Retirement Income Planning
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  • Welcome…I’m told that in retirement a not-so-subtle change occursIn that as one transitions from the mind-set of accumulation to that of distributionthis ingrained drive for imbalance – accumulating more than spending - must give way to balanceAll your life you’ve worked toward having more than you need for this momentAnd the suddenly you’re thrust in this new paradigm where you’re no longer saving and spending, but only spendingThe newness and strangeness of it can be disconcerting until at least until you become accustomed to this notion of balanceLet’s flesh this out a little bit – what do I mean by balance>>
  • Balance between what you’ve worked hard to accumulate and what you now need to live on in retirement. Balance between your expenditures and your assetsThat is the goal of retirement income planning.How do you know if you are in balance?Perhaps you’re wondering if your accumulation is inadequate to meet your needs in retirement. Or just wondering when you can stop the accumulation phase and actually retire. The only way to really know is by a thorough investigation into each side of the balanceLooking at all the points under each side it becomes clear that we could easily spend more time than we have on just about any one of the points aloneSuffice it to say I’ve been encouraged not to do thatSo we’re going to pass over these fairly quickly and in very general termsIf you want to go deeper into any or all of these we are available for personal 1on1 consultations at no cost to you
  • So lets start on the expenditure side of the balance With expenditures we will think in terms of cash flow, which is basically tracking what you spend to live each month. Then we’ll want to consider a budget, which is the management of cash flow, or controlling what and where you spend.Cash flow tells you where your money is actually spentSo you use it when you need to know where your money is goingAnalysis toolBudgeting is a spending planAllows you to control how much and where your money is goingPlanning & Implementation toolWhen you analyze cash flow you come to better understand spending habitsWhen you utilize a budget you are able to overcome poor or destructive spending habitsOne naturally leads to the other. So as we take a closer look at these two, we’ll begin with Cash Flow>>
  • To forecast your future cash flow needs in retirement you can begin by tracking your current expenditures.If you’re starting totally from scratch you can begin with the 2 major categories of housing and non-housing And then break those major categories down into sub categories – food, transportation, health care and utilities, maintenance, mortgage, etc.Keep in mind that the more detailed you get, the easier it will be to find areas to cut back, if that is necessaryOn the right hand side of the screen is a list of average expenditures for people in retirement compiled by BLS. This is a good, basic list to start withThere are other places to get pick up basic starting lists, too, but the idea is to borrow someone’s list and adjust it to make it your own by adding your categories until you’ve captured all of your expenditures, and then track those expenditures over time to get a good idea where your money is going
  • There are some powerful tools available to help you here, and since so many of our transactions are electronic now, it seems natural to gravitate toward an electronic toolBut whatever tool you choose The point is to take advantage of the resources available to make this part of the work easier.I use one credit card for as many transactions as possible, and I pay my bills from my on-line bank accountSo with that one account and a credit card we cover probably 99% of our transactionsThen we use a website called Mint.com – a free site that aggregates all of your financial information and gives you great monitoring tools and the budgeting piece as well.But there are other tools available too. The idea is to leverage technology to make this part of the work less time consumingWe do go into these topics in greater detail in our budgeting and cash flow analysis seminar so take advantage of that when it comes up in rotation again
  • So on the expenditure side you need to track your spending to identify how much you’re spending and on whatIn my mind this is the most important number because without it you will not know how if your assets are adequateNow to the Asset side.
