Retirement Strategies for Women RETIREMENT

Retirement Strategies for Women RETIREMENT

Contents Retirement Facts for Women... 1 Planning for Retirement...3 Financial Net Worth...4 Cash Flow...5 What Is Important to You?...6 10 Ways to Put Your House in Order...6 Develop Financial Goals...8 Pay Yourself First...9 Examples of Investment Options...9 Determining Equity Types...9 Types of Debt or Bonds...10 Consider Mutual Funds...10 Consider Annuities...10 Consider Real Estate... 11 Time Horizons... 11 Risk vs. Reward... 12 Asset Allocation: What You Should Know... 12 Develop Your Retirement Strategy... 13 2

Retirement Facts for Women Do you feel you are on track to achieving your life goals and dreams? They might include having a family, building a future through college or marriage, or the dream vacation home. What are yours? Do women need to plan differently than men to reach these goals? Or do they play a different role in achieving these dreams? Consider the following facts. Women live longer than men. American women can expect to live to age 82, whereas American men can expect to live only to age 77. Living longer means more years of needing income. 1 Women earn less money than men. According to the U.S. Department of Labor, women who work full-time, year round, average 83 cents to every dollar earned by men. It isn t easy to set aside money for retirement on a lower income, but it can be done. 2 Women are more likely than men to work part time. The Department of Labor also notes that women are more likely than men to work part time. Consequently, they earn less money. Less time and lower wages can adversely affect your Social Security retirement benefits, pension and personal retirement savings. 2 Women are not as likely as men to have a pension. According to the U.S. Census Bureau, 23% of women 65 or older received pension benefits versus 39% of men. If you won t be getting a pension from your employer, you will need to increase your personal savings for retirement. 3 WOMEN AGE 82 MEN AGE 77 WOMEN 83 MEN $1 WOMEN 26% MEN 13% WOMEN 23% MEN 39% 1 Central Intelligence Agency, World Factbook: United States: People and Society, February 2016 2 Women in the Labor Force: A Databook, U.S. Department of Labor, U.S. Bureau of Labor, Report 1059, December 2015 3 AARP PPI tabulations of U.S. Bureau of the Census, Current Population Survey, March 2012 1

Retirement Facts for Women Women are more likely than men to fall below the poverty level in old age. Statistics from the U.S. Census Bureau show that more women age 75 or older live in poverty than men that age 10.7% versus 6.7%, respectively. Laying a solid financial foundation earlier in life can help prevent this. 4 Women are more likely than men to be in a nursing home. According to the National Center for Health Statistics, about 68% of nursing home residents and 72% of assisted living residents are women. Investigate long term care insurance as part of a comprehensive financial strategy for your retirement. 5 Women have less saved for retirement. The Blackrock 2015 Global Investor Pulse reports that pre-retiree women have saved an average of $116,473. That s $45,000 less than the average pre-retiree man. 6 At the beginning of 2013, the average monthly Social Security benefit was $1,341. 7 Most Social Security beneficiaries are women. 8 According to the Social Security Administration, differences in lifetime earning and work histories result, on average, in lower retirement income for women than men. 7 Older people living alone are more likely to be poor. Statistics show that older persons living on their own were more likely to be poorer than those living with family. If you don t picture yourself moving in with your children and their spouses, plan now to save more. 4,8 Nursing home expenses are consistently on the rise. As of the start of 2016, the national average cost for a private room in a nursing home is $250 per day. The cost of nursing homes today is likely to have risen how much? These numbers aren t in yet, but it is anyone s guess. 9 4 AARP PPI tabulations of U.S. Bureau of the Census, Current Population Survey, March 2012 5 Long-Term Care Services in the United States: 2013 Overview, National Center for Health Statistics 6 Blackrock 2015 Global Investor Pulse, November 2015 7 According to Social Security Online, Frequently Asked Questions, March 2014 8 Social Security Administration, Frequently Asked Questions, February 2016 9 Genworth Financial, Cost of Care Survey, 2015 2

Planning for Retirement. n Determine what you are worth financially. n Determine what is important to you. n Develop financial goals. What are your goals for retirement? 3

