Presentation on theme: "Rethinking your Retirement"— Presentation transcript:
1 Rethinking your Retirement [Name, title]Welcome/Introductions[Enter your name and title to slide]
2 Retirement dream We are living longer, healthier lives Retirement is an opportunity to pursue hobbies, travel, visit with loved ones, etc.But, for many of us, the real retirement dream may be to be financially independentNeed realistic retirement strategies to make that a realityWe are living longer, healthier livesRetirement is an opportunity for us to pursue hobbies, travel, visit, etc.But, for many of us, the real retirement dream may be to be financially independent.To accomplish this, you need realistic retirement strategies to help make that happen.
3 Retirement realityProcrastination today is common. Not often do we plan to fail, instead we fail to planOther issues are given higher prioritiesLonger you wait, the harder to make up the differenceEven a few years can make a big differenceBecause, a retirement reality can be different than our retirement dreams.Planning ahead for our retirement can be difficult. We do not plan to fail, we often fail to plan.Part of the reason people may not be making retirement strategies is that many other issues are given priority. For example, their children’s education, loss of a job, or care for adult family members.But, not doing something, even a small thing, for your own retirement can become critical later on.The longer you wait to prepare for retirement, the harder it can be to make up the difference.Even a few years can make a big difference [click]. Let’s look at the next slide to demonstrate that.
4 Never too early to start preparing for retirement Starting retirement savings early with $200/month additional savings at 5% per year over 10 yearsYearStartAddInterest rateYear end value1$40,000.00$200/month5%$44,512.502$49,255.803$54,241.904$59,483.005$64,992.306$70,783.407$76,870.808$83,269.709$89,995.9010$97,066.20Let me illustrate how saving just a little (for example $200 month) now before you even begin to think about your retirement can make a huge difference.To demonstrate, conservatively, we will use $40,000 and show what saving $200 per month, after 10 years would do to your savings. Starting with $40,000 adding $200 per month at a hypothetical rate of 5% compounded monthly over 10 years, at the end of those 10 years, you would have $97, In just 10 years, you would have $57, more than what you started with.[Note: the 5% rate compounded monthly over 10 years was used for demonstration purposes only and is no guarantee]This helps to demonstrate why it is never too early for you to consider starting your retirement savings strategies.This hypothetical example is shown for demonstration purposes only and doesn’t represent any specific product or investment. These figures don’t reflect taxes or product fees and expenses.
5 Retirement reality Never too early to get started Withdrawal rates also importantAs we just demonstrated, it is never too early to get started with your retirement strategies. Every day lost can mean more retirement income to make up for later.Withdrawal rates can also affect your plans. We have a finite amount of money saved for retirement. If we keep the same standard of living, this money can be depleted sooner than expected. Let’s take a look.
6 Withdrawal rates are important This chart shows how long retirement savings may last at a 4%, 5%, 6%,and 8% annual year-end withdrawal rate. The chart is a hypothetical example and assumes $500,000 beginning balance in retirement, a 3% annual inflation rate, and a 6% annual rate of return, compounded monthly. This hypothetical example does not represent the performance of any specific investment product, taxes, or product fees.Rate of withdrawal$700,000$600,000$500,000$400,000$300,000$200,000$100,0004%5%6%8%This chart illustrates how long retirement savings will last at various withdrawal rates. In this example, the withdrawal rates shown apply only to the first year of withdrawal.We are assuming a 6% rate of return, compounded monthly. Withdrawals increase 3% at the beginning of each year as an inflation adjustment. Withdrawals are assumed to be taken on a monthly basis and at the beginning of the month.[click] Using those assumptions, here we see that at an 8% withdrawal rate a 65-year-old will run out of money at approximately age 80.[click] If we assume a 6% withdrawal rate (interest credited monthly), the money is gone at approximately age 88.[click] A 5% withdrawal rate would deplete the account around age 95.[click] And a 4% withdrawal rate would stretch the account to about the end of age 110.The moral of this illustration with these assumptions is that if you take a withdrawal rate greater than 5% you could be asking for trouble. It begs the question, “Will you have enough money accumulated at retirement so you can use a withdrawal rate that aligns with your retirement goals?”This demonstrates the basic math associated with retirement strategies.65808895110This chart is for illustrative purposes only.
