Working Toward Retirement. Building Your Nest Egg: For 1199SEIU Members

Transcription

1 Working Toward Retirement Building Your Nest Egg: For 1199SEIU Members

2 Objectives Demonstrate the benefit of starting early (but it s never too late!) Discuss the three-legged stool of retirement (Pension, Social Security, Savings ) Define retirement and the stages of retirement Demonstrate the five steps to calculating your savings finish line 2

3 What Is Retirement? Retirement The action or fact of leaving one s job and ceasing to work. What does that look like to YOU? How much does that lifestyle cost? 3

4 The Three-Legged Stool of Retirement Savings Leg 1 - Defined 1199SEIU Pension Benefit Leg 2 - Social Security Leg 3 - Individual Savings YOU o o o Savings 1-401(k) (Tax Deferred) or 403(b) (Tax Deferred) Savings 2 - Individual Retirement Account (Tax Deferred) Savings 3 - Additional Savings 4

5 1199SEIU Retirement Defined Pension Benefit = set amount every month for life Social Security = set amount every month for life Savings = what you have or can save or invest Pension Social Security YOU! 5

6 Know Your 1199SEIU Defined Pension Benefit Get your defined pension benefit estimate calculated every year. You can do this on the Benefit Fund website at: 1199seiubenefits.org/mypension Go to a pension information session at the Benefit Fund Call your pension department ( ) with any questions or ask your 1199SEIU team 6

7 Know Your Social Security Benefits Check Social Security Statement Annually Learn Your Full Retirement Age & Impacts of Early/Late Claiming of Benefits Calculate Benefit at YOUR Ideal Retirement Age 7

8 Calculate Your Savings Retirement Finish Line FIVE STEPS 8

9 Calculate Your Savings Retirement Finish Line Step One: Estimate the Cost Step One How much does your retirement lifestyle cost? NUMBER ONE GOAL: Between all three legs of the stools, create a nest egg large enough to cover your expenses during retirement. Budget Your Estimated Monthly Expenses During Retirement 9

10 Calculate Your Savings Retirement Finish Line Step One: Estimate the Cost of YOUR Retirement o Hypothetical Example: Monthly Expenses = $3,000 Estimated Retirement Expenditures Estimated Cost Rent/Mortgage $1000 Food $300 Transportation $500 Clothing $200 Entertainment/Recreation $400 Debt $200 Other (Medical) $400 ESTIMATED TOTAL MONTHLY EXPENSES $

11 Calculate Your Savings Retirement Finish Line Step Two: Calculate Expenses for the Year Step Two Multiply Monthly Expenses by 12 to Equal Yearly Expenses EQUATION = Estimated Monthly Retirement Expenses x 12 = Yearly Retirement Expenses 11

12 Calculate Your Savings Retirement Finish Line Step Two: Calculate Expenses for the Year Step Two Multiply Monthly Expenses by 12 to Equal Yearly Expenses o Hypothetical Example: $3,000 x 12= $36,000 12

13 Calculate Your Savings Retirement Finish Line Step Three: How Much Are You Short? Step Three Estimate how much you will be short in a year taking into account your defined pension benefit and your Social Security? EXAMPLE: Future Expenses = $36,000/ per year -$12,000 Defined Pension Benefit/ per year -$17,000 Social Security/ per year $7,000/ per year short 13

14 Calculate Your Savings Retirement Finish Line Step Four: Set the Goal Step Four Divide the amount you were short by a reasonable rate of return (i.e., 4% interest) you could expect to earn during retirement. Example: $7,000 /.04 = $175,000 (Savings goal) 14

15 Calculate Your Savings Retirement Finish Line Step Five: $100 Surplus Step Five Calculate Time to Accumulate Savings Using Budget Surplus Dollars Invested in a Retirement Account Rate of Return Years to Reach $175,000 Goal Scenario A $100 (per month) 7% 34.5 Years Scenario B $100 (per month) 8% Years Scenario C $100 (per month) 9% Years Scenario D $100 (per month) 10% Years Daily Set Aside Requirement to Make $100 Monthly Deposit $3.30 (automate or payroll deduction) Weekly Set Aside Requirement to Make $100 Monthly Deposit $

16 Calculate Your Savings Retirement Finish Line Step Five: $250 Surplus Step Five Calculate Time to Accumulate Savings Using Budget Surplus Dollars Invested in a Retirement Account Rate of Return Years to Reach $175,000 Goal Scenario A $250 (per month) 7% Years Scenario B $250 (per month) 8% Years Scenario C $250 (per month) 9% Years Scenario D $250 (per month) 10% Years Daily Set Aside Requirement to Make $250 Monthly Deposit $8.25 (automate or payroll deduction) Weekly Set Aside Requirement to Make $250 Monthly Deposit $

17 So, Let s Talk About Savings! Example: Maria Rodriguez, 42, is an 1199 member with a defined pension benefit and an employer 401(k) plan. If Maria starts saving $250 a month ($3,000 a year), by the time she is eligible for retirement at 62, she will have saved $131,445 (assuming a 7% interest rate)! If Maria receives $400 per month from her 401(k), that amount plus her defined pension benefit ($1,000) and Social Security ($1,400), will give Maria $2,800 per month to live on. 17

