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A Newsletter for the State of Connecticut Deferred Compensation Plan

July 2000

	Has the recent behavior of the stock market been making you nervous? When the stock market falls, some investors find themselves driven by emotion. But often, the fear of losing money can lead to quick, poorly planned decisions. A sound savings strategy can help you avoid this potential pitfall. This issue of "Getting There" provides a brief refresher course on how to create a basic savings strategy. It also offers some clarification on the rules regarding payments to beneficiaries.
State Comptroller Nancy Wyman

Creating a Retirement Savings Strategy

A savings strategy is important, not only because it helps you plan for your future, but because it helps you to be more in control of your money and less likely to overreact in response to market turmoil. When you're investing for a long-term goal like retirement, you may not need to keep up with day-to-day market changes. If you have a good savings strategy, check your investments from time to time to be sure they're still in line with that strategy. Then, if the market shifts, you may not need to make a change right away. If you have confidence in your savings strategy, stick to your plan.

Developing your own strategy doesn't have to be difficult. You can put together a basic plan by following these simple steps.

Decide How Much Money You Need to Live Comfortably in Retirement

Don't spend sleepless nights worrying about your savings. Create a savings strategy you're comfortable with.

There are different ways to calculate the amount you should save for retirement, but many experts agree that you'll need about 70% to 90% of your pre-retirement income after you stop working. Of course, the exact amount depends on your own personal situation.

To get a rough idea of the total amount you'll need, try this simple calculation. Suppose you retire at age 65 and your salary was $40,000 just before you retired. Let's assume you'll need 80% of that salary, or $32,000 a year ($40,000 x .80), to live comfortably. And, you'll be in retirement for about 20 years. That works out to the equivalent of $640,000 ($32,000 x 20) over the 20-year period. That number may seem a little intimidating, but remember, part of this amount will come from your Social Security benefits and any personal investments or savings you may have.

Determine Your Attitude Toward Risk

All investments have a certain degree of risk. Risk is the possibility that your investments will lose money or that they won't earn as much as you hoped. Determining your attitude toward risk is important. No matter how carefully you've constructed your plan, if you're uncomfortable with the level of risk, you'll jump ship when the first big wave hits. You need a savings strategy that can get you through rough seas as well as calm.

To get an idea of your attitude toward risk, ask yourself, "How did I feel about the market swings that occurred in the first quarter this year?" Was your first instinct to move all your funds? Or were you somewhat confident that, given enough time, your investments would recover? You don't need to pin this down exactly, just determine roughly whether you would consider yourself a conservative, moderate or aggressive investor and then choose investments you feel comfortable with.

Determine Your Timeframe for Meeting Your Savings Goal

The next step is to figure out how much time you have to save. If you're saving for retirement, this means counting the number of years between now and the date you plan to retire. If retirement is 30 years away, you might plan to save differently than if retirement is only 10 years away.

Your timeframe affects the level of risk you can afford to take with your savings. Think of it this way: The sooner you'll need the money, the less risk you can afford to take. That's because if you have only a short period of time until you need the money, it doesn't have much time to recover from short-term losses.

Create a Savings Portfolio Based on Your Personal Needs

People used to say, "Don't put all your eggs in one basket." That's because if the basket falls, all the eggs break. The same principle applies to investing. Different types of investments (e.g., stocks, bonds, money market funds, etc.) react differently to the market. While one is up, another may be down. In addition, investments that gain the most often carry the most risk. So many experts recommend allocating your savings among different types of investments. This is called diversification. When you diversify your portfolio of savings, you're less likely to feel the effect of a single investment's poor performance.

The plan's many investment options offer you the ability to diversify your savings. As you create your portfolio mix, keep your goal, timeframe and attitude toward risk in mind. That will help you decide what percentage of savings should be allocated in stocks, bonds, money markets, etc. Then, once your portfolio is established, review it from time to time to make sure it's still on track.

Following these four basic steps can put you on the road to a financially secure future. No one can say how the stock market will perform in the future. But by focusing on your long-term goal and maintaining your savings strategy, you'll be able to manage your savings portfolio through volatile times and make sound investment decisions.

Investment Fund Performance & Operating Fees

For the Period Ending March 31, 2000

You may invest your contributions with any one of the plan's three financial services organizations: Aetna Investment Services, Inc., Hartford Life Insurance Company and Phoenix Investment Partners.

The following charts will help you evaluate your investment choices - both mutual funds and annuity options. 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, 2000.

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.

About Your Fund Choices

To help you identify between these two types of options, variable annuities appear in italic print. When comparing two similarly styled mutual funds or annuity options, 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.

Since each financial services organization offers similar investment opportunities, it's a good idea to review the materials from each of these organizations before you make your decision as to where to invest your money. Then, select the one financial services organization that offers the investment options and products that best match your personal financial goals.

* As of 3/1/00, the credited rate was 6.10%.

* Formerly Phoenix Multi-Sector Short Term Bond A.

Making a Beneficiary Designation

Your beneficiary is the person or entity that receives the value of your account if you die before your account is distributed. Your beneficiaries may receive payment if you die while in active service or if you retire and you elect an option that provides for payments to beneficiaries.

To make a beneficiary designation:

1. Obtain a Participation Agreement/Beneficiary Designation (Form CO-783) from your servicing agent.

2. Send your completed form (original only) to your provider (Aetna, Hartford or Phoenix) and keep a copy for your records. The provider will forward the form to the State Comptroller's office, where the official records are kept.

You can change your beneficiary designation at any time before retirement by submitting a new Form CO-783. When you retire, you'll decide how you want your benefit to be paid, selecting from a number of payment options. If you choose the Joint and Last Survivor Option, your beneficiary designation will be locked in and you won't be able to make a change. If you choose any other payment option, you are still free to change your beneficiary designation after retirement.

Payment Options Available to Beneficiaries

Beneficiaries can receive payment either as a lump sum or in installments. The plan has different rules about installment payments depending on whether your beneficiary is your spouse or someone else.

• If your beneficiary is your spouse, the period over which installments are paid may not exceed your spouse's life expectancy. Your spouse may defer the date payment begins to any date up to December 31 of the calendar year in which you would have been age 70.

• If your beneficiary is not your spouse, the period over which installments are paid depends on when payments start:
  
  • If payments begin before December 31 of the calendar year following your death, payments may be paid over a period up to 15 years or the life expectancy of the beneficiary, whichever is less.
    
  • If payments begin after December 31 of the calendar year following your death, payment of the entire benefit must be completed by the December 31 on or following the fifth anniversary of your death.

If you need more information about designating a beneficiary or have questions about your personal situation, please contact your provider.

Security Measures Protect Your Beneficiaries

Only the person or entity you designate as beneficiary can receive payment of your benefit. That's because the plan will not pay benefits to anyone except the beneficiary officially on record prior to your death. In addition, the State Comptroller's office will not accept photocopies or faxed copies of Form CO-783. These security measures give you the assurance that your wishes will be carried out just as you requested.

Now Available on the Internet

The State's Deferred Compensation Plan Web site has recently been upgraded with more information to help you make the best use of the plan. Now, when you visit the Web site page http://www.osc.state.ct.us/empret/defcomp/index.html, you can find the following information:

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