Recommended
More Related Content
What's hot
What's hot (17)
Similar to Retirement planning 1
Similar to Retirement planning 1 (20)
Recently uploaded
Recently uploaded (20)
Retirement planning 1
- 1. Retirement Planning: It’s Never Too Soon – or Too Late – to Start AFN5600
- 2. Today We Will Help You: • Examine “retirement.” • Determine your goal. • Learn about investment tools. • Develop an investment strategy to better pursue your goal.
- 4. Then ... • Job longevity meant retirement security. • On average, people had shorter life expectancies. • That may have meant lower health care costs and lower retirement income needs.
- 5. Now ... • Changing jobs is more common. • Medicare and Social Security have an uncertain future. • Health care and long-term care cost more. • People live longer.
- 6. Your Hopes and Dreams for Retirement • Retirement is closer than you think. • What’s on your wish list? Perhaps travel, a vacation home, or education? • Your desired lifestyle will determine your income need.
- 7. Consider the Inflation Factor Source: Bureau of Labor Statistics. Inflation is measured by the annual change in the Consumer Price Index.
- 8. How Much Is Enough? Experts say you may need 60% to 80% of your final working year’s salary each year during retirement.
- 9. Average Annual Social Security Benefits Retired Workers $24,576 $15,132 Retired Couples Source: Social Security Administration, Fact Sheet, Social Security, 2013 Changes, October 2012.
- 10. How Do You Pursue Your Goal? • Use tax-advantaged accounts. • Invest, invest, invest.
- 11. Use Tax-Advantaged Accounts • 401(k) Plans • IRAs
- 12. Invest! Invest! Invest! • A strategy is key. • Complete worksheets.
- 13. There Are Three Basic Asset Classes Risk/Return Potential Bonds High Low Stocks Money Market Instruments Stocks average annual return: 10.81%* Bonds average annual return: 8.10%* Money Market Instruments average annual return: 4.48%* *Sources: Standard & Poor’s; the Federal Reserve. Stocks are represented by Standard & Poor’s Composite Index of 500 stocks, an unmanaged index generally considered representative of the large-cap U.S. stock market. Results include reinvestment of dividends and other investment income. Bonds are represented by Barclays U.S. Aggregate Bond Index. Money market instruments are represented by Barclays 3-Month Treasury Bill Index. Results are for the 30-year period ended December 31, 2012. The performance of any index is not indicative of the performance of a particular investment and does not take into account the effects of inflation or the fees and expenses associated with investing. Past performance cannot guarantee future results. Individuals cannot invest directly in any index.
- 14. Understand Your Risk Tolerance • Realize your time horizon. • The longer the time frame, the more aggressive you may want to be.
- 15. Conservative Mix Stocks Money Market Instruments Bonds Conservative Average Annual Rate of Return — 8.45%* 20% money market instruments, 50% bonds, 30% stocks 20% 30% 50% Past performance cannot guarantee future results. *All figures represent performance for the 30-year period ended December 31, 2012. Stocks are represented by the annual total returns of the S&P 500, bonds are represented by the Barclays U.S. Aggregate Bond Index, and money market instruments are represented by the Barclays 3-Month Treasury Bill Index. This illustration is not intended to represent the past or future performance of any specific investment. Asset allocation does not ensure a profit or protect against a loss.
- 16. Moderate Mix Money Market Instruments Stocks Bonds Moderate Average Annual Rate of Return — 9.66%* 10% money market instruments, 30% bonds, 60% stocks 60% 30% 10% Past performance cannot guarantee future results. *All figures represent performance for the 30-year period ended December 31, 2012. Stocks are represented by the annual total returns of the S&P 500, bonds are represented by the Barclays U.S. Aggregate Bond Index, and money market instruments are represented by the Barclays 3-Month Treasury Bill Index. This illustration is not intended to represent the past or future performance of any specific investment. Asset allocation does not ensure a profit or protect against a loss.
- 17. Aggressive Mix Money Market Instruments Stocks Bonds Aggressive Average Annual Rate of Return — 10.10%* 10% money market instruments, 10% bonds, 80% stocks 80% 10% 10% Past performance cannot guarantee future results. *All figures represent performance for the 30-year period ended December 31, 2012. Stocks are represented by the annual total returns of the S&P 500, bonds are represented by Barclays U.S. Aggregate Bond Index, and money market instruments are represented by Barclays 3-Month Treasury Bill Index. This illustration is not intended to represent the past or future performance of any specific investment. Asset allocation does not ensure a profit or protect against a loss.
