Kfs retirement planning review


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Kfs retirement planning review

  1. 1. © 2013 VSA, LP Valid only if used prior to January 1, 2014. The information, general principles and conclusions presented in thisreport are subject to local, state and federal laws and regulations, court cases and any revisions of same. While every care hasbeen taken in the preparation of this report, neither VSA, L.P. nor The National Underwriter is engaged in providinglegal, accounting, financial or other professional services. This report should not be used as a substitute for the professional adviceof an attorney, accountant, or other qualified professional.Preparing for YourRetirementA Retirement Planning Review1a1-02
  2. 2. Your Earning Power2Preparing for Your Retirement: A Retirement Planning Review$ 50,000 $ 100,000 $ 250,000 $ 500,000$ 2,000,000 $ 4,000,000 $ 10,000,000 $ 20,000,000$ 1,500,000 $ 3,000,000 $ 7,500,000 $ 15,000,000$ 1,000,000 $ 2,000,000 $ 5,000,000 $ 10,000,000$ 500,000 $ 1,000,000 $ 2,500,000 $ 5,000,000$ 250,000 $ 500,000 $ 1,250,000 $ 2,500,000Your Future Earning PowerIf Your Family Income Averages:Years toAge 65:403020105How much of this money will beavailable to you when you retire?What will happento your standard ofliving when yourincome ceases atretirement?Few people realize that a 30-year-old couple willearn 3.5 million dollars by age 65 if their totalfamily income averages $100,000 for their entirecareers, without any raises.Your IncomeSpouse’s IncomeOther IncomeInvestment IncomeYour ability to earn an income is your most valuable asset.
  3. 3. The Importance of Planning3Preparing for Your Retirement: A Retirement Planning ReviewSome people think that retirement planning isn’timportant because they won’t live until retirement.Source: Commissioners Standard Ordinary Mortality Table; based on composite data (combination of smokers, non-smokers andsmoking status unknown); age nearest birthday, 2001Of 100 PeopleWho Are Age:Their Odds of Living toRetirement at Age 65 Are:Has a Life Expectancy of Age:men women men women30 84% 87% 78 8240 85% 88% 78 8250 88% 90% 79 8360 94% 95% 81 84Not only will the vast majority of us live to reach retirement at age 65, but with advances inmedical technology, we can also expect to live a substantial number of years after retirement.Consider ...
  4. 4. Sources of Retirement Income4Preparing for Your Retirement: A Retirement Planning ReviewWhen you retire and your earning power ceases, you will have to depend on threeprimary sources for your retirement income:Social SecurityEmployer-Provided PlansPersonalRetirementSavingsAccording to the Social Security Administration, the average retired worker in2013 receives an estimated $1,261 monthly benefit, about 40% of averagepre-retirement income. As pre-retirement income increases, however, thepercentage replaced by Social Security declines.You may be eligible to participate in a retirement plan established by youremployer and receive pension income at your retirement.For many people, there is a gap between the retirement income they canexpect from Social Security and employer-provided plans and theirretirement income objectives. Personal retirement savings represent theonly way to bridge that gap!will you defer your retirement age,If sufficient retirementincome is not available,or will you choose to reduce your standard of living?
  5. 5. Important Facts About Social Security Retirement Benefits5Preparing for Your Retirement: A Retirement Planning Review!Early retirement results in a permanent reduction in the Social Security retirement benefit.For example, the Social Security retirement benefit of a worker born between 1943 and1954 who retires early at age 62 will be reduced by 25%.According to the Social Security Administration:The maximum Social Security retirement benefit for a worker retiring at full retirementage in 2013 is $2,533 monthly.The average Social Security benefit for all retired workers in 2013 is an estimated $1,261.continued on next slideThe Social Security Normal Retirement Age, currently age 66 for thosepeople born between 1943 and 1954, is gradually increasing to age 67for persons born after 1954.
  6. 6. Important Facts About Social Security Retirement Benefits6Preparing for Your Retirement: A Retirement Planning ReviewThe Social Security spousal retirement benefit is limited to a maximum of 50% of theretired worker’s benefit.The spousal retirement benefit is reduced if the worker retires before his or her fullretirement age.How much do you want to rely on a source of retirement income over which you have nocontrol? Consider this quote from a Time magazine article titled "Social Insecurity":Question: When was this article published?“For government to pay pensions to the advancing tide of baby boomers will almostcertainly require stunning benefit reductions or huge tax increases. Most likely both.After years of fiscal and political fecklessness, an explosive conclusion.”Answer: March 12, 1995, although the same statement could easily apply today, in theabsence of any reform to the Social Security system.
