Facilitator Guide. Program Goal: To define and examine practices that maximizes money for retirees.

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1 Facilitator Guide Maximizing Your Dollars in Retirement The trouble with retirement is that you never get a day off. Abe Lemons Rationale: Feeling financially secure is important at all stages of life. Unfortunately, due to recent changes in the economy, many retirees are feeling financially vulnerable. It is important to help retirees understand how to maximize their money by creating and utilizing a budget, as well as understanding different investing options. Recognizing and developing a plan for the retirement stage of life is key to feeling financially secure. Program Goal: To define and examine practices that maximizes money for retirees. Program Objectives: Identify sources of retirement income Understand fixed and flexible expenses, and identify common strategies for tracking flexible expenses Understand the benefits and risks associated with different retirement asset investment products Pre-Program Preparation: Copy Maximizing Your Dollars in Retirement, FCS5-458 publication. You will need one per participant One sheet of blank paper per participant Large sheet of paper and marker Copy of Fixed and Flexible Expense Definition slide for facilitator to share Copy of Where Does Your Money Go? Spending-Savings Plan worksheet per participant Introduction: Feeling financially secure is important at all stages of life. Unfortunately, due to recent changes in the economy many retirees are feeling financially vulnerable. A recent study conducted by Allianz Life Insurance Co., found six of ten baby boomers fear outliving their retirement funds more than they fear dying. Typically retirees are interested in maximizing both their retirement income and assets. Objective 1: Identify sources of retirement income Learning Activity: As the facilitator, explain that many people often worry about not having enough income to support their desired retirement lifestyle. Ask participants to draw an oval on their sheet of paper. Demonstrate by drawing an oval on the large sheet of paper.

2 Explain that this represents 100 percent of the participants retirement income. Now, ask the participants to draw three legs underneath their oval, to form a three-legged stool. Demonstrate on the large sheet of paper. Explain retirement income often comes from three primary sources. Ask participants to help identify the most common sources of retirement income. The correct answers are: 1. Social Security, 2. Employer Sponsored Retirement Plans (401K, 403B, Pensions) and 3. Personal Savings. Label the legs of the stool, as participants identify the correct answers. Social Security Personal Savings Employer- Sponsored Explain to participants that some retirees choose to add a fourth leg to their stool. The fourth leg would represent earnings or wages. Retirees may choose to continue working at some level for a variety reasons. Finally, acknowledge that some retirees may have many more sources of retirement income. However, these are the most common. Explain to participants one of the first steps to stretching their retirement dollar is to know exactly how much money you have each month to stretch. Encourage participants to take a few minutes to write down all of their retirement income sources. They can record this information on page one of the Maximizing Your Dollars in Retirement publication. Explain to participants that they do not need to record their monthly income amount during today s meeting, but this is something they should do at home. Objective 2: Understand Fixed and Flexible Expenses and identify common strategies for tracking flexible expenses As the facilitator, share with the participants that for the typical retiree, the amount of monthly income will be fairly constant, every month. Living on a fixed income can be challenging at times, especially when faced with rising prices on items such as groceries, gasoline, health care and other necessary living expenses. Carefully reviewing your monthly expenses can help you develop a strategy to manage fluctuating prices. Learning Activity 1: Where Did My Money Go? Sometimes we spend money without realizing it or on small impulse type items. For instance, we might stop for a cup coffee or pick-up a small item at a check-out counter. These little expenses can definitely add up. The best way to maximize your money is to track where it goes. Ask participants to use their half sheet of paper and list all purchases that they may commonly make which cost less than $5. These items are easy to forget, so you may suggest a few aloud to help participants get started, such as a drive-thru treat, lottery ticket or candy bar at the grocery 2