- 18. Your Current Savings • How much have you already saved? • How much might it be worth?
- 19. Your Monthly Savings Goal • Is it too high? • Consider adjusting your investment mix.
- 21. Questions and Answers Investment options are offered through a group variable annuity contract (Forms 902-GAQC-09 or 902-GAQC-09(CT) or 902- GAQC-09(OR)) underwritten by United of Omaha Life Insurance Company for contracts issued in all states except New York. United of Omaha Life Insurance Company, Omaha, NE 68175 is licensed nationwide except in New York. Companion Life Insurance Company, Hauppauge, NY 11788 is licensed in New York and underwrites the group variable annuity (Form 900- GAQC-07(NY)). Each company accepts full responsibility for each of their respective contractual obligations under the contract but does not guarantee any contributions or investment returns except as to the Guaranteed Account and the Lifetime Guaranteed Income Account as provided under the contract. Neither United of Omaha Life Insurance Company, Companion Life Insurance Company, nor their representatives or affiliates offers investment advice in connection with the contract. Specific features of the Lifetime Guaranteed Income Account (Rider Forms 651-GAQR-10 or 651-GAQR-10(CT) or 651-GAQR- 10(OR)) vary by state. Restrictions apply. The Lifetime Guaranteed Income Account is not available in Nevada or New York. Group variable annuities are long-term investment vehicles designed to accumulate money on a tax-deferred basis for retirement purposes. Distributions may be subject to ordinary income tax and, if taken prior to age 59½, a 10 percent federal tax penalty may apply. Investing in a group variable annuity involves risk, including possible loss of principal. Prior to selecting investment options for your retirement account, you should consider the investment objectives, risks, fees and expenses of each option carefully. For this and other important information, you should review your enrollment materials or the participant website. Read this information carefully.
Editor's Notes
- During this session, we’ll take a look at how retirement has changed through the years, help you estimate how much you may need to retire, review your current efforts, examine the tools available to you, and help you develop an investment strategy to pursue your goals. Show-of-hands survey: How many here are 30 years or more away from retirement? 20 years? 10 years? Less than 5 years? Your time horizon until retirement is just one of the factors we’ll review here. Others — including your desired lifestyle and your risk tolerance — are also important in establishing an investment strategy to pursue a secure retirement.
- Let’s compare your retirement with that of your parents and grandparents to look at the way things have changed through the years.
- Forty, 30, and even 20 years ago, people generally didn’t “job hop” the way they do today. Many stayed with the same employer — building hefty pension and medical benefits to help them live a financially secure retirement. Medicare and Social Security benefits played a greater role in retirement security than they do today. Perhaps because of shorter life expectancies, health care costs may not have been as much of a concern and retirement income was needed for a shorter period of time.
- Today, changing jobs is commonplace and people move around more whether because of corporate downsizing or for career advancement. As a consequence, retirement benefits may not be as substantial or as “guaranteed” as they were for previous generations. The long-term health of Medicare and Social Security is in question, which means people may not be able to rely on these benefits as much as they had in the past. Health care and long-term care costs have skyrocketed. On average, the cost of a private room in a nursing home now exceeds $90,500 per year and can be much higher in certain parts of the country.2 People are making a variety of lifestyle choices during retirement — from caring for grandchildren and volunteering to going back to school, starting a business, or traveling. And finally, people are living longer, which means they must finance longer retirements. 65-year-olds now live an average of 18.8 more years, according to the National Center for Health Statistics — and average life spans continue to rise.3 2Source: 2012 MetLife Market Survey of Nursing Home & Assisted Living Costs. 3Source: Centers for Disease Control, National Center for Health Statistics, 2011 (based on preliminary 2009 data, most recent available).
- What are your dreams for retirement? Do you want a traditional retirement — golfing, traveling, visiting with friends and family? Or do you have other ideas — going back to college? Opening a small business? Your retirement wish list — the lifestyle and activities you hope to engage in — will largely determine how much you may need.
- Let’s begin by giving you an idea about how much you may need to live the retirement of your choice. The first factor to consider is inflation. Take a look at the chart: While the inflation rate has recently averaged about 2.9%, history shows that it has varied considerably through the years.4 For the purposes of our discussion and our calculations today, we will assume that inflation averages about 4% in the future. But as you develop and refine your plan through the years, keep in mind that inflation can potentially spike or dip substantially in the short term. 4Source: The Federal Reserve. Inflation is represented by the annual change in the Consumer Price Index. Covers the 30-year period ended December 31, 2012.
