Retirement Planning
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Retirement starts with a vision, and comes to life with a plan.
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Retirement Planning
- 1. Retirement Planning: It’s Never Too Soon – or Too Late – to Start AFN5600
- 2. What is Retirement? Retirement is to “withdraw from one’s position or occupation or from active working life”. According to Harvard Study, it is worrying under the following 3 circumstances- • When it is unplanned and involuntary • When the wage or the salary is the only source of income • When there is pre-existing health conditions
- 3. Then and Now
- 4. Then ... • Job longevity meant retirement security • On average, people had shorter life expectancies • That may have meant lower health care costs and lower retirement income needs
- 5. Now ... • Changing jobs is more common • Health care and long-term care cost more • People live longer
- 6. 25 Without Salary 85 35 25 With Salary 60 AGE Life Expectancy
- 7. Your Hopes and Dreams for Retirement • Retirement is closer than you think • What’s on your wish list? Perhaps travel, a vacation home, or education? • Your desired lifestyle will determine your income need
- 8. Reasons People Retire • For their personal health reasons they can’t continue to work • Loss of job or Workplace • Forced out of work – early retirement package/buyout • Company Bankruptcy • Company Relocation • Person chooses to retire – it’s time • Need to become a care giver to Spouse, Child, Grandchild or Parents.
- 9. What is Retirement Planning? • It’s a planning one does to be prepared for life after paid work ends, not just financially but in all aspects of life. • The non-financial aspects include such lifestyle choices as how to spend time in retirement, where to live, when to completely quit working
- 10. Why Retirement Planning? • Income stops but expenses don’t, the need of money increases but the inflow stops • Many other expenses will be included like Medical cost, health maintenance etc. • Inflation rates and cumulative effect of inflation ensures that you will need more money for your retirement. You need to find out where this income will accrue from • You need to plan your goals and lifestyle that you would want to pursue post retirement. To maintain Lifestyle which you cannot live without needs to be planned well in advance • You will need to ensure that you have an adequate life and health insurance cover to provide for illnesses that are inevitable at this stage of life
- 11. How Much Is Enough? Experts say you may need between 70% and 90% of your current income, adjusted for inflation, to live comfortable after retirement. Avoid downgrading your lifestyle after retirement Everyone desires to have upgraded lifestyle or at least the same lifestyle, in that case saving 10-15% of your income really isn’t enough.
- 12. Importance and Purpose of Retirement Planning • To help you in any Medical related expenses • To be prepared for the period of your life when you stop working full time. • To ensure self sufficiency at retirement • To provide for emergencies • We need to consider all aspect of life, such as maintaining the standard of living to which we are accustomed • Where you want to live and how you intend to spend your time
- 13. Common Things We Need to Plan for • Financial goals - 15 to 20 years prior to retirement • Medical coverage during retirement • Life Insurance coverage & Critical Illness Coverage • Wills, Power of Attorney
- 14. Misconceptions About Retirement Planning • My expenses will decrease after I retire • My retirement will only last 15 years • My savings will pay for my basic living expenses • My employers health insurance plan will cover for my medical needs • There is plenty of time for me to start saving for retirement • Saving just a little bit won’t help
- 15. What according to you are the questions that gain prominence after one’s Retirement?
- 16. • How much will you need? How much do you now have? • How much must you save annually to reach your goals? • What are your strategies for your Accumulation, Retirement and Distribution Stages of Retirement? • Understand Your Personal And Family Goals Know what you want out of life • Understand Your Budget Know your financial priorities • Understand What Kind Of Retirement You Want Be willing to sacrifice and work toward that goal
- 17. Six key principles for a successful retirement Planning High Low 1. Know yourself, especially your goals, budget and risk tolerance 2. Understand the retirement vehicles available to you and use them wisely 3. Choose wisely the financial assets for those investment vehicles and invest wisely 4. Know the retirement planning steps 5. Develop a good retirement plan, write it carefully and follow it closely 6. Start today !!
- 18. How An Average Older (65+) Spends Their Money
- 19. Sources of Retirement Income 20% 30% 50% **Based on Past US survey.
- 20. The Process of Retirement Planning Main aim of Retirement Planning is to ensure that this phase of life is not stressful for you and your family. It includes identifying sources of income, estimating expenses, implementing a savings program and managing assets.
- 21. Discovering financial and Retirement Goals Research on resources to achieve goals Analyzing on personal income planning relative to your goals Creating your own Investment portfolio Start Investing in the right resources
- 22. CASE STUDY Meet Michael and Antonia. A young, upcoming project manager and his wife arrive in Dubai, about to begin the next chapter of their life together.
- 23. For many years Michael and Antonia enjoy life as if on holiday, attending as many Friday brunches and social events as possible. Soon 2 become 3 as their daughter is born, with Michael and Antonia deciding to remain in Dubai until after her education is completed.
