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Assessing Retirement Readiness
Options and Strategies for Reaching the Target
• How retirement savings fit into the bigger picture
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Analyzing current and future living expenses
Assessing sources of retirement income
Projecting how long my retirement savings will last
Examine the role of the farm business as a source of income
Develop action steps for building a retirement plan
Typical Family Life Cycle Stages and Prominent Financial Issues
Income
10 Essential Steps to Financial Wellness
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Live beneath your means
Pay off your credit cards
Pay yourself first
Save six months living expenses
Make a will
Seek wise counsel
Fund a retirement savings plans
Plan major expenses
Educate yourself
Review progress
We all know the prescriptions
for Financial Wellness, but the
real question is . . . . . . . . . . .
Do we have the discipline to
stick with the program?????
Temptations are Everywhere
Source: 2011 Wellness Council of America www.welcoa.org
Financial
Management
Priorities for
Building
Wealth
Step 7 Enjoy Prosperity as You Define It!
Step 6 Retire low interest debt.
Step 5 If applicable, consider Savings Plans for
Education such as Coverdell or 529 Savings Plans,
Coverdell, etc. for children/grandchildren.
Step 4 Contribute to Retirement Savings at a level that
represents 10-15% of household income. Employer plans,
ROTH, SEP, etc..
Step 3 Revisit the Emergency Fund – building it to an amount equal to
6-12 months worth of living expenses.
Step 2 Pay off High Interest Rate (credit card type) Debt – using the “debt
snowball” (paying off smallest balance account first) or concentrating on the
highest rate debt first – whichever provides the greatest emotional motivation.
Step 1 Build a Nominal Emergency Savings Fund - $1,000 to $3,000
Employee Benefit Research Institute Survey
The Number, Lee Eisenberg, 2006
• 4 out of 10 workers say they’ve saved nothing
whatsoever for the future.
• No more than 4 out of every 10 people admit they
have never taken steps to calculate the actual cost of
a comfortable retirement – their “NUMBER”.
• Of those who have calculated their “Number,” one in 3
doesn’t remember what those calculations revealed.
• 45 % have saved less than $25K for retirement.
• Only 18% have saved more than $100K in reserves for
retirement.
Assessing current and future living expenses
ACTIVITY
• Work through Retirement Needs Worksheet
• Incorporate you desired retirement lifestyle into
your projections
– General rule of thumb is 75 – 80% of pre-retirement
income will be needed
– HOWEVER – that does not factor in you individual
preferences for how you’d like to spend retirement.
You may find that you need close to 100% of preretirement income to do the things on your bucket list
Assess sources of retirement income
ACTIVITY
• Work through Retirement Planning Asset Worksheet
OR
• Complete the Retirement Income Calculator
OR
• Complete the 5 Questions in the Assessing Retirement Readiness My Plan
Snapshot
• Consider Earned Social Security Benefits
• On-Going Farm/Ranch related income that will be generated through
cash/share rents and asset sales of resources no longer needed for your
desired role in retirement
• Examine how much income can be generated and withdrawn from your
retirement savings.
– General rule of thumb is 4% withdrawal rate
– Look at the Retirement Nest Egg Calculator to see how alternative withdrawal
rates impact the likelihood that you’ll outlive your money.
www.ssa.gov/estimator - Including expected Social Security
Estimate Life Expectancy
Assess when to begin drawing benefits
Estimate social security benefits earned
Outstanding & EASY
Retirement Needs Calculators
• T. Rowe Price's Retirement Income Calculator
https://www3.troweprice.com/ric/ricweb/public/ric.do
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Fidelity's My Plan Snapshot - 5 Questions to Assess Retirement Readiness
Audio guided tour of questions that provide retirement resource assessment
http://personal.fidelity.com/planning/retirement/content/myPlan/index.shtml
• Vanguard's Nest Egg calculator and
https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/
RetirementNestEggCalc.jsf?cbdForceDomain=false
• Fidelity's Retirement Income Planner.
http://personal.fidelity.com/planning/retirement/income_planner.shtml
Get a sense of what you're on track to have in retirement and how small
changes can improve your plan.
T. Rowe Price's Retirement Income Calculator
https://www3.troweprice.com/ric/ricweb/public/ric.do
How much have you saved for retirement so far?
Specify your Desired Asset Allocation
This is where the income generating
capabilities of the farm/ranch business will
be included. Preferred transition strategies
(i.e. cash or share rental arrangements) will
greatly influence the value and variability
of this figure.
