Solid Finances Sponsors

Solid Finances Sponsors • MSU Extension • MSU Human Resources • This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide.

Solid Finances Retirement Planning for Younger Workers Joel Schumacher

Schedule • Employer Retirement Plans & Social Security • February 8th • 12:00 to 1:00 • IRAs, 457 Plans, 403b plans & Other Income Sources • February 15th • 8:30 to 9:30

Question A: Which best describes your current retirement plan? • Final Draft • First Draft • Outline Stage • Thought Stage • What Plan? I thought retirement planning was for old people.

What is the goal of saving for retirement? One Possible Answer: To have sufficient assets to achieve YOUR desired retirement lifestyle.

What is special about planning for younger workers? • Time to set goals • Time to create a plan to achieve your goals • Time is on your side for achieving your goals

Retirement Planning Step 1: Determine where you are today. Step 2: Determine where you want to get to. Step 3: Develop & implement an action plan to achieve your goals. Step 4: Repeat Steps 1 to 3 periodically.

Financial Inventory List assets: • Retirement Plan Accounts • Individual Retirement Arrangements (IRA) • Bank Accounts • Certificates of Deposits • Insurance Accounts (annuities) • Brokerage Accounts (stocks, bonds, etc.)

Financial Inventory List assets: • House • Land • Business • Cars • Valuable Collections (Art, Gun, Coin)

Financial Inventory List debts: • Mortgage • Car Loan • Student Loan • Credit Card • Other Debts??

Your List • Don’t make the list a HUGE project • Keep it simple • Don’t worry about exact values for land, cars, etc. • Review and update it annually. Why? • Progress report on your finances/retirement • Motivation to keep on track

Question B: When was the last time you completed a “personal financial inventory”? • In the past year • 1 to 2 years • 3 to 5 years • More than 5 years • Never

What is your idea of retirement? • Travel (to warm places) • Time with family • Time for hobbies • Volunteering • Caring for relatives • Work

Online Resources Retirement Calculators • Some are detailed; others are very general • Results are only as good as the information you provide • Very useful for people more than 10 years away from retirement

Useful Resources Online Resources…..choosetosave.org Cost: None Contact: Your Employer Sponsored Retirement Plan Cost: None Contact a local investment advisor Cost: Varies

Creating Your Plan • Traditional Retirement Income Sources: • Social Security • Employer Sponsored Retirement Plan • Defined Benefit or Defined Contribution • Personal Savings • Other Sources: • Part time work • Asset sale • Reverse Mortgage (Smaller House)

Question C: What was the average monthly social security benefit in 2011? • $780 • $989 • $1,181 • $1,384

Question D: Are you concerned about the financial future of the Social Security System? • Yes, very concerned • Yes, a little concerned • No • I don’t think about it

Will Social Security run out of money?

Question E: Which type of Employer Retirement Plan do you participate in? • Defined Benefit • Defined Contribution • Both • I am eligible but I don’t participate. • My employer does not offer a plan.

Defined Benefit Plans Basic Benefit Calculation: Monthly Benefit = Years of Service x Average Salary x Retirement Factor • Typical Retirement Factors 1.5% to 2.0% • Average salary is typically calculated over a 36 to 60 month period

Benefit Examples • Employee Age 60 • 24 years x $2,500 x .01785 = $1,071 • About 42% of final salary • Employee Age 60 • 30 years x $3,500 x .02 = $1,800 • About 60% of final salary

Other Options • Individual Retirement Accounts • Traditional • Roth • Defined Contribution Plans • Employee & Employers can contribute • One “pot” of money • Other Savings • Savings, Investment, Brokerage, CDs, etc. • Rental Property

Retirement vs. Other Important Goals • Other goals • Daily living • Paying down debt • Mortgage, auto, student, credit card • Save for other things • Emergency account, car, home purchase, vacation, children’s college

Prioritizing your Goals • Security/Risk • Protecting you & your family from the what ifs • What is the “worst case” outcome? • Rate of Return • Compare after-tax interest rates • Challenge: Future returns are unknown • Personal Preferences • For example: My child’s education is more important that a new car.

Question F: Which of these is more important to you today? • Saving for a non-retirement goal • Paying down debt • Saving for retirement

Question G: Should you have your mortgage paid off before you retire? • Yes • No, as long as your payments are manageable • It doesn’t matter if your mortgage is paid off

Debt in Retirement • Your “retirement plan” might include paying off your mortgage • Lowers your “cost of living” in retirement • Lower “expenses” is similar to higher “income”

Time = Money • Retirement Slide Calculator • If you don’t have one and would like one…please email khayes@montana.edu to request one.

Slide Calculator “Why Save for Retirement?” • If you are age 35 and you start contributing.. • $10 per week…value at age 65 is $64,582 • $25 per week…value at age 65 is $161,456 • If you are age 45 and you start contributing.. • $10 per week…value at age 65 is $25,524 • $25 per week…value at age 65 is $63,811

Slide Calculator“Why Save Now?” • If you are age 35 and you wait 1 year to start contributing an extra… • $10 per week…it reduces your savings by $5,448 • $25 per week…it reduces your savings by $13,619 • At age 45 • $10 per week…it reduces your savings by $2,454 • $25 per week…it reduces your savings by $6,136

Who has more money at age 65? Early EarlLate Luke Saves $50 per month $150 per month From Age 30 to 39 50 to 59 Total Deposits $6,000$18,000 Interest rate 6%6%

Question H: Who has more money at age 65? • Early Earl • Late Luke

Rate of ReturnEarly EarlLate Luke 4% $20,371 $27,892 6% $37,058 $34,665 8% $66,860 $43,034

Who has more money at age 65? • Carrie (age 35) • Invests $10,000 in a savings account • Earns 2.3% • Sarah (age 35) • Invests $5,000 in a corporate bond mutual fund • Earns 4.8%

Question I: Who has more money at age 65? • Carrie • Sarah

Who has more money? • Carrie • Balance at age 65: $20,237 • Contributed: $10,000 • Sarah • Balance at age 65: $21,388 • Contributed: $5,000

Homework • Part 1: Complete a Financial Inventory • Compare it last years • Part 2: Your Retirement Goals • Write it down & Estimate the cost of this lifestyle • Part 3: Will your current plan get achieve your goal? • If not, what changes are your willing to make? • What if your don’t meet your goal?

Keys to Retirement Planning: • Don’t Get Overwhelmed! • Take it charge of your retirement one step at a time. • Use the resources available to you. • It’s never too early or late to start planning.

Solid Finances Sponsors