  • Each of you probably has a couple accounts that you have built up during your accumulation phase that you will now begin to use as income over the course of your retirement to meet your expenditures.Here we’re talking about your Retirement savings, which may be your 401k, a 403b, and IRA, or one of the other retirement savings vehicles available.You would also include Social Security Income on the asset side of the balance, as well as any pensionsAny other assets, such as taxable investments, savings, HSA, investment property would also be included on your list of assetsNow you have this list of assets. Someday you’ll need to convert them to a stream of income. But for now you only want an estimate of what your income would be
  • This is a screen shot of one of our calculators that performs these conversions for usSo let me take a moment here and put in a plug for our consultations, where we can work though these numbers with you individually More about that at the endSo we plug in your various assets>>
  • And the calculator displays an estimate of your total income equally divided over a number of yearsIf you want to try this at home, then a rule of thumb is to take the value of all your investments and savings and calculate a 4% annual withdrawal rateAdd to that your projected annual income from Social Security,Add to that any annual pension incomeAnd you get a ball park figure for your retirement incomeOr there are many web sites that offer these types of calculators, and some even more detailed. One gentlemen I met with on Tuesday showed me the calculator on SmartMoney.com and it looked very nice – actually confirmed the numbers we got on our calculatorWhatever tool you utilize, when you’re done you’ll want an estimate of your annual income from all of your assets
  • So through the process of tracking expenditures we can reasonably approximate our cash flow needs.Then we can approximate from the totality of assets what income can reasonably be expected.What do you do if your expenditures and assets are not in balance?Well, you talk to the boss!Who is the boss, you ask?>>
  • You are the bossYou are the CEO of your own retirement. you are going to have begin to think like the owner of a small business. Because you are – you’re the owner and manager of your retirement business. So, as CEO of your retirement there are a number of important decisions you will need to make and manage in the years approaching retirement and throughout your retirement years.This is certainly not an exhaustive list, but its just meant to help you prepare for that change in mind-set that will need to occur as you approach retirement
  • For instance, if assets and expenditures are not in balance. What does the CEO do?Well, the CEO will face some important decisions on both Assets and Spending. If they are not in balance, you will need to instigate change.In your pre-retirement years if you’re out of balance, you have 2 options: you can reduce expenditures and/or increase assetsBut in your retirement years increasing assets becomes less possible, so the changes you instigate will have to come from the expenditure sideAnd your expenditures are going to have to be closely managed because while you can spend more than you’ve budgeted, and no one will stop you if you do, The penalty will be that your money will run out sooner than estimated.Longevity risk, or the risk of outliving your savings, becomes more likely if you are not intentional in your spending.So how do you become intentional in your spending? I’m glad you asked>>
  • You become intentional in your spending by planning it out.This takes us back to the idea of a Budget, which is a spending planWhich will require you to adopt spending habits that keep your expenditures in balance with assetsIn your pre-retirement years you can use a budget to help reduce your expenditures in order to accumulate more assets for retirementAnd in your retirement years you can use a budget to ensure you are not out-spending your assets and putting yourself at risk in your later yearsSo the budget allows us to intentionally plan spending to keep us in balance
  • One of the more important decisions the CEO will have to make is when to begin drawing from Social Security. There are several options: first of all, the longer you wait to begin drawing the more your monthly income from Social Security will be.Then it gets more complicated if you are married because now you’re talking about the choosing between the various possible combinations of 2 incomesBut your choice here can make a big difference in your potential income, so as CEO you will want to be out front on thisThe Social Security website has lots of info and some helpful planning tools, and there are a ton of websites purporting to help you plan these things out, so cautiously avail yourself of these resources
  • Another area where the CEO will need to be actively engaged is in the method and timing in converting investment assets to incomeFor instance, Do you keep your 401k in the Amway plan or roll out to an IRA? If you roll it out, where do you roll it to, and into what type of investments?Speaking of investments, should you change the type of investments you’re in when you’re retired? Should you be in a safer investment?What about your Roth. When is the best time strategically to take income from your Roth?If you are part of the Amway pension plan, should you take it in a lump sum or an annuity?If you own Investment property, should you keep it or sell it?These are all details that are easy to not see when you’re looking at your retirement from 39000 ft in an overview.
  • You’re accustomed to receiving a paycheck regularly here in your pre-retirement years,But as CEO you will be responsible to manage the timing of the distribution of your assets, too. Quite frankly this all may require skills that you don’t possess. As CEO it will be up to you to decide how to proceedIt could be you’ll want to simplify this process in order to manage it effectively.
  • And there are ways for you to make this part of the job less complex if that is what is needed.For example Its not uncommon for people to move their assets to one company and platform, or even to one accountWhere they can set up automatic distributions and easily and quickly monitor what’s happening in that accountSo there are ways to simplify these things so that it isn’t a full time job.