7 Agenda Retirement today Taking action Refocus Options Putting it all togetherSo, our agenda starts with looking at the retirement reality of today.Some of us fail to act because we don’t know where to startWe will discuss how to help you take action with a focused approach on what they can control.We will look at options on how to help you get started.And then finish up with putting it all together.
8 1Retirement todayLet’s start by looking at the retirement reality of today.
9 Retirement landscapeRecent market turmoil adding to the fears of running out of moneyAfraid to take actionDon’t know where we are at in our retirement strategiesAre often afraid to find outJob losses a realityFear of losing job or have recently lost jobOther needs take priorityRecent market turmoil may be adding to the fear for many of us that we may end up running out of money in retirement.This fear often makes us afraid to take action. We don’t know where we are with our retirement strategies. And we may even be afraid to find out.Many of you may be facing job losses or have the fear of losing your jobs. This can also cause you to freeze from taking any action for the future.Or, other needs such as putting a child through college, are given a priority. It is important to take care of your own retirement needs so you can be in better financial shape to help others during your retirement if that is one of your goals.
10 Retirement today Refocus on your retirement strategies Walk through where you are at financially todayWalk through where you want to be to have a reasonable retirement tomorrowFocus on what you can controlWhat I can do as your financial professional is to help you with refocusing on your retirement strategies that you can control.We will walk through where you are at currently, and where you want to be. This will help you to refocus your retirement strategies.The key to helping you move forward with action is to start with refocusing on what you CAN control.
11 2Taking actionSo, what is the first step to helping you move forward and take action?
12 1. Save more now Taking action Why don’t we save? It’s hard to do and includes unpleasant things like budgeting and doing without. However, it is often a necessity.Save regularly through a variety of sources (401k, etc.)Increasing savings now can mean less retirement income replacement needed laterSo, what is the first step to helping you move forward? Saving more now.Many of us don’t save enough because it involves unpleasant things like budgeting and sometimes doing without things we want. However, this is often a necessity.We may consider saving a little regularly through a variety of sources.Let me start by demonstrating how the more you save now, can mean less retirement income you may need to replace later.
13 Saving more now can reduce amount of additional income needed later $5,000401(k)$10,000401(k)$7,000Pension74%$45,000To demonstrate how saving more now can reduce the amount of retirement income you will need to replace later, let’s look at this hypothetical visual.What if you were making $50,000 gross a year and putting away 10% into your 401(k). (10 % of $50,000 or $5,000). That would leave you with a current income or standard cost of living of $45,000.We will hypothetically jump ahead 20 years into your first year of retirement. For demonstration purposes only let’s assume you will receive that year $16,000 in Social Security benefits, $7,000 in pension benefits, and that your 401(k) has produced $10,000 of income in your first year of retirement (assuming you contributed yearly, you receive a reasonable rate of return, etc. – all hypothetical and for demonstration purposes only). [click] That means you would be $10,000 short of your current standard of living. This gives you about 74% of what you would need for retirement income.$16,000Social SecurityTodayRetirementThis hypothetical example is for illustrative purposes only. The retirement income totals are for demonstration purposes only.
14 Saving more now can reduce amount of additional income needed later $5,000401(k)401(k)$3,000$15,000$10,000401(k)$7,000Pension90%74%$45,000$42,000However, what happens if you were able to save an additional $3000 per year in your 401(k)? Is that something you might be able to live with?In 20 years, that would bring you hypothetically $5,000 of additional income in your 401(k) for your first year of retirement [click] (assumes a hypothetical 5% rate of distribution over 20 years)Which would bring you to 90% of your current standard of living.You would now be that much closer to being able to continue your current standard of living into your retirement.$16,000Social SecurityTodayRetirementAssumes hypothetical 5% rate of distribution over 20 yearsThis hypothetical example is for illustrative purposes only. The income totals are for demonstration purposes only. The additional savings is based on a 5% distribution over 20 years.
15 Taking action 2. Control debt 3. Working longer Pension delays Social Security delays4. Look at options to protect a portion of your incomeSecond, it is very important to control debt. This should be started immediately as well.This too can be difficult because it may mean going without something. The immediate gratification is a tough pull. But, it is very important to try to avoid buying things that you can not pay for and racking up debt.Third, we can also discuss options of working longer which can delay your pension and Social Security giving you an additional year or more to accumulate income.And finally, look at options to protect a portion of your income.
