The New Normal—Retirement Planning

Merrill Personal Retirement New Normal Seminar: Prerecorded and Animated 07/17/20 8:00 am ET Slide 1: The new normal – How your retirement plan can weather uncertain times Thank you for joining us to talk about ways you can weather volatile markets with confidence. My name is David Koh, a managing director with the Chief Investment Office for Merrill and the Bank of America Private Bank. As we all face unprecedented times, we want you to know that we are here to help in any way we can, helping you take stock of your finances and make thoughtful decisions about yourretirement investments, including what works best for your situation is why we are here today. Over the next 30 to 40 minutes, we will share our take on how the coronavirus, also called COVID-19, is impacting the markets and potentially your finances. We’ll talk about our ChiefInvestment Office’s outlook for the economy, focus on the importance of maintaining discipline when it comes to planning for your retirement, and offer you some practical ideas that you may want to consider to stay on track towards the retirement you have envisioned. Slide 2: Important Information Please read this important information. The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registeredbroker-dealer, registered investment adviser and a wholly ownedsubsidiary of BofA Corp. This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service thatmay be available. Bank of America,Merrill,their affiliates, and advisorsdo not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions. All contract guarantees, or annuity payout rates for annuity contracts and all guarantees and benefits of insurance policies are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill or its affiliates, nor does Merrill or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company. Long-term care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state. Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results. All recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations are in the best interest of all investors. Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets. Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”) makes available certain investment products sponsored, managed, distributed, or provided by companies that are affiliates of Bank of America Corporation (“BofA Corp.”). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp. Merrill Lynch Life Agency Inc. (“MLLA”) is a licensed insurance agency and a wholly owned subsidiary of BofA Corp. Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value Are Not Deposits Are Not Insured by Any Federal Government Agency Are Not a Condition to Any Banking Service or Activity Investment products offered through MLPF&S and insurance and annuity products offered through MLLA: © 2020 Bank of America Corporation. All rights reserved. | MAP3156260 | 07/2020 Slide 3: We are facing uncertain times Before we dive in, first and foremost, we hope that you and your family are safe and staying healthy as we all continue to face uncertain times. The coronavirus pandemic has impacted nearly every aspect of our lives and is having a significant impact on people across the country. Beyond the health impact of the virus, even as the reopening process experiences fits and starts, we are continuing to experience economic headwinds due to cautious consumer and business sentiment. In addition to pandemicrelated concerns, questions regarding Q2 corporate earnings, escalating U.S.-China tensions, and the upcoming elections are weighing heavily on the markets. The spillover effect is encroaching on people’sfinances. Even those who have relatively secure employment and nest eggs are concerned. This is where we can help. Although we don’t yet know the ultimate impact of the virus, including the potential for a second wave, we are confident that we will all get through this. We are sharing our thoughts today to make sure that you have the information and advice and guidance you need to navigate these challenging times and be prepared for when things get back to normal. Slide 4: Despite near-term challenges, we are cautiously optimistic Despite the speed and severity of the recession and unemploymentlevels,there were swift actions that helpedmute the impact of the coronavirus on our markets andeconomy. The Federal Reserve was swift to enact stimulus measures, facilitate liquidity, and help provide reassurance to the markets. Congressional legislation and White House efforts to support individuals,small businesses, and industries have been expansive and are ongoing. Unemployment claims have started to slowly taper and we even saw a recent uptick in employment numbers. Our Chief Investment Office feels of the market will continue to take cues from health data, including a flattening curve, greater availability of testing kits, as well as a promise for a vaccine. As reopenings and shutdowns continue to play out, consumer sentiment will be a key factor to watch. Over time, we believe that pent-upconsumerdemandwillunlock,driving consumption and the economy directionally back towards previouslevels and barring any further economic shocks or a severe second wave, we believe that a new normal where adaptive behaviors cement themselves into daily consumer and business life will begin supporting new industries and an acceleration in innovation. Slide 5: Discipline is key to weathering current markets The most powerful tool you have for weathering volatility is maintaining discipline. Regardless of market conditions, there are some investing basics that you need to keep in mind. First, always remember why you’re investing. Performance quarter over quarter matters but the real measure of how you are doing is how you are progressing towards your goals. It is through this lens, one that takes into account not just performance but also risk over the long-term, that we evaluate your progress. Second, remember to stick to investing principles. Historically, establishing an asset allocation that is aligned with your goals, diversifying yourholdingswithinyour