- 24. Now in their mid 40s, the promise of an early retirement at 55 is now nothing more than a pipe dream and Michael and Antonia are left considering how they will pay for things such as their daughters’ weddings and a potential move back to the UK. They wonder where they went wrong, what they failed to do and why they didn’t take action sooner.
- 26. $898,346 $457,559 Savings for 10 years (monthly)= $2,000 Estimated Growth rate at 7% I started at 45 I started at 45 I started at 35 I started at 35
- 27. By: Anshu Thomas
Notes de l'éditeur
- During this session, we’ll take a look at how retirement has changed through the years, help you estimate how much you may need to retire, review your current efforts, examine the tools available to you, and help you develop an investment strategy to pursue your goals. Show-of-hands survey: How many here are 30 years or more away from retirement? 20 years? 10 years? Less than 5 years? Your time horizon until retirement is just one of the factors we’ll review here. Others — including your desired lifestyle and your risk tolerance — are also important in establishing an investment strategy to pursue a secure retirement.
- Let’s compare your retirement with that of your parents and grandparents to look at the way things have changed through the years.
- Forty, 30, and even 20 years ago, people generally didn’t “job hop” the way they do today. Many stayed with the same employer — building hefty pension and medical benefits to help them live a financially secure retirement. Medicare and Social Security benefits played a greater role in retirement security than they do today. Perhaps because of shorter life expectancies, health care costs may not have been as much of a concern and retirement income was needed for a shorter period of time.
- Today, changing jobs is commonplace and people move around more whether because of corporate downsizing or for career advancement. As a consequence, retirement benefits may not be as substantial or as “guaranteed” as they were for previous generations. The long-term health of Medicare and Social Security is in question, which means people may not be able to rely on these benefits as much as they had in the past. Health care and long-term care costs have skyrocketed. On average, the cost of a private room in a nursing home now exceeds $90,500 per year and can be much higher in certain parts of the country.2 People are making a variety of lifestyle choices during retirement — from caring for grandchildren and volunteering to going back to school, starting a business, or traveling. And finally, people are living longer, which means they must finance longer retirements. 65-year-olds now live an average of 18.8 more years, according to the National Center for Health Statistics — and average life spans continue to rise.3 2Source: 2012 MetLife Market Survey of Nursing Home & Assisted Living Costs. 3Source: Centers for Disease Control, National Center for Health Statistics, 2011 (based on preliminary 2009 data, most recent available).
- What are your dreams for retirement? Do you want a traditional retirement — golfing, traveling, visiting with friends and family? Or do you have other ideas — going back to college? Opening a small business? Your retirement wish list — the lifestyle and activities you hope to engage in — will largely determine how much you may need.
- Let’s begin by giving you an idea about how much you may need to live the retirement of your choice. The first factor to consider is inflation. Take a look at the chart: While the inflation rate has recently averaged about 2.9%, history shows that it has varied considerably through the years.4 For the purposes of our discussion and our calculations today, we will assume that inflation averages about 4% in the future. But as you develop and refine your plan through the years, keep in mind that inflation can potentially spike or dip substantially in the short term. 4Source: The Federal Reserve. Inflation is represented by the annual change in the Consumer Price Index. Covers the 30-year period ended December 31, 2012.
- By now you’re probably wondering, “How much do I need to save to provide the income I’ll need?” We’re going to help give you an idea now. The first question asks you to estimate Let’s start with Worksheet 1. Even if you don’t have all of the information you need, use your best estimate. how much you will need each year during retirement. We’ve provided a general guideline: Financial experts often say you may need between 60% and 80% of your final working year’s salary each year during retirement. So think about how much you hope to make the year before you retire (in today’s dollars), and enter 60% to 80% of that figure on the worksheet. Consider the lifestyle you hope to lead. If you plan to travel, you might want to up that amount — perhaps to 100% of your preretirement income. If you plan to scale back expenses a great deal or to continue working at least part time, you may want to go with a lower annual income amount. To be safe, however, it’s probably better not to count too heavily on a post-retirement income for purposes of these calculations. Set a reasonable retirement savings goal and look at any extra income as a bonus. Any questions? (MOVE TO NEXT SLIDE WHILE PARTICIPANTS ARE COMPLETING WORKSHEET.)