16 3 Refocus on what you can control I’m going to start by discussing with you how to REFOCUS your efforts on things that you can control today, so that when you retire you will potentially have an income stream that may permit you to meet your income requirements in retirement.
17 Refocusing REFOCUS on retirement expense strategies Focus on what you can controlHelp manage expensesSurvival incomeDesired incomeI have a survival and desired income worksheet for you in our Retirement Strategies workbook to fill out that will help us determine expenses that you must have for retirement as well as those that we wish to have for our retirements.Let me show you how this works.
18 Refocusing on the levels of retirement expenses Three levels of retirement expensesExpensesLegacyFunds remaining for your beneficiaries3DesiredLifestyle “extras”The REFOCUSING on a retirement budgeting process starts by examining three levels of retirement expense needs.1. Survival expenses are the ones you need to cover your most basic needs such as food, clothing, shelter, etc.2. Desired expenses are those extra things such as travel, gifts for children and grandchildren, the theater, etc.3. And finally, Legacy is any funds you have remaining to pass along to your beneficiaries or charities. It also involves any wishes or desires you may have for non-financial things.SurvivalExpenses to cover your most basic needs
19 Refocusing by reviewing sources of income REVIEW sources of incomeHelp you gain control over sources by knowing where they areSocial SecurityDefined Benefit plans401(k)sNext, I want to help you review your retirement strategies by looking at possible sources of retirement incomeSuch as:Social securityDefined benefit plansAnd 401(k)sThis helps you gain control over your retirement portfolio by knowing where the sources of income come from so you can help to review any potential gaps in income needs by utilizing all the appropriate sources.I just mentioned three, but let’s look at seven possible sources of income for your retirement to help explain this..Please keep in mind that your producer must be currently registered with a broker/dealer to recommend the liquidation of funds held in securities products, including those within an IRA or other retirement plan, for the purchase of an annuity.
20 Refocusing by reviewing sources of income Seven sources of retirement incomeSources of IncomeWelfare or charityNot desirableContinued employment7Phase into retirement graduallyNonqualified Assets (NQA)Mutual funds, CDs, stocks, bondsRoth IRATax-deferred/tax-freeHere are seven possible sources of retirement income starting from the bottom and building up.CLICK. Social Security is the base. Ever since it was signed into law in 1935, the premise has been that Social Security is a supplement. It has never been intended to fully fund a person’s retirement income. As with any pension plan, the earlier you begin receiving benefits, the lower those benefits will be.CLICK. The second source of retirement income is employer sponsored retirement plans (such as 401(k), defined benefit, and SEP plans). We group these together because they have unique characteristics compared to other retirement vehicles.CLICK. The third source is traditional IRAs. At retirement, employer-sponsored plan participants often roll their plan proceeds into traditional IRAs to take advantage of additional flexibility in taking withdrawals. Of course, most employer-sponsored retirement vehicles and all traditional IRAs have required minimum withdrawals beginning at age 70½.CLICK. Our fourth source of retirement income is the Roth IRA, which can be funded either from annual contributions or conversions from Traditional IRAs or some employer-sponsored retirement plans. Roth IRAs are one of the last income sources that people tap because of their tax-deferred and tax free nature when qualified distributions occur. In addition, Roth IRAs are about the only retirement vehicle that does not have required minimum distributions during the owners lifetime.CLICK. The fifth source of income will be your nonqualified assets (including personal investments in mutual funds, CDs, stocks, bonds, investment real estate, nonqualified annuities, etc.)CLICK. The sixth source of income, continued employment, hasn’t traditionally been viewed as a retirement income strategy, but is becoming increasingly common. So – one consideration for some people is to phase into retirement gradually, and possibly delay beginning to receive Social Security retirement income. The monthly benefit increases each month between your full retirement age and age 70.CLICK. The final source of retirement income is one that very few people want to tap into—welfare or charity. We can agree that is not appropriate for you.Traditional IRAContributions and rolloversEmployer sponsored plansEmployer-sponsored plansSocial SecurityThe base
21 Refocusing on income protection strategies PROTECT a portion of your incomeSupplementing defined contribution pension plansConsider using annuitiesMore optional guaranteesReliability of future incomeAnd lastly, let’s move into a PROTECTION phase of income strategies for your retirement.One strategy to protection a portion of your income in retirement may be to use a defined contribution plan. The employer will often contribute a set amount. If you aren’t already doing so, you should try to put in enough to get the company match (if applicable) but perhaps you want to choose to add to it using your own monies and create a larger future stream of income?Another strategy could be to consider using annuities for protecting a portion of your retirement income. This can offer more optional guarantees and create a reliable stream of future income for your retirement.Guarantees are backed by the financial strength and claims paying ability of the issuing company.
