Are You Ready for Retirement?

1. Are You Ready for Retirement? MSU Denver PD conference June 15, 2016 By Keith Fevurly, Sr. Lecturer in Finance

2. Qualitative Factors • Involuntary retirement (emotional trauma) • Identity crisis (loss of esteem) • Boredom • Increasing need for health care, particularly long term care • Where to live • Desire to travel

3. Quantitative Factors • Rule of Thumb/Heuristic Method • Capital Needs Analysis/Capital Utilization Method 1. 80% WRR 2. Inflate total needs 3. Subtract Social Security? 4. Calculate dollar needs 5. Calculate PV of lump sum 6. Calculate monthly savings amount

4. How Good Are We At Saving? • 83 percent not saving enough (currently, only covering 57% of need) • Typical savings amount (55-64): $60,000 • Typical overall: $25,000 • Approx. 47% with NO savings at all • Social Security never intended as primary source of retirement income

5. Sources of Retirement Income • Social Security • Employer sponsored plans (pension and profit sharing plans) • Personal savings (tax deferred and taxable) • Part time/continued employment (81% of Boomers plan to continue working) • Reverse mortgage?

6. Social Security • Eligibility (PERA for MSU Denver faculty and staff?) • Full Retirement Age (FRA) for Boomers is now age 66 • Claim early at age 62? • Delay benefits to age 70? • Repeal of “file and suspend”

7. Employer Sponsored Plans at MSU Denver • 401(k) profit sharing • 403(b) for 501(c) (3) organizations • 457(b) for State and local government employees • Contribution impact on personal savings such as IRA

8. PERA • Defined benefit (pension) versus defined contribution (profit sharing, such as 401(k) • Shift to defined contribution approach nationwide (approximately 10% of private sector employees have pension plan) • 63% of employers with 401(k) plan (only 11% of participants make maximum contribution)

9. Personal Savings • Tax deferred versus taxable accounts (individual versus joint) • Traditional IRA 1. Deductible 2. Non-deductible • Roth IRA • Employer-sponsored IRAs (SEP/IRA for part time employment)

10. Health Care • Medicare at age 65 (elect Parts A and B) • Medicare supplemental coverage (“Medigap”) • Part D: prescription drug coverage • If still working at age 65 with employer coverage, may elect Part A without penalty for Part B • HSA eligibility?

11. Long Term Care (LTC) • Custodial care NOT covered by Medicare (only skilled nursing facility or “rehab” care) • 70% of individuals turning age 65 can expect to need long term or custodial care (cost of care around $90,000 per year) • Alternatives: 1) Self-fund 2) Private LTC policy or deferred income annuity 3) Medicaid

12. Distribution Options(Distribution Stage) • Consider seeking professional assistance • Lump sum • Annuity payouts • Rollovers (tax free exchange) • Keep it in employer plan (retain professional management of funds) • $5,000 exception

13. Annuities • Provides lifetime income stream (guaranteed NOT to outlive money) • Controversial choice if non-qualified purchase • Fixed versus variable (immediate versus deferred) • NOT the same tax treatment as life insurance proceeds

14. How to Make Money Last? • Issue only for defined contribution (profit sharing) participants • Money-for-life approach • 4 percent plus inflation approach (fixed amount) • Fixed percentage annually of portfolio • Bucket approach (short term versus long term) • RMD approach (inverse of life expectancy)

15. Summary • Determine retirement lifestyle and retirement income needs • Commit to saving • Do not depend only on Social Security • Stay healthy!! • Enjoy the “golden years”