Investment Returns in Retirement

Chart of the Week for Aug 01, 2008 - Aug 07, 2008

There are two primary phases in building retirement security: first, accumulating resources and second, using the savings and earnings during retirement years. During the accumulation phase, employees save and invest with the objective of having adequate resources when they retire. The investment focus is often growth during the accumulation phase with a gradual shifting toward more conservative investing during the payout phase. Shifting the investment focus at or after retirement reduces the volatility risk of the portfolio but also has a potential impact on future earnings.

The chart above addresses the importance of investment returns after retirement. For instance, based on the assumptions* below, an account earning 3% in retirement would only last 17 years. An account earning 7% would last 28 years. In this scenario, a 7% return in retirement adds to the length of the payout phase by adding roughly $846,000 or 11 additional years of benefits. The additional benefit of the higher return must be balanced with the possible additional risks to obtain the higher return.

The risk of outliving your savings is a factor to consider during and after the accumulation phase. It is important to evaluate the risks of investing and select investments with a risk/reward you deem appropriate.

*Assumptions: Accumulation phase annual contributions in January of $2,500 earning 7% per year starting at age 21. Retirement in January at age 65. Upon retiring, annual distributions of $40,000 in January of each year. Distributions increase by 3% each year to account for inflation. Distributions continue until zero balance. Investments earn 3% or 7% in payout phase.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

Please consult both the current applicable prospectus and MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide carefully for a complete summary of all fees, expenses, charges, financial highlights, investment objectives, risks and performance information. Investing in mutual funds and other investment vehicles involves risk, including possible loss of the amount invested. Investors should consider the Fund's investment objectives, risks, charges and expenses before investing or sending money. The prospectus contains this and other information about the investment company. Please read the prospectus carefully before investing. All Vantagepoint Funds invested through 401 or 457 plans are held through VantageTrust. Vantagepoint Funds are distributed by ICMA-RC Services LLC, a wholly owned broker-dealer subsidiary of ICMA-RC and member FINRA/SIPC. For a current prospectus, contact ICMA-RC Services, LLC.

The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 1-800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 1-800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.