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Planning for Your Financial Future. Presented by Andrew Harr Consolidated Financial Corporation. Introduction - Goals. Leave with concrete information Basis for tough decisions Some math required Not rocket science – just takes some thought. How Much Income Do I Want to Retire With?.

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Planning for your financial future l.jpg

Planning for Your Financial Future

Presented

by

Andrew Harr

Consolidated Financial Corporation


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Introduction - Goals

  • Leave with concrete information

  • Basis for tough decisions

  • Some math required

  • Not rocket science – just takes some thought.


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How Much Income Do I Want to Retire With?

  • 80-85% of pre-retirement income?

  • 100% of pre-retirement income?

  • Use today’s dollars

  • Setting Goals: Write it Down!!!


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Four Components to Retirement Income

  • Pension

  • Social Security

  • Other Active/Passive Income

  • Investments


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MPSERS Pension

  • Assumes MIP (Basic has some additional issues)

  • Final Average Compensation

    • Average of your highest consecutive 3 years

  • X 1.5%

  • X Total Years of Service Credit

    = Annual Pension Payout


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Pension Options

  • Straight Life Benefit

  • 100% Survivor Option – After your death your beneficiary continues to receive the same payment

  • 75% Survivor Option – Beneficiary receives 75% of the payment you received prior to your demise.

  • 50% Survivor Option – See 75% Survivor Option


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Maximizing your Pension

  • Through the use of life insurance, you can receive the equivalent of the 100% survivor option, but receive a higher net monthly payment than you would under the MPSERS 100% option.

  • Requires careful coordination

  • Outside the scope of this presentation


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Social Security

  • Second component of Retirement Income

  • Reduced benefits don’t start until 62, at the earliest.

  • Full benefits don’t start until 65 at the earliest, and 67 at the latest.

  • Maximum benefit is just under $24,000/year, or $2,000/month.

  • Write it down!!!


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Social Security (cont’d)

  • Timing issues

    • How do you subsidize the time between retirement and the time you receive SS benefits?

    • If you retire before 59 ½, a 457 is a great option.

    • After 59 ½, you can use any retirement savings.


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Other Income

  • Third component of Retirement Income

    • Consulting work

    • Other jobs

    • Passive income (rental property, etc.)

  • Baby Boomers

    • Competitive issue

    • The “I’m never going to retire” issue

  • Write it down!!!


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Total Income Already Planned For:

Pension

+ Social Security

+ Other Income

= Total Income


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Total Income Need from Investments:

Total Desired Post-Retirement Income

  • Total Income already Planned For

    = Total Income Need from Investments

    *Does not take into account taxes, timing, individual circumstances.


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How Much Do I Need???

  • Assume a 4% withdrawal rate

    • Conservative, maybe too conservative

    • Relieves pressure

    • Allows for regular, substantial raises

  • Total Income Need from Investments

    X 25

    = Total Asset Needed to Produce Total Income Need

    *Goal is to not deplete the asset.


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How Much Do I Need???

  • If you think a 4% withdrawal rate is too conservative, assume a 5% withdrawal rate

    • Still conservative

    • Some years you’ll make it, some you won’t.

  • Total Income Need from Investments

    X 20

    = Total Asset Needed to Produce Total Income Need

    *Goal is to not deplete the asset.


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Timing Issues:

  • You’ll need more early on if you retire before Social Security

  • Expenses tend to decline as we age

    • With the exception of health care

  • Inflation must be accounted for


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$25,000 Question:

  • How am I doing?

    • Total up all of your existing retirement savings

    • Should be able to make a good estimate

    • Write it down!!!

  • Divide “What you have” by “What you need”.

    • Results in a percentage

  • The next slide shows where you should be at different stages in your career.


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Timing Issues:

  • You’ll need more early on if you retire before Social Security

  • Expenses tend to decline as we age

    • With the exception of health care

  • Inflation must be accounted for


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$25,000 Question:

  • How am I doing?

    • Total up all of your existing retirement savings

    • Should be able to make a good estimate

    • Write it down!!!

  • Divide “What you have” by “What you need”.

    • Results in a percentage

  • The next slide shows where you should be at different stages in your career.


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But First, a Palate Cleanser:

  • “Old age may seem a long way off. But on the day it doesn't, it will be too late to do anything about it.”

