Keystone News

Summer 2012 Newsletter

In this issue...

• Meet Your Representative: Diana Morse

• The Roth Option: Is It Right for You?

• Set Solid Goals

• National Save for Retirement Week

• Minimizing Risk

(866) SERS457 • TTY (800) 766-4952 • www.sers457.com1

Meet Your Representative:

Diana MorseDedicated Retirement Plan Counselors are stationed throughout the state. The counselors regularly hold group seminars and one-on-one meetings. They can help answer your questions and offer education about the Program and available investment options. You can meet with them for free as often as you like.

Meet DianaDiana Morse is the Retirement Plan Counselor for Region 3, the northeast portion of Pennsylvania. She holds a bachelor’s degree in Business Administration from the University of Southern Maine and is enrolled in DeSales University’s MBA program. She has more than 10 years of experience in financial services. Originally from Maine, Diana relocated to Allentown in 2005 and joined Great-West Retirement Services® (Great-West) in January 2010. Diana serves 11 counties in Pennsylvania’s northeastern region. She has two grown daughters, both graduates of Cedar Crest College, Allentown. The eldest is married and lives in Elizabethtown, Pennsylvania, and the youngest recently moved back to the family’s home state of Maine. Diana visits Maine when she can, but prefers the somewhat warmer climate of the Lehigh Valley.

You may contact Diana directly to set up an account review:

Diana Morse diana.morse@gwrs.com (717) 901-3590, ext. 62226

To view meeting schedules and contact information for your Retirement Plan Counselor, visit www.sers457.com1

Pictured: Diana Morse Retirement Plan Counselor Northeast Pennsylvania

Call (866) SERS4571

anytime to make transactions and to

request to speak with one of your Retirement Plan

Counselors2

1 2 3

45

6 87

The Commonwealth of PennsylvaniaDeferred Compensation Program

Keystone News Redesign

The Roth 457 option essentially “locks in” today’s tax rates on all contributions.For some people—especially those who expect to be in a higher tax bracket when they retire—the Roth 457 option may make the most sense. If you’re one of those people, the Roth option allows you to pay taxes on your contributions when they are contributed (presumably at a lower tax rate than you would expect to pay at retirement). If you expect to be in a lower tax bracket when you retire, you might want to consider contributing to your 457 on a before-tax basis. You won’t pay taxes on your contributions or any earnings on your contributions until you take a distribution, which is usually at retirement (when many people expect their retirement earning power and tax burden to be lower than it is today).

The Roth Option: Is It Right for You?In summer 2012, the Roth option will be made available to you. But how do you know if it is right for you? Read on to find out.

Regardless of which type of contributions you choose, the important thing is to contribute as much as you can today for your retirement tomorrow. If after you’ve done your research and consulted the experts you decide that Roth 457 contributions are right for you, you can make the appropriate changes to your account by completing a Salary Deferral Agreement form, and soon you will be able to make changes to this designation by visiting the website at www.sers457.com or calling KeyTalk®.1

Compare Your Options Before-Tax 457 Roth After-Tax 457

Is my contribution taxable in the year I make it? No Yes

Is my contribution taxed when distributed? Yes3 No

Are the earnings on my contributions taxed when distributed?

Yes3 No, provided the distribution occurs after you have reached age 59 1/2, died, or become disabled, AND you have held the Roth account for a five taxable year holding period

If I change jobs, can I roll over my account? Yes, to a qualified plan, traditional IRA, 403(b) plan or governmental 457(b) plan if the plan accepts rollovers

Yes, to a Roth IRA or governmental 457(b) plan, 401(k) plan or 403(b) plan if the plan has a designated Roth account and accepts rollovers

What is the maximum amount I can contribute? Combined limit for contributions in 2012: $17,000 or $22,500, including the additional $5,500 Age 50+ Catch-Up contribution. Up to $34,000 in the three calendar years of Special 457 Catch-Up, if eligible4

If I experience an unforeseeable emergency, can I make a withdrawal?

Yes, within the guidelines imposed by the IRS for governmental 457(b) plans

Yes, within the guidelines imposed by the IRS for governmental 457(b) plans

Do I have to take a minimum distribution at age 70½? Yes Yes

(866) SERS457 • TTY (800) 766-4952 • www.sers457.com1

Online ContributionsStarting this summer you will be able to make changes to your

deferral amount directly on the website. Visit www.sers457.com.1

Set Solid GoalsWhen you plan for retirement, setting goals for saving and spending can be tricky. See how two hypothetical investors at different life stages can get on track for retirement. Which one best represents you?

