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  • 1. Basic Retirement Financial Planning Workshops Part 3: Retirement Capabilities Planning A presentation from Army Community Service (ACS) Rock Island Arsenal Edition of August 28, 2004
  • 2. Jon Cook, PHR, AFC Financial Readiness Program Contractor for Army Community Service ATTN: AMSTA-RI-CF-ACS Building 110, 1st Floor, Southeast Wing U.S. Army Rock Island Arsenal Rock Island, IL 61299-5000 (309) 782- 0829 e-mail: [email_address] see RIA email public folder ERC INFO www. riamwr. com / acsnew. htm
  • 3.
    • Basic Retirement Financial Planning Workshops
    • Part 1: Plan Your Use of Available Time
    • Part 2: Retirement Requirements Planning
    • Part 3: Retirement Capabilities Planning
    • Part 4: Retirement Decision Time-gates
  • 4. Sequence of this presentation Part 3: Retirement Capabilities Planning
    • Introduction and purpose
    • Wealth: Income and Assets (a review)
    • Net Worth Statements
    • Selected Investing Techniques (there are many more)
    • Forecasting Retirement Capabilities
    • Next lesson in the series
    • Closing, and request for class critiques
  • 5. Purpose To get you started or to continue your retirement planning explorations, discussions and decisions for yourself and in coordination with your family members, significant others and your advisors and coaches.
    • Scope and Limitations
    • Each person and family is unique – basic methods and factors need to be adapted to each.
    • The class is “ basic ” and regards “ financial ” aspects; retirement is complex and made up of many factors: wealth accumulation, debt, risk management and insurances, health care, long term care, tax planning, and estate planning (to name a few).
    • Make no immediate decisions and seek advice and consent of other involved people (family members and advisors).
  • 6. From the previous two sessions … Assembling the pieces of your money puzzle
  • 7. Two types of Wealth Income Wealth $ Past $ Present $ Future Asset Wealth Budget = our Cash Flow
  • 8. Retirement Requirements MS Excel (.xls) Work Sheet
    • Annual Budget over the phases of retirement
    • Go – Go
    • Go-Slow
    • No-Go
    • Estate Planning
  • 9. Forecasting in the Planning Process Schermerhorn (2005, p. 198) Forecasting: attempts to predict the future.
  • 10. A gentle reminder …
    • Past performance is NO guarantee of future performance.
    • Forecasting financial instruments’ future value is an estimate – not a guarantee.
    • Tax Laws?
    • Social Security?
    • Inflation?
    • Market Performance over time ???
  • 11. PowerSave Software
    • Forecast! – growth in your TSP, IRA, 401k payouts
    • Compounding over Time
    • Impact of inflation
  • 12. Personal Financial Management Software $134,000 after inflation How much money can you grow over time?
  • 13. Capabilities Concepts
    • Pyramid of Risk
    • Net Worth Statement
    • Annuities (and like type financial instruments)
    • Annuitizing
    • Forecasting
    CUPS!
  • 14. CUPS!
    • CUPS! At a minimum beat
    • Inflation
    • Taxes
    • Fees
    True Inflation & Consumer Price I ndex (CP I ) Federal & State Income , and Estate Sales , dministration , membership , account , 12-1b (marketing) , consulting etc.
    • Cups come in two types:
    • $ Allowances
    • $ Piles
  • 15. CUPS!
    • CUPS! At a minimum beat
    • Inflation
    • Taxes
    • Fees
    If inflation is 2.5% … And a savings account is .5% - is it a cup or funnel? Tax Adverse - vice - Tax Aware If a mutual fund makes 5% … and its annual fee is 1% you made 4% - before taxes Return on Investment (ROI) Inflation Taxes Fees Your “left-over’s” ROI
  • 16. Cash, Checking, Savings Bonds and CD’s Preferred Stock Mutual Funds Stock Collectibles and venture capital Pyramid of Risk Financial Plans Insurance Risk and Reward Safety Handout Page 6
  • 17. Net Worth Statement
    • + Fixed Assets
    • + Liquid Assets
    • - Liabilities
    • = Your Net Worth
     The Score Card! The Control Document Keep track of your assets
    • It’s not the money you make …
    • It’s the money you get to keep!
