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A Newsletter for the State of Connecticut Deferred Compensation Plan

Building Your Nest Egg:

It's Best to Get an Early Start

	Creating a well-thought-out retirement savings strategy makes sense. After all, retirement is a long-term goal, and you need to plan ahead if you want to enjoy those golden years. But all too often, people put off planning for how they are going to finance their retirement. It can seem far away, and there are always so many other uses for your money that seem more immediate and necessary - buying a car or a house, financing your children's college education or even paying for vacations.
State Comptroller Nancy Wyman

But if you wait until all of life's "necessities" are taken care of before you start saving for retirement, odds are you will not end up with the nest egg you need. No one says you have to put aside huge sums of money. So, instead of worrying about making large contributions to the plan, just start contributing, even if it's only a small amount. Why? Because if you start early, you have the power of compounding on your side. That is, your account balance grows through your contributions as well as through investment earnings, and that can translate into good news for you.

How Compounding Can Work for You

If you saved just $1,000 a year - approximately $38 per bi-weekly pay period - and it earned a 5% annual rate of return, you would have $1,050 by the end of the first year. If your account earned another 5% the following year, then you would have a total of $1,102.50 at the end of the second year. That's because the 5% rate of return applies to both the amount you originally contributed ($1,000) and the investment return you earned during the first year ($50).

As you can imagine, the effects of compounding can really add up if you are saving over an extended period of time, such as 20 years or longer. Let's look at an example of how compounding can affect two employees. Laura and Tom both contribute $100 each month to the State's Deferred Compensation Plan for a period of 20 years. But Laura starts contributing at age 22, while Tom starts at age 35. In this example, let's assume that their investments earn a 7% annual rate of return.

As you can see, although Laura and Tom contribute the same amount of money, Laura's account balance is $140,000 larger at retirement age because she started earlier, so her investments had a longer period of time to grow with investment returns.

It's Never Too Early…or Too Late

The longer you wait to start saving for your retirement, the higher your contribution rate will need to be in order to make up for lost time. By making retirement plan contributions a part of your budget now - even if it's just a small amount per paycheck - you can work towards building a substantial retirement nest egg.

Remember, no matter what age you are, if you are not contributing to the plan, now is the best time to start. And, if you are contributing, it may be a good time to consider increasing your contribution rate.

Investment Fund Performance & Operating Fees

For the Period Ending
March 31, 2004

You may invest your contributions with any one of the plan's three financial services organizations: The Hartford, ING Financial Advisers, LLC (member SIPC), and Phoenix Investment Partners.

The following charts will help you evaluate your investment choices. They show the historical rates of return for each financial services organization's available investment options and the various operating fees that may be assessed against these options for the period ending March 31, 2004.

The rates of return columns are "net of expenses" and reflect the actual returns that would be applied to your account. This means that they already exclude the operating fees a financial services organization may charge you for managing, investing or marketing a particular investment option. Operating expenses appear in separate columns.

Results are historical and not intended to portray future performance. Current performance may be less than figures shown.

Please note that investment benchmarks may differ from the benchmarks provided in the funds' prospectuses.

About Your Fund Choices

When comparing two similarly styled mutual funds, be sure to:

• Recognize that while a fund's past performance may help you understand how well or poorly it has performed over a period of time, it's no guarantee of future results.
• Consider the total expenses each fund charges as well as the kinds of services or benefits it provides. Keep in mind that you can reduce your overall investing costs by monitoring these expenses and taking them into account in your investment selection process.

1 The Declared Rate is credited through the close of the calendar year on contributions received during the designated quarter. The rate for the second quarter 2004 is 4.00%. For contributions received prior to April 1, 2004, the Declared Rate is 4.00%. Rates quoted are effective annual yields.

2 The Declared Rate as of April, 2004 is 3.70%, expressed as an annual effective yield, and is guaranteed not to drop below 3.70% through December 31, 2004.

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