Dr. Cynthia Crawford University of Missouri Extension 10 Retirement Issues: Dr. Cynthia Crawford University of Missouri Extension Prepared October 2, 2005 As we go through these slides – you’ll notice that I’m going to go fairly quickly. These are all issues that need to be brought to your attention. Time does not permit me to go into depth with these. Each one of these issues will merit more time and study on your part. Let’s start building a list of major retirement issues…

Issue 1. How much income will you need? Rule of thumb is that you’ll need 70% to 80% of your income to maintain your lifestyle in retirement. The closer you are to retirement, the more meaningful your individual analysis of expenses will be. One of the first issues of retirement is projecting how much income you will need. The rule of thumb of 70% to 80% of income is just a starting place in your planning. In general, you’ll need nearly as much as you are living on now in your retirement. We’ll go into this topic in more detail after the break.

The old paradigm of retirement funding – a 3 legged stool Pension funds Personal savings Social security

The new reality of funding retirement Pension Personal savings and social security Health care insurance Your part-time job

Issue 2 – Inflation in your future Inflation is a thief of purchasing power If inflation averages 3.5%, the cost of living will double every 20 years. What is an acceptable level of inflation to you? Zero percent? Zero would be good, but not realistic. What is a rate of inflation that you think is ok? Even just a 3.5% inflation rate means that the cost of living will double every 20 years. Inflation is the quiet thief of purchasing power.

Effects of 4% inflation over 30 years $ .60 cup of coffee will cost $1.95 $12 restaurant meal will cost $38.92 $100 hotel room will be $324 $25,000 pick-up will cost $81,085 Just 4% inflation a year really adds up!

Issue 3 – The “live and buy for today” mentality You fail at retirement planning when you compromise what you want long term for what you want right now. Happiness is a place between having too little and having too much. Finnish proverb Retirement planning starts with a mindset of setting back resources for the future rather than using them for today. Can you agree with the two statements on the slide?

Issue 4: Choosing between funding a child’s education and saving for retirement… How many sources will loan money for a child’s education? How many sources will loan you money for your retirement? If you have to pick… Major point – Ideally a family can address both goals – funding children’s education and retirement. If a person has to pick between one or the other, consider that education and income tend to go hand-in-hand. Education will help a young person earn a better living. Also there are many sources of borrowing for a child’s education. I’m not aware of many sources of borrowing for retirement. (the exception may be a reverse mortgage on your home – and they are seldom used).

Issue 5: What are your values about leaving an estate? “If I knew when I’d draw my last breath, I’d spend my last dime at that time, too” “It is my goal to pass on as much of my wealth to my children as I can.” “It is important to me to make sure my children have the ability to earn a living by attending college. After that, they’re on their own.” Last week, the presentation focused on the importance of an estate plan. Estate planning values impact your retirement planning strategies. If your goal is to leave as much as possible to your heirs, your retirement planning will be very different than if your goals are to leave nothing to your heirs.

Issue 6: What is your net worth? You may be pleased! Your net worth gives an idea of what may be available for retirement resources. Your farm may be your single greatest asset.

Issue 7: Will your mortgage and debts be paid by retirement? Reduce cash flow needs More of an issue now that people are retiring earlier Having the goal of mortgage and debts being paid by retirement will free up resources for your current retirement goals.

Issue 8: What if I were suddenly single? Change in marital status Death Divorce Average age at which a woman becomes a widow is ___. Life expectancy for men is ___ Life expectancy for women is __ The longer you live, the longer your life expectancy. The average age at which a woman becomes a widow is a startling age 56! Life expectancy for males (at birth) is age 84. Life expectance for a female at birth is age 87. How would you deal with becoming suddenly single? How would your spouse cope with becoming suddenly single? Your farm partners?

Guidebook to Help Late Savers Prepare for Retirement Issue 9: What if I didn’t get started saving soon enough for retirement? Guidebook to Help Late Savers Prepare for Retirement National Endowment for Financial Education (NEFE) www.nefe.org then select “multimedia presentations” There’s a great resource available on the Internet called the Guidebook to Help Late Savers Prepare for Retirement. I recommend printing out a copy and reviewing it, especially if you think you may not have enough resources for retirement.

Issue 10: Insurance adjustments in retirement Health insurance is critical Life-insurance may be less important Long term care insurance may be important Disability insurance may be less important Business insurance needs may be less While there are many more issues, here is the last one I’ll mention in this section. Insurance programming is not static and needs to change over the lifecycle. There are several anticipated changes to insurance programming in retirement. They include (see list)…