Make It Last: Withdrawal Strategies for Retirement

Transcription

1 MARCH 25, 2015 Make It Last: Withdrawal Strategies for Retirement TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.

2 Important Disclosures MARCH 25, 2015 TD Ameritrade does not provide tax or retirement-planning advice. We suggest you consult with a qualified tax-planning or retirementplanning professional with regard to your personal circumstances. Past performance of a security, strategy or index is no guarantee of future results or success.. The material, views and opinions expressed in this presentation are solely those of the presenter and may not be reflective of those held by TD Ameritrade, Inc. The webcast is provided for general information purposes only and should not be considered an individualized recommendation or advice. TD Ameritrade makes no representations or warranties with respect to the accuracy or completeness of the information provided. Examples and recommendations presented by Mass Mutual Financial Group should not be considered a recommendation or solicitation by TD Ameritrade to purchase or sell any specific security. TD Ameritrade and Mass Mutual Financial Group are separate, unaffiliated companies and not responsible for one another s products, services or policies. This presentation includes a feature that allows recording of electronic (including audio) participant-shared content. By continued participation in this session you automatically consent to such recording, and the subsequent rebroadcast of any recording.

3 Speaker MARCH 25, 2015 Phil Michalowski Vice President, MassMutual Has 20 years of experience as an annuities strategist Responsible for influencing product development and innovation to help people secure their futures through retirement income strategies Earned a B.S. degree in business management from Fordham University Maintains his Series 6 license and the Associate, Annuity Products & Administration (AAPA) designation Invented new annuity product ideas resulting in 9 patent

4 Build Your Retirement Income-Now Strategy With Sound Retirement Solutions SM from Massachusetts Mutual Life Insurance Company AN CRN

5 Discussion topics What does retirement mean to you? Identify challenges Chart your course Address the challenges 5

6 What does retirement mean to you? A recent Pew Charitable Trusts survey finds: 1 in 5 Americans (21%) say they are not planning to retire More than half (53%) anticipate doing something else, including working at a different job 26% have a traditional notion of retirement, in which they stop working altogether The Pew Charitable Trusts, The Precarious State of Family Balance Sheets (2015), Assets/2015/01/FSM_Balance_Sheet_Report.pdf 6

7 What about Social Security? 7

8 Retirement challenges Longevity risk Inflation risk Health care cost risk Market risk Excessive withdrawals risk 8

9 Longevity Will you live to be 100? According to the 2010 U. S. Census: There were 53,364 American centenarians in % of them were women 1 By 2060, the number of U.S. centenarians is projected to number 690,000 a nine-fold increase over the next 47 years Census Special Reports, Centenarians: 2010, C2010SR-03 U.S. Government Printing Office, Washington, DC, United States Census Bureau, 2012 National Population Projections: Summary Tables, Table 2. Projections of the Population by Selected Age Groups and Sex for the United States: 2015 to Your chances of living until 100 may be better than you think! 9

10 Longevity risk What s the likelihood? % 43% 20% 57% 34% 13% 85% 62% Female Male Couple 31% For couples, there is a 62% chance that one or both persons who are currently age 65 will live to age 90. That adds up to 25 years in retirement. Age 85 Age 90 Age Mortality Table, Society of Actuaries 10

11 Inflation risk Income pattern needed to maintain living standard at 3% inflation rate $250,000 $200,000 $150,000 $100,000 $50,000 $

12 Inflation impact One Gallon of Regular Gas 1985 $ $2.11 Updated stats from 2012 to 2015 One Dozen Eggs $.75 $2.11 A $10 purchase in $.55 $1.48 Cost $21.72 in 2015 One-Pound Loaf of White Bread Source: Bureau of Labor Statistics,

13 Health care costs A recent Fidelity poll of pre-retirees (ages 55-64) found that nearly half (48%) of the respondents believed they would only need $50,000 to pay for retirement health care costs. 1 In contrast, according to the 2013 Fidelity Retiree Health Care Costs Estimate study, a 65-year-old couple retiring in 2013 would need approximately $220,000 to cover routine medical costs throughout retirement. 2 The majority of Americans will need to consider health care costs as part of their overall retirement savings strategy. 1 The Fidelity Health Savings Account Survey was conducted by GfK Public Affairs & Corporate Communications from February 4th to 20th, The study was conducted among a nationally representative sample of 1,836 U.S. adults ages with a household income of $25,000 or more. Respondents also have primary or shared responsibility for household financial decisions and receive healthcare benefits through their own or their spouse s employer. 2 Source: Fidelity Benefits Consulting, 2013; The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government s insurance program, Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-ofpocket costs, as well as certain services excluded by Medicare. The estimate does not include other healthrelated expenses, such as over-the-counter medications, most dental services and long-term care. 13

