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Strategies for a sustainable income in retirement

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Strategies for a sustainable income in retirement

  1. 1. Strategies for a Sustainable Income in Retirement
  2. 2. This seminar and any accompanying material are based on available sources of public information and is assumed to be correct as per the indicate sources. Any discussion of Retirement Income is for informational purposes only. Please consult with your financial planning consultant for your particular situation. The information presented is general in nature and not intended to be a complete explanation of the subject matter nor a substitute for careful personal financial plan that addresses an individuals specific situation. Millennium Financial Group does not engaged in rendering legal, tax or accounting advice. Legal, tax and accounting advice applicable to your own situation should be obtained from a qualified professional. Securities and Advisory Services offered through Cetera Advisors LLC, member FINRA/SIPC. Millennium Financial Group is not affiliated with Cetera Advisors LLC. IMPORTANT INFORMATION
  3. 3. The Changing Nature of Retirement Between 1977 and 2007: The number of workers over 65 years-of-age increased by 101% • Males over 65 increased 75% • Women over 65 increased by almost 147% The number of workers over 75 years-of-age increased 172%, while the overall workforce (age 16 and older) increased by only 59% Society for Financial Awareness 3 Source: http://www.bls.gov/spotlight/2008/older_workers/
  4. 4. Successful Retirement = Preparation Preparing for: • Longevity • Higher Prices • Rising Medical and Long-term Care Costs • Possible Changes in Social Security • Investment Risks Society for Financial Awareness 4 *A number of factors contribute to increased longevity including safer and more nutritious food, improvements in healthcare, safer motor vehicles, cleaner water, improved waste removal, and an overall higher standard-of-living.
  5. 5. Increases in U.S. Life Expectancy  For Men, an increase of almost 2 years per decade  1960= 66.6 years  2012= 75.7 years  For women, an increase of almost 1.5 years per decade:  1960= 73.1 years  2012= 80.8 years  Prepare to enjoy at least 25 years in retirement! Society for Financial Awareness 5 Source: www.soa.org/files/research/projects/research-key-finding-longevity.pdf
  6. 6. After the of 65 After you reach 65, the probability of living to age: • 83 = 56% • 89 = 31% • 94 = 14% Society for Financial Awareness 6 Source: http://www.cdc.gov/nchs/data/nvsr/nvsr58/nvsr58_10.pdf
  7. 7. Higher Prices For 20 years, multiply by 1.81 For 30 years, multiply by 2.43 Society for Financial Awareness 7 Source: Social Security website, www.SocialSecurity.gov, 2012. To calculate what something will cost if it increases in value by 3% annually:
  8. 8. Medical and Long-Term Care Costs  $19 per hour for homemaker services  $21 per hour for home healthcare  $67 per day for services in adult day healthcare center  $3,293 per month for care in an assisted living facility (one-bedroom unit)  $6,235 per month for a semiprivate room and $6,965 for a private room in a nursing home Society for Financial Awareness 8 The average costs of long-term care: From 2015 to 2121, healthcare spending is projected to grow at an average annual rate of 6.2% Source: http://longtermcare.gov/costs-how-to-pay/costs-of-care/
  9. 9. Possible Changes in Social Security  Social Security, or Old-Age, Survivors, and Disability Insurance (OASDI) makes monthly income available to U.S. workers and their families at retirement, death, or disability. The Social Security Act established a Board of Trustees to oversee the OASI (Old-Age and Survivors Insurance) and DI (Disability Insurance) Trust Fund Reserves.  According to the Board of Trustees, the combined OASI and DI Trust Fund Reserves will increase through 2020, start to decrease in 2021, and will be depleted and unable to pay full benefits on a timely basis in 2033. Society for Financial Awareness 9 Source: http://www.ssa.gov/oact/tr/2013/tr2013.pdf
  10. 10. Income Tax Rates Society for Financial Awareness 10
  11. 11. Investments, Risks, and Interest Rates • The Stock Market: In general, stocks should be considered long-term investments • Buying Bonds: Interest rates affect bond prices Society for Financial Awareness 11 Source: http://www.cdc.gov/nchs/data/nvsr/nvsr58/nvsr58_10.pdf
  12. 12. The Stock Market You can’t be too aggressive or too conservative! You’ll need a balanced approach to generate income in retirement. Society for Financial Awareness 12 Erosive effect of Inflation Downside years affect principal
  13. 13. Bonds and Interest Rates Interest rates have an inverse effect on income: • When Bond prices are high, income from interest rates = DOWN • When Bond prices are low, income from interest rates = UP Society for Financial Awareness 13
  14. 14. Strategies for Sustainable Retirement Income  Identifying Sources of Income  Choosing the Best Withdrawal Rate  Managing Risk  Addressing Specific Risks  A Roth IRA as a Tax Strategy Society for Financial Awareness 14
  15. 15. Identifying Sources of Income Society for Financial Awareness 15 Early Retirement Later in Retirement Part/ Full Time Work IRA Withdrawals Pension Income Real Estate Social Security 401K Withdrawals
  16. 16. Choosing the Best Withdrawal Rate Society for Financial Awareness 16 Your withdrawal rate will determine how long will your money last: This graph shows a hypothetical example of how long a portfolio will last at various withdrawal rates, using historical periods from 1926 to 2009 for stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%), and cash (U.S. 30-day T-bills). 3% 4% 5% 6% 7% 8% 9% 10% 50 yrs. 36 yrs. 21 yrs. 16 yrs. 14 yrs. 12 yrs. 11 yrs. 10 yrs. Rate (%) Duration (Years)
  17. 17. Managing Risk - Rebalancing a Portfolio • Diversification does not protect against market loss • It is possible to lose money with a diversified portfolio Example  *There may be tax consequences and additional fees associated with rebalancing on non-tax- deferred investments. Society for Financial Awareness 17 December 31, 2013 • Bonds Investing = 20% • Growth Investing = 40% • Value Investing = 40% December 31, 2023 • Bonds Investing = 32% • Growth Investing = 23% • Value Investing = 45%
  18. 18. Consider a “Bucket” Approach Society for Financial Awareness 18 Short Term Income Bucket Meet immediate cash flow needs, emergency fund, etc.  Cash  CDs/money market  Short Term Bonds  Immediate Annuities  Social Security/ Pension Income  Wages Mid Term Income Bucket Mix of growth and income, replenish short-term, guard against market volatility  Bonds  Deferred Annuities  Absolute Return Funds  Asset Allocation Funds, Balanced Funds Long Term Income Bucket Inflation hedge, longevity  Growth Stocks/Funds  Real Estate  Commodities
  19. 19. Closing Thoughts • A successful strategy will give you sustainable income to retire in the lifestyle you desire • It’s essential to prepare for certain (and uncertain!) risks • Retirement strategies will continue to evolve Society for Financial Awareness 19
  20. 20. Quote of the Day “Whether you are just entering the workforce or nearing retirement age, planning for the future is critical.” Ron Lewis, Retired, House of Representatives Society for Financial Awareness 20
  21. 21. Thank you for your time! Please complete your program evaluation. We are happy to answer any questions you may have now or in the future!

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