Elements Newsletter

Smarter Planning for Retirement: The Importance of Planning for Your Retirement

Retirement planning can help you take control of the financial risks of retirement, and help you achieve the retirement lifestyle you dream about. But your plan should never be static — it should grow and change as you do!

According to Fidelity Investments, there are three stages of retirement income planning:

• Planning
• Investing
• Income Management

So why does planning get top billing? Quite simply, retirement is changing. You can no longer rely on Social Security to get you by, like you could 50 years ago. Now you are responsible for almost 60% of your retirement income

*Source: Social Security Administration 2004

Planning for retirement will help you:

• Understand the new retirement territory;
• Create a clear picture of where you want to go;
• Understand the financial risks for which you might be most susceptible; and
• Estimate your income and expenses, and figure out how to fill the gaps while you still can.

Retiring on Social Security — Is it Possible?

Looking back, it wasn't all that long ago that we didn't have this thing called retirement. At the beginning of the 19th century, you worked until you were either too old or sick to continue. Then, during the Great Depression, Social Security came along. It paid the primary worker a retirement benefit when they reached the age of 65. Although Social Security was never meant to take the place of someone's paycheck, many retirees came to see Social Security as their main and, most of the time, only source of income. Back then, it made sense because people weren't living much past the age of 65.

Now, life at retirement is quite a different story. People are living longer and retirement is a time to do all the things you couldn't do while you were working. That kind of life comes with a price, and it's not cheap. How will you pay for it?

Let's look at an average 65-year-old planning to retire now and fund his retirement through Social Security benefits only:

His current annual salary is $40,000.00 and he'll be retiring in December when he reaches 65 ½ years old. Using the Social Security Administration web site, we can quickly calculate an $1101.00 monthly benefit. That doesn't sound bad, but keep in mind with his salary he was probably taking home between $2000.00 and $2500.00 per month just before retiring.

Now let's take a look at the expenses our retiree will probably have. Let's assume that he has paid off the mortgage on his house and that he has no outstanding credit card debt.

The total of these monthly expenses comes to $940.00, leaving our retiree with just $161.00 for anything else he might want to do during the month. And these expenses don't take health insurance and prescription drug costs into account.

With the expenses listed, including health insurance, a retiree could not survive on just Social Security. And forget about vacations, trips to visit children and grandchildren, or any frills outside of day to day living.

It is very important to start planning and saving for your retirement as soon as possible. If you read this and think you still have plenty of time for retirement planning you might want to consider the cost of things when you plan to retire. Nobody can predict the future but we can look at the past to get an idea of what the future may hold. Looking back 35 years a gallon of gasoline was less than 30 cents and you could buy a brand new Cadillac for $5400.00. That same gallon of gasoline is right around $3.00 today, and a new Cadillac starts at just over $32,000.00.

You Can Retire Comfortably (Maybe Even Rich!) — Enroll in CPChem's 401(k)

If you're not participating in the CPChem 401(k) plan, you're missing out on what is probably the best opportunity you'll ever have to amass significant retirement income.

Some people fail to participate in the Company's 401(k) plan because it's easier to ignore than to make an effort to understand it, and others think they can't afford to have contributions deducted from their paycheck every week. Don't let either of these misconceptions hold you back.

In CPChem's 401(k) plan, you decide how much you want automatically deducted from your paycheck before federal and state income taxes are calculated. The Company deducts your contribution and submits it to Fidelity who administers the plan. You choose how your contributions are invested, based on the different funds offered by the plan. Some of the best reasons to participate in the plan include:

You can reduce your taxes
Because your contributions are deducted before taxes are calculated (except for Social Security Taxes), you pay fewer taxes. To calculate your tax savings, visit Quicken.com's 401(k) Calculator.

You get "free" money
CPChem matches $0.75 for every dollar you contribute, up to the 6% limit. That means your money is almost doubled instantly!

It's easier to save money
Since your contribution is automatically deducted from your paycheck, you won't be tempted to spend it.

