account (IRA) to better manage your finances. It’s important to avoid taking early cash distribution or loans from contributions, even if you change jobs. Withdrawing money from your retirement account before age 55 or 59½ (depending on the plan) can expose you to both current income taxes and early withdrawal penalties.

Play catch-up. It’s important to maximize your opportunities to save. For example, if you’re not contributing the maximum allowed to your employer-sponsored retirement plan at work, increase your savings as much as possible. At the very least, make sure you’re contributing enough to get the full employer match, if available. If you’re age 50 or older, you may be able to contribute an additional “catch-up” amount to your plan. For 401(k) plans, the catch-up amount for 2014 is $5,500 above the regular contribution limit of $17,500; for IRAs, the catch-up amount is $1,000.

Look beyond money.There’s a reason retirement is often considered a second act. For many, it’s a time for exploring new interests and activities and to reconnect with passions left behind when work consumed so much time. Begin thinking about your day-to-day life in retirement. What will you do to stay active mentally and physically? Identify goals and activities that could give purpose and meaning to your life. With a list in hand, you can then start testing some of those ideas. Think of it as paving the way to a smooth transition into retirement.

Gone but not forgottenAll too often, workers forget about their retirement savings as they move from job to job, leaving their account “orphaned” at a previous employer. Unless you remain disciplined about monitoring and rebalancing that money, you may be putting yourself at risk of not making the most of the savings you’ve worked hard to build. To help ensure you maintain the appropriate asset allocation across your entire retirement portfolio, consider consolidating your retirement savings into one account.

To consolidate, you should consider rolling over your money into an IRA or your current employer’s plan. There are many IRA products to compare to your employer’s plan. The primary differentiating factors are investment alternatives, cost, convenience and service. An unbiased financial professional can help you in making a decision.

4. Are your goals realistic? To make this assessment, your goals need to be quantifiable. For example, it’s not enough to say you want to retire someplace warm; you need to understand what it will cost for that to happen. Write out your goal in complete detail and be as specific as possible.

5. Is your spouse/partner/friend on board? If your retirement goals involve others, are they in agreement with your goal? You may dream of spending retirement golfing while your partner sees her or himself traveling instead.

6. Have you prioritized your goals? Once you’ve completed your list, review and prioritize them so that you pay attention to the goals that are most important first. Then, periodically revisit your list to add new needs and wants and to make sure you stay on track.

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The second actEnjoying retirement

The impact of inflation on purchasing power

1

$1,000

$750

$500

$250

$05 10 15

years20 25

Throughout your career, you focused on accumulating assets for the future. The fact that you’re no longer working full time doesn’t mean that your planning should end, however. Achieving retirement readiness is an ongoing process — one that shifts to accommodate new needs and wants that come with age.

How do you plan for a retirement that’s active and full of adventure? Consider the following six tips:

1. Keep pace with change. Life doesn’t stand still once you stop working — and neither does your portfolio. Market ups and downs, the changing rate of inflation, and rising and falling interest rates can all cause your portfolio to veer off course. That’s why you’ll want to periodically check your investments to make sure they’re keeping up with your needs and providing enough growth potential to outpace the rising cost of living. As the chart (shown left) illustrates, even at a moderate three percent rate, inflation can substantially cut the purchasing power of your savings over time.

2. Find your bliss.A fulfilling retirement means having time to stretch yourself in ways you may not have imagined. This could mean trying something you’ve always wanted to do but couldn’t take on because of work and family demands. If this new activity produces income, great. But if it doesn’t, make sure you fill some of your time with activities that bring you contentment and enjoyment.

3. Get up and out.Some degree of physical activity is essential to your well-being, especially as you age. Take a walk outside each day, every day — even when you don’t feel like it. Walking offers several benefits besides helping you maintain your health. It can clear your mind and make you feel more alive. If you don’t want to walk, ride a bicycle or take an aerobics class — just as long as you get up and out.

4. Go where the action is. Many people downsize their homes in retirement and move to a warmer climate. Instead of a beach town, why not consider a college town? A college town offers lots of cultural and educational opportunities, many of them for free. They also tend to be vibrant communities with a mix of age groups. This could offer a perfect setting for you to get involved and to build a new network of friends and connections.

5. See the world on a dime. Well, maybe not a dime, but retirement does offer the opportunity to travel inexpensively. Because you’re not tied to the traditional idea of the “tourist season,” you can travel off-peak, when airfares and hotel accommodations are typically cheaper. Equally important, many resorts, hotels, restaurants, tour operations and other travel providers offer special travel discounts for older travelers, if you ask. Another way to find travel discounts is to sign up for email notifications from online travel sources.