  • 18. Your NET WORTH Statement Cups! The money you get to keep! See Handout p. 7 Your financial control document to “keep visible – inside the circle” your money that you are keeping… Your income “streams - allowances” and “$ piles”
  • 19. Annuity
    • An insurance instrument
    • Purchased over time or at one time (lump sum)
    • Payout – an income stream = an allowance
      • starting at a specified time
      • ending at a specified time; or upon death of the
        • beneficiary [single annuity] – or
        • beneficiaries [joint or group annuity]
      • for a
        • specific amount (fixed) – or
        • variable amount (variable)
    An asset producing and income stream
  • 20. Annuity
    • Annuities from an insurance company (e.g. Met Life) or a private sector employer by contract
    • Annuity – like (government sponsored) income streams with cost of living increases (COLA’s), based on a formula :
      • CSRS (Civil Service Retirement System)
      • FERS (Federal Employee Retirement System)
      • Military Retirement
      • Social Security
    Allowances
    • Steady allowance for life (of the beneficiary)
    • They have the responsibility
    • They have control
    When you die – it dies
  • 21. Calculating Your Federal, Employer-Based Annuities Your Civilian Personnel Advisory Center (CPAC) Federal Employees News Digest – “E” Documents Available for view and use at ACS CSRS and FERS Calculator See the Ref. p. 12
  • 22. Social Security Administration www. ssa. gov Retirement
  • 23. Income Streams from your “ Money Piles ” Live off of the Interest Only do not use the principal… Slowly draw down both the principal and the interest = Annuitizing
  • 24. Annuitizing
    • Liquefying an asset (e.g. a mutual fund or savings account)
    • Over a specified time
    • Producing an income stream from a “$ pile”
    • “… like creating your own annuity”
    An asset producing and income stream
    • It can be steady or periodic or ____?
    • You have the responsibility
    • You have control
    You could outlive your $ - or your $ could outlive you …
  • 25. PowerSave Software
    • Forecast! – Annuitizing your TSP, IRA, 401k payouts
    • Compounding over Time
    • Impact of inflation
  • 26. Personal Financial Management Software $134,000 after inflation Annuitized pay-outs Annual Interest Rate Inflation TIME
  • 27. Thrift Savings Plan www. tsp. gov Calculators Historical Rate of Return
  • 28. Thrift Savings Plan www. tsp. gov Table on Historical Rates of Return Past Performance is NOT a guarantee of future performance! G: 6.04% F: 6.95% C: 10.99% S: 9.7% I: 4.32%
  • 29. Thrift Savings Plan www. tsp. gov Plus Zurndorfer’s Your TSP from Federal Employee News Digest (on .pdf)
  • 30. Thrift Savings Plan (TSP)
    • Government “401k plan” – extremely low fees (contract, size and index-funds); FERS matching!
    • Set of 5 “mutual funds” sponsored by the Office of Personnel Management (OPM) and managed by a contractor (currently – Barclays):
    • • Government Securities Investment (G) Fund: short-term, non-marketable US Treasury securities.
    • • Fixed Income Index Investment (F) Fund: Barclays US Debt Index Fund, a commingled bond index designed as close as possible to the Lehman Brothers Aggregate (LBA) Index.
    • • Common Stock Index Investment (C) Fund: Barclays Equity Index Fund, which is designed to track as close as possible the performance of the Standard and Poor’s (S&P) 500 index.
    • • Small Capitalization Stock Index Investment (S) Fund: midsize and small company stock fund. The objective of the S Fund is to track the returns of the Wilshire 4500 stock index.
    • • International Stock Index Investment (I) Fund: tracks the returns of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) stock index.
    A Money Pile Holding Cups Growing Cups
  • 31. Thrift Savings Plan (TSP) A Money Pile
    • Cooperating with TSP during open-seasons
    • Seven pay-out options:
      • (NOW) Pull it all at once, pay the taxes, and spend it (whoopee!)