14 Market risk equity mutual funds 20-year average annual return ending in 2013 The average equity investor underperformed the equity market consistently during this period. 5.02% 9.22% 2.1% Average Equity Fund Investor S&P 500 Inflation Source: Quantitative Analysis of Investor Behavior, 2014, DALBAR, Inc. The data reflects 20-year average annual return ending Equity benchmark performance is represented by the Standard & Poor s 500 Composite Index, an unmanaged index of 500 common stocks generally considered representative of the U.S. stock market. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest directly in any index. Past performance cannot guarantee future results. 14

15 Market risk fixed income mutual funds 20-year average annual return ending in 2013 The average bond investor consistently underperformed the fixed income market during this period. 0.71% 5.74% 2.37% Average Fixed Income Fund Investor Barclay's Aggregate Bond Index Inflation Source: Quantitative Analysis of Investor Behavior, 2014, DALBAR, Inc. The data reflects 20-year average annual return ending Bond benchmark performance is represented by the Barclays Aggregate Bond Index, an unmanaged index of bonds generally considered representative of the bond market. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest directly in any index. Past performance cannot guarantee future results 15

16 Market Risk accumulation I m p o r t a n c e o f S e q u e n c e o f R e t u r n s Accumulation Year Annual Return -8.42% 3.98% 14.30% 18.95% % % 37.30% 23.70% -7.26% 6.57% 18.60% 32.13% -4.91% 21.11% 22.37% 6.11% 32.03% 18.55% 5.22% 16.82% 31.53% -3.11% 30.40% 7.61% 10.06% 1.32% Portfolio 1 Portfolio 2 Year-End Value $457,900 $476,124 $544,210 $647,338 $551,661 $405,747 $557,091 $689,121 $639,091 $681,079 $807,760 $1,067,293 $1,014,889 $1,229,132 $1,504,089 $1,595,989 $2,107,184 $2,498,067 $2,628,466 $3,070,574 $4,038,726 $3,913,122 $5,102,711 $5,491,027 $6,043,424 $6,123,197 Annual Return 1.32% 10.06% 7.61% 30.40% -3.11% 31.53% 16.82% 5.22% 18.55% 32.03% 6.11% 22.37% 21.11% -4.91% 32.13% 18.60% 6.57% -7.26% 23.70% 37.30% % % 18.95% 14.30% 3.98% -8.42% Year-End Value $506,600 $557,564 $599,995 $782,393 $758,061 $997,077 $1,164,785 $1,225,587 $1,452,934 $1,918,308 $2,035,517 $2,490,862 $3,016,683 $2,868,564 $3,790,233 $4,495,217 $4,790,552 $4,442,758 $5,495,692 $7,545,585 $5,549,778 $4,729,521 $5,625,765 $6,430,249 $6,686,173 $6,123,197 Assumptions: Initial Investment: $500,000 Annual Income: None Portfolio 1: S&P calendar year returns from Portfolio 2: Reverses the order of S&P 500 returns For this analysis, we chose the years because there were 4 negative years in the first ten. This type of performance best illustrates how a negative sequence of returns early in retirement affects the value of the portfolio. 1 The Standard & Poor s 500 Composite Index is an unmanaged index of 500 common stocks generally considered representative of the U.S. stock market. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest directly in any index. Past performance cannot guarantee future results. This hypothetical example is for illustrative purposes, and is not representative of any MassMutual product. 16

17 Market risk distribution I m p o r t a n c e o f S e q u e n c e o f R e t u r n s Distribution Year Annual Return -8.42% 3.98% 14.30% 18.95% % % 37.30% 23.70% -7.26% 6.57% 18.60% 32.13% -4.91% 21.11% 22.37% 6.11% 32.03% 18.55% 5.22% 16.82% 31.53% -3.11% 30.40% 7.61% 10.06% 1.32% Portfolio 1 Portfolio 2 Year-End Value $427,900 $414,030 $441,410 $492,275 $385,752 $248,942 $305,976 $341,596 $278,793 $257,966 $265,631 $309,451 $251,484 $206,516 $273,416 $243,383 $273,197 $274,290 $237,535 $224,883 $241,605 $178,282 $174,997 $129,107 $81,111 $19,369 Annual Return 1.32% 10.06% 7.61% 30.40% -3.11% 31.53% 16.82% 5.22% 18.55% 32.03% 6.11% 22.37% 21.11% -4.91% 32.13% 18.60% 6.57% -7.26% 23.70% 37.30% % % 18.95% 14.30% 3.98% -8.42% Year-End Value $476,600 $493,646 $499,385 $618,417 $565,419 $708,917 $792,335 $796,799 $906,602 $1,157,844 $1,188,270 $1,412,559 $1,667,978 $1,542,024 $1,992,099 $2,315,890 $2,419,903 $2,194,633 $2,663,688 $3,604,638 $2,597,028 $2,157,378 $2,508,718 $2,808,257 $2,859,042 $2,555,498 Assumptions: Initial Investment: $500,000 $30,000 first year withdrawal with 3% increases annually thereafter Portfolio 1 S&P calendar year returns from Portfolio 2 Reverses the order of S&P 500 returns For this analysis, we chose the years because there were 4 negative years in the first ten. This type of performance best illustrates how a negative sequence of returns early in retirement affects the value of the portfolio. 1 The Standard & Poor s 500 Composite Index is an unmanaged index of 500 common stocks generally considered representative of the U.S. stock market. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest directly in any index. Past performance cannot guarantee future results. This hypothetical example is for illustrative purposes, and is not representative of any MassMutual product. 17