Monthly Income Worksheet Components
Sample Assessment Results
Monthly Estimates
Ability to See How
Changes to savings
plans, retirement
age, asset allocation
impact projections
Fidelity's My Plan Snapshot - 5 Questions to Assess Retirement Readiness
Audio guided tour of questions that provide retirement resource assessment
http://personal.fidelity.com/planning/retirement/content/myPlan/index.shtml
Retirement Nest Egg Calculator
4% Withdrawal Rate
Retirement Nest Egg Calculator
6% Withdrawal Rate
Determine financial reliance on the farm
business as a source of income generation
ACTIVITY
• Determine what role you want to continue to play in
retirement as it relates to the farm business.
– Do you prefer the stability of cash rents or do you prefer the
added risks/rewards that may come from share leases?
• Keep in mind that in the focus is on income-generating
capabilities. Equity acquired over time can only be
converted into income by renting or selling the asset.
– Closely consider the farm/ranch assets and decide whether
renting or selling best fits you required income generating needs
with other motivations that might exist (semi-retirement,
passing the farm to heirs, etc..).
Defining your own Retirement “Number”
The Number, Lee Eisenberg, 2006
• Assuming a 4% drawdown, every $100,000 in
retirement savings will provide $4,000 per year during
retirement.
• $1 million provides $40K per year; $1.5 million - $60K
• Assets generating post-retirement income, or other
benefit programs should be factored into your
calculation. Consider a part-time post-retirement job
– $100 per month is equivalent to $30K in retirement savings
– $6/hr. job - 20hrs/wk – 50 wks/yr. – makes up for a $150K
retirement savings deficiency.
Retirement Savings Plan Alternatives
• Thrift Savings Plan, 401(k), 403(b) etc. – pre-tax
contribution, tax deferred growth, may have “matching”
contributions
• ROTH IRA – after-tax contributions, tax free growth
• Traditional, Deductible IRA – deductible contributions,
tax deferred growth
• Traditional, Nondeductible IRA – tax deferred growth
• SEP, SIMPLE IRAs – tax deductible contributions, tax
deferred growth
• Taxable Investment Account – long-term capital gains
and dividends get preferred tax treatment, no
restrictions
Data from IRS Publication 590, Graphics from
http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/
Data from IRS Publication 590, Graphics from
http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/
Data from IRS Publication 590, Graphics from
http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/
Data from IRS Publication 590, Graphics from
http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/
Data from IRS Publication 590, Graphics from
http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/
Retirement Savings Mistakes
• Choosing not to Participate in any Savings Program
• Improper Asset Allocation :
Guideline for retirement:100-Age = % Stock Allocation
• Improper Use of “Dollar Cost Averaging” with
Monthly Contributions
• Failure to Periodically Rebalance
• Incurring Penalties – early/late withdrawals
• Failure to Keep Beneficiary Info Updated
Early Savers (30)– Asset Class Categories
All About Asset Allocation, Richard Ferri, 2006
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US Equity – 40%
International Equity – 20%
Real Estate – 10%
Aggregate Bond – 30%
US Equity
International Equity
Real Estate
Aggregate Bond
Retirement Savings Allocation Guidelines
Mid-Life Savers (45)– Asset Class Categories
All About Asset Allocation, Richard Ferri, 2006
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US Equity – 30%
International Equity – 15%
Real Estate – 10%
Aggregate Bond – 45%
US Equity
International Equity
Real Estate
Aggregate Bond
Retirement Savings Allocation Guidelines
Pre-Retirees & Active Retirees (50)– Asset Class
Categories
All About Asset Allocation, Richard Ferri, 2006
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US Equity – 35%
International Equity – 10%
Real Estate – 5%
Aggregate Bond – 35%
US Treasuries – 15%
US Equity
International Equity
Real Estate
Aggregate Bond
US Treasuries
Retirement Savings Allocation Guidelines
Mature Retirees (65) – Asset Class Categories
All About Asset Allocation, Richard Ferri, 2006
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US Equity – 25%
International Equity – 10%
Real Estate – 5%
Aggregate Bond – 35%
US Treasuries – 25%
US Equity
International Equity
Real Estate
Aggregate Bond
US Treasuries
Retirement Savings Allocation Guidelines
Develop next steps/action for a retirement
plan that satisfies your goals
ACTIVITY
If you don't save and invest, and
you aren't rich now, the only other
options are to
• inherit money,
• marry money
• or win the lottery.