Financial Net Worth Determine your net worth with this simple formula: Net Worth Worksheet ASSETS DEBTS = FINANCIAL NET WORTH Use this worksheet to help determine your personal net worth. CATEGORY ASSETS: Cash in Savings Accounts Cash in Checking Accounts Certificates of Deposit (CDs) Cash on Hand Money Market Accounts Money Owed to Me (Rent Deposits, etc.) Cash Value of Life Insurance Savings Bonds (current value) Stocks Bonds Mutual Funds Vested Value of Stock Options Other Investments Individual Retirement Accounts (IRAs) Keogh Accounts 401(k) or 403(b) Accounts Other Retirement Plans Market Value of Your Home Market Value of Other Real Estate Blue Book Value of Cars/Trucks Boats, Planes, Other Vehicles Jewelry Collectibles Furnishings and Other Personal Property Other LIABILITIES: Mortgages Car Loans Bank Loans Student Loans Home Equity Loans Other Loans Credit Card Balances Real Estate Taxes Owed Income Taxes Owed Other Taxes Owed Other Debts TOTAL LIABILITIES NET WORTH (TOTAL ASSETS LESS TOTAL LIABILITIES) TOTAL ASSETS 4

Cash Flow Now that you have determined your net worth, the next step is to calculate your Cash Flow. It will help you determine how much money you can put aside: MONEY COMING IN MONEY GOING OUT = CASH FLOW WHERE YOUR MONEY COMES FROM: Net Salary (After Taxes) Investment Income (Dividends, Interest, Annuities) Income from Rental Properties Other Income Total Income WHERE YOUR MONEY GOES: SAVINGS Short-term Savings Retirement Savings Education Other Subtotal - Savings EXPENSES Housing: Mortgage/Rent Property Tax Utilities: Water Gas & Electric Heat Cable TV Telephone Other Insurance Repairs & Maintenance Groceries Clothing & Personal Care Medical Repairs & Maintenance TRANSPORTATION: Car Payments Repairs/Maintenance Fuel License Transit Parking LOANS Payments Credit Card Payments PERSONAL INSURANCE Life, Disability Medical Insurance (Prescriptions, Dental) DISCRETIONARY EXPENSES Education Entertainment Subscriptions, Memberships, Clubs Gifts/Donations Household Purchases Vacation Pocket Money Other Subtotal - Expenses TOTAL OUTFLOW 5

What Is Important to You? n Consider what matters to you. n Determine how you d like to live during retirement. n Think about what makes you feel secure and why. n Dream about the lifestyle you want to have. The possibilities are endless. But if you don t take the time to figure it out now, you won t be able to develop the financial goals to help you achieve those dreams. 10 Ways to Help Put Your Finances in Order 1. Update your will 2. Review all insurance coverage 3. Consider refinancing 4. List and photograph all your valuables 5. Review Social Security benefits 6. Lower interest expenses 7. Review sources of income 8. Anticipate major expenses 9. Establish durable powers of attorney 10. Consider long term care insurance 6

It s a good idea to use the Net Worth Worksheet provided earlier as a reference to help you catalog your assets. Consider recording key information on all your assets and major documents as in the example worksheet below. Policy or Company/ Phone No. Asset Account No. Contact Address and Email Life Insurance Annuity Mutual Funds Brokerage Account Retirement Account Legal documents Will, Trust, etc. 7

Develop Financial Goals Key components to a sound financial plan include: Goals Your goals will be shaped by what matters to you. Take those dreams we talked about and put a dollar amount to them. If you would like to set aside $5,000 a year to travel, then that s a goal. Time horizon Time horizon is easy enough. If you haven t done anything, today is the first day of your new financial life. From today, you have X number of days until you retire. That is your time horizon. Risk tolerance Risk tolerance is a very personal preference. But educating yourself on the financial markets will help you understand your risk tolerance. Women tend to be more conservative investors than men, 10 so it is particularly important for women to evaluate the risks as well as the benefits of a conservative investing style. The conservative investor generally has a very low risk tolerance and seeks to protect principal investments from market risk by placing money in lower risk investments. A major risk factor to the conservative investor for reaching long-term goals is inflation, which could eat away at savings purchasing power. To help maintain your spending power and standard of living, your investment returns needs to keep pace with annual inflation. An Allstate Personal Financial Representative can help you determine your risk tolerance and create a strategy that fits your needs. 10 Blackrock 2015 Global Investor Pulse, November 2015 8

Pay Yourself First This means you should first allocate money to investments and savings accounts that are designed to make your future more secure. n Consider maximizing contributions to qualified plans. n Contribute to 401(k)s & IRAs. n Evaluate college savings options, like 529 Plans. n Use salary increases to fund savings. Examples of Investment Options Now that you have tools to help you determine what you might have to allocate toward your goals, what s the next step? Where do you invest your funds to reach your goals? What is suitable for you? Determining Equity Types It s easy to start a savings program and direct money into the different retirement plans or accounts available, but where are you really putting your money? Each type of account, such as 401(k) plans or funds designated for particular goals, will have investment choices for you to make. Let s touch on some of the investment options you may come across in making your decisions. When you are talking about the stock market or stock investments, you are talking about equity or actual ownership in companies. Types of equities may be broken down even further into different classes Company Size, Investment Orientation, Market Diversity and Sector are just a few categories you might hear about. This is where meeting with an Allstate Personal Financial Representative, who can help you review your goals and help you determine what is suitable for you, may be important. tip Consider setting up a savings account with automatic withdrawals from your paycheck or checking account. 9

