Presented by Eileen St. Pierre, Ph.D., CFA. Oklahoma State University Farm Transitions Workshop November 8, 2008

Transcription

1 Presented by Eileen St. Pierre, Ph.D., CFA Personal Finance Extension Specialist Oklahoma State University Farm Transitions Workshop November 8, 2008

2 Retirement planning is long-term in nature. Social Security will not be enough! Effect of inflation Reduces children s burden in long run Allows you to have control over the quality of your retirement years

3 Where will you live? What will you do? Lifestyle Planning Survey Expect your answer to this question to change, possibly several times. This is why you have to save as much as you can, as early as you can.

4 1. Spend less than you make 2. Budget in order to save 3. Manage your credit wisely 4. Aim to save at least 10% of your net income 5. Pay yourself first 6. Avoid procrastination

5 Transferred slowly or sold outright? If transferring to next generation, will retiring generation still be involved? Lease out assets? Do not ignore tax consequences. Do not underestimate the emotional element in your decision. Your decision affects the cash flow you receive in retirement.

6 70% to 100% of current working income Calculate current net worth Net worth = Assets Liabilities Calculate current monthly income and expenses Calculate estimated retirement monthly income and expenses Online retirement calculator l

7 Unanticipated health care costs Need for long-term care insurance Forced to permanently retire Kids/Grandkids move away Replace vehicles Downsize house Stock market rollercoaster ride continues Unexpected change in inflation or interest rates

8 Social Security Pension Plans and 401(k) Plans for the self-employed 1. Keogh Plans 2. Simplified Employee Pension (SEP) IRAs 3. SIMPLE Plans Traditional and Roth IRAs Other savings and investments Home/Farm Value Part-time work

9 Money market securities (Cash) Bonds or Fixed Income (FI) Stocks or Equities (E) Instead of direct investment, it is easier and less costly to use mutual funds or Exchange- Traded Funds (ETFs). There are plenty of low cost companies out there (ex. Vanguard, Charles Schwab)

10 Build up emergency cash fund first. There is a positive relationship between risk and expected return. Need to earn a high enough return to beat inflation and ensure your money will grow enough for your retirement. This involves taking on enough risk. Need to have enough equities in your portfolio to accomplish this.

11 Diversify! Do not put all of your eggs in one basket. Think global. Look into automatic withdrawals. Make sure you are comfortable with the amount of risk in your portfolio. The younger you are, the more time you have to recover from market downturns. Adjust your portfolio as you age.

12 73-year average annual return: Source: The Vanguard Group Stocks 82% 8.2% 11.3% Bonds 2.6% 5.7% T-bills 0.8% 3.9% 0.0% 5.0% 10.0% 15.0% Total Return Real Return

13 Source: Fidelity.com Averages over this 11 year time period Large Cap Stocks 9.75% Small Cap Stocks 9.74% Foreign Stocks 9.75% Bonds 6.15% High Yield Bonds 6.85% Money Markets 3.85%

14 Consider lifecycle investing. Starting point: Put (100-age)% in E and the rest in FI and other asset classes. Age 45, 55% in E, 45% in FI If you are a late saver or want (need) to take on more risk, increase E% As you age, put higher % in FI and Cash Age 60, 40% in E, 55% in FI, 5% in Cash

15 There are funds that do this for you. Lifecycle or Target Date Funds Read the prospectus! Many take a more aggressive approach. Is the equity allocation too high for you to accept?

16 For those planning to retire around 2040 (about 30 years) In 2008, Fund invests 90% of money in Equities, 10% in Fixed Income In 2040, Fund invests 50% E, 50% FI In 2050, Fund invests 40% E, 60% FI

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18 Complete the Lifestyle Planning Survey Develop pie charts on how time will be spent Estimate income and expenses in retirement using online farm retirement calculator and/or worksheet

19 (Online Farm Retirement Calculator gov/pub/irs-pdf/p560.pdf (Retirement Plans for Small Business)

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