Retirement Planning Decisions 9/16/2014. Retirement Decision Making. Christi Powell, CFP. BIVA Board Director Heart of Oklahoma Chapter Assoc Director

Transcription

1 Retirement Decision Making Christi Powell, CFP BIVA Board Director Heart of Oklahoma Chapter Assoc Director Rocky Mountain Chapter September 2014 Disclaimer The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by BetterInvesting TM National Association of Investors Corporation ( BI ). The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of BetterInvesting TM. Investors should conduct their own review and analysis of any company of interest before making an investment decision. Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any BetterInvesting programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the CEO of BetterInvesting or the Director of Chapter Relations. This presentation may contain images of websites and products or services not endorsed by BetterInvesting. The presenter is not endorsing or promoting the use of these websites, products or services. This session is being recorded for future use. 2 RM Chapter Better Investing Annual Meeting 1

2 Christi Powell, CFP Owner/Manager Falcon Financial of Oklahoma, LLC, a financial planning and registered investment advisory firm. Volunteer with BI since No personal financial planning advice is being offered or given in this presentation. 3 Tonight s Goals Spark conversation and actions to describe and prepare for your retirement. Discuss decisions you need to make to fund an adequate retirement. Discuss best practices for multiple account investing. Discuss decisions to make for your surviving spouse and your heirs. 4 RM Chapter Better Investing Annual Meeting 2

3 Starting Point Things To Consider When Planning Your Retirement How is your health? Changes to make now and conditions to plan around. When do you want to retire versus reality. Gradually Entirely Involuntarily or Planned Where you want to spend your time. Investigating other locations. Downsize your home? What assets do you have to accomplish this? Net Worth 5 Should You Attempt It? When should you retire? What does retirement look like for you? How long should you expect to live? If you had 5 years left, what do you want to do the next five years? If you have 2 years left, what do you want to do the next two years? If you die tonight, what do you regret not doing? 6 RM Chapter Better Investing Annual Meeting 3

4 More Items to Think About Now Have specific conversations write down month/year you want to retire. Describe your ideal retirement where, what will you do. Discuss partial or delayed retirement. 7 More Items to Think About Now - 2 Make a list of all your expenses and draw up a preliminary retirement budget. Try living on that amount for three to six months. Include unusual/irregular expenses such as HVAC, roof replacement. How often do you replace cars and take vacations? Cost? Inflation estimate? 8 RM Chapter Better Investing Annual Meeting 4

5 Organize and Collect Information Social Security Administration. WEP* offsets? *Windfall Elimination Provision Investigate Medicare or other options you may have for health insurance. Don t miss the deadline! What retirement plans, pensions can you expect from your employer. Decision deadlines approaching? Set up family access to online/cloud accounts and storage. 9 Consistent Monitoring Health, taxes, goal changes? Market, economic changes? Expense changes? Asset value changes? Can you manage $1M? 10 RM Chapter Better Investing Annual Meeting 5

6 Age 35 Age 45 Age 55 Age 65 What do you consider your greatest risk in retirement? Outliving our money (longevity) Healthcare costs (spending) Inflation; Market downturns or poor returns Nest egg is too small (withdrawal/savings) Pension plan/social Security insolvency 11 Goals for Your Retirement Funds 1x 3x 5x x Discipline is choosing between what you want NOW and what you want MOST. C. Groeschel 12 RM Chapter Better Investing Annual Meeting 6

7 Funding Decisions - How Long Will You and Your Money Last? How much can we take out each year? - Plan 30 years of retirement at least. - 4% rule. Bucket method. RMD. Monte Carlo simulation. (Both/and not either/or. I like them to confirm one another.) What if the market tanks? Define tank. Be prepared emotionally and financially. Cash cushion. Bonds. Alternatives. What IF we don t have enough? Work longer. Spend less. Annuitize a portion. Reverse mortgage (HECM*) or HELOC. *Home Equity Conversion Mortgage 13 #1 Funding Decision Pay Yourself First Most (52%) households have less than $30,000 saved for retirement. 1. Start early. 2. Automate it. 3. Minimum 10-15%. 4. Save half your raises and bonuses. Pay debts with other half. 14 RM Chapter Better Investing Annual Meeting 7

8 Which one most closely describes your current actions? I know I should save for retirement. I will save for retirement soon. I am saving for retirement. I choose to pay myself first. 15 #2 Funding Decision Live Within Our Means We choose to not cash out a small account when we change jobs. Roll it over to an IRA. We choose to not borrow from our future so we can spend now. Do without. Extreme need only. $5,000*20yrs@6%=$16, RM Chapter Better Investing Annual Meeting 8

9 #3 Funding Decision Get Free Money Contribute at least the maximum match. Make % return on annual contribution! Make Uncle Sam wait as long as possible. Use a Roth when in lower tax brackets (younger). Consider converting some or all to a Roth. 17 Which one most accurately describes your current actions? I know what my maximum contribution should be. I contribute to my retirement account. I fully fund my retirement account. I choose prosperity by investing for retirement. 18 RM Chapter Better Investing Annual Meeting 9

10 #4 Funding Decision Know What We Own Tax-efficient assets such as Master Limited Partnerships (MLPs) go in taxable accounts. Municipal bonds go in taxable accounts. Tax-deferred assets bought with after-tax money (annuities) go in taxable accounts. Bonds, especially TIPS and zero-coupon, go in retirement accounts. 19 Taxes Affect Returns MFJ - $450K Single - $400K MFJ - $450K Single - $400K +0.9% on earned income. MFJ - $250K AGI Single - $200K AGI 20 RM Chapter Better Investing Annual Meeting 10