  • “Start early and begin raising the bar throughout the day.” – Bruce Jenner


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Best Estimate:

  • Assumptions:

  • $10,000/year funding

  • 7% annual return, which is not guaranteed.


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What Now?

  • If You’re Behind:

    • Find ways to save more

    • Work longer than you planned

    • Seek better returns

    • Cut your income expectations


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What Now?

  • If You’re Ahead:

    • Put less away, you’re doing great

    • Retire sooner than you’d planned

    • Scale back the risk you’re taking

    • Increase your income expectations


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Shifting Gears – Investment Options

  • Mutual Funds

    • Economies of scale

    • Diversified

    • Can be do it yourself, or included professional advice

    • Wide array of choices


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Investment Options

  • Variable Annuities

    • Questionable value within retirement accounts

    • Typically higher expenses than mutual funds

    • Usually come with surrender charges, i.e. back-end fees

    • In essence, an investment product with an insurance wrapper.

    • Very common in TSA market, because of higher commissions than mutual funds.


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Investment Options

  • Fixed and Index Annuities

    • Generally less risk than Mutual Funds and Variable Annuities

    • Insurance products, with guarantees provided by insurance companies.

    • Contracts can be adjusted, very rarely do the adjustments favor the client.

    • Can have a place in a portfolio for some clients.


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Investment Options

  • Know what you own!!!

    • Don’t confuse variable annuities with mutual funds.

    • Don’t confuse fixed annuities with index or variable annuities.

    • Don’t take too much or too little risk.

    • Ask questions!!!

    • Know what fees and expenses you are paying, and what you are getting in return.


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Role of Consolidated Financial

  • Our clients run the gamut

    • Superintendents

    • Administrators

    • Teachers

    • Secretaries

    • Bus Drivers

    • Maintenance Staff


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Role of Consolidated Financial

  • We are the “hand-holders”

    • Not all of your staff are as sophisticated as yourselves.

    • Their savings need is even greater than yours.

      • The difference between $30k per year and $20k per year is much greater than the difference between $90k per year and $80k per year.

    • We’re the people that sit across the kitchen table at 7:00, having tea and explaining their future.


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Role of Consolidated Financial

  • One on One attention

  • Not limited to one provider

    • Big difference between us and our competitors

  • Constant attention paid to what products we’re recommending

    • Or else we lose clients

    • No cop-outs


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Role of Consolidated Financial

  • The calculation we did today, we do for all of our clients.

  • Our goal is to manage the client’s expectations of what the future holds…no false promises, only level with them.

  • We increase awareness of individual situations, and attempt to educate our clients.


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Current Participation:

  • Currently, of all people in the State of Michigan who are eligible to contribute to a 403(b), only 23% are contributing.

  • Unacceptable.


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The Current Environment

  • Too many vendors, primarily insurance companies and “dabblers”.

  • Very competitive

  • Lots of false promises

  • Driven by marketing and sales, rather than truth.


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Results of the Current Environment:

  • Highly restricted access

  • Lack of understanding and trust

  • Higher burden on administrators

    Or, in more rural districts:

  • Lack of attention

  • Better access, but little control

  • Higher burden on administrators


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Results of the Current Environment:

  • Lower Education

  • Lower Participation

  • Lower Standards

  • Everyone suffers


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Solutions?

  • 403(b) Regulations?

  • Elimination of many vendors

  • Focus on maximizing choice and standards within limited vendors

  • Reestablish partnerships between the administrators and the vendor...”outsource” the education and administration functions, but limit the points of contact.


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Solutions?

  • Have clearly defined “rules of engagement” for vendor-client interaction

  • Facilitate this interaction, which enables greater control and oversight

  • Allow for vendor-client confidentiality, and respect the sanctity of that relationship.


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Potential Pitfalls

  • Don’t eliminate the opportunity for one on one, on-demand consultation.

  • Don’t curtail choice too severely.

  • Don’t make commitments that your limited HR resources will not allow you to keep…outsource as much as possible to the vendor, while still retaining control.


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Thank you for having me!

For further questions call or e-mail Andrew Harr at Consolidated Financial Corporation:

800-232-2383

harra@consolidated-financial.com