ACHIEVING FINANCIAL GOALS

Transcription

1 Welcome

2 Client logo. Right align. No wider or taller than this box. If no client logo, delete white box covering Trusty. ACHIEVING FINANCIAL GOALS

3 This presentation has been prepared by T. Rowe Price Investment Services, Inc., for informational purposes only. T. Rowe Price Investment Services, Inc., its affiliates, and its associates do not provide legal, tax, or investment advice. This material does not provide fiduciary recommendations concerning investments or investment management. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this presentation. Any tax-related discussion contained in this presentation, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this presentation.

4 FINANCIAL GOALS

5 We believe that most investors should try to live on 70 % 80 % of their salary while saving for their goals.

6 ACHIEVING FINANCIAL GOALS

7 DEFINING A FINANCIAL GOAL What you are saving for? When do you want to buy it? How much will it cost at that time?

8 ACHIEVING A FINANCIAL GOAL How much to save? What account to use? Investment strategy

9 WHICH ACCOUNTS TO USE For retirement and college savings, a tax benefit can be received if the savings is directed to certain qualified accounts.

10 RETIREMENT

11 RETIREMENT SAVINGS: HOW MUCH? Investors who are: Typically should have: 30 half of your salary saved today 15% 35 1x your salary saved today 40 2x your salary saved today 45 4x your salary saved today 50 6x your salary saved today If possible, INVESTORS SHOULD GET THE FULL MATCH Consider increasing contributions gradually to build toward 15% target 55 8x your salary saved today 60 10x your salary saved today 65 12x your salary saved today Assumptions: Individuals have saved (from age 25 to a retirement age of 65) 15% of their annual salary (increased by 3% each year) in a tax-deferred retirement account with a pre-retirement portfolio consisting of 60% stocks/30% bonds/10% short-term bonds, changing to 40% stocks/40% bonds/20% short-term bonds during retirement. Gross retirement income through age 95 is estimated to equal 75% of pre-retirement salary, consists of annual retirement account withdrawals of 4% plus estimated Social Security benefits (both beginning at age 65), and is increased by 3% annually for inflation. The savings benchmark analysis is based on results from the T. Rowe Price Retirement Income Calculator, which considers 1,000 market simulations and an 80% simulation success rate, using hypothetical age 65 salaries of $70,000, $100,000 and $110,000. That tool s methodology and assumptions are explained in detail at troweprice.com/ric. Users should consider their own circumstances. Results may not apply to earnings that vary substantially from modeled salaries.

12 RETIREMENT SAVINGS: HOW MUCH? Investors who are: Typically should have: 30 half of your salary saved today 15% 35 1x your salary saved today 40 2x your salary saved today 45 4x your salary saved today If possible, investors should strive to 6% SAVE Consider increasing contributions gradually to build toward 15% target 50 6x your salary saved today 55 8x your salary saved today 60 10x your salary saved today 65 12x your salary saved today Assumptions: Individuals have saved (from age 25 to a retirement age of 65) 15% of their annual salary (increased by 3% each year) in a tax-deferred retirement account with a pre-retirement portfolio consisting of 60% stocks/30% bonds/10% short-term bonds, changing to 40% stocks/40% bonds/20% short-term bonds during retirement. Gross retirement income through age 95 is estimated to equal 75% of pre-retirement salary, consists of annual retirement account withdrawals of 4% plus estimated Social Security benefits (both beginning at age 65), and is increased by 3% annually for inflation. The savings benchmark analysis is based on results from the T. Rowe Price Retirement Income Calculator, which considers 1,000 market simulations and an 80% simulation success rate, using hypothetical age 65 salaries of $70,000, $100,000 and $110,000. That tool s methodology and assumptions are explained in detail at troweprice.com/ric. Users should consider their own circumstances. Results may not apply to earnings that vary substantially from modeled salaries.