11 Drags On Returns 21 Withdrawing Decisions Age limits. Required minimum distributions. Too much vs. too little. 22 RM Chapter Better Investing Annual Meeting 11

12 Social Security Analysis How do we maximize our benefits? Age 62 permanent reduction Full Retirement Age top 40 credits Past FRA 8% per year increase Spousal Benefits Survivor Benefits What if it goes bust? 25% across-the-board cuts 23 #1 Withdrawal Decision Early Termination ROLLING OVER AT EARLY TERMINATION Exception to early withdrawal penalty for termination after age 55, disability or death. Keep 401k until after 59 ½ in case of emergency. EARLY (PRE 59 ½) WITHDRAWAL Must follow SOSEPP* (72t) rules. Open a separate IRA for the estimated expenses. Confer with your CPA and CFP. Exactly equal amounts is safest. *Series of Substantially Equal Periodic Payments 24 RM Chapter Better Investing Annual Meeting 12

13 Distribution Decisions 50% penalty for under-withdrawing. (Watch your parents!) See IRS Pub Use correct table. Use aggregate Dec. 31 values. Withdraw by next Dec. 31. Remember settlement date (Dec. 20 for safety). 25 Questions? 26 RM Chapter Better Investing Annual Meeting 13

14 Sharing Decisions Spousal inheritance. Non-spouse inheritance. Gifting. Will and/or Trust design. 27 Surviving Spouse Decisions Spouse is much younger. Spouse is slightly younger. Spouse is older. 28 RM Chapter Better Investing Annual Meeting 14

15 Surviving Spouse Decisions Survivor is Much Younger Leave in deceased s name. Use his/her RMD schedule. Analyze how and when you will take RMDs from your spouse s retirement accounts. Survivor is Younger May roll-over to your IRA. Use your RMD schedule. Survivor is Older Leave in deceased s name. Use his/her RMD schedule. 29 Non-Spouse Titling Decisions OTHER BENEFICIARIES Titling: Beneficial IRA [deceased + DOD] FBO [Beneficiary] CHILDREN Cannot roll a beneficiary IRA to your IRA. Immediately update beneficiaries. Disburse according to beneficiary percentages ASAP. Take annual RMDs. Must take RMDs beginning the year after the year of death. Did they take theirs? Annuities (variable) pay out over 5 year span. 30 RM Chapter Better Investing Annual Meeting 15

16 Gifting Annual maximum vs. lifetime exemption. 2014: $14,000/person. Lifetime $5.34 M. Not settled politically. Portability for spouse. Must file Form 706 within 9 months of death. 31 Questions? 32 RM Chapter Better Investing Annual Meeting 16

17 Taxation Decisions 33 Taxable Accounts Decisions Use for tax-efficient holdings (taxable accounts): Business Development Companies (BDCs) Master Limited Partnerships (MLPs) Municipal Bonds Qualified dividends. 34 RM Chapter Better Investing Annual Meeting 17

18 Tax-deferred Accounts (IRA, Roth) Taxable bonds. Options trading. Coordinate with Social Security. Roth conversion? 35 Tax-Free Account (Roth) Useful estate planning tool. No K-1 MLPs. Rarely for Munis. Options trading. 36 RM Chapter Better Investing Annual Meeting 18

19 More Taxation Errors UBTI* in retirement accounts. $1,000/yr limit in IRAs. Waste of tax-efficiency. Annuities in retirement accounts. Waste of tax-efficiency. Complicates RMD calculation. * Unrelated Business Taxable Income 37 Homework Nov, 2014: 1. Write down your age in 5 and 10 years and at least 2 personal financial goals you want to achieve in the next 10 years. 2. If not retired, write a description of your ideal retirement. (When, where, how, why, what) 3. If you are retired, write a description of changes you would like to make and steps you are taking to accomplish them. Dec, 2014: 1. Make a list of all your expenses. 2. Draw up a preliminary retirement budget. 3. Gather all estate planning documents in one safe place. Provide a notarized copy to the administrator. Jan, 2015: 1. Verify beneficiary designations. 2. Have CFP coordinate with estate planning attorney to draw up appropriate documents and fund them. 38 RM Chapter Better Investing Annual Meeting 19

20 Which statement best describes your approach to wills & trusts? I/we know we need a will and perhaps a trust. I/we have a current will/trust and it is funded. I/we do not want to talk about these issues. 39 Review You laid out some goals for your retirement. We discussed Defined Contribution plans. Pros/cons and how to use. We discussed common errors. What they are and how to avoid. We discussed decisions and best practices. What goes where and why. To whom, how and why. 40 RM Chapter Better Investing Annual Meeting 20

21 Make A Difference In Someone s Life If you have benefited from BETTERINVESTING, pay it forward. BETTERINVESTING needs your experience and willingness to introduce others to informed investing. 41 Contact Information Christi s cpowell@falconfinancialok.com Christi s phone: Home Mobile Feel free to , call or text your questions. Include your name, phone and contact information. Some answers are much simpler over the phone rather than taking the time to type out a long answer. I don t solicit and I don t bite. 42 RM Chapter Better Investing Annual Meeting 21

22 Thanks for Attending 43 RM Chapter Better Investing Annual Meeting 22