Retirement Savings. Dee Dee Chen, CEBS, CFP

Transcription

1 Retirement Savings Dee Dee Chen, CEBS, CFP

2 Agenda Review: Death and Taxes Budgeting Debt Management and Savings 2

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8 Types of Plans Defined Benefit (DB) Plans (e.g. traditional pensions) Benefit received is prescribed Employer-funded Guaranteed by PBGC Not very portable Defined Contribution (DC) Plans (e.g. 401(k), 403(b), etc.) Contribution is prescribed Employer and Employee funded Investment gain/loss Very Portable Hybrid Plans (e.g. cash balance)

9 Types of Plans Defined Benefit (including Cash Balance) Employer Cost: Provides employer with some financial flexibility (assumption setting, funding policy, etc.) Plan costs can be volatile Most cost efficient vehicle over long-term for delivery of retirement benefits (investment leverage) Employer bears investment risk/ reward Benefit Delivery: Efficient vehicle for delivering benefits targeted at employee demographic groups Generally better appreciated by older employees Employer Cost: Defined Contribution Little volatility in costs as a percentage of payroll but cash is always required Employee bears investment risk/reward Benefit Delivery: More difficult to provide meaningful benefit to mid-career hires Generally more visible and better appreciated by younger employees More financial flexibility for employees (loans, withdrawals, etc.) towerswatson.com 9 V:\Partners HealthCare Syste \12\RET\ PMC 2012\Exec - Deliv\Partners PMC Orientation 10_16_12.ppt

10 Fortune 100 retirement plan sponsorship, Source: Retirement Plans Offered by 2013 Fortune 100, Towers Watson Insider, November

11 2019 Income Tax Brackets and Rates Tax Bracket / Filing Status Single Married Filing Jointly or Qualifying Widow Married Filing Separately Head of Household 10% $0 to $9,700 $0 to $19,400 $0 to $9,700 $0 to $13,850 12% $9,701 to $39,475 22% $39,476 to $84,200 24% $84,201 to $160,725 32% $160,726 to $204,100 35% $204,101 to $510,300 37% $510,301 or more $19,401 to $78,950 $78,951 to $168,400 $168,401 to $321,450 $321,451 to $408,200 $408,201 to $612,350 $612,351 or more $9,701 to $39,475 $39,476 to $84,200 $84,201 to $160,725 $160,726 to $204,100 $204,101 to $306,175 $306,176 or more $13,851 to $52,850 $52,851 to $84,200 $84,201 to $160,700 $160,701 to $204,100 $204,101 to $510,300 $510,301 or more 11

12 Sample Paycheck 12

13 Budgeting 101 Budgeting worksheet Create Track Adjust 13

14 Starting a new Job? Create a Budget 1. Understand the Benefits your company offers 2. Estimate and track your spending 3. Keep your monthly costs low 4. Be selective with your monthly subscriptions 5. Be careful with compulsive spending 6. Set up a savings plan 14

15 Plan Ahead Building a Nest Egg When there s more than just you Major Purchases Career or Career Shift Retirement 15

16 Why save now? How much do the experts think you ll need? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Target: 85% of your pre-retirement income per year 16

17 Typical Sources of Income in Retirement Social Security 18% Pension 19% Savings and investments 18% Other 2% Paycheck 44% (from continued employment) Source: Social Security Administration, Income of the Aged Chartbook, SSA Publication No Released: April Shares of aggregate income using the highest quintile, $55,889 per year and higher. Actual data was rounded to whole numbers. Total may not equal 100%

18 How Your Retirement Income Can Be Social Security 25% IRA and Other Savings 35% Employer Sponsored Retirement Plans 40% 18

19 Save Now or Save Later Taylor Sam Total saved at age 65 Start Now Age Started Age Stopped Start Later $402,500 Taylor Start Now: Age 25 $200 contributed monthly for 34 years at 6% annual rate of return compounded monthly Years contributed Total contributed Total at Retirement $96,000 $72,000 $402,500 $203,100 $96,000 $203,100 Sam Start Later: Age 35 $200 contributed monthly for 30 years at 6% annual rate of return compounded monthly $72,000 Contribution Contribution This hypothetical example is based on monthly contributions of $200 to a qualified savings retirement plan and a 6% annual rate of return compounded annually. 19

20 The Dinner That Cost $224,575 $250,000 $225,000 $224,575 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 Save $50 each week $62,874 $100,946 $153,108 $50,000 $25,000 $0 $35,085 $14,803 $2,600 1 Year 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years This hypothetical example is based on weekly contributions of $50 made each week to a IRA plan over the time periods indicated and a hypothetical 6.5% annual rate of return compounded annually. 20

21 Retirement Savings Program Traditional 401k/403b or IRA Program Contributions are deducted from paycheck before taxes are calculated Will reduce your taxable income every paycheck Contributions and investment earnings will be taxed when distributed. Roth 401k/403b or IRA Program Contributions are deducted after taxes are calculated Will not reduce your taxable income every paycheck Contributions and investment earnings will be tax free when distributed. Combined maximum contribution IRA $6,000 (CY2019) Combined maximum contribution 401k/403b $19,000 (CY2019) 21

22 Other important concepts Vesting Match Funding Status What happens to your retirement when you leave a job? 22

23 Three Basic Asset Classes Bonds Stocks -Debt Securities governments & corporations -Share of a company, equity Short-term Investments -Money market, T-bills, CDs 23

24 The Benefit of Dollar-Cost Averaging share price investment shares purchased Week 1 $10 $50 5 Week 2 $7 $ Week 3 $6 $ Week 4 $8 $ Week 5 $9 $ $250 total total Average Cost Per Share = $

25 Financial Planning Summary 1) Analysis of current state 2) Determine Goals 3) Create a Plan 4) Monitor and Adjust 25

26 Questions? Thoughts? Confusion? 26