13 ASSET ALLOCATION Stocks Short Term Bonds GOAL: Provide an appropriate balance between short-term market volatility risk and inflation risk for a particular time horizon

14 ASSET ALLOCATION ASSUMPTIONS Our asset allocation models are designed to meet the needs of a hypothetical investor with an assumed age 65 retirement and a withdrawal horizon of 30 years. The model allocations are based upon an analysis that seeks to balance long term return potential with anticipated short term volatility. The model reflects our view of appropriate levels of tradeoff between potential return and short term volatility for investors of certain age ranges. The longer the time frame for investing, the higher the allocation is to stocks (and the higher the volatility) versus bonds or cash. Limitations: While the models have been designed with reasonable assumptions and methods, the tool provides hypothetical models only and has certain limitations. The models do not take into account individual circumstances or preferences, and the model displayed for your age may not align with your accumulation timeframe, withdrawal horizon, or view of the appropriate levels of tradeoff between potential return and shortterm volatility. Investing consistent with a model allocation does not protect against losses or guarantee future results. Please be sure to take other assets, income and investments into consideration in reviewing results that do not incorporate that information. Other T. Rowe Price educational tools or advice services use different assumptions and methods and may yield different outcomes.

15 IMPLEMENTATION AGE-BASED INVESTMENTS BUILD-YOUR-OWN PORTFOLIO

16 EMERGENCY RESERVES

17 EMERGENCY RESERVES Adequate savings can prevent the need to use credit cards or raid retirement accounts Set aside 3 to 6 MONTHS OF EXPENSES Build over time 20% OF INCOME

18 EMERGENCY RESERVES Adequate savings can prevent the need to use credit cards or raid retirement accounts Set aside 1 to 2 YEARS Build over time

19 COLLEGE SAVINGS

20 COLLEGE SAVINGS Continue saving toward retirement Consider reducing retirement contributions ONLY if you have a well-funded retirement account Save for a down payment

21 Child s Age COLLEGE SAVINGS % of total net costs covered for an average four-year, in state public university 16 2% 4% 5% 6% 7% 8% 10% 11% 12% 13% 15% 15 4% 5% 7% 9% 11% 12% 14% 16% 18% 20% 21% 14 5% 7% 9% 12% 14% 16% 19% 21% 23% 25% 28% 13 6% 8% 11% 14% 17% 20% 23% 25% 28% 31% 34% 12 7% 10% 13% 17% 20% 23% 27% 30% 33% 36% 40% 11 8% 11% 15% 19% 23% 26% 30% 34% 38% 42% 45% 10 8% 13% 17% 21% 25% 30% 34% 38% 42% 47% 51% 9 9% 14% 19% 23% 28% 33% 37% 42% 47% 51% 56% 8 10% 15% 20% 25% 30% 35% 40% 46% 51% 56% 61% 7 11% 16% 22% 27% 33% 38% 44% 49% 54% 60% 65% 6 12% 17% 23% 29% 35% 41% 47% 52% 58% 64% 70% 5 12% 19% 25% 31% 37% 43% 49% 56% 62% 68% 74% 4 13% 20% 26% 33% 39% 46% 52% 59% 65% 72% 78% 3 14% 21% 27% 34% 41% 48% 55% 62% 68% 75% 82% 2 14% 21% 29% 36% 43% 50% 57% 64% 71% 79% 86% 1 15% 22% 30% 37% 45% 52% 60% 67% 74% 82% 89% 0 15% 23% 31% 39% 46% 54% 62% 70% 77% 85% 93% $100 $150 $200 $250 $300 $350 $400 $450 $500 $550 $600 Monthly Savings Amount troweprice.com/college calculator Down payment or about ½ of savings needed to cover the total cost This study is for illustrative purposes only and does not represent the return earned by any single investment option. It assumes an investment return of 6% annually, net of fees. But investment returns will vary and could be higher or lower than in this example. The future cost of college was calculated based on the 2016 total cost for one year of an average four-year, in-state public university education ($21,753) for a family in the third income quartile (annual household income of $65,000 to $108,000 in 2012) after the average amount of grants and scholarships for this group was subtracted. The cost was then inflated by 5.5% annually for 18 years. Sources: T. Rowe Price; for the average college cost, U.S. Department of Education, National Center for Education Statistics, and National Postsecondary Student Aid Study; and for the college cost inflation rate, the College Board.

