Real World Retirement Planning

Transcription

1 Real World Retirement Planning This presentation is for educational purposes only. Participants should be aware that a financial planning engagement has not been established. Complete data has not been gathered and all alternatives have not been considered. 2017, Financial Planning Association

2 Note to Presenter Content in the presentation was current as of its copyright date, but over time, legislative and regulatory changes, as well as new developments, may date the material. The FPA speaker must review and make any necessary updates before he/she presents this material. Please note that FPA presentations are copyright protected and are not to be shared with or modified by any third parties without written permission from FPA. FPA presentations are to only be delivered by eligible FPA members. These are educational presentations; promotion of business services and/or products are not permitted.

3 A Time of Change Personal Financial Where you ll live Whether you ll continue to work Your plan for free time Your living costs Sources of income Will your savings last?

4 Practice Makes Perfect Tend your garden Volunteer Start painting or writing Get a part-time job in a new field Travel to places you think you may want to live (and be sure to go in all seasons)

5 Not Your Parents Retirement 1. More dependence on personal savings and investments 2. Fewer pensions 3. Uncertain Social Security 4. More working years 5. Longer life expectancy: 78.8 years* * CDC, 2016 (data for 2014)

6 The Work Option Continue with former employer Switch to a new area of interest Volunteer your time Keep Social Security income limits in mind if less than full retirement age

7 Estimate Your Retirement Costs Expenses may be less: Fewer or no jobrelated costs Mortgage paid Children grown Expenses could be more: Higher health care costs Home maintenance, utilities and taxes Hobbies, travel and leisure Make your best estimate: 75% to 100% of pre-retirement income

8 Work Out the Numbers $65,000 Current annual income x.75 75% $48,750 Estimated 1 st year need $65,000 Current annual income x.90 90% $58,500 Estimated 1 st year need

9 Sources of Income Withdrawals from retirement savings plans Social Security Interest, dividends, other investment income Part-time work Investment principal

10 Modify Your Approach Over Time In your 30s In your 40s In your 50s In your 60s Be aggressive Invest at least 10% of income Put longterm plan in place Make an estate plan Be aggressive Invest up to 15% of income Balance competing goals Be a little more cautious Invest 20% of income Invest any inheritance Consider long-term care insurance Produce income Continue to own stock Spend down assets Update your estate plan

11 Build Retirement Savings Employersponsored plans Individual Retirement Accounts (IRAs) Simplified employee pension (SEP) or Keogh Plan Annuities: fixed and variable Taxable investment portfolios

12 Make the Most of Your Employer s Plan Participate Contribute as much as you can Diversify among plan choices Reallocate annually, as part of overall review Roll over assets to IRA or new job when leaving job

13 Avoid 401(k) Mistakes Failing to participate Borrowing from the plan Cashing out early

14 Tax deferred Plans All earnings tax-deferred, taxed at regular rate at withdrawal Some contributions tax-deferred, taxed at regular rate at withdrawal Contribution limits vary by type of plan Withdrawal rules apply, but vary o o May be penalized for withdrawals before age 59 ½ Usually required after 70 ½

15 Traditional vs. Roth Retirement Accounts Traditional 401(k), 403(b), IRA Roth 401(k), 403(b), IRA Contributions Pre-tax dollars in 401(k), 403(b), and possible IRA tax deductions Post tax dollars Earnings Tax-deferred Tax-free if you follow rules Withdrawals Taxed at regular rate Not taxed if you follow rules

16 Tax free plans Roth IRAs, Roth 401(k)s and 403(b)s Similar in key ways o o Contribute after-tax income Tax-free withdrawals if you follow rules At least 59 ½ Account open at least 5 years (with a deposit) Different on withdrawal rules o o Required from employer plans Not required from Roth IRA

17 Make the Most of Your IRA Contribute as much as you can Diversify broadly and rebalance annually Consider a Roth IRA for new contributions Convert existing IRAs, 401(k)s, and 403(b)s Taxes due at conversion 5-year period may begin again

18 Taxable Investments No contribution limits or withdrawal rules Free to make any investments Good way to diversify your portfolio Additional income option Earnings taxed at lower than regular rate

19 Review Allocation Annually LOOK at the big picture (tax-deferred, tax-free and taxable) SHIFT to a more conservative portfolio mix MOVE some money into incomeproducing investments, such as bonds and certain mutual funds CONTINUE to invest for some growth

20 Create a Retirement Income Strategy Spend rather than re-invest dividends and interest Take required withdrawals from employer plans and IRAs Set a total annual withdrawal rate o 4% to 5% recommended level o Increase annually by rate of inflation If necessary, begin to use investment principal to meet income needs

21 Maintain an Emergency Fund Available in case of unexpected expenses or market downturns Easily accessible in savings and cash equivalent investments Enough to cover expenses for a year or two

22 Other Things to Consider Long-term health care Wills and living wills Estate planning Inheritance taxes

23 Getting Help Lists large number of qualified planners Offers multi-faceted search options including location, how planners charge, planner specialties, assets and income minimums, and last name Lets you easily find planners who offer a free initial consultation Allows quick search of planners in your geographic area Provides a list of questions to ask planners to help you choose a financial planner who is right for you