Retirement Planning Masterclass

1. The Financial Survival Guide to Retirement Retirement Basics

2. Review • What are possible alternatives to the 4% Rule? • What are their strengths and weaknesses? • What is the effect of using annuities? • What do you like and why?

3. How Does Your Strategy Look? • Using Retirement Quant, put in your financial data • Include pensions and Social Security • Evaluate the results • Do you like the success rate? • Do you need to improve it? How might you? • Can you withdraw more? • What’s your plan if things go badly?

4. Predicting the Future • Prediction is a tough thing • What is needed to “predict” whether you have enough money to last your retirement? • How much money have you saved? • How much will your savings grow? • How much do you need to live on? • How long will you live?

5. Fundamental Questions • How much money have you saved? • Include all your investments • Do not include your home • How much will your savings grow? • For now, assume broad historical return statistics • We’ll cover more in weeks 3 and 4 • How much do you need to live on? • Some advisors suggest 80% of your current income • Safer to assume you’ll need 100% • We’ll introduce ‘rules’ later • How long will you live? • Potentially big problems if guess is too low • Safer to assume something like 99

6. Which Scenario Results in the Most Money after Six Years? • Scenario 1 annual returns 15%, 7%, 6%, 3%, -5%, -10% • Scenario 2 annual returns -10%, -5%, 3%, 6%, 7%, 15%

7. Answer • They have the same result • Total gain is 14.9% • For accumulation, the order doesn’t matter • In retirement, the order matters a lot!

8. Why Timing Matters in Retirement Assume withdraw $40k at the beginning of each year. Scenario 1 Scenario 2

9. Be Conservative • There are no do-overs in retirement • If something doesn’t go as planned, you have to live with the consequences • Consider the “Sleep at Night Factor” • You don’t want to worry every day about your retirement • You should enjoy your retirement

10. Forecasting Methods • Start with assumptions of savings, income need, and life expectancy • Several different ways to model future returns • Use past 30 or 35 year periods • Use random years from the past • Use random returns from statistical distribution

11. Monte Carlo Simulations • Assume statistical distribution of returns • Need to deal with inflation • Need to handle correlation of returns • Each year do a random draw for the returns • Simulate each year of a lifetime • Simulate many lifetimes • Pros • Not tied to what happened in the past • May have rare but possible events • Cons • Not all simulations are equally probable

12. Simulation Warning • No simulation is a prediction • No model gives a probabilityof success

13. 4% Rule • The most basic of savings withdrawal rules • Withdraw 4% of your saving in the first year • Increase your withdrawals by inflation • Pros • Easy • Simulations show 80-85% success rates • Cons • Too simple

14. Let’s Get Started • Many retirement calculators • Vanguard • T Rowe Price • Fidelity • Retirement Quant • Software written by me, originally for me • Used for my retirement financial research

15. Online Calculator • T. Rowe Price calculator • https://www3.troweprice.com/ric/ricweb/public/ric.do • Assume: • $1M in savings, no pension • $15K/yr from Social Security • Age 60 • Try to answer: • Will the money last your lifetime? • How long might you have to work? • How much do you need to retire when you want?

16. Homework • What is your income? • Total your investable assets. (Not your home) • What are they invested in? By percent. • What is the percent in stocks? Bonds? • What is your average tax rate?