1 / 27

3. What do you want your post-retirement standard of living to be?

3. What do you want your post-retirement standard of living to be?. Realistic strategy is to plan on having the same standard of living both pre- and post-retirement. Retirement Income Options for Discretionary Retirement Savings?. Typical Considerations include:

rinaldo-cahill
Download Presentation

3. What do you want your post-retirement standard of living to be?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 3. What do you want your post-retirement standard of living to be? • Realistic strategy is to plan on having the same standard of living both pre- and post-retirement.

  2. Retirement Income Options for Discretionary Retirement Savings? • Typical Considerations include: • minimizing risk (via diversification) • minimizing taxes • some liquidity • ease of transfer upon the death of the retiree

  3. What happens to my property if I die without a will? • Probate • Legal process required to administer an estate or a will • Only legal way to change the title when the owner has died • Costly • $1500-$2000 for the average estate in Utah • Time consuming • National average = 9 months – 2 years • UT typically 2-3 months • Source: Kyle H. Barrick, estate planning attorney

  4. Intestate Succession Laws • Intestate succession laws • Property transfers with no will according to the law of the state in which you reside • Surviving spouse; descendents; parents; descendents of parents; ½ to each set of grandparents or descendents of grandparents; state of Utah school fund • 120 – hour survival rule • If you do not survive the decedent by 120 hours, you are treated as predeceasing the decedent • Step-parent rules • If decedent has descendents that are not descendents of the surviving spouse, the spouse inherits $50,000 plus ½ of the balance of the remaining estate

  5. Property Ownership Transfer Laws • Joint tenancy with rights of survivorship (JTWROS) • John and Mary will inherit from each other • Tenancy in common • John leaves his portion to Susie • Mary leaves her portion to Bobby • If it is not specified, Utah law assumes tenancy in common

  6. Another interpretation of PVA • The present value of an annuity (PVA) calculation answers the following question: • How much do I need to have invested today so that I can withdraw a certain sum each year for a specified time period?

  7. Suppose • you aspire to have a post-retirement consumption per year (FV) of $30,000, • A life expectancy of 30 more years after retirement (n), and • A real rate of return on investments of 3% • PVA = $588,013

  8. 4. What interest rate will you get on retirement investments? • Difficult to answer with high degree of accuracy because • of investment risks • But remember… • The real rate of return on ALL financial investments has averaged 3.5% over the last 100 years • And the real rate of return on stock market investments has averaged 7 % over the last 100 years

  9. 5. What other retirement saving is being done for you? • Social Security • Private Pension Plans • There are some elements of risk associated with each of these...

  10. Risks with mandatory savings plans... • Social Security • solvency of plan in the future • future changes in eligibility rules • Private Pension Plans • DB plans and default risk - Pension Benefit Guaranty Corporation • DB plans and vesting requirements / portability

  11. The SS crisis = not enough workers/retirees ratio

  12. 6. When will you start to save? • The present value payment (PVP) formula: • Suppose… • savings goal = FV = $588,013 • r = 3%

  13. 6. When will you start to save? • If you save over a 20 year period • PVP = $21,833 per year • If you save over a 30-year period • PVP = $12,359 per year • If you save over a 40-year period • PVP = $7,798 per year • The earlier you start investing for retirement, the less you must personally invest

  14. One more example… • Try it with r=7%, n=40, FV=$588,013 • $2,945 per year

  15. Just remember… • Increased retirement savings = • Increased Freedom • Don’t rely on the govt or an inheritance • Take responsibility for yourself • ANYONE can become a millionaire • It’s all about choices

  16. How much should you invest for retirement? • A common benchmark figure used by financial planners is 10% of your income • This assumes that your income will grow at a 7% real r before retirement and 3% real r after retirement • Assumes the same pre- and post-retirement consumption

  17. But, this savings goal may be more daunting if... • Labor force participation is intermittent • reduces Social Security and risks eligibility • reduces likelihood of vesting in a private pension plan (temptation to cash out if option offered!) • Earnings are low • high opportunity costs of investing for retirement • can’t capitalize on tax advantages of defined contribution plans, IRA’s, etc.

  18. Who’s at Greatest Risk of Under-Saving for Retirement? • Women • Greater discontinuities in labor market work • More likely to think of husband as being the only one who needs to have retirement savings because he is consistent wage earner. • Reliance on Social Security dependent benefits as “retirement savings” • Greater longevity

  19. But… • four out of five women who do not end their marriages through divorce will out-live their husbands • these women on average will live another 15 years (with little prospect of remarriage) • In those households where husbands have private pension plans, 60% do not continue after his death

  20. Social Security benefits are also cut back when a spouse dies • Roughly 1/3 of all newly widowed women who were non-poor prior to their husbands’ deaths experience one or more years of poverty in the first five years after they become widows • BOTTOM LINE - Saving for retirement is critical for women

  21. Pros fess up to their retirement-building blunders • USA Today 9/23/07 • Mark Zandi (Chief Economist at Economy.com) • Mistake: Letting savings languish • He saved in low-yielding cash instruments through his 30s • Wishes he had set up automatic transfers to a stock index fund

  22. Sheryl Garrett (founder of Garrett Planning Network: fee-only financial planners for middle income consumers) • Mistake: Investing in time shares • Skip the freebies and don’t get caught up in the pitch • Time shares are more expensive than you think

  23. Tom Gardner (founder of The Motley Fool) • Mistake: Selling too soon • Think of yourself as an investor in the business, and not an investor in stock • Quotes Buffett saying, “I would have made more money if I had never sold a share of stock I’d bought since I was 11 years old. I lost a lot of money fiddling around.”

  24. Robert Willens (managing director Lehman Bros) • Mistake: Waiting too long to sell • Have a stop-loss in your head: I will sell if it loses this much… • Jim Gillespie (CEO of Coldwell Banker) • Mistake: Begin saving too late • Start now! Don’t wait for 8-10 years

  25. Robert Rodriguez (manager of FPA funds) • Mistake: Overconfidence • Always be suspicious – don’t think you know more than you really do

More Related