      • (NOW) Pull it all at once, buy an annuity (Met Life)
      • (LATER) Defer pulling the money until you are 70 ½
      • Annuitize the payments and pay the taxes as you go
      • Take amounts out as needed (within open – seasons; 70 ½ rule)
      • Roll over all or some to an IRA for more control (and service)
      • Combination of the above …
  • 32. Annuity Allowance Their responsibility You have less control Can’t outlive the money Can’t increase or decrease the periodic amounts ? Cost of Living Increases due to inflation ? Annuitizing Money Piles Vary the pay-out’s Your responsibility You have more control Can outlive the money & the money can outlive you Can increase or decrease the periodic amounts You account for cost of living increases due to inflation What is in your Retirement Plan?
  • 33. Retirement Capabilities MS Excel (.xls) Work Sheet
    • Annual Income over the phases of retirement
    • Go – Go
    • Go-Slow
    • No-Go
    • Estate Planning
    Handout p. 8 Ret Center Deficit! Insurance? Other? Spendable Income Expenses*
  • 34. Retirement Capabilities MS Excel (.xls) Work Sheet Taxable (Columns 4 – 12) Non-Taxable (Column 13) Spendable (Column 14)
  • 35. Retirement Capabilities MS Excel (.xls) Work Sheet 1. Write your timeline starting with year of retirement and age(s) 2. Ages until ??? Inflation (Cost of Living Increase! [You Hope]) Factors
  • 36. Retirement Capabilities MS Excel (.xls) Work Sheet Monthly Income (forecasted); Inflation factor increase for appropriate types
  • 37. Retirement Capabilities MS Excel (.xls) Work Sheet
    • 4 & 5. Taxable Pensions and Annuities
    • CSRS (Taxable part)
    • FERS
    • Military
    • Insurance Co.
    • Annuitized Funds
      • TSP
      • 401k / 503b
      • IRA
    6 & 7. Social Security (Taxable part)
  • 38. Taxable portion of CSRS Simplified General Rule Handout Page 9 Ref - IRS Publ 939
  • 39. Handout Pages 10, 11 Taxable portion of Soc Sec? Ref - IRS Publ 915
  • 40. Retirement Capabilities MS Excel (.xls) Work Sheet
    • Taxable Pensions and Annuities
    • CSRS (Taxable part)
    • FERS
    • Military
    • Insurance Co.
    • Annuitized Funds
      • TSP
      • 401k / 503b
      • IRA
    Social Security (Taxable part) 8. Work
    • 9. Other
    • Savings
    • Royalties
    • Rents
  • 41. Retirement Capabilities MS Excel (.xls) Work Sheet 10. Taxable Income 11. Taxable Rate ( effective rate for Federal and State) 12. After Tax Income
  • 42.
    • Taxes
    • Federal
    • State
      • Iowa after 55 exempts the first $6,000 per person of retirement $ (line 21)
      • Illinois exempts all retirement $ subject to federal taxes (Line 5)
    2. Form W-4 P (Pension) Pension Withholding! 3. Estimated Taxes Coupons mailed quarterly Tax Withholding Options 1. Don’t Withhold Just settle up at tax season
  • 43. Tax Tips, Information and Services Handout
    • Federal
      • Web site www. irs. gov
      • IRS Publ 17, Your Federal Income Tax for Individuals
    • Illinois
      • Web site www. iltax. com
    • Iowa
      • Web site www. state. ia. us / tax
    See References Page 12
  • 44. Retirement Capabilities MS Excel (.xls) Work Sheet
    • 13. Non-Taxable Income
    • VA
    • Disability Payments
    • Social Security (non-taxed part)
    • CSRS (non-taxed part)
    • Roth IRA’s
    • Life Insurance Pay-outs
  • 45. Retirement Capabilities MS Excel (.xls) Work Sheet 14. Spendable Income $ 15. Expenses* (carried over from previous .xls work sheet)
  • 46. Retirement Capabilities MS Excel (.xls) Work Sheet Make Adjustments to Income over time due to transitions
  • 47. Retirement Capabilities MS Excel (.xls) Work Sheet Deficit! Increase Ret Savings? Insurance? IRA? Savings? Other?
  • 48. Retirement Capabilities MS Excel (.xls) Work Sheet How do you know it is accurate? It isn’t – no person knows the future! OK – Now What?
