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Christine Fahlund


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  • 1. Retirement Income – Behind the Numbers Presented by Christine Fahlund, Ph.D., CFP® T. Rowe Price
  • 2. Practice Retirement®I. Work AND RetireII. Key: More Time on Their SideIII. A Win: Win for You and Your ClientsIV. www.PracticeRetirement.comGoal: Help your clients enter retirement better prepared financially AND non-financially 4
  • 3. New retirement realities• Many are working in retirement—especially high net worth individuals• Leisure does not necessarily deliver the satisfaction• Most retirees are working because they WANT to 5
  • 4. Why do we work? Men Women 90% 87% 82% 79% 79% 74% 72% 71% 64% 64% 58% 47% 42% 33% 29% 20%To make ends The challenge Stay healthy Stay socially Money for Benefits Leave money Other meet active extras to heirs Source: FRC 2009 Consumer Retirement Income and Planning Survey, May 2009 6
  • 5. Why is 62 the magic number…when age is a state of mind? Do you consider yourself young, middle aged, or old? Age of respondents Young Middle Aged Old 55–64 6% 78% 15% 65–74 9% 43% 48% 75+ 7% 26% 67%Source: American Institute of Financial Gerontology 7
  • 6. A new time balance is neededOLD TIME BALANCE Working, spending, and saving: Spending: 45 years 30 yearsAge Age Age20 65 95NEW TIME BALANCE Working & Working, spending, and saving: Spending: spending: 40 years 10 years 25 yearsAge Age Age Age20 60 70 95 8
  • 7. NEW TIME BALANCE Working & Working & Working, spending, and saving: spending: spending: Spending: 40 years 10 years 10 years 25 yearsAge Age Age Age20 60 70 95Give your clients permission to enjoy their vibrant 60s 9
  • 8. A question of balance TIME MONEY WORK PLAY SAVE SPEND 10
  • 9. Cliff diver mindset:Work THEN Retire TIME MONEY WORK PLAY SAVE SPEND 11
  • 10. Worker bee mindset:Work THEN Work TIME MONEY WORK PLAY SAVE SPEND 12
  • 11. Practice Retirement® mindset:Work AND Retire TIME MONEY WORK PLAY SAVE SPEND 13
  • 12. Our recommendations1. Salary – Encourage clients to continue receiving a salary for likely positive impact on their income for decades2. Balance – Help them determine their ideal balance between saving and spending3. Preparation – Demonstrate benefits of using the transition years to get their financial house in order 14
  • 13. Get their financial house in order• Create a budget and try living within it• Pay off mortgage• Reduce credit card debt• Eliminate extraneous monthly charges• Purchase any big ticket items—car, computer• Charter or lease—RV, sailboat 15
  • 14. Help them prepare emotionallyLOSSES GAINS… Or are they?• Paycheck and benefits • Freedom: 24 hours, 7 days a week• Expense account • Travel, hobbies, time with• Prestige and title spouse• Friends at work • Start tapping nest egg• Daily routineEncourage your clients to take the time to adjust to whatfull retirement will probably look and feel like 16
  • 15. Why it works—More time on their side• Nest egg – Continues growing potentially• Social Security – Delays up to age 70 result in much larger payments• Salary and employer matches – More years of pay to fulfill dreams; get matches• Fewer years – Their savings must support them in retirement 17
  • 16. Three ExamplesCouples, age 60; $100k combined salaries; $500k combined nest egg Practice Retirement®Cliff Divers Worker Bees Work & retire at 60, Retire at 62 Retire at 70 fully retire at 70 18
  • 17. Same Circumstances, Different Results Age Age 62 Age 60 70 Practice Retirement®: Work AND Retire $100,000 Worker Bees: Work THEN Work $80,000 Annual Income $60,000 Cliff Divers: Work THEN Retire $40,000 $20,000 Practice Retirement: Work AND Retire; Stop saving, retire at 70 Worker Bees: Work THEN Work; Save at 15%, retire at 70 C liff Divers: Work THEN Retire; Save at 15%, retire at 62 $0 59 60 61 62 63 64 65 66 67 68 69 70This chart is shown for illustrative purposes only and does not represent the performance of any specific security.All figures shown pretax in Present Value at age 60, discounted at 3% annually. Preretirees assumed to be a couple contributing (if applicable) to their 401(k) plans, both age 60 with identical currentsalaries and work history. The “salary at 60” above is their combined current salary. Retirement asset growth is assumed to be 7% annually, preretirement; 6% annually, postretirement. Inflation isassumed to be 3% annually, applying to salary, contribution amounts, and savings withdrawals and Social Security benefits (the latter due to cost of living adjustments) after the initial year ofretirement. First-year savings withdrawal rates are based on age retiring: 3.7% at age 62 through 4.5% at age 70, each year of delay adding 0.1% to the withdrawal amount; initial amounts increase 19each year thereafter for inflation. Social Security benefits are estimated in “inflated (future) dollars” on the Social Security Administration’s website, (using the Quick Calculator, assuming a0% relative growth factor) then discounted 3% annually. Sources: T. Rowe Price Services, Inc., and
  • 18. Your Clients’ Time-Money Trade-offsMore time vs. more salary, compounding, and Social Security Cliff Diver: Worker Bee: Retiree in Training: Work THEN Retire Work THEN Work Work AND Retire Save 15% until age 62 Save 15% in 60s Don’t save during 60s Retire at 62 Retire at 70 Retire at 70 Cumulative Total Income (age 60–69), $586k $850k $1mm Net of Contributions Annual Retirement Income: Withdrawals and $52k $96k $88k Social Security Savings Withdrawals $21k $41k $33k Social Security $31k $55k $55kThis chart is shown for illustrative purposes only and does not represent the performance of any specific security. 20
  • 19. Summary• Work AND Retire – Bring the retirement lifestyle forward and start it earlier• The Key: Put Time on Their Side – Do not tap investments; Delay taking Social Security• A Win: Win for You and Your Clients – Happier and more confident about the future – Financially and emotionally better-preparedGive your clients permission to enjoy their vibrant 60s 21
  • 20. Go to: PlayBook: • Define and prioritize personal ambitions • Determine what they want to try out now WorkSheet: • Define the role of work in their lives • Rate material and nonmaterial aspects of their work • Start moving toward their ideal work state BalanceSheet: • Define goals for the vibrant 60s • Set milestones • Put together a training schedule 23