allocation, and rebalancing regularly have been the best way to achieve superior riskadjusted returns over the long run. Third, stay committed. For most of you, investing is a long-term pursuit. You are investing for needs five, 10, or 20-plus years down the road, even if you are approaching retirement. Longterm goals are best served by taking a long-term approach to investing and staying invested, so don’t abandon the markets during short-term bouts of volatility. And finally, you will always want to be on the lookout for opportunities. Even in volatile or declining markets, there are opportunities from strategic rebalancing to tax loss harvesting to make tactical investments. As you think about how you want to prepare for what we call the new normal, you may also want to consider taking some additional steps to help make sure your retirement plan is up-to-date and you are on track towards the retirement you have envisioned. Slide 6: It is only natural to be concerned — especially if you are nearing retirement It’s only natural to be concerned about how you are doing on the path towards your retirement goals. Such concerns may be amplified if you are nearing retirement. In fact, three out of four investors are concerned about how the coronavirus may impact their retirement investments. The vast majority, 90% of investors, have lost some of their net worth due to the recent market dislocations, and less than one in three investors say their financial situation is better than it was a year ago. With the backdrop of the continued threat of COVID-19, volatile markets, geopolitical tensions, and even mass protests, it’s only natural for investors to be concerned. The good news is that retirement is a long-term venture so if you are still saving for retirement or worried about staying prepared to make the transition, while current conditions may seem less than ideal,sticking with your disciplined retirement plan can help you weather these short-termchallenges and help you reach your long-term goals. Slide 7: But retirement is a long-term need — one that could last for 30 years or more We like to remind our clients that retirement isn’t a date. It isn’t even a short-term goal. Retirement is a long-term need that could last 30 years or more. We say 30 years or more by just looking at life expectancies in the United States. A couple aged 65 has a 50% chance that one spouse will live to be 92, a 25% chance that at least one spouse will live to be 97, and a 10% chance that one will live to be 100. This means your retirement plan needs to provide income that will last for what could be a long retirement period. Slide 8: Overreacting now can actually derail your long-term retirement plans Retirement also requires a steady approach. Reacting or even overreacting to recent market volatility by shifting your investments and taking too conservative of an approach can negatively impact your chances of success. Consider this hypothetical example. A 65-year-old woman with $500,000.00 invested wants $20,000.00 of income next year and have herincome increase in line with inflation in subsequent years. If she invests the portfolio entirely in cash, she will have year-to-year return certainty but according to our analysis, only a 45% chance of not outliving her wealth. If she instead invests entirely in bonds, this likelihood rises to 74% but if she allocates half the portfolio to bonds and half to stocks and rebalances the portfolio annually, her chance of not outliving herwealth actually rises to 94%. The long-term nature of retirement means sticking to your plan and staying invested, regardless of what is going on in the markets. Slide 9: How can you know you are on the right track to pursue the retirement you have envisioned? When you think about retirement through this lens, there are steps you can take to help attain the retirement you envision. First, let’s develop a routine of ongoing dialogue. We are here to answer questions, offer insights when the markets move up and down, and help you focus on the long-term objective of creating retirement income that lasts a lifetime. Second, let’s make sure your expectations are realistic and can support yourretirement goals. We can discuss your anticipated retirement date, spending needs, length of retirement, and even investment expectations to make sure that they are all achievable. And third, let’s take proactive steps to help you stay the course even whenmarkets are challenging. Good financial habitstoday, like maintaining an emergency fund for short-term needs or unforeseen events, can make it easier to maintain investment discipline. There are also some proactive steps you could take today to help increase the chances of realizing your goals. Let’s take a closer look at some of them. Slide 10: Take a close look at the debt you hold One of the simplest ways to help you stay on track is to take stock of the debts you may hold and how they impact your cash flows. Interest payments can eat into your ability to save for your retirement goals, so you may want to think about how you can tackle any high interest debt you have like credit cards, medical debt, and personal loans. You should also look at the other debts that you have, like your mortgage. Due to recent actions by the Federal Reserve, interest rates are at a historic low and some forms of consumerfinancing are also offering attractive rates which may make it an opportune time to refinance. Paying down high interest debt and refinancing are two common ways that you could help free up cash that can be redirected to savings and investing goals, and potentially save money in the long run. Now, this is not to say that debt should be avoided. For example, if you have a larger unexpected expense, it may make more sense to have a home equity line of credit than to sell investments to generate the cash you need, especially if those investments have recently declined in value. The fact is that your assets and liabilities are interconnected and yourretirement plan should be viewed in light of your larger financial picture. Slide 11: Consider maximizing