- By now you’re probably wondering, “How much do I need to save to provide the income I’ll need?” We’re going to help give you an idea now. Let’s start with Worksheet 1. Even if you don’t have all of the information you need, use your best estimate. The first question asks you to estimate how much you will need each year during retirement. We’ve provided a general guideline: Financial experts often say you may need between 60% and 80% of your final working year’s salary each year during retirement. So think about how much you hope to make the year before you retire (in today’s dollars), and enter 60% to 80% of that figure on the worksheet. Consider the lifestyle you hope to lead. If you plan to travel, you might want to up that amount — perhaps to 100% of your preretirement income. If you plan to scale back expenses a great deal or to continue working at least part time, you may want to go with a lower annual income amount. To be safe, however, it’s probably better not to count too heavily on a post-retirement income for purposes of these calculations. Set a reasonable retirement savings goal and look at any extra income as a bonus. Any questions? (MOVE TO NEXT SLIDE WHILE PARTICIPANTS ARE COMPLETING WORKSHEET.)
- The next two questions on the worksheet ask you to estimate your annual income from Social Security and pensions, again in today’s dollars. Social Security currently provides an average annual benefit of $15,132 per year for retired workers. The average retired couple receives $$24,576.5 Women may have added challenges when it comes to retirement income. Not only are women far less likely than men to receive income from an employment-based pension plan or retirement annuity, when women are eligible for pension benefits, they typically receive a much smaller annual pension benefit than men.6 But regardless of your age or gender, if you plan to take time off from work for extended periods of time (or have taken time off), remember this: The decision could affect your Social Security and pension benefits substantially in retirement. If you find yourself in this situation, err on the conservative side in these estimates on your worksheet. About three months before your birthday, you should receive a statement estimating your future Social Security benefits. You can also contact the Social Security Administration at 1-800-772-1213 or through its web site, www.ssa.gov. If you have a pension plan, your employee benefits administrator should be able to provide an estimate of your annual pension benefit. When you get this information, make sure you’ve been credited for the correct salary amounts and number of work years. Finish completing the worksheet to get an idea about your retirement accumulation goal. (PAUSE: ALLOW 5 MINUTES.) 5Source: Social Security Administration, Fact Sheet, Social Security, 2013 Changes, October 2012. 6Source: Employee Benefit Research Institute, Retirement Annuity and Employment-Based Pension Income, Among Individuals Age 50 and Over: 2008, May 2010 (most recent data available).
- Now that you have an idea of where you’re going, it’s time to develop a plan to get there. First, let’s review the tools you might use to develop your investment plan.
- Perhaps the best way to save for retirement is through tax-advantaged investment accounts, such as 401(k) plans and IRAs. They all have specific factors for consideration, so review each one carefully. For example, traditional 401(k)s and traditional IRAs are tax deferred — which means you don’t have to pay income taxes on the earnings now, but you will pay taxes later. On the other hand, with the Roth IRA and the Roth-style 401(k) plans, qualified withdrawals are tax free provided the account holder is age 59½ and has held the account for five years. Take advantage of a 401(k) or similar plan if it’s offered to you at work. Try to contribute the maximum. As for IRAs, different rules apply to each type, so check with a financial professional to see which one may be best for you. But consider one of these accounts for your retirement investment plan, too, especially if you’re contributing the maximum to your 401(k) plan. In all cases, nonqualified early withdrawals will be subject to a penalty tax.
- Developing a well-thought-out investment plan will help you pursue your retirement accumulation goal. In the next two worksheets, we’ll help you examine investment tools and figure out how much you may want to set aside each month for retirement based on a potential rate of return that you calculate. Keep in mind that the following are examples only and are not meant as investment advice. They are also based on the past performance of stated asset classes, which cannot guarantee future results. Let’s review the basic investment asset classes now.
- There are a number of ways to invest your money. Most investment options can be classified in one of three asset classes — stocks, bonds, and money markets. How you divide your money among these choices is known as asset allocation. Each asset class has different risk and return characteristics. Even within one asset class you’ll find choices with higher risk and higher return potential. Asset allocation can also help you reap the potential benefits of diversification. When one investment loses value, another may be holding steady or gaining.