  7. 7. How Much Capital Will You Need at Retirement?7Preparing for Your Retirement: A Retirement Planning ReviewA financially-secure retirement is the result of understanding andanswering these essential questions:How much money will you need?Where will the money come from?How much time do you have before retirement?continued on next slidepersonalretirement savingsOf the three primary sources ofretirement income,is the one over which weexercise the most control!
  8. 8. How Much Capital Will You Need at Retirement?8Preparing for Your Retirement: A Retirement Planning ReviewAmount of capital required to provide that monthly income,assuming your capital earns an annual interest rate of:4% 6% 8% 10%$ 300,000 $ 200,000 $ 150,000 $ 120,000$ 450,000 $ 300,000 $ 225,000 $ 180,000$ 600,000 $ 400,000 $ 300,000 $ 240,000$ 900,000 $ 600,000 $ 450,000 $ 360,000$ 1,200,000 $ 800,000 $ 600,000 $ 480,000$ 1,500,000 $ 1,000,000 $ 750,000 $ 600,000$ 3,000,000 $ 2,000,000 $ 1,500,000 $ 1,200,000For each year that youneed this much monthlyretirement income:$ 1,000$ 1,500$ 2,000$ 3,000$ 4,000$ 5,000$ 10,000This is a hypothetical illustration only and is not indicative of any particular investment or investment performance. It does notreflect the fees and expenses associated with any particular investment, which would reduce the performance shown in thishypothetical illustration if they were included. In addition, rates of return will vary over time, particularly for long-terminvestments.This example is based on the capital retention method, which uses interest return only to provide income. Principal is notliquidated and remains available.
  9. 9. If You Wait…You Lose!9Preparing for Your Retirement: A Retirement Planning ReviewIf $100 a month is saved, what will the savings be worth at age 65, assuming ahypothetical 5% annual rate of return*?* This is a hypothetical illustration only and is not indicative of any particular investment or investment performance. It does notreflect the fees and expenses associated with any particular investment, which would reduce the performance shown in thishypothetical illustration if they were included. In addition, rates of return will vary over time, particularly for long-terminvestments.Delaying retirement savings can keep you from realizing your retirement dreams!“The eighth wonderof the world iscompound interest.”- Albert EinsteinAge When You Begin to Save $ 100 a Month
  10. 10. Power of Tax Deductions and Tax-Deferred Accumulations10Preparing for Your Retirement: A Retirement Planning ReviewThose who qualify for a tax-deductible IRA can use money thatwould otherwise be paid in taxesto establish a retirement fund thataccumulates tax deferred.Taxes, however, must be paid asdistributions are received from atax-deductible IRA.A second alternative for those whoqualify is the Roth IRA. Whilecontributions to a Roth IRA are nottax deductible, the retirementfund accumulates tax deferred anddistributions are received free ofincome tax.Either a tax-deductible IRA or aRoth IRA can produce resultssuperior to a savings plan whosegrowth is taxed.20 Year Results - 8% Hypothetical Annual Rate of Return/$5,500 Annual Contribution/ 25% Income Tax Bracket ** This is a hypothetical illustration only and is not indicative of any particularinvestment or investment performance. It does not reflect the fees andexpenses associated with any particular investment, which would reduce theperformance shown in this hypothetical illustration if they were included. Inaddition, rates of return will vary over time, particularly for long-terminvestments.$271,826$203,870$160,845050,000100,000150,000200,000250,000Tax-DeductibleIRANon-DeductibleRoth IRANon-DeductibleSavings
  11. 11. Power of Tax Deductions and Tax-Deferred Accumulations11Preparing for Your Retirement: A Retirement Planning ReviewIf the tax-deductible IRA is surrendered at the end of the 20th year, theprincipal amount remaining after payment of income tax is $203,870 at a25% rate; assumes no penalty tax is assessed.If the Roth IRA is surrendered at the end of the 20th year, the full principalamount of $203,870 is available free of income tax; assumes no penaltytax is assessed.Calculations assume the income tax is paid out of investment earningseach year, meaning that the full principal amount of $160,845 is availablefree of income tax at the end of the 20th year.Tax-Deferred Growth$ 5,500- $ 0$ 5,500ContributionTax PaidTo InvestTax-Deferred Growth$ 5,500- $ 1,375$ 4,125ContributionTax PaidTo InvestGrowth Taxed$ 5,500- $ 1,375$ 4,125ContributionTax PaidTo InvestTax-Deductible IRANon-Deductible Roth IRANon-Deductible Savings
  12. 12. Impact of Inflation12Preparing for Your Retirement: A Retirement Planning ReviewInflation Doesn’t Retire When You Do!Failing to consider the impact of inflation could result in a gradual erosion of yourstandard of living after retirement.From ToBased on the ConsumerPrice Index, the AverageAnnual Inflation Rate Was:2008 2013 1.8%2003 2013 2.4%1993 2013 2.4%Did you know ... What this means ...Assuming a person who retired in 1993 witha fixed monthly retirement income of $4,000had an average monthly food bill of $500,the food bill consumed 12.5% of thisretiree’s monthly income.By 2013, however, with an average inflationrate of 2.4%, that retiree’s monthly food billwould have grown to $803, or 20% ofmonthly retirement income.