contributions to your retirement plan accounts, ifpossible Making regular contributions to your retirement accounts, including your 401(k), IRA, and other accounts, is also critical to helping you attain your retirement goals. This process, called dollar cost averaging, can help you stick to a disciplined plan and build up a significant nest egg over time, as well as take advantage of depressed asset values by continuing to invest even when the markets are down. Keep in mind that dollar cost averaging cannot guarantee a profit or prevent a loss. And if you are over the age of 50, you have additional opportunitiesto contribute in a tax-advantaged way by making catch-up contributions to your 401(k) or IRA. This chart shows the potential power of these catch-up contributions. Here, an investor had $100,000.00 in her 401(k) when she turned 50, making the standard maximum contribution of $19,500.00 for the next 15 years until retirement would potentially leave her with approximately $735,149.00 in the 401(k) account. However, if she had taken advantage of the ability to make an additional catch-up contribution of $6,500.00 per year for a total contribution of $26,000.00 a year, the same nest egg may have potentially grown to $895,521.00. Contributions like this can also help you save even more if your employer offers a match in your 401(k) plan, and this kind of growth potentially underscores how contributions even as you approach yourretirement age can really help. Now, there may be reasons why you can’t contribute at these levels. If you’re facing unexpected expenses, seeing a decline in income, or even have lost your job, this approach may not be possible. The lesson to take away from this example though is to make your contributions within your means and if you have to temporarily stop contributing to yourretirement,try to start again as soon as you are able. The potential power of consistent contributions and compounding growth are key components to realizing your retirement goals. Slide 12: See how the recent Coronavirus Aid, Relief,andEconomicSecurity (CARES) Actmay offer you additional choices in managing your retirement investments The Coronavirus Aid, Relief, and Economic Security, or CARES Act, offered a few provisions that you should be aware of. Please note this information is current as of July 15, 2020. We continually monitor for additional legislative and regulatory activity related to the impact of the coronavirus. If you are already subject to Required Minimum Distributions — or RMDs — as an account owner or as a beneficiary, the Act allows you to temporarily suspend taking distributions for the 2020 tax year. If you are using such distributions to fund your expenses, you can continue to take them as normal, but if you don’t need the funds, you can opt out to not take money from your eligible retirement accounts and leave the funds invested, capturing an additional year of potential growth. If you’ve already taken your RMD for 2020, you may have the option to roll it back into an eligible retirement account. See the important information for specific rollover date requirements, and be sure to consult your tax advisor. If you are facing unexpected expenses related to the coronavirus that you are unable to cover with your emergency fund or other investments, the Act also offers a new temporary distribution from qualified retirement plans that you should be aware of. You must meet CARES Act eligibility guidelines if you are taking advantage of a Coronavirus Related Distribution -or CRD -in your IRA or if you are looking to take a CRD from an eligible employer plan, you need to check to see if your plan permits that option. Coronavirus Related Distributions from IRAs and qualified employer plans permit eligible individuals to take up to $100,000, in total, in 2020 from their IRAs and eligible employer plans. The 10% penalty for distributions made before you are 59½ is waived for CRDs from tax-deferred, qualified retirement accounts for amounts up to $100,000. Under this law, making a withdrawal from your CRDs from eligible retirement accounts will trigger ordinary income taxes on the taxable amount withdrawn. But, any amount rolled over to an eligible retirement plan by the end of the 3 year period from the date of the CRD is not subject to ordinary income tax. Any CRD amount you choose not to rollover within 3 years will be subject to ordinary income tax brought into income in equal amounts over those three years. As with any distribution, you reduce the amount of retirement savings you have in the future. Also, if you sell assets to take a CRD, and the assets you sell have declined in value, selling them will “lock in” those declines when you sell at prevailing market prices. You can repay this distribution back into the same eligible retirement plan within three years. If you do so, the distribution is treated, in effect, as a tax-free rollover. Slide 13: Look at ways to preserve what you have built And if you have built up significant retirement savings, you may want to consider ways to preserve what you have accumulated while staying invested for the future. Some steps you may want to consider include exercising investment discipline, staying goals focused, staying invested, diversifying your portfolio and rebalancing as needed to mitigate risk and engender more positive outcomes, favoring quality investments in companies with strong market positions, healthy balance sheets, and the ability to deliver consistent dividends. Such businesses are generally better positioned to weather storms as well as capitalize on opportunities, looking for sources of dependable income beyond socialsecurity or pensionsto fund your essential retirement expenses. There are a range of annuities you may want to consider that can help you generate retirement income, support your legacy goals, and act as a diversifying tool in the context of yourlargerinvestment approach, including those with principal protection and/or lifetime income guarantees. Preparing for the unexpected with a long-term care insurance. While you may already have life