3 store. After two to three minutes ask participants to estimate how many times per week or month they purchase these items. Finally, ask them to calculate the monthly amount spent on these small dollar items purchases. Following the exercise lead a discussion with participants, using the following questions as prompts: What small expense items do you purchase most often? Were you surprised by the amount spent on $5 or less items each month? Can you identify ways to avoid these expenses? Learning Activity 2: Fixed vs. Flexible Expenses Explain to participants Now that you have started thinking about where your money goes on a monthly basis, tracking monthly expenses is the key to living on a fixed income. Knowing your monthly expenses is the first step in developing a realistic monthly budget for your retirement income. Share with participants Monthly expenses can typically be divided into two categories: 1. Fixed Expenses and 2. Flexible Expenses. Define both fixed and flexible expenses for the participants. Fixed expenses are reoccurring expenses which are approximately the same amount each month. Examples of fixed expenses include monthly mortgage or rent payments, car payments, insurance and some utility bills. In general, fixed expenses are easy to identify and track. Typically fixed expenses represent non-negotiable expenses, or those expenses that would be difficult to reduce or eliminate on short-notice. Flexible expenses are those expenses which vary in amount on a monthly basis and can be more difficult to identify. Examples of flexible expenses include groceries, entertainment, travel, dining out, gifts, gasoline and spending on children and grandchildren. Typically an individual has more control over flexible expenses than fixed. Therefore, identifying monthly flexible expenses is key to establishing a realistic retirement budget. Explain to participants that tracking expenses for a month will provide a realistic picture of spending habits. Encourage participants to track their expenses for at least one full week (7 day) period. It is important to realize that our spending habits vary from the week to the weekend and also from week to week during the month. However, generally speaking monthly behaviors become repetitive. Don t forget to track the small expenses. Daily, small or insignificant expenses can add up over time. Ask participants to share ideas to easily track daily expenses. Share the following strategies if not mentioned by participants. Start a Spending Calendar Using a calendar, track all of your spending. Be certain to remember the small purchases, such as a cup of coffee or pack of gum that you picked up when stopping at the gas station. At the end of each day record your spending and organize your expenses into categories. Carry an Expense Envelope - At the beginning of each week, put a new envelope in your purse or vehicle. Save receipts from all of your transactions, if you are paying in cash or do not receive a receipt, write the purchase on the front of the envelope. At the end of each week, organize your receipts into expense categories. Designate an Expense Container Identify a specific container for receipts. Similar to the expense envelope, maintain all receipts and make a note of cash transactions. At the end of each day, place the receipts in the expense container and categorize expenses on a weekly basis. This can be helpful, especially if you are working with a spouse to track expenses. Encourage participants to review their expenses at the end of the week or month, looking for categories or areas where expenses may be reduced. 3

4 Learning Activity 3: Estimating Yearly Occasional Expenses Share with participants Identifying your retirement income and spending log, can help you develop a budget or spending plan for the following month. Make a list of categories for your spending plan based on the fixed and flexible expenses that you have been tracking. Consider adding a category to your budget for occasional expenses. Occasional expenses are expenses that occur periodically throughout the year, including holiday and birthday gifts, as well as expenses that you may pay on quarterly or yearly basis, such as automobile insurance or vehicle maintenance. You can develop an accurate estimate of your yearly spending on occasional expenses, by using a 12-month calendar. Look through each calendar month, think about additional expenses which may occur and estimate a cost. Total all of your occasional expenses for the year and divide by 12. This is the amount that you would need to save each month to be prepared for when these expenses occur. As the facilitator, distribute the Where Does Your Money Go? Spending-Savings Plan Worksheets. Explain to the participants that the worksheets are designed to address all life stages, so there may be sources of income listed on the worksheet that they do not currently have, simply place a zero in those boxes, and add any sources of income they may have which are not listed. Encourage participants to complete the worksheets at home. If time permits, you may allow five to ten minutes for participants to review the worksheets and begin to complete the categories. Maximizing Your Retirement Assets Share with participants tracking your spending and developing a monthly budget can help you stretch your retirement income. However, during retirement it is also important to preserve or maximize retirement assets. Inflation, often known as the silent thief, is the general rise in the price of goods and cost of living. Overtime, it can reduce your buying power and erode your retirement savings. Depending on the amount of your assets, your personal risk tolerance, your retirement goals, and your anticipated length of retirement, you may also want to consider a balanced portfolio which contains a mix of fixed income investments, such as certificate of deposit and money market accounts, as well as stocks, bonds, and mutual funds. Diversifying your investments can help improve your long-term return and protect against inflation. There are several strategies for investing during retirement. Prior to investing in any type asset, be certain that you know and are comfortable with the risk of the investment. Typically assets which have the potential of yielding the greatest returns are often the most risky and can result in significant loss of principal. Recovering financially from loss of principle during your retirement years can be very difficult. Generally speaking, during retirement you want to focus on conservative investments, which present little risk for loss of principle. Prior to selecting a retirement investment, ask yourself the following questions: How comfortable am I with the risk associated with this investment? If I lost a portion of my principle, would I be able to recover financially? Is there a chance I may need this principle (cash invested) in the short-term? Will this investment help me work toward meeting my retirement goals? 4