6. Mind your RMDs. Currently, you must begin taking Required Minimum Distributions (RMDs) from traditional IRAs no later than April 1 following the year you turn 70½. After that, you must make annual withdrawals by December 31 each year. The same applies to employer-sponsored plans, unless you continue to work past age 70½. In this case, your RMDs don’t have to begin until the year in which you retire.

Because RMDs involve complex analysis of your income and tax situation, to determine the best choice for your circumstances, you may want to consult with a financial professional or tax planner to discuss this further.

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Impact of Supreme Court’s DOMA Decision on Beneficiary Designations

In June 2013, the U.S. Supreme Court ruled that section 3 of the Defense of Marriage Act (“DOMA”) is unconstitutional. Section 3 stated that only a marriage between one man and one woman was recognized for purposes of federal law. Since federal law governs retirement plans, the Supreme Court has effectively ruled that qualified retirement plans are now required to recognize same-sex marriage.

However, not all states recognize same-sex marriages as valid marriages, and states can have different laws on what constitutes a valid marriage. The Internal Revenue Service and the Department of Labor have given guidance that retirement plans must look to the state where a marriage ceremony takes place, not the participant’s state of residence, to determine if a participant is in a valid marriage. As a result, if a participant enters into a same-sex marriage in a state that recognizes the marriage, the plan must treat that participant as married, even if she or he resides in a state that does not recognize same-sex marriage.

One of the requirements that a retirement plan must comply with relates to the default beneficiary designee. Specifically, if a participant is married, the plan generally must designate

the spouse as the beneficiary in the event of the participant’s death. If the participant wishes to appoint a non-spousal beneficiary, he/she must execute a beneficiary designation form and have his/her spouse consent to the non-spouse designation in writing. The consent must be notarized or witnessed by a plan representative. This rule creates a potential issue for participants who have entered into a same-sex marriage. If a beneficiary form appoints a non-spousal beneficiary but has not received the written consent of the participant’s spouse, the beneficiary designation is invalid. Accordingly, every participant who has entered into a same-sex marriage should review their beneficiary designation form.

While the Supreme Court’s decision will have a direct application to a limited number of participants in qualified retirement plans, it serves as a cautionary tale for all of us. When was the last time you reviewed your beneficiary designation form to confirm that it is consistent with your intent and compliant with all applicable requirements? Any life event — marriage, divorce, birth or death — may have changed your personal or family status. Even if the Supreme Court’s decision does not affect your individual situation, take this opportunity to make sure your beneficiary designation is up-to-date.

Educated Investor is published periodically by BMO Retirement Services and distributed free of charge as a service to our clients. Although carefully verified, data is not guaranteed as to accuracy or completeness. BMO Retirement Services and its affiliates cannot be held responsible for any direct or incidental loss incurred by applying any of the information in this publication. Consult your tax and financial advisor.The term “Educated Investor” is used by BMO under a co-existence agreement with Precision Information, LLC (PI). The contents of this publication are not in any way connected to, affiliated with, related to, or endorsed by PI, or connected with PI’s rights related to its ownership of “Educated Investor” federal trademark and service mark registrations.BMO Retirement Services is a part of BMO Global Asset Management and a division of the BMO Harris Bank N.A., offering products and services through various affiliates of BMO Financial Group.BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management, retirement, and trust and custody services. Certain of the products and services offered under the brand name BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Those products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO). Investment products are: NOT FDIC INSURED — NO BANK GUARANTEE — MAY LOSE VALUE. © 2014 BMO Financial Corp. (1/14)

At BMO, we’re ready to help with any of your financial needs.

Access your retirement plan account online at mybmoretirement.com.• View your account balances and activity• View your personal rate of return• View investment performance and price information• Access tools and calculators• View account statements and request forms

Use the My BMO Retirement Line (automated telephone system) by calling 1-800-858-3829, option 1.• Receive your account balance• Receive investment performance and price information• Request account statements and forms

Speak to a BMO Retirement Services Specialist 24 hours a day by calling 1-800-858-3829, option 2.

Contact a BMO Distribution and Retirement Planning Specialist at 1-800-770-5741 for financial planning or rollover assistance.

We invite your comments and suggestions for topics to include in future issues.Please write to: Educated Investor, 111 East Kilbourn Avenue, MC-3-WM, Milwaukee, WI 53202

Go to mybmoretirement.com to read Educated Investor online.

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The Indiana/Kentucky/Ohio Regional Council of Carpenters represents more than 32,000 professional tradespeople in 43 locals in Indiana, Ohio, Kentucky and parts of West Virginia and Tennessee. A proud century-plus tradition of representing the best of the building trades, the council works in partnership with more than 30,000 contractors, helping them find the best possible talent for their projects.

When it came time for the IKORCC to merge four separate defined contribution plans, the Boards of Trustees partnered with BMO, relying on BMO’s expertise in consolidating multiple plans of different types and ability to partner with the Trustees and other servicing professionals.

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