CFA Society The Bahamas

Transcription

1 CFA Society The Bahamas Financial Literacy Series Retirement Planning Date: February 13,

2 Agenda What is Retirement Planning Retirement Goals Retirement Life Cycle Sources of retirement income Retirement Expenses Retirement Spending 2

3 Retirement Planning Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program and managing assets. 3

4 Retirement Goals When to start? -- the sooner, the better. How much money? Depends Some Rules of thumb that can give you an idea of how much to save; 1. $1 million to retire comfortably. 2. The 80% rule, i.e., you need enough to live on 80% of your income at retirement. If you made $100,000 per year, you would need savings that could produce $80,000 per year for roughly 20 years, or $1.6 million. 3. Others say most retirees aren't anywhere near saving enough to meet those benchmarks and should adjust their lifestyle to live on what they have. 4

5 Retirement Goals 5

6 Retirement Planning Life cycle Young Adulthood (21-35 years) little money, lots of time, joys of compounding interest Early Midlife (36-50 years) higher earnings, less time, aggressive investment strategy Later Midlife time running out, high wages, more conservative investment strategy. 6

7 Sources of Retirement Income Government Sponsored Plan Employer Sponsored Plan Individual Retirement Account (IRA) 7

8 Government Sponsored Plan National Insurance Board Retirement Benefits Key points; Eligible to insured persons at retirement or reach 65 years for life. Reduced benefits for persons retiring before 65 years or increased benefits if retire after To qualify, must have made at least 500 contribution to the Plan 8

9 Government Sponsored Plan Will probably not be around by the time you retire and eligible benefits will not support lifestyle. Based on actuarial report, the National Insurance Plan will end by 2029 if drastic actions are not taken. The National Insurance Board 2016 Annual report revealed a deficit $13.4MM i.e. benefits paid out exceeded contributions taken in. 9

10 Employer Sponsored Plan Defined Benefit Plan A retirement account where the Employer pays all the money into the plan and promises to pay the employee a certain amount at retirement. Defined Contribution Plan Both the Employer and the Employees contribute a certain percentage of monies into the retirement account. 10

11 Employer Sponsored Plan Defined Benefit Plan Benefits at the time of retirement is fixed based on certain working conditions This is beneficial to employees There is an element of comfort and surety in this method Employees do not have to worry about how the earnings in the plan are managed If there is inadequate earning, the employer has to make up the shortfall against the amount due Defined Contribution Plan Benefits at the time of retirement is not fixed on any calculation This is beneficial to the employer There is no element of surety with this method The employee has to worry about the way earnings will come If there is inadequate earning, the employee will have to enjoy less retirement benefits. 11

12 Individual Retirement Account An individual retirement account is an investing tool used by individuals to earn and earmark funds for retirement savings Earmark a certain amount of savings to your retirement account every month to be invested based on your age and retirement goals. 12

13 Individual Retirement Account Some key considerations Fees and expenses Additional services offered (financial/investment advice, educational material, brokerage services) Offers a variety of investment options (including various asset classes and funds). Portability (funds can be transferred to another institution) Professional management of funds Deposit Insurance and separation of assets Withdrawals or loans Direct Transfers 13

14 Retirement Expenses Healthcare Housing Food Travel/Transportation Insurance Other 14

15 Spending in Retirement 4% spending rule The 4% rule maintains that you can safely withdraw 4% of your retirement savings each year without running out of money. For example retirement savings of $1 million, and your projected spending has been calculated to be around $3,000 a month. 15

16 Q & A Thank You 16