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					Retirement Planning
Retirement Planning is no
passing phase…
 You could spend 2/3 of your life planning
  for retirement.
 Retirement planning begins with your first
  “real” job and lasts for the rest of your life!
 First you save the nest egg…then you
  spend it responsibly so as not to outlive it!
But I’m a state employee…I’ll get a
pension when I retire. Why should
       I save for retirement?

             Good Question!
Here are some more questions…..Pop Quiz!
     At what age do you plan to
               retire?
A.   Never! I’ll have one foot in the office and
     the other in the grave!
B.   70 or above
C.   65-67 (or age when I’d get full social
     security benefits)
D.   60 or below
How Long Will You
Be In Retirement?
(What is your life expectancy)
Fill in the Blank: The general rule of
thumb is that retirement income will
need to replace ____% of your
working income.

A.   30-60%
B.   40-70%
C.   70-100%
The average replacement percentage
of average final compensation for all
new retirements in the N.C. Teachers
and State Employees’ Retirement
System tends to be around ____%.

A.   85%
B.   65%
C.   45%
D.   25%
Time to Answer All of Our
       Questions!
    At what age do you plan to
              retire?
   This answer depends on your personal
    goals, but:
   Beware of “Never”: you still need to plan
    for retirement even if you never plan to
    retire!
   Remember, the earlier you plan to retire,
    the more planning you have to do!
          How Long Will You Be In
               Retirement?
             (What is your life expectancy?)

 Did You Know?
   A 65-year-old man has 20% chance of living to age
    90.
   A 65-year-old female has a 32% chance.
   For married couples, there is a 45% chance that one
    spouse will live to this age.
                          Source: Vanguard Investments at www.vanguard.com

 Underestimating life expectancy can derail any
  retirement plan!
Fill in the Blank: The general rule of
thumb is that retirement income will
need to replace ____% of your
working income.
               C. 70-100%
                Most planners estimate that you will
A.   30-60%     need 70-100% of your pre-
                retirement income to maintain the
B.   40-70%     same standard of living when you
C.   70-100%    retire.
The average replacement percentage
of average final compensation for all
new retirements in the N.C. Teachers
and State Employees’ Retirement
System tends to be around ____%.
                 C. 45%
A.   85%
                 Your actual benefit could
B.   65%         be higher or lower
C.   45%         depending on age and
                 years of service and
D.   25%         survivor benefits.
My pension and social security will
generate enough income to meet
the 70-100% rule of thumb. Do I
still need to save elsewhere?
   Yes! You’ll need available resources other
    than fixed income for:
     Emergencies
     To hedge against the effects of inflation which
      could outpace cost-of-living increases to
      benefits.
So, why do you need to be saving
for retirement in addition to your
pension plan?
 To  Bridge the Gap!
 To be prepared for emergencies!
 To help offset the effects inflation!
 If you haven’t started saving
  already, get started now!
    The Compounding Effect
   Start saving early! Time matters…
        Start         Age 25    Age 35    Age 45
       Total           $1,000    $1,000    $1,000
    Contributions        X 40      X 30      X 20
                      $40,000   $30,000   $20,000
    Value at 65 at   $154,762   $79,058   $36,786
         6%
      Earnings       $114,762   $46,058   $16,786
The Compounding Effect
 Plus, the longer you wait, the more it “costs” to
  save:
 To match the $154,762 retirement balance of
  the 25-year-old in the example, the person who
  waited until 45 would have to:
   Save $4,207.14 per year, or
   Generate annual earnings of 18.45%
    per year, or
   Retire at the age of 85!
Tax-Advantaged Retirement
Accounts for State Employees
   NC 401(k) plan
   NC 457 plan (Deferred Compensation)
   2010 Deferral limits:
     $16,500 if under age 50
     $22,000 if age 50 or over
     Not aggregated
   Individual Retirement Accounts
               (IRAs)
 Types:
   Traditional (potential for tax savings now)
   Roth (potential for tax savings in retirement)
 Contribution Limits for 2010
   $5,000 if under age 50
   $6,000 if age 50+ ($5,000 limit plus $1,000 catch-up
    provision)
 Contribution Deadline
   January 1 of current year – April 15 of following year
 RETIREMENT SAVINGS
        PLAN

Save for retirement
Use an available tax-
    advantaged account

Decide how to invest my
    savings
Investing Basics
 Considerations
  when choosing
  investments:
    Diversification
    Time Horizon
    Risk Tolerance

**Past performance is not
  a guarantee of future
  returns.
               Taking Risks
 Why should I Put My Money At Risk?
   When saving long-term, you are battling a little
    monster named:




                      INFLATION
     The Effects of Inflation
Today:




     Cost of 1 dozen oranges = $4.00
                                       22
The Effects of Inflation
 In the 1960’s, $4.00 would
  have bought you:
     1 gallon of milk ($.60)
     2 dozen oranges ($.90)
     10 gallons of gas
      ($.25/gallon = $2.50)
   You could also buy:
    ¨   A new house for $15,000
    ¨   A Ford Mustang for $2,368
The Effects of Inflation
 If the cost of oranges were to increase
 over the next 50 years at the same rate
 that it has increased since 1960, the price
 of a dozen oranges would be….
Bottom Line…
 Investing in securities provides the
  potential for returns that can outpace
  inflation over time.
 If you will be investing for the long-term,
  you may want to consider investing in
  securities.
Am I on track for retirement?
No way to know for sure. Keep in mind:
 You are responsible for providing at least a
  portion of your own retirement income
 You might live beyond your life expectancy
 Starting early is the key!!!!
So, I’ve saved my nest egg and now
I’m ready to retire, now what?
 Your focus now changes from saving for
  retirement to spending your savings.
 New goal: Avoid outliving your income.
Important Steps…
 Step 1: Determine your retirement income
  needs by creating a spending plan using
  actual expenses.
 Step 2: Subtract the amount you will
  receive from social security, pension, etc.
 The difference is what you’ll need to use
  from your savings each year.
Tools
   Many financial institutions including the
    credit union have calculators that will help
    you determine if your desired annual
    withdrawals from your savings will allow
    your nest egg to last during your
    retirement.
Calculator Example
   Retirement Balance = $250,000
   Estimated Rate of Return = 5%
   Estimated Rate of Inflation = 3%
   Desired Annual Withdrawal (1st year) = $20,000
   Would last about 14 years
   Or, could withdraw $10,600 and would last 30
    years
I used a calculator and the results said
that I’d have money left over at my life
expectancy age.
   Great! You may want to look into
    establishing set aside funds such as:
    ¨ Emergency Funds
    ¨ Inheritance

   See how your long savings will last after
    setting aside these funds. If you can still
    meet your monthly income needs, great!
I used a calculator and the results said that
I’d run out of money early

   You may need to tweak your retirement income
    plan by considering:
     Revisiting your variable expenses and discretionary
      spending.
     Part-time employment
     Increasing your fixed income by investing a portion of
      your savings in a low-cost fixed annuity.
Reviewing your Retirement Plan
 Revisit your retirement income plan
  annually and make adjustments
  accordingly.
 Calculators and tools can be useful, but
  are based on assumptions! Reviewing
  your plan annually will greatly increase the
  chance that your savings will last
  throughout your retirement!
ANY QUESTIONS???

				
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posted:8/5/2011
language:English
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