Calculating Replacement Income Making Your Nest Egg Last After you have calculated the estimated value of your personal retirement savings, you can estimate what the replacement income from your savings may be — how much your nest egg could give you to live on each year in retirement. Your annual retirement income from personal savings and investment partially replaces the money you were making when working. The calculation below can give you an estimate of your replacement income. The Factors If you've been contributing regularly to your retirement plan, you may have what looks like a lot of money. But when withdrawn for income, the potential tax consequences must be considered. Another thing to consider is that your savings may have to last you many years in retirement. How much money you'll have available each year in retirement depends on the following factors. Because these factors are impossible to predict exactly, your replacement income estimate will only be a rough approximation.   Life Span — The first unknown is how many years you're going to be retired. Using several different estimated time spans will give you a range for the yearly income you can expect to have — or how much you can afford to spend — out of your retirement savings. Inflation Rate — The second variable is the inflation rate when you're retired. The Retirement Income Chart shown below, assumes an inflation rate of 4%, which has been figured into the multipliers.* Amount of Investment Returns — The third variable to look at is the amount of investment returns you expect your savings to earn in retirement. After you retire, you may still need to be investing some of your savings so that your investment earnings can help offset the negative effect of inflation. Size of Your Nest Egg — The fourth variable is how big your nest egg is going to be — the estimated value of your personal retirement savings. Your Spending Rate — The fifth variable is your spending rate. Some people have other resources to help in retirement, such as other savings and investments, a spouse who's still working, or an inheritance. Social Security should also provide people some support in retirement. To figure out how much you can afford to spend every year in retirement, you'll need to take all these sources of income into account. A good rule of thumb: if you want to maintain your standard of living in retirement, your combined annual retirement benefits and other resources should replace at least 80% of your present income. If they don't, you may want to consider increasing the size of your retirement plan contributions. You may also want to revisit your overall investment strategy. Your Replacement Income The Replacement Income Chart is designed for following a "spend-to-zero" strategy. This means you can use it to help calculate what your annual income may be if you try to make your nest egg last for as long as you're retired — without leaving anything behind. Replacement Income Chart You can calculate your replacement income by following this spend-to-zero approach:   Estimate how long you expect to live in retirement. Estimate what you expect your investment return to be. Locate the multiplier you'll use by pinpointing where these two variables intersect on the chart. Take the multiplier and multiply it by your estimated nest egg size. That's how much you might be able to spend every year from your retirement savings account, if you follow a spend-to-zero strategy. For example, if you expect to live 25 years in retirement and plan to invest your money for an 8% return, you should use the multiplier .06. If your nest egg was $350,000, according to this estimate, your replacement income would total approximately $21,000 a year for 25 years. Again, that's in today's dollars, adjusted for inflation. This hypothetical example is for illustration only and is not intended to reflect the return of any actual investment. Investments do not typically grow at an even rate of return and may experience negative growth. * Multipliers are based on "real returns," which are determined by subtracting the rate of inflation from the returns you earn on your investments. If your investments gain 6% and inflation is 4%, your money will gain 2% in value in real terms. Higher returns have historically been accompanied by higher risk. Past returns don't guarantee future performance. Planning Ahead The good news (and the challenge) is that, statistically, people can expect to live 20 years in retirement. So if you need your retirement savings to support you in retirement, start saving as much money as possible now when you're working. Continue investing even in retirement. And be disciplined when you retire. Try to spend only that fraction of your savings each year that you can comfortably afford. For more info contact your tax advisor or financial professional. If you would like a referral to a financial professional in your area, Russell can help. Please submit a request. Fund objectives, risks, charges, and expenses should be carefully considered before investing. A prospectus containing this and other important information can be obtained by calling (866) 676-7680 or by visiting this page on russell.com. Please read the prospectus carefully before investing. Copyright © Russell Investments 2005. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Securities products and services offered through Russell Financial Services, Inc., member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. Inflation may not maintain an even rate and may be more or less than the percentage indicated. RFD 05-5599. First used: November 2005.			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