  13. 13. Some Retirement Planning Options13Preparing for Your Retirement: A Retirement Planning ReviewOne or more of the following retirement planning options may be of interest to you in saving forretirement. Your licensed financial adviser will discuss with you how specific products may workfor you in your particular situation, including the products features, benefits, risks, charges andexpenses.Some employers offer qualified retirement plans that allow employees tocontribute pre-tax dollars that accumulate tax deferred until received.Take full advantage of any such plan offered by your employer. Tax deferralcan result in more funds accumulated for retirement than saving forretirement without the benefit of tax deferral.QualifiedRetirementPlansAnyone with compensation and their spouses can establish this personal, tax-favored retirement plan.You can select a regular IRA, which may allow for tax-deductiblecontributions, together with tax-deferred accumulations and taxabledistributions or, subject to income requirements, a Roth IRA, which does notallow for tax-deductible contributions, but provides tax-deferredaccumulations and tax-free distributions.IndividualRetirementAccount(IRA)continued on next slide
  14. 14. Some Retirement Planning Options14Preparing for Your Retirement: A Retirement Planning ReviewAn annuity can be used to accumulate funds on a tax-deferred basis. Then, atretirement, the value of the annuity can be converted to an income that youcannot outlive. An annuity does not provide any tax deferral advantage overother types of investments offered through qualified plans or IRAs. If,however, you are already contributing the maximum to an employer-sponsored qualified retirement plan or an IRA, an annuity can be anattractive way to save for retirement.AnnuitiesWhile the primary purpose of life insurance is to provide death benefitprotection, some life insurance plans build cash values on a tax-favored basis.If consistent with your life insurance needs after retirement, some or all ofthis cash value can be used to supplement other sources of retirementincome (withdrawals and loans will reduce the policy’s death benefit andcash value available for use). In addition, life insurance can be used bymarried couples to maximize the pension income received from employer-provided plans.LifeInsuranceLife insurance and annuity contracts contain exclusions, limitations, reductions ofbenefits and terms for keeping them in force. Your licensed financial adviser will provideyou with costs and complete details about any specific life insurance or annuity contractsrecommended to meet your specific needs and financial objectives.Note:
  15. 15. Retirement Planning Action Checklist15Preparing for Your Retirement: A Retirement Planning ReviewDetermine the additional monthly income required toachieve your retirement income objective and the capitalneeded to provide that additional monthly income.Pension Benefits from Employer-Provided Plans;Other Pension Benefits (e.g., Veterans benefits); andIncome from Personal Retirement Savings.Estimate the income you will need at retirement.The Analysis … The Plan …Evaluate and select retirementplanning options, with a specialemphasis on tax-favored plans.Estimate the income that will be available to you atretirement, including:Social Security (submit Form SSA-7004 to the SocialSecurity Administration in order to receive an “Earningsand Benefit Statement”);Commit to a systematic monthlyretirement savings programdesigned to achieve your retire-ment income objective.Select savings and investmentvehicles consistent with yourobjectives and risk tolerance.
  16. 16. You Can Manage Your Finances16Preparing for Your Retirement: A Retirement Planning Review“It’s by managing your finances that you write the storyof your life. You are both the author and the story’sprincipal character.Resolve to perform what you ought.”-- Benjamin Franklin