22 4OptionsSo, after all that, what options exist for you?
23 Options Start with a clean mental slate Rethink overall retirement strategiesRethinking income in place of accumulationYou always have an asset base to work withStart by visualizing retirement with a clean mental slate.Rethink your overall retirement strategies by focusing differently. Income phase is not just the reverse of the accumulation stage. Even in the income phase, retirement assets may still continue to earn interest.You always have some kind of asset base to work with. That is the basis of your new retirement strategies.
24 Options Refocus on additional retirement issues Beneficiaries updated/correctLegacyLife insuranceIn addition to the death benefit provided, some policies can guarantee replacement income if either primary wage earner diesHealth care and long term careIn addition, let’s refocus on other basic retirement issues such as:Beneficiary forms. Are they updated and correct?Legacy wants and desiresLife insurance – in addition to the death benefit provided, some life insurance policies can guarantee replacement income if either primary wage earner dies. Many families now typically have two key wage earners. One spouse may need to replace the other’s income during retirement if something were to happen.And finally, let’s discuss health care and long term care potential issues or concerns.
25 Options Retirement accumulation stage Retirement accumulation stage Retirement income stageFinancial objectiveHave enough money to retireAsset allocationPortfolio allocationRetirement planning can be divided into two distinct stages: the accumulation stage and the retirement income stage.CLICK (text appears in Accumulation Stage). The accumulation stage is where many people concentrate. In this stage, you are saving and investing for retirement. The overall financial objective throughout this stage is, of course, to have enough money to retire. When thinking about your assets and investments, you may be concerned about portfolio allocation—getting the highest possible interest for the amount of risk that is taken. Most people know exactly when they would like to retire, so the time horizon is generally known. The challenge is to accumulate as much money as you can, and still live comfortably enough to meet your current needs and goals, between now and the established retirement date.Time horizonKnown to retirement
26 Options Retirement income stage Retirement accumulation stage Financial objectiveHave enough money to retireNot outlive assetsAsset allocationPortfolio allocationWithdrawal allocationOnce you retire, you enter the income stage. Now, instead of trying to obtain enough money to retire, the concern is making your money last as long as you do. The focus of asset allocation becomes a withdrawal allocation—determining which assets to use now, how much to withdraw, which to withdraw later, and which to save for last. Since none of us knows exactly how long we will live in retirement, you have an unknown time horizon.Time horizonKnown to retirementUnknown to date of death
27 Options Rethinking retirement strategies Retirement accumulation stage Retirement income stageRethinking retirement strategiesRethinking retirement expensesRethinking portfolio with longer-term goalsRethinking retirement annuitiesFinancial objectiveHave enough money to retireNot outlive assetsAsset allocationPortfolio allocationWithdrawal allocationYou can now move into Rethinking Retirement strategies. This is where with my help, we will rethink new retirement strategies as you become concerned about your retirement future.Your financial objective now becomes rethinking your retirement expenses and needs because you may be unsure if you have enough income.Asset allocation now becomes rethinking a portfolio that focuses on long-term goals.And the time horizon may involve rethinking retirement income vehicles such as annuities.Time horizonKnown to retirementUnknown to date of death
28 The average health care cost for a couple retiring in 2010?1 OptionsHealth care and long term careWe often look at our retirement strategies based on our current good health statusEven with good health today, properly prepare for possible future health issues or health care needs of tomorrowThe average health care cost for a couple retiring in 2010?1Health care needs are often overlooked when we think about our retirement strategies because we are thinking about our current status with good health.Let’s clean our mental slate and help us rethink the importance of future strategies that do involve health care needs and potential long-term care requirements.For example, it is estimated that the average savings needed to cover a couple’s health care costs in retirement in 2010 is [click] $250,000!$250,0001USAToday, “Study: Retired couple will need $250,000 for health care,” March, 25, 2010
29 5 Putting it all together We’ve covered a lot of things so lets now shift toward putting it all together and giving you an overview of a common potential situation.
