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Elder Finances


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Preparing and maintaining a retirement income.

Published in: Economy & Finance, Business
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Elder Finances

  1. 1. FINANCIAL ISSUES IN LATER LIFE Bill Taylor University of Wyoming Extension Community Development Area Educator April 2014
  2. 2. REFERENCES  Barbara O’Neill, Ph.D. CFP, Rutgers Cooperative Extension; eXtensionPersonal FinancesEstate Planning at  Financial Recovery in Later Life  Catch-Up Retirement Planning Strategies for Late Savers  Creating a Retirement “Paycheck”  How to Make Minimum Withdrawals from Retirement Savings Plans  Making the Most of IRAs and Other Tax-Deferred Retirement Savings 2
  4. 4.  FINANCIAL RESILIENCE is the ability to withstand economic life events, both negative and positive  Loss of job  Birth of grandchild  Essential because nothing is static 4
  5. 5. FINANCIAL CHALLENGES  Unemployment  Job retraining often necessary  Health insurance often lost COBRA provides for continuance of coverage for 18 months Expensive – 102% of full premium Only w/ employers w/ 20+ employees 5
  6. 6. FINANCIAL CHALLENGES (cont.)  Poor/uncertain health Requires revised retirement saving analysis Adjust life expectancy & retirement savings plan contributions 6
  7. 7. FINANCIAL CHALLENGES (cont.)  Death of spouse Possible less income Requires many decisions & adjustments Delay major decisions  Place funds in CD or money mkt mutual fund until there is time to explore long-term alternatives 7
  8. 8. FINANCIAL CHALLENGES (cont.)  Investment losses Maintain patience & longterm perspective Even at 55, you may have another 30 years of investing Limit withdrawals during mkt downturns Avoid risk of outliving assets 8
  9. 9. INCREASING FINANCIAL RESILIENCE  Monetary resources Emergency Health savings insurance Good-paying job/retirement benefits 9
  10. 10. INCREASING FINANCIAL RESILIENCE (cont.)  Human capital Knowledge Skills Experiences Health 10
  11. 11. INCREASING FINANCIAL RESILIENCE (cont.)  Social capital Support support system/emotional Family Friends Co-workers Neighbors Others 11
  12. 12. STRATEGIES 1. Maintain a low debt-toincome ratio Consumer debt limited to 15% of monthly take-home Above 20% - in danger zone i.e. $275 debt payments divided by $2500 net pay = 11% ratio 12
  13. 13. STRATEGIES (cont.) 2. Maintain an emergency fund At least 3 months expenses Liquid cash – savings, money market mutual fund, shortterm CD 13
  14. 14. STRATEGIES (cont.) Keep skill set sharp 3.  Never consider education or training finished  Keep developing marketable skills 14
  15. 15. STRATEGIES (cont.) 4. Purchase adequate insurance Life & disability insurance Try to always have health insurance through employer, COBRA, public benefits or individual policy 15
  16. 16. STRATEGIES (cont.) 5. Practice good health habits Diet, weight, exercise, sleep, etc. 16
  17. 17. STRATEGIES (cont.) 6. Increase knowledge of financial topics Learn basic investment principles, characteristics of specific securities eXtension Investing For Your Future at vesting 17
  19. 19. THREE PROFILES 1. 2. 3. Procrastinators – didn’t bother or had to put off building retirement fund Saving, but got late start – trying to make up time Been saving, but lost ground due to markets or emergency 19
  20. 20. MAKE-UP PRACTICES  Can be divided into 2 basic strategies: Take action before retirement to increase savings Take action after retirement to decrease amount of savings required 20
  21. 21. BEFORE RETIREMENT:         Saving more money Reducing expenses & saving the difference Accelerating debt repayment “Moonlight” for extra income Investing aggressively Automating investment deposits Maximizing tax-deferral opportunities Preserving lump-sum distributions by rolling into another tax-deferred savings plan 21
  22. 22. AFTER RETIREMENT:  Trading down to smaller home  Moving to less expensive location  Delaying retirement  Working  Reverse mortgage or saleleaseback on home  Tax efficient asset withdrawals 22
  23. 23. TRADE-OFFS  Catching up requires trade- offs i.e. spending less now to have more later 23
  24. 24. COMBINING STRATEGIES  Examples: Investing more in 401(k) & moving to less expensive location “Moonlighting” while delaying retirement Investing more aggressively & downsizing to smaller home 24
  25. 25. MOST EFFECTIVE CATCH-UP TECHNIQUES  Working 2-3 years longer  Postponing collection of Social Security until full retirement age 25
  26. 26. ADDITIONAL HELP Guidebook to Help Late Savers Prepare for Retirement by National Endowment for Financial Education at (type Late Savers Guidebook in search box) 26
  28. 28. A Retirement Paycheck is income received on a regular basis after retirement.  Easier to pay monthly bills  Provides more financial security & peace of mind  Continues monthly money management system used before retirement  “Safe” withdrawal rate from retirement funds 28
  29. 29. “SAFE” WITHDRAWAL  Withdrawal amount adjusted to reduce risk of outliving assets  Inflation-adjusted withdrawal of 4% of 50% stock- 50% bond portfolio balance will generally last 30 years 29
  30. 30. “RETIREMENT PAYCHECK” STRATEGIES  Automatic Withdrawal Plans – available w/ mutual funds, until balance is depleted  Income Replacement Mutual Funds – actively managed funds w/ choice of maturity dates pay monthly income until balance is depleted 30
  31. 31. “RETIREMENT PAYCHECK” STRATEGIES (cont.)  Bond or CD Ladder – staggered portfolio w/ different maturities; as each matures, proceeds are reinvested at longest interval 31
  32. 32. “RETIREMENT PAYCHECK” STRATEGIES (cont.)  Regular Withdrawals from Cash Assets – set aside 3-5 year’s income in cash assets (money mkt funds, CDs, savings accounts) to ride out recessions  Remainder of assets in stocks, bonds, mutual funds  Cash assets replenished regularly from stocks, bonds, or mutual funds 32
  33. 33. “RETIREMENT PAYCHECK” STRATEGIES (cont.)  Post-Retirement Age Income – continuing employment past retirement age  Provides money for daily living  Allows for continued deposits into retirement funds  Earns higher Social Security  Postpones withdrawal of retirement assets 33
  34. 34. “RETIREMENT PAYCHECK” STRATEGIES (cont.)  Annuities Investor pays into contract w/ life insurance company and company make regular payments for investor’s life Shop for low expense fees w/ high financial stability rating 34
  35. 35. “RETIREMENT PAYCHECK” STRATEGIES (cont.)  Reverse Mortgage – can remain in home while receiving cash  Based on equity  Must be 62 or older  Must be primary residence  No minimum credit or income requirement  Can be received as lump sum, cash payments, or line of credit 35
  36. 36. “RETIREMENT PAYCHECK” STRATEGIES (cont.)  Monthly Income Payments i.e. rent or mortgage payments Could rent out land, garage or buildings, part of residence 36
  37. 37. FOUR-LEGGED CHAIR  “Three-legged stool” of pension, Social Security, personal savings is commonly being converted to “four-legged chair” by adding later employment. 37
  38. 38. 38