Planning for Your Financial Future

1. Planning for Your Financial Future Presented by Andrew Harr Consolidated Financial Corporation

2. Introduction - Goals • Leave with concrete information • Basis for tough decisions • Some math required • Not rocket science – just takes some thought.

3. How Much Income Do I Want to Retire With? • 80-85% of pre-retirement income? • 100% of pre-retirement income? • Use today’s dollars • Setting Goals: Write it Down!!!

4. Four Components to Retirement Income • Pension • Social Security • Other Active/Passive Income • Investments

5. MPSERS Pension • Assumes MIP (Basic has some additional issues) • Final Average Compensation • Average of your highest consecutive 3 years • X 1.5% • X Total Years of Service Credit = Annual Pension Payout

6. Pension Options • Straight Life Benefit • 100% Survivor Option – After your death your beneficiary continues to receive the same payment • 75% Survivor Option – Beneficiary receives 75% of the payment you received prior to your demise. • 50% Survivor Option – See 75% Survivor Option

7. Maximizing your Pension • Through the use of life insurance, you can receive the equivalent of the 100% survivor option, but receive a higher net monthly payment than you would under the MPSERS 100% option. • Requires careful coordination • Outside the scope of this presentation

8. Social Security • Second component of Retirement Income • Reduced benefits don’t start until 62, at the earliest. • Full benefits don’t start until 65 at the earliest, and 67 at the latest. • Maximum benefit is just under $24,000/year, or $2,000/month. • Write it down!!!

9. Social Security (cont’d) • Timing issues • How do you subsidize the time between retirement and the time you receive SS benefits? • If you retire before 59 ½, a 457 is a great option. • After 59 ½, you can use any retirement savings.

10. Other Income • Third component of Retirement Income • Consulting work • Other jobs • Passive income (rental property, etc.) • Baby Boomers • Competitive issue • The “I’m never going to retire” issue • Write it down!!!

11. Total Income Already Planned For: Pension + Social Security + Other Income = Total Income

12. Total Income Need from Investments: Total Desired Post-Retirement Income • Total Income already Planned For = Total Income Need from Investments *Does not take into account taxes, timing, individual circumstances.

13. How Much Do I Need??? • Assume a 4% withdrawal rate • Conservative, maybe too conservative • Relieves pressure • Allows for regular, substantial raises • Total Income Need from Investments X 25 = Total Asset Needed to Produce Total Income Need *Goal is to not deplete the asset.

14. How Much Do I Need??? • If you think a 4% withdrawal rate is too conservative, assume a 5% withdrawal rate • Still conservative • Some years you’ll make it, some you won’t. • Total Income Need from Investments X 20 = Total Asset Needed to Produce Total Income Need *Goal is to not deplete the asset.

15. Timing Issues: • You’ll need more early on if you retire before Social Security • Expenses tend to decline as we age • With the exception of health care • Inflation must be accounted for

16. $25,000 Question: • How am I doing? • Total up all of your existing retirement savings • Should be able to make a good estimate • Write it down!!! • Divide “What you have” by “What you need”. • Results in a percentage • The next slide shows where you should be at different stages in your career.

17. Timing Issues: • You’ll need more early on if you retire before Social Security • Expenses tend to decline as we age • With the exception of health care • Inflation must be accounted for

18. $25,000 Question: • How am I doing? • Total up all of your existing retirement savings • Should be able to make a good estimate • Write it down!!! • Divide “What you have” by “What you need”. • Results in a percentage • The next slide shows where you should be at different stages in your career.

19. But First, a Palate Cleanser: • “Old age may seem a long way off. But on the day it doesn't, it will be too late to do anything about it.” • “Start early and begin raising the bar throughout the day.” – Bruce Jenner

20. Best Estimate: • Assumptions: • $10,000/year funding • 7% annual return, which is not guaranteed.

21. What Now? • If You’re Behind: • Find ways to save more • Work longer than you planned • Seek better returns • Cut your income expectations

22. What Now? • If You’re Ahead: • Put less away, you’re doing great • Retire sooner than you’d planned • Scale back the risk you’re taking • Increase your income expectations

23. Shifting Gears – Investment Options • Mutual Funds • Economies of scale • Diversified • Can be do it yourself, or included professional advice • Wide array of choices

24. Investment Options • Variable Annuities • Questionable value within retirement accounts • Typically higher expenses than mutual funds • Usually come with surrender charges, i.e. back-end fees • In essence, an investment product with an insurance wrapper. • Very common in TSA market, because of higher commissions than mutual funds.

25. Investment Options • Fixed and Index Annuities • Generally less risk than Mutual Funds and Variable Annuities • Insurance products, with guarantees provided by insurance companies. • Contracts can be adjusted, very rarely do the adjustments favor the client. • Can have a place in a portfolio for some clients.

26. Investment Options • Know what you own!!! • Don’t confuse variable annuities with mutual funds. • Don’t confuse fixed annuities with index or variable annuities. • Don’t take too much or too little risk. • Ask questions!!! • Know what fees and expenses you are paying, and what you are getting in return.

27. Role of Consolidated Financial • Our clients run the gamut • Superintendents • Administrators • Teachers • Secretaries • Bus Drivers • Maintenance Staff

28. Role of Consolidated Financial • We are the “hand-holders” • Not all of your staff are as sophisticated as yourselves. • Their savings need is even greater than yours. • The difference between $30k per year and $20k per year is much greater than the difference between $90k per year and $80k per year. • We’re the people that sit across the kitchen table at 7:00, having tea and explaining their future.

29. Role of Consolidated Financial • One on One attention • Not limited to one provider • Big difference between us and our competitors • Constant attention paid to what products we’re recommending • Or else we lose clients • No cop-outs

30. Role of Consolidated Financial • The calculation we did today, we do for all of our clients. • Our goal is to manage the client’s expectations of what the future holds…no false promises, only level with them. • We increase awareness of individual situations, and attempt to educate our clients.

31. Current Participation: • Currently, of all people in the State of Michigan who are eligible to contribute to a 403(b), only 23% are contributing. • Unacceptable.

32. The Current Environment • Too many vendors, primarily insurance companies and “dabblers”. • Very competitive • Lots of false promises • Driven by marketing and sales, rather than truth.

33. Results of the Current Environment: • Highly restricted access • Lack of understanding and trust • Higher burden on administrators Or, in more rural districts: • Lack of attention • Better access, but little control • Higher burden on administrators

34. Results of the Current Environment: • Lower Education • Lower Participation • Lower Standards • Everyone suffers

35. Solutions? • 403(b) Regulations? • Elimination of many vendors • Focus on maximizing choice and standards within limited vendors • Reestablish partnerships between the administrators and the vendor...”outsource” the education and administration functions, but limit the points of contact.

36. Solutions? • Have clearly defined “rules of engagement” for vendor-client interaction • Facilitate this interaction, which enables greater control and oversight • Allow for vendor-client confidentiality, and respect the sanctity of that relationship.

37. Potential Pitfalls • Don’t eliminate the opportunity for one on one, on-demand consultation. • Don’t curtail choice too severely. • Don’t make commitments that your limited HR resources will not allow you to keep…outsource as much as possible to the vendor, while still retaining control.

38. Thank you for having me! For further questions call or e-mail Andrew Harr at Consolidated Financial Corporation: 800-232-2383 harra@consolidated-financial.com