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Assessing Retirement Readiness Options and Strategies for Reaching the Target How retirement savings fit into the bigger picture Analyzing current and.

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Presentation on theme: "Assessing Retirement Readiness Options and Strategies for Reaching the Target How retirement savings fit into the bigger picture Analyzing current and."— Presentation transcript:

1 Assessing Retirement Readiness Options and Strategies for Reaching the Target How retirement savings fit into the bigger picture Analyzing current and future living expenses Assessing sources of retirement income Projecting how long my retirement savings will last Examine the role of the farm business as a source of income Develop action steps for building a retirement plan

2 Typical Family Life Cycle Stages and Prominent Financial Issues Income

3 1.Live beneath your means 2.Pay off your credit cards 3.Pay yourself first 4.Save six months living expenses 5.Make a will 6.Seek wise counsel 7.Fund a retirement savings plans 8.Plan major expenses 9.Educate yourself 10.Review progress Source: 2011 Wellness Council of America 10 Essential Steps to Financial Wellness We all know the prescriptions for Financial Wellness, but the real question is Do we have the discipline to stick with the program????? Temptations are Everywhere

4 Financial Management Priorities for Building Wealth Step 1 Build a Nominal Emergency Savings Fund - $1,000 to $3,000 Step 2 Pay off High Interest Rate (credit card type) Debt – using the “debt snowball” (paying off smallest balance account first) or concentrating on the highest rate debt first – whichever provides the greatest emotional motivation. Step 3 Revisit the Emergency Fund – building it to an amount equal to 6-12 months worth of living expenses. Step 4 Contribute to Retirement Savings at a level that represents 10-15% of household income. Employer plans, ROTH, SEP, etc.. Step 5 If applicable, consider Savings Plans for Education such as Coverdell or 529 Savings Plans, Coverdell, etc. for children/grandchildren. Step 6 Retire low interest debt. Step 7 Enjoy Prosperity as You Define It!

5 Employee Benefit Research Institute Survey The Number, Lee Eisenberg, out of 10 workers say they’ve saved nothing whatsoever for the future. No more than 4 out of every 10 people admit they have never taken steps to calculate the actual cost of a comfortable retirement – their “NUMBER”. Of those who have calculated their “Number,” one in 3 doesn’t remember what those calculations revealed. 45 % have saved less than $25K for retirement. Only 18% have saved more than $100K in reserves for retirement.

6 Assessing current and future living expenses Work through Retirement Needs Worksheet Incorporate you desired retirement lifestyle into your projections – General rule of thumb is 75 – 80% of pre-retirement income will be needed – HOWEVER – that does not factor in you individual preferences for how you’d like to spend retirement. You may find that you need close to 100% of pre- retirement income to do the things on your bucket list ACTIVITY

7 Assess sources of retirement income Work through Retirement Planning Asset Worksheet OR Complete the Retirement Income Calculator OR Complete the 5 Questions in the Assessing Retirement Readiness My Plan Snapshot Consider Earned Social Security Benefits On-Going Farm/Ranch related income that will be generated through cash/share rents and asset sales of resources no longer needed for your desired role in retirement Examine how much income can be generated and withdrawn from your retirement savings. – General rule of thumb is 4% withdrawal rate – Look at the Retirement Nest Egg Calculator to see how alternative withdrawal rates impact the likelihood that you’ll outlive your money. ACTIVITY

8 - Including expected Social Security Estimate Life Expectancy Assess when to begin drawing benefits Estimate social security benefits earned

9 Outstanding & EASY Retirement Needs Calculators T. Rowe Price's Retirement Income CalculatorRetirement Income Calculator https://www3.troweprice.com/ric/ricweb/public/ric.do Fidelity's My Plan Snapshot - 5 Questions to Assess Retirement Readiness Audio guided tour of questions that provide retirement resource assessment Vanguard's Nest Egg calculator andNest Egg calculator https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/ RetirementNestEggCalc.jsf?cbdForceDomain=false Fidelity's Retirement Income Planner.Retirement Income Planner Get a sense of what you're on track to have in retirement and how small changes can improve your plan.