Types of Debt or Bonds We ve briefly discussed types of equity. The other side of the coin is types of debt investing in vehicles where you pay a principal amount and the borrower pays you interest. This would include government bonds and treasuries, municipal bonds that have tax-exempt attributes and corporate bonds. Consider mutual funds Mutual funds often offer: n Professional management. n Diversification. n Convenience. n Many styles of investing. n Many different objectives. n Liquidity. Consider annuities n Tax-deferred growth. 11 n Some contracts provide for guaranteed living benefits. 12 n Some contracts provide for death benefits. n Annuitization of contracts is designed so that you won t outlive the income stream. n Variable annuities have subaccounts which invest in an array of investment options. n Fixed annuities provide a fixed rate of return. Consider real estate n Owning your own home can be both an investment and a lifestyle choice that may save you taxes. n Owning rental income property may generate both cash flow and income tax deductions. n Traditionally, real estate has been a hedge against inflation. 11 Distributions taken prior to annuitization are generally considered to come from the gain in the contract first. If the contract is tax-qualified, generally all withdrawals are treated as distributions of gain. Withdrawals of gain are taxed as ordinary income and, if taken prior to age 59½, may be subject to an additional 10% federal tax penalty. 12 Any payments or benefits due on the annuity are backed by the claims-paying ability of the issuing insurance company and are subject to the financial condition of the issuing insurance company. 10

Time Horizons LONGER TIME HORIZONS = LOWER RISK OF FALLING SHORT OF GOALS SHORTER TIME HORIZONS = GREATER RISK Why put off until tomorrow what you can do today? 11

Risk Versus Reward n Stocks Higher risk and higher potential return. n Bonds Reduced risk and fixed returns with lower growth. n Asset allocation can help you keep your balance.* n Diversification can help to reduce, not eliminate, your risk. Consider this. If you had invested $1 in the S&P 500 on January 31, 1950, that $1 would be worth $119.88 as of 12/31/2015. If you had invested that same $1 in U.S. Treasury Bills, it would be worth $17.46. And don t forget inflation. That $1 is now worth $10.13 according to the Consumer Price Index. (Note: You cannot directly invest in the S&P Index.) INVESTMENT AMOUNT DATE VALUE AS OF 12/31/15 S&P 500 $1 1-31-1950 $119.88** U.S. Treasuries $1 1-31-1950 $17.46** WHAT ABOUT INFLATION? $10.12 ** The effects of income and capital gain taxes are not demonstrated. Past Performance is no guarantee of future results. This is a hypothetical illustration and is not intended to provide investment advice. Stocks are represented by the S&P 500 Composite Stock Price Index, US 90-day Treasury Bills, and the Consumer Price Index. Source date: Allstate Investments, LLC, 2015. Asset Allocation*: What You Should Know n Wide variety of asset allocation models. n Choose a model that is aligned with your risk tolerance and will help you reach your financial goals. n Keep in mind your time horizon. n Most financial professionals have tools to help determine how much you will need. n Asset allocation does not guarantee a profit nor prevent loss. * Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses. Bond investments are subject to interest rate risk such that when interest rates rise, the prices of bond fund shares can decrease and the investor can lose principal value. Asset allocation programs do not assure a profit or protect against loss in a declining market. 12

Developing Your Retirement Strategy A successful retirement strategy contains several elements to help you arrive at your goals. This checklist is designed to help you evaluate whether you have considered several important aspects. I have put my goals in writing. My goals are specific, measurable and achievable. I am confident that the amount I am saving each month is enough to meet my savings goal. I am confident I have used a realistic inflation estimate and have factored inflation into my projected retirement income needs throughout my retirement years. I have used sound investment principles to choose my investments. l am confident I have chosen investments appropriate for my time horizon and return expectations. I am comfortable with the level of risk my investments carry. I regularly monitor the progress of my strategy and make changes if necessary. If developing and implementing a retirement strategy seems overwhelming, consider working with an Allstate Personal Financial Representative. Allstate Personal Financial Representatives have the skills and resources to help you develop and implement strategies to set and achieve your financial goals. What Else?? n Never stop asking questions. n Never stop learning. n Never stop dreaming; for if you can dream it, you can make it so. 13

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