- The next two questions on the worksheet ask you to estimate your annual income from Social Security and pensions, again in today’s dollars. Social Security currently provides an average annual benefit of $15,132 per year for retired workers. The average retired couple receives $$24,576.5 Women may have added challenges when it comes to retirement income. Not only are women far less likely than men to receive income from an employment-based pension plan or retirement annuity, when women are eligible for pension benefits, they typically receive a much smaller annual pension benefit than men.6 But regardless of your age or gender, if you plan to take time off from work for extended periods of time (or have taken time off), remember this: The decision could affect your Social Security and pension benefits substantially in retirement. If you find yourself in this situation, err on the conservative side in these estimates on your worksheet. About three months before your birthday, you should receive a statement estimating your future Social Security benefits. You can also contact the Social Security Administration at 1-800-772-1213 or through its web site, www.ssa.gov. If you have a pension plan, your employee benefits administrator should be able to provide an estimate of your annual pension benefit. When you get this information, make sure you’ve been credited for the correct salary amounts and number of work years. Finish completing the worksheet to get an idea about your retirement accumulation goal. (PAUSE: ALLOW 5 MINUTES.) 5Source: Social Security Administration, Fact Sheet, Social Security, 2013 Changes, October 2012. 6Source: Employee Benefit Research Institute, Retirement Annuity and Employment-Based Pension Income, Among Individuals Age 50 and Over: 2008, May 2010 (most recent data available).
- Now that you have an idea of where you’re going, it’s time to develop a plan to get there. First, let’s review the tools you might use to develop your investment plan.
- Perhaps the best way to save for retirement is through tax-advantaged investment accounts, such as 401(k) plans and IRAs. They all have specific factors for consideration, so review each one carefully. For example, traditional 401(k)s and traditional IRAs are tax deferred — which means you don’t have to pay income taxes on the earnings now, but you will pay taxes later. On the other hand, with the Roth IRA and the Roth-style 401(k) plans, qualified withdrawals are tax free provided the account holder is age 59½ and has held the account for five years. Take advantage of a 401(k) or similar plan if it’s offered to you at work. Try to contribute the maximum. As for IRAs, different rules apply to each type, so check with a financial professional to see which one may be best for you. But consider one of these accounts for your retirement investment plan, too, especially if you’re contributing the maximum to your 401(k) plan. In all cases, nonqualified early withdrawals will be subject to a penalty tax.
- Developing a well-thought-out investment plan will help you pursue your retirement accumulation goal. In the next two worksheets, we’ll help you examine investment tools and figure out how much you may want to set aside each month for retirement based on a potential rate of return that you calculate. Keep in mind that the following are examples only and are not meant as investment advice. They are also based on the past performance of stated asset classes, which cannot guarantee future results. Let’s review the basic investment asset classes now.
- There are a number of ways to invest your money. Most investment options can be classified in one of three asset classes — stocks, bonds, and money markets. How you divide your money among these choices is known as asset allocation. Each asset class has different risk and return characteristics. Even within one asset class you’ll find choices with higher risk and higher return potential. Asset allocation can also help you reap the potential benefits of diversification. When one investment loses value, another may be holding steady or gaining.
- The next step is to understand your own personal tolerance toward investment risk. While stocks involve the greatest risk, over the long term they tend to outperform other types of investments. But past performance can’t guarantee future results: There will always be the chance that you could lose money in the stock — or even the bond — market. Your time horizon is very important in evaluating and choosing your asset allocation because it can help determine your risk tolerance. If you are many years away from retirement, you may be able to withstand short-term drops in the value of investments. Therefore, you may want to invest the majority of your money in stocks to pursue their higher return potential. On the other hand, if you’re nearing retirement — within 10 years, for example — you may want to choose a more moderate or conservative investment mix. It would include a larger portion of bonds and money market investments to strive for more stability in the value of your investments. Consider, however, that retirement could last 20 years or longer. For that reason, you may want to include some stocks in your portfolio as a potential hedge against inflation. The following are examples of conservative, moderate, and aggressive portfolios and their asset allocations. Remember that the returns listed are based on past performance and that your results could vary.
- Now we’re ready to begin the process of figuring out how much you might aim to save on a monthly basis. But first we need to address how much you may have saved already. Please refer to Worksheet 3. This worksheet will help you see what your current savings may be worth when you retire. The worksheet assumes you add no more money to your current savings and that you invest your current savings in order to pursue the rate of return you calculated on Worksheet 2. It also calculates your potential shortfall (that is, assuming you contribute no more money). We’ll use this information to help you estimate a monthly savings goal. Please complete the worksheet now. (PAUSE: ALLOW 5 MINUTES.)
- Now let’s look at Worksheet 4. Here we’ll help you calculate a monthly investment goal based on your time horizon, your potential rate of return, and your adjusted savings shortfall. Please complete the worksheet now. (PAUSE: ALLOW 5 MINUTES.) Did you come out with a reasonable amount? If not, don’t panic. There are ways to refine your plan so that it is both manageable and realistic. You can adjust your investment mix to pursue a higher rate of return, for example. Most important, however, is to sit down with a qualified financial professional, who can review your overall financial situation and help you identify ways to save and invest more for your retirement.