22 REGULAR VS TAX-ADVANTAGED ACCOUNTS Regular Savings Account Contribute money to the account Invest in something Likely pay taxes on any earnings along the way Pay taxes on the rest of any earnings when you withdraw You get to spend what s left over after paying taxes Tax-Advantaged Account Contribute money to a 529 Invest in something Pay no taxes on any earnings when you withdraw (if you spend the money on qualified educational expenses) You get to spend the entire balance since you pay no taxes on any earnings Many states offer tax benefits for contributions to a 529 plan. That s just another added bonus. Please note that the availability of tax or other benefits may be conditioned on meeting certain requirements such as residency, purpose for or timing of distributions, or other factors as applicable.

23 COLLEGE SAVINGS ALLOCATIONS YEARS BEFORE GOAL REACHED YEARS AFTER GOAL REACHED GOAL % 10% 30% 20% 30% 40% 100% 80% 60% 50% 40% 20% STOCKS BONDS SHORT TERM This chart is age-based only and does not take into account personal risk tolerance.

24 SPECIFIC PURCHASE

25 100% SPECIFIC PURCHASE ALLOCATIONS YEARS BEFORE GOAL REACHED YEARS AFTER GOAL REACHED GOAL % 10% 30% 30% 100% 80% 60% 50% 20% STOCKS BONDS SHORT TERM The allocations above are based on time horizon and do not take risk tolerance into account.

26 ELIMINATE DEBT

27 ELIMINATE DEBT If debt payments are prohibiting your ability to save for retirement Target debt Target high-interest debt (credit cards) and accelerate payments Set a time table Continue payments

28 ELIMINATE DEBT If debt payments are prohibiting your ability to save for retirement Target debt Target high interest debt (credit cards) and accelerate payments Set a timetable Set a timetable (for example, one to three years) Continue payments

29 ELIMINATE DEBT BEHAVIORAL APPROACH Tackle lowest balances first and accelerate payments ECONOMIC APPROACH Target highest-interest cards first and accelerate payments $2,500 $1,000 $500 $200 29% 16% 14% 11% Once a card is paid off, reallocate payments to the next card you plan to tackle

30 ELIMINATE DEBT If debt payments are prohibiting ability to save for retirement Target debt Target high interest debt (credit cards) and accelerate payments Set a time table Set a timetable (for example, one to three years) Continue payments Continue making regular payments on other kinds of debt, like student loans and mortgages Once debt is eliminated, consider increasing retirement contributions toward 15%

31 COMPETING PRIORITIES

32 COMPETING PRIORITIES: CONSIDERATIONS IF POSSIBLE KEEP SAVING FOR RETIREMENT! Retirement vs. Emergency Reserve Retirement vs. Debt Consider reducing retirement savings to the minimum Build emergency reserve over one to two years Consider increasing retirement savings back toward 15% Consider reducing retirement savings to the minimum Pay down credit card debt within three years Consider increasing retirement savings back toward 15% Emergency Reserve vs. Debt Retirement vs. College Savings Consider reducing retirement savings to the minimum First build emergency reserve over one to two years Then pay down credit card debt within three years Consider increasing retirement savings back toward 15% Confirm that you are on track for retirement If close to recommended benchmarks, consider reducing retirement savings Contribute towards college down payment

33 THANK YOU. IT S YOUR FUTURE.

34 THANK YOU. SAVE ENOUGH FOR RETIREMENT.

35 THANK YOU. CONTACT US FOR HELP.

36 THANK YOU. T. Rowe Price Investment Services, Inc. C1CYGLAK