insurance in place, medical expensesin retirement have the potential to derail even the most well-laid plans since long-term care expenses are not covered by Medicare. The Department of Health and Human Services estimates that among 65-year-olds today, nearly seven in 10 will need some form of long-term care in their lifetime, the type of care that can quickly eat into retirement savings. Think about tax and estate planning and talk to yourlawyer and/or accountant to make sure you are well positioned and you’re taking advantage of all aspects of federal, state, and local guidelines. Slide 14: Avoid common pitfalls in building your retirement plan And as part of our ongoing dialogue, we can make sure you take steps to avoid some common retirement planning pitfalls. The first is not sticking to your plan. While the retirement plan we develop together does not have to be set in stone, it is important to stick to the plan and only make changes in a deliberate way. Part of the process of reviewing your plan is to confirm if anything has changed such as a shift in your retirement date or a life event that may require you to redirect retirement savings temporarily. During this process, we can evaluate the impact of any changes as well as your overall progress towards your goals and make adjustments accordingly. Next, you need to not just think about generating income but also the sequence of returns. This is especially true during times of economic stress or when the markets have declined. Your portfolio returnsin the yearsimmediately after retirement when you begin taking your distributions from savings are critically important. The studies have shown that any equity lossesincurred early in retirement can dramatically impact your portfolio’s ability to recover and generate sustainable income later. During your accumulation years leading up to retirement, the order of returns has no impact on your savings. However, losses early in retirement can have a larger impact on your ability to generate income than losses you may experience later in retirement. A smart withdrawal strategy, one that adjusts for changesin the market and provide a floor of predictable income to cover essential expenses no matter what the market does, can dampen the impact of volatility and help you generate the kind of lifetime income you need to fund all of your retirement years. Andfinally,don’tignore the potential for inflation.While inflation has been relatively low in recent years, a sudden increase in inflation could erode the purchasing power of your retirement income. You want to stay invested to help your retirement savings grow to deliver income streams in the future that outpace inflation. Slide 15: Tap into the experience you need While we have talked about a number of strategies that you may want to consider, one of the most important is to seek out advice and guidance to help you establish, stick to, and realize your retirement plan. That is where we can help. As a Merrill client, you have access to retirement planning insights from our Chief Investment Office that can help educate you about common planning techniques, pitfalls to avoid and ways you can structure yourretirement plan, ongoing advice from your dedicated advisor team that can help you establish a retirement plan thatworks for your larger financial goals and can also help you balance your short-term needs versus longer-term goals, drawing from the full breadth of investing solutions we offer at Merrill as well as banking and lending solutions from Bank of America. We can also tap into our team of specialists who possess expertise in retirement planning, insurance strategies, and trust options to help you evaluate the full range of solutions that can help support your retirement goals and be combined in a way that leads to a personalized plan, reflecting what you want to achieve. Slide 16: So what should you consider doing next? So what should you consider doing next? Connect with your advisor to establish or review your retirement plan, including expenses and sources of income. Make sure you have developed a goals-based plan that helps you stay invested. Maintain portfolio diversification and adequate liquidity. Adjust and rebalance your portfolio to align with your goals and to adjust for the new normal. Remember, you are not alone. We are here to help. We can answer questions and offer insights to help make sense of the markets. We are here to offer you advice so you can make informed decisions about your finances and maintain investment discipline. This checklist is a handy reminder of the things we can do together, steps that will help you maintain confidence in your investment strategy and to help you stay on track towards your long-term goals. Slide 17: It all begins with a conversation It all begins with a conversation. Your advisor is always available to answer your questions, provide you with our perspective, and offer advice,so don’t hesitate to reach out to them. We have said it a lot during this presentation but remember, focus on your goals and your plan. Your goals are why you invest and are the foundation of everything we do and if you want to discuss what you’ve learned today and have an open discussion about how you can make sure you are on track towards your retirement goals, schedule a time for a one-on-one discussion with youradvisor. Thank you for taking the time to join us today and for being a Merrill client. It all begins with a conversation. Your advisor is always available to answer your questions, provide you with our perspective, and offer advice,so don’t hesitate to reach out to them. We have said it a lot during this presentation but remember, focus on your goals and your plan. Your goals are why you invest and are the foundation of everything we do and if you want to discuss what you’ve learned today and have an open discussion about how you can make sure you’re on track towards your retirement goals, schedule a time for a one-on-one discussion with youradvisor. Thank you for taking the time to join us today and for being a Merrill client. END MAP 3204866 (ADA)