- The next step is to understand your own personal tolerance toward investment risk. While stocks involve the greatest risk, over the long term they tend to outperform other types of investments. But past performance can’t guarantee future results: There will always be the chance that you could lose money in the stock — or even the bond — market. Your time horizon is very important in evaluating and choosing your asset allocation because it can help determine your risk tolerance. If you are many years away from retirement, you may be able to withstand short-term drops in the value of investments. Therefore, you may want to invest the majority of your money in stocks to pursue their higher return potential. On the other hand, if you’re nearing retirement — within 10 years, for example — you may want to choose a more moderate or conservative investment mix. It would include a larger portion of bonds and money market investments to strive for more stability in the value of your investments. Consider, however, that retirement could last 20 years or longer. For that reason, you may want to include some stocks in your portfolio as a potential hedge against inflation. The following are examples of conservative, moderate, and aggressive portfolios and their asset allocations. Remember that the returns listed are based on past performance and that your results could vary.
- This is an example of a conservative asset allocation, which may be appropriate for someone nearing or in retirement. For the 30-year period ended December 31, 2012, it would have earned an average annual rate of return of 8.45%.7 7Sources: Standard & Poor’s; the Federal Reserve. Stocks are represented by the total returns of the S&P 500, an unmanaged index generally considered representative of the U.S. stock market. Indexes do not take into account the fees and expenses associated with investing and individuals cannot invest in any index. Bonds are represented by the Barclays U.S. Aggregate Bond Index, and money market instruments are represented by the Barclays 3-Month Treasury Bill Index. Performance covers the 30-year period ended December 31, 2012. Past performance cannot guarantee future results.
- This is an example of a moderate asset allocation. For the past 30 years, it would have earned an average annual rate of return of 9.66%.7 7Sources: Standard & Poor’s; the Federal Reserve. Stocks are represented by the total returns of the S&P 500, an unmanaged index generally considered representative of the U.S. stock market. Indexes do not take into account the fees and expenses associated with investing and individuals cannot invest in any index. Bonds are represented by the Barclays U.S. Aggregate Bond Index, and money market instruments are represented by the Barclays 3-Month Treasury Bill Index. Performance covers the 30-year period ended December 31, 2012. Past performance cannot guarantee future results.
- And finally, this is an example of an aggressive asset allocation. It would have earned an average annual return of 10.10% for the 30-year period ended December 31, 2012.7 Remember that your particular allocation of investments will depend on your goals and other personal factors. Worksheet 2 is designed to help you get an idea about your portfolio’s potential rate of return. Complete the worksheet now. (PAUSE: ALLOW 5 MINUTES.) 7Sources: Standard & Poor’s; the Federal Reserve. Stocks are represented by the total returns of the S&P 500, an unmanaged index generally considered representative of the U.S. stock market. Indexes do not take into account the fees and expenses associated with investing and individuals cannot invest in any index. Bonds are represented by Barclays U.S. Aggregate Bond Index, and money market instruments are represented by the Barclays 3-Month Treasury Bill Index. Performance covers the 30-year period ended December 31, 2012. Past performance cannot guarantee future results.
- Now we’re ready to begin the process of figuring out how much you might aim to save on a monthly basis. But first we need to address how much you may have saved already. Please refer to Worksheet 3. This worksheet will help you see what your current savings may be worth when you retire. The worksheet assumes you add no more money to your current savings and that you invest your current savings in order to pursue the rate of return you calculated on Worksheet 2. It also calculates your potential shortfall (that is, assuming you contribute no more money). We’ll use this information to help you estimate a monthly savings goal. Please complete the worksheet now. (PAUSE: ALLOW 5 MINUTES.)
- Now let’s look at Worksheet 4. Here we’ll help you calculate a monthly investment goal based on your time horizon, your potential rate of return, and your adjusted savings shortfall. Please complete the worksheet now. (PAUSE: ALLOW 5 MINUTES.) Did you come out with a reasonable amount? If not, don’t panic. There are ways to refine your plan so that it is both manageable and realistic. You can adjust your investment mix to pursue a higher rate of return, for example. Most important, however, is to sit down with a qualified financial professional, who can review your overall financial situation and help you identify ways to save and invest more for your retirement.
- Today I’ve shown you how to estimate how much money you may need for retirement. I’ve also covered various ways to invest in order to meet your accumulation goal. Included were discussions of asset classes, asset allocation, risk, and rates of return. The next step is yours. Perhaps you’ll need to contact the Social Security Administration to obtain your estimated benefit. You may also want to find out your projected pension benefits. Once you have that information, consider redoing the worksheets. Then, consider making an appointment to visit a financial professional to help you develop a personal investment strategy. One last point to consider: You could spend more than a third of your lifetime in retirement. Planning your future financial security is time well spent. Thank you for attending this session. I’ll be here for a few minutes to answer any questions you may have.