Jerry, age 35Jerry, who earns $50,000 a year, wonders, “How much should I be saving for retirement?”

At this age, some experts believe he should contribute at least 10% of his paycheck to his retirement plan, and then further increase his deferral by a percentage point each year thereafter as his salary increases until he reaches the maximum allowed by his plan.

Of course, the right savings target depends on Jerry’s personal circumstances, including his current total assets, his living expenses, and the age at which he expects to retire. Jerry can visit the website at www.sers457.com1 for information regarding his Program, as well as financial education information, financial calculators and other tools to help him manage his account.

The take-away: Take advantage of timeSaving more now can make it much easier to meet your goals, especially if you have decades before you plan to retire. Increasing the portion of your paycheck that is deposited automatically in a retirement plan also can reduce your current tax bill3 if contributions are deducted out of pre-tax income.

Amy, age 57Amy wonders how much money she’ll need to live on when she retires, hopefully at age 65.

With plans to retire in eight years, Amy needs to calculate current expenses and then compare them with her income and expected savings she’ll have accumulated by that time. By visiting www.sers457.com, Amy will have access to calculators that will help her do the math for her retirement needs.1

The take-away: Don’t underestimate retirement expensesMost financial advisors say you’ll need about 70% of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living.5 But some experts recommend that you plan on costs that are even higher. One reason is that you need to account for inflation, which will gradually increase your cost of living while eroding the purchasing power of your money, especially if you have a lot of it parked in cash investments. What’s more, you may face high medical costs. You may be eligible for Medicare at age 65, but the federal insurance program does not cover all expenses.

How will your budget change?The best way to calculate your retirement needs is to examine your current budget and estimate how it will change. Then, add up the amounts you anticipate receiving from Social Security and a pension, if you have one. The difference between this amount and your annual expenses is the amount you’ll need to withdraw from your savings annually in order to fill the income gap.

Limit withdrawalsFinancial planners generally suggest that you withdraw no more than 3% to 4% of your savings during the first year of retirement, and then adjust for inflation each year thereafter. At that rate, your portfolio has a chance of lasting up to 25 or 30 years—not bad, considering today’s long life spans.FOR ILLUSTRATIVE PURPOSES ONLY. Highly adverse market conditions may affect an investor’s ability to sustain withdrawals at these rates. This is not intended as financial planning or investment advice. Please consult with your financial planner, attorney and/or tax adviser as needed.

National Save for

Retirement Week

October 21-27, 2012When it comes to saving for retirement, there is never a better time than today to assess your prospects for meeting your goals. And

with our nation’s leaders declaring October 21 through October 27 as National Save for

Retirement Week, you have a great opportunity.

National Save for Retirement Week is the first congressionally endorsed, national event formally

calling on all employees to take full advantage of employer-sponsored retirement plans.

Most financial advisors say you’ll need about 70% of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living.5

Yet, surveys show that most Americans remain unprepared for retirement.

As an employee of the Commonwealth of Pennsylvania, you already participate in our defined benefit plan, which will provide you with a foundation once you enter

retirement. You will also be eligible for Social Security benefits when you reach retirement age.

But that may not be enough. You may need to add your own retirement savings in order to live comfortably during your retirement years—to fulfill your dreams.

So it is important to begin saving today for retirement—or to increase your contributions if you aren’t on track to meeting your goals. National Save for Retirement Week is dedicated to showing you how important it is to contribute regularly and

invest wisely for the long term.

• www.ssa.gov, Social Security Administration – You will find calculators to determine what your benefit will be, information

on how to apply for benefits, and other information about the government retirement system.

• www.asec.org, American Savings Education Council – A useful calculator helps you estimate how much you need to save to meet your retirement goals, and a number of savings tips and useful

brochures can also be found here.

Take advantage of National Save for Retirement Week. Save now—your retirement future starts today.

(866) SERS457 • TTY (800) 766-4952 • www.sers457.com1

®

®

(866) SERS457 • TTY (800) 766-4952 • www.sers457.com1

1 Access to KeyTalk and/or the website may be limited or unavailable during periods of peak demand, market volatility, systems upgrades/maintenance or other reasons. Transfer requests made via the website or KeyTalk received on business days prior to close of the New York Stock Exchange (4:00 p.m. Eastern Time or earlier on some holidays or other special circumstances) will be initiated at the close of business the same day the request was received. The actual effective date of your transaction may vary depending on the investment option selected.

