Retirement Income Planning for the 99% David Littell, JD, ChFC, Director of the New York Life Center for Retirement Income Don Graves, President and Chief Conversation Starter, HECM Advisors Group
Agenda Do Americans approaching retirement need help? Can advisors help? What do you need to know to get started? What strategies can improve your client s situation? What resources are available at TAC?
What is Retirement Income Planning? Meeting client s financial goals Income needs Other support family/leave a legacy Address retirement risks Longevity/inflation/health and long-term care costs/market risks Determine needs/evaluate resources/help determine strategies
Do Americans Have Sufficient Resources? Enough to meet basic expenses? EBRI Retirement Readiness Rating At 65 there is a $4.3 trillion retirement shortfall 44% of boomers at risk of retirement shortfall Enough to maintain lifestyle? National Retirement Risk Index 53% at risk at age 65
Are There Enough Decisions? When to retire Creating a meaningful retirement Claiming Social Security Company plan distributions Choosing income strategy Investing the portfolio Choosing withdrawal rates Choosing annuity products Role of life insurance Health care planning Long-term care planning Where to live Using housing wealth Contingencies Life expectancy Inflation Market risk Sequence of returns Law changes Bad timing Unexpected expenses Frailty Loss of employment
Do Americans Know Enough? RICP Retirement Income Literacy Quiz Quizzed 1,000 age 60-75 Only 20% passed the test Average score 42% Lack of knowledge Strategies for improving success How to preserve assets in retirement Tax strategies Investment basics and insurance products
It s a moving target
Does Advice Help? Strategies Increase in income* Social Security Claiming 9.0% Dynamic Withdrawal Strategy 8.5% Tax Efficiency 8.2% Total Wealth Asset Allocation 6.1% Annuity Allocation 3.8% Liability Relative Optimization 2.2% Total 38% Blanchett, video discussing article Alpha, Beta and now Gamma
Retirement Income Tool Kit
Complete the Whole List Done Objectives/Contingencies Plan Monthly income needs Social Security, portfolio withdrawals Annual gifting IRA withdrawals charitable deduction Leave something for kids Life insurance Minimize health expenses Medicare/supplemental insurance Life expectancy Social Security, rental income, annuity Inflation Social security, allocation to equities Long-term care Insurance, reverse mortgage Possible tax changes Roth IRA conversions early retirement
Does the plan tell a story?
Not All Goals Are Created Equal Trip to Orlando Food, housing, medical
Addressing Risks A diversified portfolio o Inflation risk o Public policy risk o Liquidity o Unexpected expenses o Long-term care o Health care expenses Guaranteed income o Longevity risk o Frailty o Financial elder abuse o Market risk o Excess withdrawal risk o Timing risk o Loss of spouse
What Is a Safe Withdrawal Rate Safe rate is 4% of initial value plus inflation for 30 years using historical analysis 4% becomes 4.5% adding small cap stocks Increasing allocation to equities helps Rate can be higher if time horizon is shorter Rate can be higher if adjust withdrawals based on market conditions Does it still work today?
What Are the Priorities? I will be very unhappy if my income ever falls below $4,000 a month I really hope that my ability to spend increases if the market does well I can live on less if that means that I can leave more to my children and grandchildren
How Can You Help?
Defer Retirement Boston College study 30% prepared at 62 and 86% ready at age 70 Working longer means living longer Impact of working longer 58-year-old single individual with $100,000 of income, assets of $500,000, saving 20% of pay, and needing 85% of income Retire at age 65 income shortfall at 81 Retire at 66 income shortfall at 86 Retire at 67 and assets sufficient until 90 LO 3-2-1
Is Deferring Retirement Realistic? Many retire earlier than planned Primary concern is work available and feasible? How can an older worker better ensure employment opportunities? Job skills and professional network Healthy lifestyle Avoid burnout LO 3-2-1
Spend Less In Retirement Spending less can mean reduced standard of living A well prioritized spending plan may make it easier to identify reductions Ideas for significant reductions Downsize Relocate Sell assets with significant expenses Temporary spending cuts can matter Can the same lifestyle be obtained with less? LO 3-1-1
Maximize Resources Social Security Medicare benefits Home equity Employer benefits Employment income Financial assets Family support Community support Government resources Maintaining health
Equity and Non-equity Assets for Average Married Couple 32% 68% Source: U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 10
Home Equity
Retirement Resources of the Average Married Couple 13% 60% 27% Source: Net Worth Data from U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 10; Present value of Social Security benefits based on a worker with $60,000 of wages, and a same aged nonworking spouse. The worker's PIA is estimated at $1,557 (calculated using the Social Security Quick Calculator). Benefits are claimed at 66 and the worker dies at 84 and the spouse at 89. Present value was based on a 0% real rate of return (a current approximation of the risk free rate of return)
Social Security Issues For Singles Suspension of benefits Earnings test results in mandatory suspension Voluntary suspension Claim and suspend Undoing elections Singles may also be divorced or widowed
Martha Still working she s 65 1/2 Her friends convinced her to claim ($1,250) One month later she regrets her decision Payback the benefit and start over At 66 she claims her $1,000 divorced spouse benefit At 70 she claims her $1,700 worker s benefit
Widow Options Example Sally lost Saul this year when he 64 and she was 59 Sally is not working now and wants to potentially increase her SS monthly benefit. Sally s PIA is $1,500 and Saul s was $1,800 Sally s Options Begin a reduced survivor benefit at age 60 and switch to her work s benefit at age 70 ($2,244) Begin her reduced worker s benefit at age 62 ($1,050) and receive her survivor benefit at full retirement age ($1,800)
Married Couple Case Both Spouse s are age 66 and entitled to benefits with PIAs of $2,500/$2,000. They are determined to defer the larger benefit to age 70 but are ambivalent about the second benefit. What are the options and why might they choose one strategy over the other?
Alternatives Option 1: At 66 claim $2,000 a month and other spouse does a restricted filing for the $1,000 spousal benefit. At 70 the spouse with the larger benefit claims $3,300. Option 2: Spouse with larger benefit claims and suspends to trigger restricted filing for other spouse in the amount of $1,250. At 70 each claim and receive $2,640 and $3,300.
Medicare Options Choosing traditional Medicare Medicare A, B, D and Supplement May be best choice for high medical expenses Choosing Medicare Advantage Additional services Lower total premiums could have higher total Changing plans each year Can always change Part D and Medicare Advantage plans Check to make sure that there are no changes for the subsequent year
How much can I take out? What is the asset allocation? What is the time horizon? How important is a legacy goal? Willingness to adjust when the market is down? Risk tolerance--willingness to reduce spending later Risk capacity are there other sources of income?
http://retirement.theamericancollege.edu Here is a video player with some of the best Social Security Videos from the NYLCRI. Here is a link to a video comparing deferred income annuities and indexed annuities with income riders Here is a link of a discussion of the Asset Dedication approach