10 T. Rowe Price's Retirement Income CalculatorRetirement Income Calculator https://www3.troweprice.com/ric/ricweb/public/ric.do

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12 How much have you saved for retirement so far?

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14 Specify your Desired Asset Allocation

15 This is where the income generating capabilities of the farm/ranch business will be included. Preferred transition strategies (i.e. cash or share rental arrangements) will greatly influence the value and variability of this figure.

16 Monthly Income Worksheet Components

17 Sample Assessment Results Monthly Estimates Ability to See How Changes to savings plans, retirement age, asset allocation impact projections

18 Fidelity's My Plan Snapshot - 5 Questions to Assess Retirement Readiness Audio guided tour of questions that provide retirement resource assessment

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20 Retirement Nest Egg Calculator 4% Withdrawal Rate

21 Retirement Nest Egg Calculator 6% Withdrawal Rate

22 Determine financial reliance on the farm business as a source of income generation Determine what role you want to continue to play in retirement as it relates to the farm business. – Do you prefer the stability of cash rents or do you prefer the added risks/rewards that may come from share leases? Keep in mind that in the focus is on income-generating capabilities. Equity acquired over time can only be converted into income by renting or selling the asset. – Closely consider the farm/ranch assets and decide whether renting or selling best fits you required income generating needs with other motivations that might exist (semi-retirement, passing the farm to heirs, etc..). ACTIVITY

23 Defining your own Retirement “Number” The Number, Lee Eisenberg, 2006 Assuming a 4% drawdown, every $100,000 in retirement savings will provide $4,000 per year during retirement. $1 million provides $40K per year; $1.5 million - $60K Assets generating post-retirement income, or other benefit programs should be factored into your calculation. Consider a part-time post-retirement job – $100 per month is equivalent to $30K in retirement savings – $6/hr. job - 20hrs/wk – 50 wks/yr. – makes up for a $150K retirement savings deficiency.

24 Retirement Savings Plan Alternatives Thrift Savings Plan, 401(k), 403(b) etc. – pre-tax contribution, tax deferred growth, may have “matching” contributions ROTH IRA – after-tax contributions, tax free growth Traditional, Deductible IRA – deductible contributions, tax deferred growth Traditional, Nondeductible IRA – tax deferred growth SEP, SIMPLE IRAs – tax deductible contributions, tax deferred growth Taxable Investment Account – long-term capital gains and dividends get preferred tax treatment, no restrictions

25 Data from IRS Publication 590, Graphics from

26 Data from IRS Publication 590, Graphics from

27 Data from IRS Publication 590, Graphics from

28 Data from IRS Publication 590, Graphics from

29 Data from IRS Publication 590, Graphics from

30 Retirement Savings Mistakes Choosing not to Participate in any Savings Program Improper Asset Allocation : Guideline for retirement:100-Age = % Stock Allocation Improper Use of “Dollar Cost Averaging” with Monthly Contributions Failure to Periodically Rebalance Incurring Penalties – early/late withdrawals Failure to Keep Beneficiary Info Updated

31 Early Savers (30)– Asset Class Categories All About Asset Allocation, Richard Ferri, 2006 US Equity – 40% International Equity – 20% Real Estate – 10% Aggregate Bond – 30% Retirement Savings Allocation Guidelines

32 Mid-Life Savers (45)– Asset Class Categories All About Asset Allocation, Richard Ferri, 2006 US Equity – 30% International Equity – 15% Real Estate – 10% Aggregate Bond – 45% Retirement Savings Allocation Guidelines

33 Pre-Retirees & Active Retirees (50)– Asset Class Categories All About Asset Allocation, Richard Ferri, 2006 US Equity – 35% International Equity – 10% Real Estate – 5% Aggregate Bond – 35% US Treasuries – 15% Retirement Savings Allocation Guidelines

34 Mature Retirees (65) – Asset Class Categories All About Asset Allocation, Richard Ferri, 2006 US Equity – 25% International Equity – 10% Real Estate – 5% Aggregate Bond – 35% US Treasuries – 25% Retirement Savings Allocation Guidelines

35 Develop next steps/action for a retirement plan that satisfies your goals ACTIVITY If you don't save and invest, and you aren't rich now, the only other options are to inherit money, marry money or win the lottery.


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