Retirement Planning


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Retirement Planning

  1. 1. Caprock Securities 4601 50thst, suite 202Lubbock, texas 79493Serving Lubbock since 1978Member of FINRA / SIPC Insured <br /> <br />806-797-3513<br />
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  3. 3. The changing natureof retirement<br /><ul><li>29% of retirees have already returned to work
  4. 4. 44% of retirees over age 70 still have a mortgage against their primary residence</li></ul>Working in retirement:7 million go back to work<br /><ul><li>44% of workers say they will work for pay in retirement in order to care for parents today
  5. 5. 45% of parents with adult children are contributing some form of financial support</li></ul>The “We” Generation:When retirement andfamily needs collide<br />Source: Putnam/BrightWorks 2005; Putnam/BrightWorks 2006, which is the most recent data available.<br />
  6. 6. Five things we can prepare for Building a successful retirement<br />
  7. 7. Five things we can prepare for<br />Longevity<br />Rising prices<br />Medical and long-term-care costs<br />Public policy changes<br />Investment risks<br />
  8. 8. Longevity<br /><ul><li>Plan on spending 25 to 30 years in retirement</li></ul>Your lifespan probability after reaching age 65: <br />Living to age 83<br />Probability: 56%<br />Living to age 89<br />Probability: 29%<br />Living to age 94<br />Probability: 13%<br />
  9. 9. Rising prices<br />Sources: U.S. Postal Service, Energy Information Administration, National Association of Theatre Owners, Edmunds, National Association of Realtors.<br />Data reflects prices from these sources as of 6/08. Assumes a 3% rate of inflation.<br />
  10. 10. Cost of medical care<br /><ul><li>Couple age 65 without access to employer-sponsored medical insurance will need approximately $225,000 for post-retirement medical expenses over the next 20 years
  11. 11. Expect medical care and health insurance costs to be 20% of pre-retirement income on an annual basis during retirement
  12. 12. Retiree medical care issues
  13. 13. Health-care costs expected to rise 8% annually over the next 20 years — 3 to 4 times current inflation rate
  14. 14. More employers reducing or eliminating future retiree health-care benefits
  15. 15. Medicare does not cover cost of long-term care, except in limited circumstances</li></ul>Fidelity Employer Services Company, March 2007; Hewitt Associates, June 2004; Employee Benefit Research Institute, “Retiree Health Benefits: Savings Needed to Fund Health Care in Retirement,” February 2003, which is the most recent data available.<br />
  16. 16. Public policy (social Security) <br />$0<br />$$<br />Social Security Administration, “The Future of Social Security”, January 2004, which is the most recent data available.<br />
  17. 17. Stock market risk<br />Need a Balanced Strategy to Generate Income<br />vs.<br />You’re money will loose its value over time<br />If you need your money on any given day, it may not all be there<br />
  18. 18. Stock market risk<br />A Financial Planner Can Help You Find<br />The Appropriate Balance That’s Right For You. <br />
  19. 19. Interest-rate risk<br />Interest rates have an inverse effect on bonds<br />Interest rates -> Bond Prices<br />Bond Prices <br />Interest Rates<br />Income<br />
  20. 20. Interest-rate risk<br />Interest rates have an inverse effect on bonds<br />Interest rates -> Bond Prices<br />Bond prices<br />Interest rates<br />Income<br />
  21. 21. Building a successful retirement<br />Create an income plan<br />Monitor your Investments<br />Take advantage of tax savings<br />Protect your savings or income stream<br />These are all things we can help you with!<br />
  22. 22. Create an income plan<br />Later in retirement<br />Early in your retirement<br />Part/full-timework<br />SocialSecurity<br />Pensionincome<br />IRA withdrawals<br />Immediateannuity<br />Real estate<br />Life insurance<br />401(k)withdrawals<br />Long-term-care insurance<br />
  23. 23. Don’t take income you don’t need<br />Ad hoc withdrawals<br />Systematic withdrawals<br />May need systematic withdrawals to cover expenses <br />Regularincome<br />
