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Central Arkansas Library System

Taking the Mystery Out of Retirement Seminar #1. Central Arkansas Library System. Session1 : Taking the Mystery Out of Retirement. Retirement Financial Planning: What Is It? Your Goals Your Time Horizon Net Worth & Cash Flow Sources of Retirement Income Withdrawals Workbook

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Central Arkansas Library System

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  1. Taking the Mystery Out of Retirement Seminar #1 Central Arkansas Library System

  2. Session1 :Taking the Mystery Out of Retirement • Retirement Financial Planning: What Is It? • Your Goals • Your Time Horizon • Net Worth & Cash Flow • Sources of Retirement Income • Withdrawals • Workbook • Homework

  3. Goals • Identify goals • Time horizon • Identify barriers • Review periodically • Prioritize

  4. Financial Goals For Retirement • DON’T OUTLIVE MY MONEY! • Maintain current standard of living • Grandchild’s education • Bequests to charities • Leave an inheritance • Start a new business

  5. Personal Goals For Retirement • Part time work • New Career or Business • Travel • Hobbies • Volunteering • Back To School

  6. Some Typical Goals • Retire in 2014 (in 5 years) with $15,000 in annual income, plus Social Security. • Pay 25% of the college tuition for my two grandchildren.

  7. Your Time Horizon • When will you need the money ? • In 15 years? • In 5 years? • This year?

  8. Your Time Horizon • How long will you need the money? • For one day (major purchase) • Four years (e.g. college education) • Thirty years (retirement)

  9. Maximum and Minimum Real Returns Over 1 Year (1802-1997) 1-year returns after inflation: Stocks, bonds, cash

  10. Maximum and Minimum Real Returns Over 5 Years (1802-1997) 5-year returns after inflation: Stocks, bonds, cash

  11. Maximum and Minimum Real Returns Over 20 Years (1802-1997) 20-year returns after inflation: Stocks, bonds, cash

  12. Where Do I Stand Now? • Net Worth • Cash Flow statement

  13. Net Worth • Assets – Liabilities = Net Worth • Use assets • Invested assets • Good debt vs. bad debt

  14. Cash Flow Statement Inflows – Outflows = Excess (or deficiency) $50,000, inflows – $45,000, outflows = $5,000, excess available for saving Positive cash flow Paycheck to paycheck Negative cash flow

  15. Retirement Income Sources • Social Security • Pensions • Retirement Plans • Personal Investments • Work • Rental Income

  16. Retirement Income Sources Social Security Full retirement age is 67 Start as early as 62 Average monthly benefit $1153 Benefit Statement www.ssa.gov

  17. Retirement Income Sources Pensions Rapid decline in availability Approach with care: lump sum vs annuity Real value – COLA Are you eligible for a pension? Pension Action Center - www.pensionaction.org Pension Benefit Guaranty Corp - www.pbgc.gov U.S. Dept of Labor - www.dol.gov/ebsa 866-444-ebsa (3274)

  18. Retirement Income Sources Retirement Plans 401(k),403(b),457 IRAs Self-employed plans

  19. Retirement Income Sources Personal Investments Stocks Bonds Mutual funds Real estate CDs

  20. What is a Stock? • A security signifying ownership (equity) in a company, representing a residual claim on the company’s assets • There is risk in owning stock • Short-term volatility • Higher expected return (especially for holding periods longer than 10 years)

  21. What is a Bond? • Debt investment similar to I.O.U.s —lending money to a corporation, government, or government agency • Stable income though market price fluctuates

  22. What is a Mutual Fund? • Mutual Funds are pools of stocks, bonds, and other securities that perform as one investment • Benefits: • diversification • low transaction cost compared to assembling a portfolio on your own • liquidity • professional management

  23. Retirement Income Sources Asset Allocation What should it be?

  24. Projecting Retirement Expenses and Income Most people Overestimate retirement income and Underestimate retirement expenses.

  25. Retirement Expenses So where do you get help estimating your income and expenses? Your workbook Internet www.dol.gov/ebsa www.aarp.org Retirement providers

  26. Retirement Expenses Consumer Price Index 2007 and 2008 • Core CPI: Food & energy not included 2007: 2.4% 2008: 1.8% • Headline CPI: Food & energy included 2007: 4.1% 2008: 0.1% • The average rate of inflation from 1926 to 2003 was 3.1%

  27. What is inflation? • Overall upward price movement of goods and services in the economy • Assume 3% inflation rate, you would need more each year for the same purchasing power: • Year 1: $56,000 • Year 2: $57,680 • Year 3: $59,410 • Year 4: $61,193

  28. Retirement Expenses Working income: $50,000 Retirement income: $35,000

  29. Retirement Expenses How much can you withdraw? As a general guideline, most experts suggest 4%

  30. Funding Your Retirement Do the pieces fit together? • Social Security • Pensions • Tax-deferred retirement plans • Investments • Work ??? • Smart spending

  31. Your Retirement Plan • Goals • Time Horizon • Net Worth & Cash Flow • Income & Expenses • Withdrawals

  32. Workbook Taking The Mystery Out Of Retirement Planning

  33. Homework • Break into groups run by a facilitator • Complete worksheets A, B, C, & D • But before we break, I’d like to talk about future presentations

  34. Coming next Closing the Gap: Investment and Expense Strategies – Even for Late Starters! Investing Wisely to Avoid the Financial Risk of Longer Life Expectancy Protecting Your Investments – The Best Defense is a Wise and Safe Investor

  35. You Can Get There From Here! Now you can break into your groups

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