18 Maximize Your Savings Through Your 401(K) and 403(B) Plans: Read the Package! Pay attention to the expenses in the plans Do Your Own Research on Investments Know the rules of your plans Consider Using an Advisor Maximize Catch Up Contributions if Eligible and Able 2019 Limit for Contribution = $19,000 Catch up contribution if over 50 = $6,000 Example = If Maria were 52, and there are no employer limitations on the amount she can defer, she would be able to defer up to $25,000 (per IRS guidelines) to her 401(k) plan, if she could afford it. 18

19 Strategies for Your 401(K) and 403(B) Plans: Benefits Automatic Deposit Puts savings on auto-pilot Tax Benefits Lowers your current tax rate Great Stable Value Funds Many funds are only offered through special arrangements like a 401(k) or 403(b) plan Auto-Rebalance Benefits Many 401(k)/403(b) plans have this feature that helps you rebalance your portfolio to make sure you stay properly diversified 19

20 Strategies for Your 401(K) and 403(B) Plans: Benefits Protection Perks Some plans qualify for bankruptcy exemptions. These plans can be passed onto beneficiaries without having to go through probate Automatic Rate Escalation Option Gradually and automatically increases your savings contribution The Match If your employer matches your contribution or a percentage of your contribution, it s free money! Dollar-Cost Averaging An investing approach that allows the investor to purchase more shares when prices are low and fewer shares when prices are high 20

21 Strategies for Your 401(K) and 403(B) Plans: Determining Your Asset Allocation Asset Allocation The process of dividing investments among different kinds of asset classes, such as stocks, bonds and cash, to try to meet specific financial goals. Asset allocation is used as an effort to reduce investment risk Maria must think about allocating her assets responsibly and know her risk tolerance Asset Allocation Calculator: 21

22 Strategies for Your Investment Plans: Determining Your Asset Allocation Investor Risk Tolerance Can you sleep at night? Aggressive Moderate Conservative Calculator: 22

23 Strategies for Your Investment Plans: Determining Your Asset Allocation The Three Stages of the Financial Life Cycle Accumulation Ages Conservation Ages Distribution Ages

24 Strategies for Your Investment Plans: Determining Your Asset Allocation Financial Life Cycle The Three Stages of the Financial Life Cycle Accumulation Accumulation of Assets Ages A person s early working years Ability to take on risk. (There is more time to recover from financial setbacks and market downturns) Setting up an emergency fund to prepare for unexpected events (Maria is ending this cycle and beginning the next) 24

25 Strategies for Your Investment Plans: Determining Your Asset Allocation Financial Life Cycle The Three Stages of the Financial Life Cycle Conservation Stage Preparing for Retirement Ages Should know how much it will take to retire comfortably, including additional monies needed in retirement Should consider the various sources of retirement income one will have Should consider preparation for unexpected health emergencies later in life 25

26 Strategies for Your Investment Plans: Determining Your Asset Allocation Financial Life Cycle The Three Stages of the Financial Life Cycle Distribution Stage Planning for an Estate Ages 65+ Living on a planned and fixed income. (Not spending more than what is being brought in) Should plan estate distribution, gifting, financial power of attorney, and ensuring their financial affairs are in order (This is where Maria wants to be, and we re here to help her) 26

27 Definition of Terms: Defined Contribution Plans What are they? Defined Contribution Plan Retirement plans, such as 401(k)s and 403(b)s, that employees and/or employers pay into, pay benefits based on the amount the employee has accumulated over his or her working life 403(b) programs are used by nonprofits, religious groups, hospitals, school districts, and government organizations. They are exempted by law from certain administrative processes that apply to 401(k) plans and may have lower administrative costs 27

28 For Those Without a 401(K) or 403(B) Establishing An Individual Retirement Account (IRA) An Individual Retirement Account (IRA) is a type of investment savings account that is designed to help you save for retirement and offers many tax advantages Two Main Types: Traditional IRA Vs. Roth IRA Traditional IRA Contributions may be partially or fully deductible, but distributions are generally taxable Roth IRA A savings mechanism in which contributions are nondeductible, the funds grow tax-free, and withdrawals are tax-free provided certain conditions are met 28

29 Establishing An Individual Retirement Account (IRA) 7 Quick Tips for an IRA Start ASAP Make Sure You Are Ready Know the Rules Take Time to Select the Right Investments Consider an Advisor Talk w/ Your Accountant, if you have one Diversify In AND Out of Your IRA 29

30 Definition of Terms: Diversification Diversification An investment strategy designed to reduce exposure to risk by combining a variety of investments, such as US stocks, international stocks, bonds and cash, which are unlikely to all move in the same direction 30

31 Definition of Terms: Diversification Through Mutual Funds Mutual Fund A security that gives small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed 31

32 Diversification Through Mutual Funds for IRA, 401K, 403B Tips to Screen for Mutual Funds Management Experience Select funds whose management experience is greater than or equal to 5 years Low Expenses Select no-load mutual funds. Loaded funds tend to erode long-term return with excessive commission fees Risk Search for funds with risk levels rated from low to average, yet have a three to five year annual return greater than the S & P 500 index for an equivalent time period. (Use morningstar.com to assist) Screen Go to finance.yahoo.com for a great mutual fund screener 32