  24. 24. Choose the right withdrawal rate<br />How long will your money last?<br />Years<br />10%will last10 years<br />9%will last11years<br />4%will last28 years<br />5%will last21 years<br />6%will last17 years<br />7%will last15 years<br />8%will last13 years<br />3%will last50 years<br />Percentage of your portfolio’s original balance you withdraw each year<br />This example assumes a 90% probability rate. These hypothetical illustrations are based on a 10,000-iteration Monte Carlo simulation and do not account for the effect of taxes, nor do they represent the performance of any Putnam fund or product, which will fluctuate. A Monte Carlo simulation is a technique for analyzing the probability of certain events based on historical data. These illustrations use the historical returns from 1926 to 2007 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (U.S. 30-day T-bills) to determine how long a portfolio is likely to last given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.<br />
  25. 25. Watch your asset allocation<br />How long will your money last?<br />various asset allocations affect a portfolio’s expected longevity. It assumes that 5% of the original account balance is withdrawn each year and that withdrawals are increased by 3% each year to account for inflation.<br />95%<br />3%<br />24%<br />98%<br />50%<br />17%<br />93%<br />71%<br />57%<br />89%<br />71%<br />60%<br />75–100% probability<br />50–74% probability<br />0–49% probability<br />These portfolios are hypothetical illustrations based on a Monte Carlo simulation using historical data and are not intended as investment advice. You should consider your other assets, income, investment options, and risk tolerance when planning for your specific investment goals. Consult your financial representative for more information. Past performance is not a guarantee of future results.<br />
  26. 26. Rebalance to manage risk<br /><ul><li>Rebalance your portfolio to make sure it’s still diversified when you need it the most</li></ul>January 1, 2001<br />January 1, 2007<br />Bonds<br />20%<br />Growth<br />22%<br />Bonds<br />24%<br />Growth<br />40%<br />Value<br />40%<br />Value<br />54%<br />Return period is from 1/1/00 to 1/1/07. The diversified portfolio consists of Russell 3000 Growth Index, Russell 300 Value Index, and Lehman Aggregate Bond Index. Diversification does not protect against market loss. It is possible to lose money in a diversified portfolio. There may be tax consequences and additional charges associated with rebalancing on non-tax-deferred investments<br />
  27. 27. Pay attention to order<br />
  28. 28. The “NUA” rule: Tax savings on company stock<br /><ul><li>Retiring with $300,000 worth of company stock in retirement plans
  29. 29. Includes $50,000 in contributions (“cost basis”) and $250,000 in market appreciation (“NUA”)
  30. 30. Assume 35% ordinary income tax rate, 15% long-term capital gains rate</li></ul>Option #1: Roll it over into an IRA<br /><ul><li>$300,000 taxed at ordinary income tax rates (35%) when you take distributions
  31. 31. Total tax bill = $105,000 </li></ul>Option #2: Transfer stock to a brokerage account<br /><ul><li>Pay tax on $50,000 cost basis ($50,000 x 35% = $17,500)
  32. 32. No tax due on appreciation until stock is sold, then taxed at capital gains rates ($250,000 x 15% = $37,500)
  33. 33. Total taxes due: $37,500 + $17,500 = $55,000
  34. 34. Tax savings = $50,000</li></li></ul><li>Address other specific risks<br />
  35. 35. Additional resources<br /><ul><li>AARP,
  36. 36. Social Security Administration,
  37. 37. American Savings Education Council,
  38. 38. ElderWeb,
  39. 39. Medicare,
  40. 40. National Association of Home Care Providers,</li></li></ul><li>The Caprock securities difference <br /><ul><li>Locally Owned
  41. 41. Retirement Planning
  42. 42. Investment Management
  43. 43. Defensive Strategies
  44. 44. Tax-Efficient Portfolios</li></ul>www.CaprockFinancialPlanning.Com <br />4601 50th St. Ste. 202<br />Lubbock, Texas 79493<br />806-797-3512<br />