Financial Planning for Retirement

The financial planning process for retirement 1. Review your savings and investments 2. Estimate your retirement income 3. Calculate your replacement ratio 4. Estimate your expenses 5. Anticipate the effect of inflation 6. Use professionals wisely

Step one Review your savings and investments

What factors do you consider when you save or invest your money?

3-month T-bill Treasury bill annual returns ( )

CitiCorp Corporate Bond Index Long-term bond annual returns ( )

S&P 500 Index Common stock annual returns ( )

Comparison: Annualized rates of return ( )

High-grade convertibles High-grade preferred stock Balanced mutual funds Insured bank accounts Treasury securities EE and HH bonds Certificates of deposit High-grade municipal bonds High-grade corporate bonds Money market funds Blue chip stocksGrowth mutual funds Speculative stocks Collectibles Futures contracts Real estate investment properties Puts and calls Limited partnerships Increasing Risk / Potential Returns Investments: Risk/reward pyramid

Step two Estimate your retirement income n Your City Pension n DROP (statement and DROP calculator) n Social Security n Deferred Compensation (monthly statements) n Savings and investments n Employment

Step three Calculate your replacement ratio A = Gross income in year before retirement n Minus:  Taxes  Work-related expenses  Savings and investments n This is your net pre-retirement income n Add taxes in retirement B= Gross income in first year of retirement Replacement ratio = B / A

Step four Estimate your expenses n How do you spend your money currently? n Which expenses are likely to decrease in retirement? n Which expenses are likely to increase in retirement?

Step five Anticipate the effect of inflation n Which expenses will be most affected by inflation? n How can you use a nest egg to overcome the impact of inflation?

Step six Use professionals wisely n Which type of expert do you need? n How do you locate candidates? n How do you determine their competence? n How much can you expect to pay them?

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