  • There may come a point where you say that some areas of the business are too technical or complex for you to handle on your own. In this case You can and should hire help.For example, One area that will probably change for you will be taxes. If your assets are the least bit complicated you will probably want a tax strategy before you begin to convert them to incomeAnd most of you will probably need to hire someone to help you do your taxes each yearSo this may be one area where you will need to hire helpYou might also want to hire financial help in the form of a financial adviser or an investment adviserWhen you hire help in the investment world, the most important question to ask the adviser is, “how do you get paid?”Those advisers who get paid by the fee they charge you and NOT by any products they get you to buy are more likely to give you conflict-free adviseThose advisers who get paid from the products they sell you are not required by law to make recommendations in your best interest. They actually do not work for you but rather for the product that provides them revenue.This is not to say that all advisers in this 2nd category are bad, and all of those in the 1st are good. It is only to warn you to find out where your adviser’s loyalty is, who your adviser really works for, because you are trusting this person with something of great importance to you.So by all means, get the expert help you need, but be careful that you know what you’re getting
  • As I have mentioned, we are here to provide personalized consultations at no cost to youWe can address your specific situation and give you more detail than we’ve been able to cover hereYou are welcome to bring your spouseHere is a list of what you should bring to the consultation – this list is also on our website

Transcript

  • 1. Retirement Income Planning: Balance
  • 2. Retirement Income Planning: Balance Expenditures Assets• Mortgage / taxes • Retirement Savings• Insurances • Pensions • Home/auto/life/medical • Investments• Utilities • Property• Food / Gas• Entertainment
  • 3. Retirement Income Planning: Balance• Cash flow – When you need to know where money is going – Analysis• Budgeting Cash flow – When you need to control how much and where money is going Budget – Planning & Implementation
  • 4. Retirement Income Planning: Balance• Determine your expected cash flow needs – Start with current expenditures – Major Categories • Food • Utilities • Mortgage • Health Care • Transportation • Housing – The more detailed you get, the more accurate you will be
  • 5. Retirement Income Planning: Balance• Determine your expected cash flow needs – Consider using a tool that will help you track expenses • Mint.com • Quicken • Spreadsheets – Attend our Budgeting & Cash Flow Analysis seminar
  • 6. Retirement Income Planning: Balance Expenditures Assets• Mortgage / taxes • Retirement Savings• Insurances • Pensions • Home/auto/life/medical • Investments• Utilities • Property• Food / Gas• Entertainment
  • 7. Retirement Income Planning: Balance• Assets – Retirement savings • 401k/403B • IRA – Social Security Income – Pensions – Other assets: i.e. investments, savings, HSA, investment property
  • 8. Retirement Income Planning: Balance
  • 9. Retirement Income Planning: Balance Estimating Income • 4% Rule of thumb – 4% annual withdrawal rate from investments • Add annual Social Security Income • Add annual Pension Income
  • 10. Retirement Income Planning: BalanceExpenditures Assets
  • 11. Retirement Income Planning: BalanceYou: the CEO of yourRetirement Business – Decision-maker – Manager
  • 12. Retirement Income Planning: BalanceYou: CEO – Pre-retirement • Changes to Expenditures – Find spending to cut • Changes to Assets – Increase savings – Post-retirement • Changes to Expenditures – Find spending to cutOr you risk running out of money – longevity risk
  • 13. Retirement Income Planning: BalanceYou: CEO – Create and implement a budget • To reduce & control spending • To increase accumulation by saving
  • 14. Retirement Income Planning: BalanceYou: CEO – Social Security options • 62, 66, 70 • One spouse, both spouseswww.ssa.gov
  • 15. Retirement Income Planning: BalanceYou: CEO – 401k • Remain in plan or roll out – Roth • When to use – Safer investments • Income producing – Amway pension • Lump sum or Annuity – Investment property • Keep or Sell
  • 16. Retirement Income Planning: Balance 401(k) Social Security PensionYou: CEO – Ongoing coordination of asset distribution to produce required income stream
  • 17. Retirement Income Planning: BalanceYou: CEO – Simplify, if necessary 401(k) – Consolidate Pension » Under one roof IRA Lump » Into one account – Automatic payments IRA
  • 18. Retirement Income Planning: BalanceYou: CEO – Look for help • Taxes – Strategy – Calculation • Financial Adviser – Wholesale vs. Retail – Fiduciary Standard
  • 19. Personal Consultations• Consider your specific situation• Free for all Amway employees• Spouses are welcome to attend• What to bring: – Fidelity login credentials – Outside asset list – Social Security Statement – Target Retirement Year – Estimate of monthly income needs
  • 20. Thank You Schedule your personal consultation now! Visit http://amway.bemanaged.comContact us at (616) 871-0751 or (888) 738-8780What to bring: Fidelity login credentials Outside asset list Social Security Statement Target Retirement Year Estimate of monthly income needs