18 The traditional approach How much income will my assets provide and for how long? Stocks 40% Cash 20% Bonds 40% 18

19 Will your money last? Withdrawal rates and portfolio allocations over a 25-year retirement 19

20 Chart your course

21 Sound retirement solutions Growth helps keep pace with inflation and meet legacy needs. Growth Predictable Income Access Predictable Income is reliable no matter what happens in the market. Access Liquid assets available for emergencies or special needs. 21

22 4-Box Strategy of income planning LIFESTYLE Necessary Expenses Housing Food Health Care Other INCOME SOURCES Predictable Income Social Security Pensions Annuities Other Discretionary Expenses Travel Hobbies Other Income from Assets Stocks Bonds Cash Other Farrell Dolan Associates. The 4-Box Strategy is being used by MassMutual with the express written consent of Farrell Dolan Associates. 22

23 Meet an income-now client Expenses: $6,200 (monthly) Meet Alice Necessary Discretionary Age 65, Single Sources of Lifetime Income: $3,000 (monthly) Social Security: $2,000 Pension: $1,000 Growth & Access Assets: $770,000 Housing $1,350 Utilities $ 300 Food $ 500 $ 500 Transportation $ 350 $ Health Care $ 300 $ Insurance $ 600 $ Personal Care $ 100 $ 100 Entertainment $ $1,000 Property Taxes $ 500 $ Hobbies $ $ 200 Other $ $ 400 Monthly Expenses Annual Expenses $4,000 X 12 $48,000 $2,200 X 12 $26,400 23

24 Necessary expenses $48,000 $36,000 $12,000 $0.00 $770,000 $300,000 $470,000 $770,000 $229,947 $540,053 24

25 Discretionary expenses $26,400 $26,400 $470,000 $540, % 4.9% 25

26 A single premium immediate annuity A contract between an owner and an insurance company Owner selects income payment option, payment frequency and any desired additional features. Owner pays insurer a single premium based, in part, on options selected. Insurer issues annuity contract guaranteeing income payments for life, for a specific period of time, or for both, depending on the owner s elections. Guaranteed income payments begin within 30 days. I N C O M E S T R E A M 26

27 SPIA cash flow Age High Guaranteed Cash Flow (Fixed Immediate Annuity) Age Male Female Joint % 5.6% 5.1% % 6.3% 5.7% % 7.3% 6.4% RetireEase Annual Cash Flow as of 3/1/15 for Single Life with 10yr Period Certain and Joint Life with 10yr Period Certain. 27

28 Addressing the risks RISK Longevity Inflation Health care costs Market Excessive withdrawals ACTION Fund necessary expenses with lifetime income Include growth-oriented investments to help outpace inflation Combine predictable lifetime income to cover necessary expenses; Allows growth-oriented investments to cover increased costs Secure guaranteed lifetime income to cover necessary expenses. Maintain a diversified portfolio with liquid assets available Predictable income sources support flexibility for withdrawal rate adjustments, when needed 28

29 Next steps Set up an appointment today Together we can develop a strategy to address the challenges 29

30 Thank You! MassMutual RetireEase SM [Contract Form #SPIA05; SPIA05(NC) is a single premium immediate annuity contract issued by Massachusetts Mutual Life Insurance Company, Springfield, MA MassMutual RetireEase is not a Medicaid-friendly immediate annuity. The use of MassMutual RetireEase in conjunction with Medicaid planning is prohibited. The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel..

31 2015 Massachusetts Mutual Life Insurance Company, Springfield, MA All rights reserved. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.

32 Important Disclosures MARCH 25, 2015 TD Ameritrade does not provide tax or retirement-planning advice. We suggest you consult with a qualified tax-planning or retirementplanning professional with regard to your personal circumstances. Past performance of a security, strategy or index is no guarantee of future results or success.. The material, views and opinions expressed in this presentation are solely those of the presenter and may not be reflective of those held by TD Ameritrade, Inc. The webcast is provided for general information purposes only and should not be considered an individualized recommendation or advice. TD Ameritrade makes no representations or warranties with respect to the accuracy or completeness of the information provided. Examples and recommendations presented by Mass Mutual Financial Group should not be considered a recommendation or solicitation by TD Ameritrade to purchase or sell any specific security. TD Ameritrade and Mass Mutual Financial Group are separate, unaffiliated companies and not responsible for one another s products, services or policies. This presentation includes a feature that allows recording of electronic (including audio) participant-shared content. By continued participation in this session you automatically consent to such recording, and the subsequent rebroadcast of any recording.