5 Objective 3: Understand the benefits and risks associated with different retirement asset investment products Explain that there are many different investment options. It is important to find the right mix for your specific situation. Often the key is to invest in several different asset types to maximize your return while limiting your risk. Be cautious when considering investment options for your retirement assets; make certain that you are aware of the terms or fine print of the investment. To develop a better understanding of potential investment options, encourage participants to turn to the last page of the publication Maximizing Your Dollars in Retirement. Review the following investment options aloud for participants. Certificate of Deposit Laddering a certificate of deposit or CD is a fixed income investment, meaning you are guaranteed a specific rate of return. Currently CD rates or the Annual Percentage Yield (APY) is very low. However, longer term CDs typically pay a higher APY. To maximize APY from CDs, but also still provide you with access to cash, considering laddering or investing in multiple CDs with staggered maturity dates. When considering certificates of deposit, call several banks to compare rates and maturity dates. Schedule an appointment at the bank. CD rates can be negotiable. Annuities an annuity is purchased through an insurance company. There are several different types of annuities and riders or additions that you can purchase. Therefore, it is important to understand the terms of the annuity you are considering purchasing. Generally speaking, you purchase an annuity with a lump sum of cash. In exchange, the life insurance company pays you a monthly income for a defined period of time. If you pass away before the defined period of time, the life insurance company keeps the remainder of the investment. In addition to understanding the terms and options of the annuity, it is also important to research the life insurance company and compare fees between companies. Typically with an annuity you lose control of your funds. Income Replacement Funds an income replacement fund is a type of mutual fund and is similar to an annuity because it provides monthly payments. A maturity date for the mutual fund is selected when the fund is purchased. Typically the money within the fund is invested more aggressively in the early years and the investments become more conservative the closer the fund is to maturity. Monthly payments are based on length of time until maturity and the performance of your fund. This helps preserve your principal for as long as possible. Unlike an annuity, an income replacement fund can be sold at any time. As with any investment be certain to compare fees and fund performance. Invest in Stocks and Bonds working with a financial advisor, you may consider purchasing a mix of stocks and bonds. You will want to select a portfolio which aligns with your retirement goals and determine a preset withdrawal schedule to support living expenses. Money Market Accounts a money market account is a safe investment with a guaranteed return, which normally requires a minimum balance and limits the number of transactions on the account. Although the yield is typically very low, it is normally more than interest earned on a traditional savings account. A money market account provides you easy access to cash. Explain to the participants we are going to consider three different financial scenarios. Divide the participants into three groups. If your group is particularly large, you may consider six groups. Five to seven participants per group would be considered ideal. Provide each group with a different Financial Situation Scenario. Ask the groups to identify a recorder and a spokesperson. Ask the groups to read their scenario and identify a retirement investment strategy which would apply to the situation. 5

6 Allow groups five to seven minutes to discuss their scenarios. Ask the spokesperson from each group to briefly share their scenario and the action plan developed by the group. Facilitator Note: Participants may have several answers to the financial scenarios. Examples may include: Scenario 1: CD Laddering, 2. Annuity, 3. Diversify investments, choosing several options most likely including investment in stock and bonds. Summary: In closing, share with participants As you navigate your retirement years, it is important to be proactive in managing your spending and protecting and preserving your assets. To maximize your retirement dollars revisit your financial situation on a regular basis and make changes to help you continue moving in a positive financial direction. References: Allianz Life Insurance Company of North America (2011, December). Reclaiming Our Future, retrieved July 20, 2012 from Brennan, P. & O Neil, B. (2004). MoneyTalk: A Financial Guide for Women. NRAES-160. O Neil, B. (2012,March). Creating a Retirement Paycheck. extension, retrieved July 20, 2012 from Jennifer L. Hunter, Ph.D. Extension Specialist for Family Finance July 2013 Copyright 2013 for materials developed by University of Kentucky Cooperative Extension. This publication may be reproduced in portions or its entirety for educational or nonprofit purposes only. Permitted users shall give credit to the author(s) and include this copyright notice. Educational programs of Kentucky Cooperative Extension serve all people regardless of race, color, age, sex, religion, disability, or national origin. 6