You'll benefit from professional management
Chevron Phillips uses professional portfolio managers who perform research and analysis to identify good investments so you don't have to.

Your 401(k) account is portable
When you move from one job to another, your new employer will probably allow you to roll your 401(k) balance into their plan. If not, you can open a special IRA at most financial institutions and roll your balance into it.

You can access your money before retirement
Although you have to meet specific criteria in order to withdraw funds from the CPChem 401(k) plan before the age of 59 1/2, the plan allows loans where you borrow from your account and repay the principal and the going interest rate back into your account.

Your money grows faster
Your contributions, the CPChem company match, and the earnings you make on your investment grow without being taxed until you withdraw the money at retirement. Because taxes aren't deducted until retirement, more of your money is working for you over the years. Not participating in the CPChem 401(k) plan is like seeing tens of thousands (or hundreds of thousands) of dollars on the ground and not bothering to stop and pick it up. Think about it. And then call 1-866-771-5225 to enroll in the CPChem 401(k) plan.

Have You Checked Your Asset Allocation Lately?

Your asset allocation is the amount of money you've invested in the different stocks, bonds and cash instruments in your portfolio. Good asset allocation can help you keep pace with inflation, grow your assets and help cushion your portfolio through those bumpy times, when the market is a little volatile.

And because you could live in retirement for 25 to 30 years (maybe even more!) your investments also need to have the potential for growth in order to beat inflation. That's why appropriate allocation is SO IMPORTANT to your retirement income. You need to make sure that your portfolio has sufficient allocation in diversified equities. This asset class has shown a potential for long-term growth over many years of retirement (although past performance is no guarantee of future results). You run the risk of outliving your assets if your portfolio is overly concentrated in conservative investments.

So why not take a minute now to check your current asset allocation? And if you're not sure your asset allocation is on target, a Fidelity Retirement Specialist is available 24 hours a day, 7 days a week at 1-800-887-4015 to answer any questions you may have.

Are You On Track To Reach Your Retirement Goals?

Fidelity Retirement Income Advantage^SM, the new comprehensive program designed to help active and retired employees make the transition from saving for retirement to living in retirement, provides financial management and guidance tools for all phases of the income planning process, including:

• Retirement Quick Check — A 15-minute assessment to help those saving for retirement see if they are on track to meet their goals for monthly income during retirement.
• Income Estimator — A calculator to help retirees, or employees getting ready to retire, estimate how much pre-tax income they may be able to withdraw from their Fidelity accounts during retirement.
• Retirement Income Planner — A comprehensive tool to help retirees, or those getting ready to retire, develop an in-depth plan for retirement.

Check it out at www.netbenefits.fidelity.com!

Filling Any Gaps in Your Savings

Are you worried that you just won't have enough money saved for a comfortable retirement? You may understand the concept of saving for retirement, and you may already be accumulating some money for retirement. But is what you're doing enough?

Regardless of where you are in life, there are several other things you can do today that will have a positive impact on your retirement savings. These opportunities include:

• Increasing contributions to your 401(k): Contributing a little more now means greater growth potential for retirement. Have you considered contributing the amount necessary to maximize the company match? It's free money to you and can help almost double your savings!
• Adding an IRA or Roth IRA to your strategy: These usually provide you with a wide range of investment choices and you can contribute even if you are already participating in an employer-sponsored plan.
• Playing catch-up if you need to: If you will be age 50 or older by December 31, catch-up contributions will allow you to contribute more to your 401(k) account and any IRAs you may have.
• Modifying your investment strategy: Make your money work harder by investing it wisely now and throughout your retirement. If you combine a more effective investment strategy with effective savings, the difference can be remarkable!
• Spending less, saving more: Look for places to cut expenses and increase your savings. Even small changes in your spending and saving habits can make a big difference in the long run.
• Reducing or eliminating your debts: Consider paying off your credit card balances, car loans or any other long-term debt or monthly debts. The interest you are paying on them could be put into savings instead.