© 2008 Morningstar, Inc. All rights reserved. 3/1/2008LCN200803-2013997

Investing for Retirement

Advantages of 401(k) Investing

© 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Participant control Amount invested Asset mix Ownership of assets

Pre-tax investing

Tax deferral

Tailored investment plan

Sources of Retirement Income

Pension includes all defined benefit and defined contribution plans. Estimates are not guaranteed. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

• Earned income• Pension• Social Security• Investment income• Other

21.2%

18.9%

17.8%

2.0%

40.1%

Most Americans Are Not Saving Enough for Retirement Personal saving rate 1946–2007

© 2008 Morningstar, Inc. All rights reserved. 3/1/2008

0

2

4

6

8

10

12%

1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006

The Earlier You Start Investing, the Easier it is to Reach Your Goals Monthly savings needed to accumulate $1 million by age 65

This is for illustrative purposes only and not indicative of any investment. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

25-year-old 35-year-old 45-year-old 55-year-old

$6,000

5,000

4,000

3,000

2,000

1,000

0

$5,778

$1,920

$820

$381

Enhancing Your Wealth: Employer MatchHypothetical value of $100 invested each month 1988–2007

Past performance is no guarantee of future results. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

$74,595

$111,892

0

20

40

60

80

100

$120k

1988 1991 1994 1997 2000 2003 2006

• Stocks with 50% employer match• Stocks

Ibbotson® SBBI®

Stocks, Bonds, Bills, and Inflation 1926–2007

Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

0.10

1

10

100

$10,000

1,000

1926 1946 1966 19861936 1956 1976 1996 2006

$15,091

$3,246

$79

$20

$12

Compound annual return

• Small stocks 12.5%• Large stocks

• Government bonds

• Treasury bills

• Inflation

10.4

5.5

3.7

3.0

Ibbotson® SBBI® After Taxes1926–2007

Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926, with taxes paid monthly. No capital gains taxes are assumed for municipal bonds. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Assumes reinvestment of income and no transaction costs. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

$1,000

100

10

1

0.10

1926 1936 1946 1956 1966 1976 1986 1996 2006

$11.72

$6.43

$16.33

$33.48

$644.22

Compound annual return

• Stocks 8.2%

• Municipal bonds

• Government bonds

• Treasury bills

• Inflation

4.4

3.5

3.0

2.3

Taxes Significantly Reduce Returns1926–2007

Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

10.4%

8.2%

5.5%

3.5%3.7%

2.3%

3.0%

0

2

4

6

8

10%

Stocks Stocks aftertaxes

Bonds aftertaxes

Bonds Cash Cash aftertaxes

Inflation

Pre-Tax Contributions Can Lead to Tax Savings

Assumes an 8% contribution. Taxes are calculated for a single individual with the standard deduction and the individual as the only dependent using 2007 tax rates. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Taxable investorGross income $100,000

Tax-deferred investorGross income $100,000

*2% lost to taxes, paid $2,240 *2% taken home, saved $2,240

72%=$72,339

20%

8%

17%

8%

75%=$74,579

• Paid in taxes

• Take-home pay

• Invested

Benefits of Deferring Taxes

Hypothetical value of $10,000 invested in stocks. This example is for an investor in the 28% bracket using the 2007 tax code. Assumes an 8% annual total return. Estimates are not guaranteed. This is for illustrative purposes only and not indicative of any investment. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

0

50

100

150

200

$250k

5 years 10 15 20 25 30 35 40 45to retirement

• Value of taxable account

• Value of tax-deferred account

Reduction of Risk Over Time1926–2007

Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period 1926–2007. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Small stocks Large stocks Government bonds Treasury bills

–60

–30

0

30

60

90

120

150%

1-year

Holding period

5-year 20-year 1-year 5-year 20-year 1-year 5-year 20-year 1-year 5-year 20-year

Compound annual return:12.5% 10.4%

5.5% 3.7%

Potential to Reduce Risk or Increase Return1970–2007

Past performance is no guarantee of future results. Risk and return are measured by standard deviation and compound annual return, respectively. They are based on annual data over the period 1970–2007. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Lower risk portfolio Higher return portfolioFixed income portfolio

Return: 8.2%Risk: 5.5%

Return: 9.1%Risk: 7.5%

Return: 8.2%Risk: 7.5%

15%

85%

21%30%

43%

20%

36%

50%

• Stocks• Bonds• Cash

Diversified Portfolios and Bear Markets

Past performance is no guarantee of future results. Diversified portfolio: 35% stocks, 40% bonds, 25% Treasury bills. Hypothetical value of $1,000 invested at the beginning of January 1973 and July 2000, respectively. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Mid-1970s recession (Jan 1973–Jun 1976) Early-2000s bear market (July 2000–Dec 2003)

$1,149

$1,014

$1,101

$806

$1,250

1,000

750

500 Jan 1973

Jan 1974

Jan 1975

Jan 1976

July 2000

July 2001

July 2002

July 2003

• Stocks• Diversified portfolio

Potential Shortfall: The Risk of High Withdrawal RatesAnnual inflation-adjusted withdrawal as a % of initial portfolio wealth

Past performance is no guarantee of future results. Hypothetical value of $500,000 invested at the beginning of 1973. Portfolio: 50% large stocks/50% intermediate-term bonds. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2008 Morningstar, Inc. All rights reserved. 3/1/2008

$500k

400

300

200

100

0

1973 1975 1980 1985 1990 1995

5%6%7%8%9%Withdrawal rate: