1
Test Drive Your Retirement
Making Your Retirement Income and Resources Last
© 2012, Janney Montgomery Scott LLC
2
Answering the Difficult Questions
• Have I saved/am I saving enough?
• What are my r...
3
© 2012, Janney Montgomery Scott LLC
4
Roadblocks to a Financially Secure Retirement
• Risks you generally can control
– No...
© 2012, Janney Montgomery Scott LLC
5
Recognize the Importance of Planning
An NBER study found that roughly
46% of America...
© 2012, Janney Montgomery Scott LLC
6
Look at Life Expectancy Realistically
• 57% of preretirees underestimate the life ex...
© 2012, Janney Montgomery Scott LLC
7
Account for Inflation When Assessing Needs
1993 1994 1995 1996 1997 1998 1999 2000 2...
© 2012, Janney Montgomery Scott LLC
8
Account for Inflation When Investing
0%
1%
2%
3%
4%
5%
6%
7%
1993
1994
1995
1996
199...
© 2012, Janney Montgomery Scott LLC
9
Watch Out for Market Volatility
$100,000
$150,000
$200,000
$250,000
$300,000
$350,00...
© 2012, Janney Montgomery Scott LLC
10
Factor In Long-term Care Costs
• 70% of people over age 65 may need long-term care ...
© 2012, Janney Montgomery Scott LLC
11
Today’s Retirement Has a Different Look
• People are staying on the job longer
– In...
© 2012, Janney Montgomery Scott LLC
12
You May Not Have a Choice
• Health problems or disability can end employment
• So c...
13
© 2012, Janney Montgomery Scott LLC
14
Not All Income Is the Same
• Guaranteed income
– Like a retirement “paycheck”
– Pay...
© 2012, Janney Montgomery Scott LLC
15
Review Your Guaranteed Income Sources
• Pensions
– Becoming less common
– Only abou...
© 2012, Janney Montgomery Scott LLC
16
Consider Nonguaranteed Income Sources
• Retirement savings plans
– An employer-spon...
© 2012, Janney Montgomery Scott LLC
17
Look at How Different Incomes Work Together
Basic Living Expenses
• Food
• Housing
...
© 2012, Janney Montgomery Scott LLC
18
Take Steps To Close Any Income Gap
• Work longer or work part-
time during retireme...
© 2012, Janney Montgomery Scott LLC
19
Purchase an Immediate Annuity [Optional screen]
• Turn retirement investments into ...
© 2012, Janney Montgomery Scott LLC
20
Plan Your Withdrawals
• Don’t withdraw too much too soon
• Set a withdrawal rate fo...
21
© 2012, Janney Montgomery Scott LLC
22
Monitor and Reevaluate
• Your priorities may change
– Active retirement = greater d...
© 2012, Janney Montgomery Scott LLC
23
Monitor and Reevaluate
• Types of expenses may change
– Discretionary spending may ...
© 2012, Janney Montgomery Scott LLC
24
Reconsider Your Risk Tolerance
Ten+ Years to Retirement
20%
80%
Within Five Years o...
© 2012, Janney Montgomery Scott LLC
25
Be Open to Changes in Your Asset Allocation
• Many retirees invest to preserve prin...
26
© 2012, Janney Montgomery Scott LLC
27
Take Asset Allocation a Step Further
• Include guaranteed income as an asset class
...
© 2012, Janney Montgomery Scott LLC
28
Look at Guaranteed Income Need Factors
• Your age
• Risk tolerance
• Legacy goals
•...
© 2012, Janney Montgomery Scott LLC
29
Create a Retirement Picture
Current achievable income goal
Basic retirement income ...
© 2012, Janney Montgomery Scott LLC
30
Optimize Your Income Sources
Asset Income and
Portfolio Withdrawals
46% versus 67%
...
© 2012, Janney Montgomery Scott LLC
31
Set a Personalized Asset Allocation
© 2012, Janney Montgomery Scott LLC
32
Update Your Retirement Picture
Current achievable income goal
Basic retirement inco...
© 2012, Janney Montgomery Scott LLC
33
Update Your Retirement Picture
Current achievable income goal
Basic retirement inco...
© 2012, Janney Montgomery Scott LLC
34
Update Your Retirement Picture
Current achievable income goal
Basic retirement inco...
© 2012, Janney Montgomery Scott LLC
35
Update Your Retirement Picture
Current achievable income goal
Basic retirement inco...
© 2012, Janney Montgomery Scott LLC
36
Better Understand Your Current Expenses
• We give you a visual of
– Where you can s...
© 2012, Janney Montgomery Scott LLC
37
Get Started
• Make a list of your expenses and categorize them as
needs and wants
•...
© 2012, Janney Montgomery Scott LLC
38
What’s Next?
• Your Janney Financial Advisor will contact you
• An initial analysis...
39
Questions?
Annuity products are insurance products that aim to provide a guaranteed stream of fixed payments over a per...
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Test Drive your Retirement

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Introduction to Janney's Retirement Income Evaluator Tool. This concept is really starting to hit home considering the amount of baby boomers retiring evey day. Would you buy a car without first test driving it?

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  • Hi, I’m [Name and Title] of [Firm]. I’m glad you could join me for our presentation, Test Drive Your Retirement: Making Your Retirement Income and Resources Last. You’ve saved and planned and you’re almost there — ready to retire. Or maybe you recently retired. In either case, now is the time to look at your retirement resources, determine your potential retirement income, and consider how to make that income last for your lifetime.
  • Today, I’m going to talk about how you can get answers to the difficult retirement questions. Have I saved/am I saving enough? What are my retirement income sources? Are my retirement income spending goals realistic? Will my assets last through my retirement? How can I best monitor my investments and spending during retirement?
  • A variety of risks can put roadblocks in your path to a financially secure retirement.
  • Some of the risks, such as not saving enough for retirement, retiring too soon, and overspending during retirement, are generally under your control. Evaluating your potential retirement income and expenses before retiring can help you make decisions that should allow you to circumvent these roadblocks. Other risks to your retirement security aren’t as much under your control. For example: Your longevity Inflation and its effect on prices Financial market performance The possibility you’ll need long-term care at some time
  • Unless you’re aware of these risks and plan for them, you put yourself in danger of running out of retirement assets and income. A recent study by the National Bureau of Economic Research found that about 46% of Americans die with virtually no financial assets — less than $10,000.
  • Let’s look at some of the risks that aren’t under your control and how we can work together to reduce the potential roadblocks to a comfortable retirement. One risk factor is that people are living longer than ever, increasing the chances that they’ll run out of money. What do you think the average life expectancy is for a person your age and gender? [Give the audience a moment to think; ask for responses, if desired.] Here are figures from the U.S. Department of Health and Human Services. How close were you? According to a study sponsored by The Society of Actuaries, preretirees and retirees tend to underestimate life expectancy. Generally, you should plan on retirement lasting at least 20 years. Using a realistic life expectancy projection in your planning can help you have the assets you may need for income and financial emergencies during retirement.
  • Inflation is another risk. Over the past 20 years, overall annual inflation, as measured by the Consumer Price Index, has averaged only about 2.5%. But, over time, even low inflation can have a significant impact on the cost of goods and services. Take a look at the graph. A “basket” of goods and services we might have paid $100 for in 1993 costs more than one and one half times that amount today. And the rise in the costs of some essential items has been even steeper. Not considering the long-term effects of inflation could make your later retirement years particularly challenging.
  • Inflation can also negatively impact retirement investments. For example, when inflation is low, the interest rates paid on many fixed income investments, such as certificates of deposit, other savings accounts, and U.S. Treasury securities, are also low. You earn less income. Take a look at the graph. Someone who retired in 2000 expecting $5,000 a year from his or her fixed income investments would have seen some lean times in the years since. Over the past few years, average interest rates for six-month CDs and Treasuries have been below 1%.
  • Continuing to invest a portion of your assets in stocks after you retire may help your portfolio keep pace with inflation. But stock performance can be volatile, as we all know from the “lost” decade — 2000 to 2009 — when the stock market posted an overall negative 10-year return. Withdrawing even a relatively small amount from retirement savings at the wrong time — during a stock market decline, for instance — can cause you to run out of assets more quickly. Fixed income returns have been more consistent and generally positive for the past 20-years, but even fixed income investments aren’t immune from volatility. Because different asset classes may perform better than others from year to year, it’s important to maintain a diversified portfolio during retirement. The graph shows how using a simple 60% stock/40% bond portfolio over the 20-year period could have helped an investor avoid some of the stock market’s high peaks and low troughs and still realize portfolio growth similar to being 100% invested in stocks. Of course, the appropriate diversification for your retirement portfolio will depend on your personal situation and risk tolerance.
  • Now, let’s take a look at a final retirement risk that’s beyond your direct control — the possibility of your needing long-term care sometime in the future. No one likes to think about needing long-term care services, but considering that possibility and factoring it into your retirement income planning can make a big difference in how comfortable your later retirement years may be. According to the National Clearinghouse for Long-Term Care Information, almost 70% of people over age 65 may need long-term care. The average length of a nursing home stay in the U.S. is about two and a half years. The length of a stay in an assisted living facility is about two years. As you can see from the graph, long-term care costs can hit retirement resources hard.
  • A growing awareness of the potential risk of a shortfall in retirement resources is changing the face of retirement. Many people are looking at the factors they may be able to control, such as when to retire, and adapting their retirement plans. More people are delaying retirement. In 1991, 11% of Americans planned to retire after age 65. By 2012, that percentage had more than tripled to 37%. Others are changing careers later in life to something slower paced and/or more fulfilling. Still others are easing into full retirement by taking on freelance or consulting work or by simply working part-time to supplement their retirement income.
  • While it’s generally an individual decision, not everyone has the opportunity to choose when they want to retire and whether they’ll continue to work during retirement. The 2012 Retirement Confidence Survey found that half of current retirees surveyed say they left the work force unexpectedly due to: Health problems or disability — their own, a spouse’s, a parent’s, or another family member’s — or Changes at their employer, such as downsizing or closure. The bottom line is: Don’t depend too heavily on income from working past traditional retirement age.
  • Now that we’ve considered the financial risks retirees face, let’s look at retirement income.
  • If you’re like most retirees, you’ll have two types of income. Guaranteed income pays you a reliable set amount weekly, biweekly, monthly, or annually. You might think of it as a “paycheck” for life. Nonguaranteed income generally comes from your invested assets. The amount of income you receive can vary based on the amount you’ve invested and your investment returns. Nonguaranteed income ends when you’ve depleted all of your investments and the returns they’ve generated.
  • What types of income might you have? On the guaranteed income side, you might have pension payments from a former employer’s defined benefit retirement plan. However, this type of retirement income is becoming less common. Only about a third of current workers report that they or their spouses will qualify for a pension from a current or previous employer. Most people can expect to receive Social Security retirement benefits. How many of you have looked at your Social Security Statement and know what you can expect to receive? Show of hands. If you haven’t, you might be surprised to know that the maximum Social Security benefit in 2013 is $2,533 a month or $30,396 a year. The average payment is $1,261 a month or $15,132 a year. Obviously, you can count on Social Security for only a portion of your retirement income. A third type of guaranteed income you might have is an annuity from a private insurance company.
  • Your nonguaranteed income might be generated by: A retirement savings plan, such as an employer-sponsored 401(k) or 403(b) plan or an individual retirement account, Personal savings and investments, Real estate that produces rental income or the equity in your personal residence or vacation home, Investing the proceeds from the sale of a business, or Wages or self-employment income. You might think that wages and rental income should fall into the guaranteed income category. But, as we discussed earlier, you shouldn’t plan too heavily on being able to work during retirement, and economic conditions can affect rental income.
  • For a successful retirement, most retirees need both types of income — ideally, guaranteed income to cover basic living expenses and nonguaranteed income to use for discretionary spending, unexpected expenses, and inflation protection. Some guaranteed income sources aren’t adjusted regularly for increases in the cost of living.
  • What if it looks like your guaranteed income isn’t going to cover your basic living expenses or your total income will fall short of your projected retirement expenses? You’ll need to take steps to close the gap. As we discussed earlier, you may be able to postpone retirement for a while or work part-time during retirement. Working even for a few years during retirement may help cover health care and other necessary expenses and lower withdrawals from your retirement portfolio. Also look at reducing some of your discretionary expenses and Paying off debt. Reducing debt lowers your basic income requirements. You might cash in a permanent life insurance policy that you no longer need and invest the proceeds or If you have equity in your home, consider selling it and downsizing to reduce expenses.
  • One way to make up a shortfall in your guaranteed income is to convert one or more nonguaranteed income sources into guaranteed income by purchasing an immediate income annuity. You could use personal investments, assets in an IRA or other retirement savings plan account, or the cash value of a life insurance policy you no longer need. Like a pension, an annuity can pay you, or you and another person, a fixed income for life. And buying a fixed annuity will provide you with an income that won’t fluctuate with the value of your investments. Talk with us. We can tell you more about annuities and other insurance solutions.
  • Working with your financial advisor to determine a sustainable withdrawal rate from your retirement portfolio is another important part of retirement income planning. Withdrawing too much money too soon or making too large of a withdrawal at the wrong time can deplete your investments sooner than you intended. Once you’ve set your annual withdrawal rate, stick with it, even if the value of your investments declines and your withdrawal amount for the year will be lower. To compensate for the smaller withdrawal amount, look at ways to reduce your discretionary spending.
  • And the planning continues throughout your retirement.
  • To stay on top of your income needs and make your retirement resources last, you’ll need to monitor your investment performance and reevaluate the assumptions used to determine your withdrawal rate annually. For most people, early retirement is a more active time. You may finally get to do all of the things you’ve put off during your working years — travel, hobbies, starting your own business. You’ll probably want more discretionary income in the earlier years of your retirement than in later years. When you’re older and more settled into retirement, expenses may be more fixed and, as our graph shows, could even decline.
  • The types of expenses you’ll have may change at different points in your retirement. While discretionary spending may decrease, medical expenses will probably increase. And you could have additional expenses for help with tasks you no longer want to do or no longer can do, such as housekeeping and home maintenance. In addition, you may be less able to compensate for market drops by decreasing your discretionary spending. Your withdrawal rate from your retirement portfolio may have to be adjusted to accommodate these changes.
  • You’ll also want to reconsider your willingness and capacity to accept market risk as you move into and through retirement. Typically, people become more conservative investors when they retire (and become increasingly conservative during their retirement years). The pie charts show how an individual’s investment portfolio might be invested more conservatively over time. Generally, stocks are considered to carry higher risk than fixed income investments, and cash alternatives are considered to carry the least risk of the three major asset classes.
  • To have the retirement income you’ll need and to protect against depleting your retirement portfolio, periodic changes to your portfolio’s asset allocation may be necessary. Many retirees invest to preserve their principal and produce income. When you’re making changes, though, don’t overlook the need for continued portfolio growth. If you invest too conservatively, your investment returns may not keep pace with inflation, and you could have difficulty meeting your income needs. Most financial advisors agree that stock investments have a place in retirement portfolios. In fact, adding high-quality stock investments to a portfolio may help reduce overall risk and produce more consistent returns.
  • When you work with us, we take asset allocation a step further.
  • For example: We consider your guaranteed income as an additional asset class, along with your stock, fixed income, and cash investments, and We analyze your income sources to determine an income coverage ratio. This is the ratio of income expected to be generated by your guaranteed income sources versus income from your nonguaranteed sources.
  • As part of this retirement income analysis, we look at all of the factors that may affect your need for guaranteed income, as well as at your investment portfolio — factors such as Your age Risk tolerance Legacy goals Your investment time frame The amount of your investable assets Your preference for or against using insurance products
  • Then, we use our retirement income evaluation tool to create a retirement picture that estimates how your income and assets may be used during your retirement and shows the probability of your income lasting for your lifetime. This retirement picture is based on information you have provided about your estimated retirement date and spending needs, as well as assumptions about investment performance, inflation, and other factors. In the picture, the bottom blue line represents the individual’s basic retirement income needs, the upper purple line represents the retirement income required to meet the individual’s retirement needs and wants, and the green line represents the achievable income goal given the individual’s current retirement income sources and assumptions. As you can see, this individual faces a retirement income shortfall. Later on, I’ll show you some steps that could be taken to remedy that.
  • We also provide a projection of your current retirement income sources and recommend an optimal mix to meet your retirement goals. The orange band on the outside of the pie charts indicates guaranteed income sources and the blue band indicates nonguaranteed income sources. [Optional: If, as in this illustration, your guaranteed income sources fall short — that is, fail to cover your projected basic expenses — we can discuss with you how you might use an annuity or other insurance solutions to convert some of your nonguaranteed income sources into guaranteed income.]
  • Once we’ve reviewed your income sources and made an income projection, we analyze your current asset allocation, taking into account historic rates of return and your risk tolerance, and recommend changes based on your personal retirement goals that may better help you meet those goals.
  • Then, we create a new retirement picture for you with the changes we recommend. What if you don’t agree with or aren’t comfortable with some of the recommendations? We can run various scenarios showing how taking different actions would change your retirement picture. For example, let’s go back to the retirement picture I showed you earlier [click] and: [Click for 1 st change] Here we’ve invested the cash that represented 30% of the investable assets. While we’ve increased the risk to the portfolio, investing the cash provides the opportunity to keep pace with inflation. [Click for 2 nd change] Here, in addition to investing the cash, we sold a second home and invested the proceeds. This change eliminates the shortfall and, as you can see, the maximum retirement spending line (the green line) has gone above the desired retirement spending. [Click for 3 rd change] In this scenario, we still sell the second home and invest the proceeds. However, we’ve added an additional expense to help pay for the grandchildren’s college expenses. As you can see, this change puts us back into a shortfall. The individual should reconsider how much he or she wants to pay for college or whether he or she should start saving more for retirement. As you move through retirement, we can use this feature to update your retirement picture and make any needed revisions to your retirement income plan.
  • Then, we create a new retirement picture for you with the changes we recommend. What if you don’t agree with or aren’t comfortable with some of the recommendations? We can run various scenarios showing how taking different actions would change your retirement picture. For example, let’s go back to the retirement picture I showed you earlier [click] and: [Click for 1 st change] Here we’ve invested the cash that represented 30% of the investable assets. While we’ve increased the risk to the portfolio, investing the cash provides the opportunity to keep pace with inflation. [Click for 2 nd change] Here, in addition to investing the cash, we sold a second home and invested the proceeds. This change eliminates the shortfall and, as you can see, the maximum retirement spending line (the green line) has gone above the desired retirement spending. [Click for 3 rd change] In this scenario, we still sell the second home and invest the proceeds. However, we’ve added an additional expense to help pay for the grandchildren’s college expenses. As you can see, this change puts us back into a shortfall. The individual should reconsider how much he or she wants to pay for college or whether he or she should start saving more for retirement. As you move through retirement, we can use this feature to update your retirement picture and make any needed revisions to your retirement income plan.
  • Then, we create a new retirement picture for you with the changes we recommend. What if you don’t agree with or aren’t comfortable with some of the recommendations? We can run various scenarios showing how taking different actions would change your retirement picture. For example, let’s go back to the retirement picture I showed you earlier [click] and: [Click for 1 st change] Here we’ve invested the cash that represented 30% of the investable assets. While we’ve increased the risk to the portfolio, investing the cash provides the opportunity to keep pace with inflation. [Click for 2 nd change] Here, in addition to investing the cash, we sold a second home and invested the proceeds. This change eliminates the shortfall and, as you can see, the maximum retirement spending line (the green line) has gone above the desired retirement spending. [Click for 3 rd change] In this scenario, we still sell the second home and invest the proceeds. However, we’ve added an additional expense to help pay for the grandchildren’s college expenses. As you can see, this change puts us back into a shortfall. The individual should reconsider how much he or she wants to pay for college or whether he or she should start saving more for retirement. As you move through retirement, we can use this feature to update your retirement picture and make any needed revisions to your retirement income plan.
  • Then, we create a new retirement picture for you with the changes we recommend. What if you don’t agree with or aren’t comfortable with some of the recommendations? We can run various scenarios showing how taking different actions would change your retirement picture. For example, let’s go back to the retirement picture I showed you earlier [click] and: [Click for 1 st change] Here we’ve invested the cash that represented 30% of the investable assets. While we’ve increased the risk to the portfolio, investing the cash provides the opportunity to keep pace with inflation. [Click for 2 nd change] Here, in addition to investing the cash, we sold a second home and invested the proceeds. This change eliminates the shortfall and, as you can see, the maximum retirement spending line (the green line) has gone above the desired retirement spending. [Click for 3 rd change] In this scenario, we still sell the second home and invest the proceeds. However, we’ve added an additional expense to help pay for the grandchildren’s college expenses. As you can see, this change puts us back into a shortfall. The individual should reconsider how much he or she wants to pay for college or whether he or she should start saving more for retirement. As you move through retirement, we can use this feature to update your retirement picture and make any needed revisions to your retirement income plan.
  • The evaluation tool can also be used to help you better understand your current expenses and how crucial budgeting is to retirement income planning. We give you a visual of where you can save money, if necessary, and how reducing different expenses would affect your retirement picture. We also show you current expenses that will continue through retirement, expenses that will decrease or go away, such as a home mortgage or other debt, and expenses that are likely to increase, such as health care.
  • Are you ready to get started on creating a retirement income plan that can help give you a comfortable retirement? All you need to do is: Make a list of your expenses and categorize them as needs and wants Gather information about your retirement income sources Complete the Retirement Income Evaluation Information sheet Mail or drop off your information and any accompanying statements and documentation to your financial advisor
  • Once we’ve received your information: Your Janney Financial Advisor will contact you to discuss it and let you know if any additional information is needed. He or she will prepare an initial analysis. Then, you’ll meet to discuss the analysis and Your advisor will present his or her initial recommendations. When you’re happy with the recommendations, you give your final approval and your advisor implements them. But that’s not the end. We recommend that you meet with your advisor periodically to review the analysis and recommendations to determine whether they need to be updated to reflect your current goals and situation.
  • Thanks so much for coming today. I know I’ve covered a lot of material. If you have any questions about the topics we've covered or the steps you should take to put your retirement income plan into action, I’ll be happy to answer them now.
  • Test Drive your Retirement

    1. 1. 1 Test Drive Your Retirement Making Your Retirement Income and Resources Last
    2. 2. © 2012, Janney Montgomery Scott LLC 2 Answering the Difficult Questions • Have I saved/am I saving enough? • What are my retirement income sources? • Are my retirement income spending goals realistic? • Will my assets last through my retirement? • How can I best monitor my investments and spending during retirement?
    3. 3. 3
    4. 4. © 2012, Janney Montgomery Scott LLC 4 Roadblocks to a Financially Secure Retirement • Risks you generally can control – Not saving enough for retirement – Retiring too early – Spending too much during retirement • Risks that aren’t under your control – Longevity – Inflation – Financial market uncertainty – Long-term illness
    5. 5. © 2012, Janney Montgomery Scott LLC 5 Recognize the Importance of Planning An NBER study found that roughly 46% of Americans die with less than $10,000 in financial assets Source: Were They Prepared for Retirement?, James M. Poterba, Steven F. Venti, David A. Wise, National Bureau of Economic Research Working Paper No. 17824, February 2012
    6. 6. © 2012, Janney Montgomery Scott LLC 6 Look at Life Expectancy Realistically • 57% of preretirees underestimate the life expectancy of the average person their age and gender • 62% of retirees underestimate life expectancy Current Age 45 50 55 60 65 70 Women 82.8 83.2 83.8 84.5 85.3 86.5 Men 78.9 79.6 80.4 81.5 82.7 84.2 Life expectancy at different ages Sources: National Vital Statistics Report, Vol. 60, No. 4, January 11, 2012 (based on preliminary 2010 data) and 2011 Risk and Process of Retirement Survey Report of Findings, The Society of Actuaries, March 2012
    7. 7. © 2012, Janney Montgomery Scott LLC 7 Account for Inflation When Assessing Needs 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Food at Home $169 Fuels & Utilities $188 Medical Care $214 Price Changes 1993 – 2012 All Items $163 $100 at the Beginning of 1993 Source: U.S. Bureau ofLabor Statistics, Consumer Price Index for All Urban Consumers, Series Reports 1993 through August 2012
    8. 8. © 2012, Janney Montgomery Scott LLC 8 Account for Inflation When Investing 0% 1% 2% 3% 4% 5% 6% 7% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 12-Sep Yields/InterestRates AnnualIncome 6-Mo. CDs 6-Mo. Treasuries $7,000 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 Income from a $100,000 Investment Source: Federal Reserve
    9. 9. © 2012, Janney Montgomery Scott LLC 9 Watch Out for Market Volatility $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Stocks Bonds Cash Alternatives 60% Stock/40% Bond Portfolio Inflation $449,861 $445,696 $352,487 $186,498 $163,709 Growth of $100,000 (1992–2011) Stocks are represented by the S&P 500 Stock Index, bonds by Barclays Capital U.S. Aggregate Bond Index, cash alternatives by 91-day T-bills and Morningstar Cash Index as of 1/1/2010 and inflation by the Consumer Price Index — All Urban Consumers.
    10. 10. © 2012, Janney Montgomery Scott LLC 10 Factor In Long-term Care Costs • 70% of people over age 65 may need long-term care services • Average nursing home stay is about two and a half years • Median assisted living stay is about two years $81,030 $73,000 $43,472 $41,184 $39,600 $15,860 Nursing Home (private room) Nursing Home (semi-private room) Licensed Home Health Aide Services Licensed Homemaker Services Assisted Living Facility (one bedroom/single occupancy) Adult Day Health Care Median Annual Cost of Care (2012) Sources: National Clearinghouse for Long-Term Care Information; 2012 Consumer Action Handbook, GSA Federal Citizen Information Center; 2011 Market Survey of Long-Term Care Costs, MetLife; and Genworth 2012 Cost of Care Survey
    11. 11. © 2012, Janney Montgomery Scott LLC 11 Today’s Retirement Has a Different Look • People are staying on the job longer – In 1991, 11% of Americans planned to retire after age 65 – By 2012, that percentage had grown to 37% • Some are changing careers later in life • Others are easing into full retirement – Freelancing or consulting after they retire – Working part-time to conserve resources for later Source: 2012 Retirement Confidence Survey, the Employee Benefit Research Institute
    12. 12. © 2012, Janney Montgomery Scott LLC 12 You May Not Have a Choice • Health problems or disability can end employment • So can employer changes – Downsizing – Closure • Don’t depend too heavily on working past traditional retirement age
    13. 13. 13
    14. 14. © 2012, Janney Montgomery Scott LLC 14 Not All Income Is the Same • Guaranteed income – Like a retirement “paycheck” – Pays a reliable set amount – At regular intervals • Nonguaranteed Income – Generally from investments – Pays a variable income – Depends on investment returns
    15. 15. © 2012, Janney Montgomery Scott LLC 15 Review Your Guaranteed Income Sources • Pensions – Becoming less common – Only about a third of workers can expect to receive a defined benefit pension • Social Security benefits – $30,396 maximum payment in 2013 – $15,132 average payment in 2013 • Personal annuity Sources: 2012 Retirement Confidence Survey, the Employee Benefit Research Institute and Fact Sheet, Social Security Administration, 2013
    16. 16. © 2012, Janney Montgomery Scott LLC 16 Consider Nonguaranteed Income Sources • Retirement savings plans – An employer-sponsored 401(k) or 403(b) plan – Individual retirement account (IRA) • Personal savings and investments • Real estate – Rental income – Home equity • Sale of a business • Wages or self-employment income
    17. 17. © 2012, Janney Montgomery Scott LLC 17 Look at How Different Incomes Work Together Basic Living Expenses • Food • Housing • Transportation • Health care and other insurance premiums • Debt repayment • Fund for unexpected expenses • Discretionary spending • Inflation protection Pension(s) Social Security Benefits Investments Expenses Income
    18. 18. © 2012, Janney Montgomery Scott LLC 18 Take Steps To Close Any Income Gap • Work longer or work part- time during retirement • Reduce discretionary expenses • Pay off debt • Cash in a life insurance policy • Downsize your home
    19. 19. © 2012, Janney Montgomery Scott LLC 19 Purchase an Immediate Annuity [Optional screen] • Turn retirement investments into guaranteed income – Personal investments – IRA – 401(k) or 403(b) retirement savings plan account – Cash value of a life insurance policy • Similar to a pension • Income won’t fluctuate with the value of your investments
    20. 20. © 2012, Janney Montgomery Scott LLC 20 Plan Your Withdrawals • Don’t withdraw too much too soon • Set a withdrawal rate for the year and stick with it, even if the value of your investments declines • Lower your discretionary spending to compensate
    21. 21. 21
    22. 22. © 2012, Janney Montgomery Scott LLC 22 Monitor and Reevaluate • Your priorities may change – Active retirement = greater discretionary income needs – Passive phase = expenses more fixed $58,050 $53,616 $44,646 $32,688 Age 45-54 Age 55-64 Age 65-74 Age 75 and older Average Annual Expenditures by Age Source: Consumer Expenditure Survey, 2011, U.S. Department of Labor, U.S. Bureau of Labor Statistics, September 2012
    23. 23. © 2012, Janney Montgomery Scott LLC 23 Monitor and Reevaluate • Types of expenses may change – Discretionary spending may decrease – Medical expenses may increase – Housekeeping and home maintenance expenses could increase • You may be less able to compensate for market drops by decreasing discretionary spending • Your withdrawal rate may need to be adjusted
    24. 24. © 2012, Janney Montgomery Scott LLC 24 Reconsider Your Risk Tolerance Ten+ Years to Retirement 20% 80% Within Five Years of Retirement 40% 60% Throughout Retirement 60% 40% Some Sample Portfolios  Stocks  Fixed Income
    25. 25. © 2012, Janney Montgomery Scott LLC 25 Be Open to Changes in Your Asset Allocation • Many retirees invest to preserve principal and produce income • Don’t overlook the need for continued growth • Invest too conservatively and – Investment returns may not keep pace with inflation – You could have difficulty meeting your income needs • Holding some high-quality stocks may help reduce overall risk and produce more consistent returns
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    27. 27. © 2012, Janney Montgomery Scott LLC 27 Take Asset Allocation a Step Further • Include guaranteed income as an asset class • Determine an income coverage ratio – Income generated by guaranteed income sources versus – Income from nonguaranteed sources
    28. 28. © 2012, Janney Montgomery Scott LLC 28 Look at Guaranteed Income Need Factors • Your age • Risk tolerance • Legacy goals • Your investment time frame • The amount of your investable assets • Your preference for or against using insurance products
    29. 29. © 2012, Janney Montgomery Scott LLC 29 Create a Retirement Picture Current achievable income goal Basic retirement income needs Income needed to meet income needs and wants
    30. 30. © 2012, Janney Montgomery Scott LLC 30 Optimize Your Income Sources Asset Income and Portfolio Withdrawals 46% versus 67% Guaranteed Income 25% Client Social Security 16% Guaranteed Income 29% Client Social Security 16% Annuity Added 4%
    31. 31. © 2012, Janney Montgomery Scott LLC 31 Set a Personalized Asset Allocation
    32. 32. © 2012, Janney Montgomery Scott LLC 32 Update Your Retirement Picture Current achievable income goal Basic retirement income needs Income needed to meet income needs and wants
    33. 33. © 2012, Janney Montgomery Scott LLC 33 Update Your Retirement Picture Current achievable income goal Basic retirement income needs Income needed to meet income needs and wants
    34. 34. © 2012, Janney Montgomery Scott LLC 34 Update Your Retirement Picture Current achievable income goal Basic retirement income needs Income needed to meet income needs and wants
    35. 35. © 2012, Janney Montgomery Scott LLC 35 Update Your Retirement Picture Current achievable income goal Basic retirement income needs Income needed to meet income needs and wants
    36. 36. © 2012, Janney Montgomery Scott LLC 36 Better Understand Your Current Expenses • We give you a visual of – Where you can save money, if necessary – How different cuts would affect your retirement income picture • We show you – Current expenses that will continue through retirement – Expenses that will decrease or go away – Expenses that are likely to increase
    37. 37. © 2012, Janney Montgomery Scott LLC 37 Get Started • Make a list of your expenses and categorize them as needs and wants • Gather information about your retirement income sources • Complete the Retirement Income Evaluation Information sheet • Mail or drop off your information and any accompanying statements and documentation to your financial advisor
    38. 38. © 2012, Janney Montgomery Scott LLC 38 What’s Next? • Your Janney Financial Advisor will contact you • An initial analysis will be prepared • You’ll meet with your advisor to discuss the analysis • He or she will present and discuss our initial recommendations • You approve the final recommendations you and your advisor have worked out • You and your advisor meet periodically to review and update the analysis and recommendations
    39. 39. 39 Questions? Annuity products are insurance products that aim to provide a guaranteed stream of fixed payments over a period of time. Any guarantees made are subject to the claims-paying ability of the annuity-issuing insurance company. Annuities are not designed for short-term investment needs and are not liquid investments. If an annuity is surrendered early, certain fees and charges may be incurred as well as potential tax penalties. This is not a solicitation to sell a specific product, but rather, is an illustration of the effects of adding guaranteed income to the risk, return and stability of a portfolio over time. Please consult with the appropriate financial and investment professional(s) regarding any specific situations before implementing any of the strategies discussed. Neither Janney nor its financial advisors provide tax or legal advice and this Report shall not be construed as providing tax or legal advice.
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