30 Putting it all together What if there are gaps between accumulation and income needs?Refocusing our retirement financial strategiesWhat happens if there are gaps between income needs and your asset accumulation?Let’s look at refocusing on our financial strategies to help cover the gaps
31 Putting it all together Five options for income/expense gapsRoth IRASources of IncomeWelfare or charityNonqualified assets (NQA)Traditional IRAEmployer sponsored plansSocial SecurityContinued employment7OptionsLower your expectationsSpend less and save more nowDecide to work longerTake on more riskCombination (or all) of above5DesiredExpensesLegacySurvival3There are five options for balancing your retirement income and retirement expenses when gaps occur [click]Lower your expectations for your standard of living in retirementSpend less and save more now in order to have more when you do decide to retireDecide to work longer before you retire or take a part-time jobTake on more risk to increase the potential interest on your assetsUse a combination of the above optionsLet’s look at these options and how they might work.
32 Putting it all together Current standard of livingHow do the 5 options work?Aggressive$ now (401(k))Moderate$ additional (401(k))$ moreRetirementConservativeCombination of all options$ needed to supplement incomeLet’s look at a visual representation of how this works. This is hypothetical and for illustrative and educational purposes only.First, you need a retirement timeline, the period between now and retirement. For our hypothetical illustration, let’s assume 20 years.Next, you need to know how much you’ve already set aside, and what you are currently putting into your retirement plans.The final number is how much money you will need to maintain the standard of living that you desire in retirement.Then, assuming a reasonable rate of return, we hypothetically calculate out how much you could have when you are ready to retire, which becomes the goal number at the top of the graph. If your present savings and contributions to retirement plans meet the goal, there is no need for adjustments. If it doesn’t meet the goal – which is often the case – then it’s time to consider one or more additional options such as these five:Settling for less.Saving more now.Working longer.Taking on more risk. It is up to you and your qualified professionals or advisors to determine your comfort level with risk for your situation.Or, combination of all the options.This example is shown for illustrative purposes only and is not intended to predict or project future results. Your actual results will vary. Please note that with the potential for greater returns comes greater risk and volatility.Time70?Age4565
33 Putting it all together Current standard of livingCombination most effective$ additional (401(k))$ moreModerateConservative$ needed to supplement incomeUsing a combination of the other four options may be most effective for you because it allows incremental adjustments in several areas, each of which could be less dramatic than the adjust that would be required for any one single option on its own.So, even if your retirement reality is not quite what you hoped for, you may be able to achieve a satisfactory retirement that still meets your needs by:Reducing your expected standard of living slightlyIncreasing contributions to your retirement programs by a small amountExtending your work period by a year or two, andTaking a little more risk (perhaps from conservative to moderate).You should consult with your qualified tax advisor or properly registered representative for any questions on your own situation.This example is shown for illustrative purposes only and is not intended to predict or project future results. Your actual results will vary. Please note that with the potential for greater returns comes greater risk and volatility.Time4565Age6568?
34 Rethinking retirement strategies Rethink your retirement strategiesRefocus on what you can controlUse the strategic workbookReview your existing retirement strategiesProtect your retirement futureStart rethinking your retirement today.Lets focus on what you can control by using the strategic workbook [Note to speaker: The workbook referenced is ENT-538]Let’s review your existing strategies if necessary.Let’s start by protecting a portion of your retirement income.
35 Summary Retirement today Taking action Refocus Options Putting it all togetherTo summarize, today we looked at the retirement realities of todayWe discussed how to help you take action and start by refocusing on your retirement strategy approachesWe reviewed several options we can take to help make your retirement realities closer to your retirement dreams.And then finished up with putting it all together.
36 Wrap upThis presentation is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, their affiliated companies, and their representatives and employees do not give legal or tax advice.Guarantees are backed by the financial strength and claims-paying ability of the issuing company. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.Purchasing an annuity within a retirement plan that provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefit. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan.Not FDIC insured • May lose value • No bank or credit union guarantee • Not a deposit • Not insured by any federal government agency or NCUA/NCUSIFProducts are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN In New York, products are issued by Allianz Life Insurance Company of New York, One Chase Manhattan Plaza, 38th Floor, New York, NY Variable products are distributed by their affiliate Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN Only Allianz Life Insurance Company of New York is authorized to offer annuities and life insurance in the state of New York.[read slide]