  • 49. Retirement Capabilities Work Sheet Build at least 3 “scenarios” or “tests” Goldie-Locks and the Three Bears Best Case Low Inflation Low Expenses High I ncome & Returns Worst Case High Inflation High Costs Low Income & Returns Middle Case In-between inflation and expenses Fa i r Income & Returns
  • 50. American Savings Education Council (ASEC) www. asec. org / ballpark /
  • 51. Are your requirements and capabilities balanced ? Do your capabilities exceed your requirements? Do your requirements exceed your capabilities? What do you see as your next options and decisions?
  • 52.
    • Basic Retirement Financial Planning Workshops
    •  Part 1: Plan Your Use of Available Time
    •  Part 2: Retirement Requirements Planning  Part 3: Retirement Capabilities Planning
    • Part 4: Retirement Decision Time-gates
  • 53. Objective Setting: Objective Statement Components
    • basic questions (interrogatives)
      • Who
      • What (positively stated in the past tense)
      • Where
      • Why
      • How Much
      • By when
      • How well
    • State your BIG Picture of the end product = vision
  • 54. Objective Setting: Objective Statement Components
    • basic questions (interrogatives)
      • Who: I
      • What: completed my retirement financial plan
      • Where: on my MS Excel (.xls) Work Sheet
      • Why: in order to better plan for retirement
      • How Much: by listing my time line, requirements, capabilities, and decision time gates
      • By when: at the end of the month (and updated at least annually)
      • How well: so that I can coordinate retirement planning actions with my family, significant others and advisors.
    Sample #1
  • 55. Objective Setting: Objective Statement Components
    • basic questions (interrogatives)
      • Who: I
      • What: completed my retirement financial capabilities
      • Where: on my MS Excel (.xls) Work Sheet
      • Why: in order to better plan for retirement
      • How Much: by listing a range of retirement financial capabilities
      • By when: at the end of the month
      • How well: so the work sheet is complete and ready to use for next class.
    Sample #4
  • 56. Calculator & E-Pamphlets (as Adobe Acrobat Reader .pdf) at ACS
  • 57. From Federal Employee News Digest Available for your use at ACS RIA
  • 58. Sequence of this presentation Part 3: Retirement Capabilities Planning
    • CUPS !
    • Net Worth Statements: the Score Card for Cups
    • Selected Investing Techniques (there are many more)
    • Forecasting Retirement Capabilities
  • 59.
    • Other Questions?
    • And hopefully good answers ...
  • 60. Ta-DAH! It's over! Please fill out the evaluations!
  • 61.  
  • 62. Social Security Administration www. ssa. gov Retirement
  • 63. Social Security Administration www. ssa. gov
  • 64. Social Security Administration www. ssa. gov … some of their calculators
  • 65. Internal Revenue Service www. irs. gov Search for Topics Search for Forms & Publ’s
  • 66. Taxable portion of Soc Sec? IRS Form 1040 for 2003 Income From IRA’s (15), Pensions and Annuities (16) Instruction Book Page #’s
  • 67. 1 st Sheltering Only ½ of SSA $ used in initial calculation Income, Interest, Dividends, Self-Employment, Capital Gains, Pensions and other Retirement $’s Amount after taking Out Adjustments 2 nd Sheltering Married = $32K Single / HofH = $25K 3 rd Sheltering Married = $12K Single / HofH = $9K Taxable portion of Soc Sec? Page 28 in 1040 Instruction Book
  • 68. Smaller Smaller 85% of the Total Reduced by formula – or - Taxable portion of Soc Sec?
  • 69. Let’s discuss INCOME Wealth and how we can break it down into 3 parts … Fun nels are FUN!
  • 70. Remember “A Christmas Carol” by Charles Dickens? Remember the 3 Ghosts?
    • PAST
    • PRESENT
    • FUTURE
  • 71. MS Excel Spreadsheet: Creditor List
  • 72. Personal Financial Management Software Think of your creditors as a group and pay them off as a group ! PowerPay !
  • 73. MS Excel Spreadsheet: Keeping Track of Expenses See Page 5 in this handout
  • 74. MS Excel Spreadsheet: Pay Yourself Savings
  • 75. The Money Rascals ©
    • Susan Zimmerman, M.A., ChFC, CLU
    • Changing troublesome money habits from the inside out.
    • The Assessment and its (limited) uses
    The 8 Money Rascals
    • Flashers
    • Rashers
    • Clashers
    • Dashers
    • Bashers
    • Ashers
    • Cashers
    • Stashers