2 Representatives of GWFS Equities, Inc. are not registered investment advisers and cannot offer financial, legal or tax advice. Please consult with your financial planner, attorney and/or tax adviser as needed.

3 Withdrawals are subject to ordinary income tax. A 10% early withdrawal penalty may apply to withdrawals made prior to age 59½. The 10% early withdrawal penalty does not apply to 457 plan withdrawals. A 10% early withdrawal penalty may apply to withdrawals made prior to age 59½ to funds rolled over from a 401(a), 401(k), 403(b) or IRA.

4 Age 50+ Catch-Up and Special 457 Catch-Up may not be used in the same calendar year.5 Source: https://www.socialsecurity.gov/planners/morecalculators.htm, 20116 Morningstar, Inc., Ibbotson® SBBI® 2011 Classic Yearbook7 Past performance is not a guarantee or prediction of future results.

All references to the 457 Plan are to a governmental 457(b) plan. Great-West Retirement Services is not responsible for, nor does it endorse the content contained in the additional websites provided. These websites are for general education and information only and are provided as a benefit to the users of the sites.

Core securities, when offered, are offered through GWFS Equities, Inc. and/or other broker dealers. GWFS Equities, Inc. is a wholly owned subsidiary of Great-West Life & Annuity Insurance Company.

Great-West Retirement Services® refers to products and services provided by Great-West Life & Annuity Insurance Company, FASCore, LLC (FASCore Administrators, LLC in California) and their subsidiaries and affiliates. Great-West Retirement Services®, KeyTalk®, and the Partnership Logo® and its design elements are registered trademarks of Great-West Life & Annuity Insurance Company. Not intended for Plans whose situs is in New York. ©2012 Great-West Life & Annuity Insurance Company. All rights reserved. Form# CB1013N (07/2012) PT153158

Minimizing RiskIt’s natural to feel emotional when your investments gain or lose value. Market fluctuations can either reinforce your confidence or cause you to wonder if you’ve made the right choices.

Take controlThe truth is, every asset class—whether stock investments, bond investments or cash equivalents—carries some form of risk, and you will never be able to eliminate it entirely. But there are ways you can manage it. For example, you can balance the different kinds of risk you face by spreading the money in your workplace retirement account across various asset classes. The percentage you allocate to each asset class should depend on two factors: time (the number of years before you need your money) and your risk tolerance (the amount of risk you’re comfortable with).

How risk can affect your investmentsMarket risk and stocks. This is the possibility that the value of your investments will fluctuate every time the market moves. Stocks have a high degree of market risk in the short term: Sudden declines can lead to quick losses. Longer term, however, the risk of losses with stocks and, therefore, stock investments, tends to decline. The stock market has posted positive returns during every rolling 20-year period from 1926 to 2010.6

Interest-rate risk and bonds. Compared with stocks, bonds have relatively low market risk and potentially provide stable returns. However, bonds carry significant interest-rate risk: When rates rise, newly issued bonds offer higher interest payments than existing bonds. This causes prices to fall on older, lower-paying bonds, typically hurting returns.

The longer a bond’s maturity, the more susceptible it is to interest-rate risk. A longer time period increases the chance that interest rates will rise before the bond matures, leaving the owner locked into lower payments than he or she could get from newer bonds. Holding short-term bonds or funds that own bonds that will mature within a couple of years will help to mitigate the effect of interest-rate risk.

Inflation risk and cash. Cash investments, such as money market funds, rarely lose value, but over long periods they carry high inflation risk: the chance that your investments won’t earn enough to keep pace with the gradual rise in the cost of goods and services. Unless you’re retired or about to retire, holding large amounts of cash investments may not be in your best interests.

An investment in a Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

It’s about timeConsider the number of years before you’ll need your money. If your retirement date is more than a decade away, you may feel comfortable with a more aggressive mix: one that is weighted toward stock funds. Historically, stock funds’ strong growth potential has helped to protect against inflation risk.7

However, if you plan to retire within 10 years, you may want to invest more conservatively, with a greater portion of your accounts in bond investments and cash equivalents. Once you find the balance you’re comfortable with, you’ll be more confident that you can reach your financial goals.

Near retirement or retired?Contact Ron Nichols, Retiree Advocate, directly at (800) 878-6723, or retireeadvocate@gwrs.com

Pictured: Ron Nichols, Retiree Advocate