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Retirement 101

Retirement 101. What’s My Number?. 12/01/ 13. There’s a Problem with Planning for Retirement. What will my expenses be? How long will I live? How much will I earn on my investments? What will happen with inflation? Things I don’t know I don’t know?. There are just too many variables.

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Retirement 101

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  1. Retirement 101 What’s My Number? 12/01/13

  2. There’s a Problem with Planning for Retirement • What will my expenses be? • How long will I live? • How much will I earn on my investments? • What will happen with inflation? • Things I don’t know I don’t know? There are just too many variables

  3. Here’s a way forward The 4% Rule Generally speaking you can withdraw 4% of your assets* every year and have a good chance of making your money last your lifetime. *Note: your WRS Pension and Social Security are required to last your lifetime. This is not an absolute rule. There are scenarios when you should withdraw less or could withdraw more.

  4. Let’s do some Math Retirement expenses = $60,000 a year (before taxes) 60,000 x 25 = $1,500,000

  5. But Wait...It’s not that bad • WRS Pension • Social Security • Personal Savings

  6. WRS Pension The average WRS Pension is $25,000 a year Shortfall $875,000 (35,000 x 25) $60,000 - 25,000 Pension $35,000 http://host.madison.com/news/local/govt-and-politics/wisconsin-retirement-system-q-a/article_652e3c38-4f8f-11e0-b116-001cc4c002e0.html

  7. Social Security The average SS Benefit is $14,760 Shortfall $500,000 (20,000 x 25) $35,000 - 15,000 SS $20,000 Your WRS and SS Benefits are worth $1,000,000 in savings! http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/13/~/average-monthly-social-security-benefit-for-a-retired-worker

  8. Personal Savings $250,000 in a TSA (403b) Shortfall $250,000 (10,000 x 25) $20,000 - 10,000 savings $10,000

  9. We’re Getting There • So what can you do now? • You have a $10,000 income deficit.

  10. Part-time Work Shortfall $175,000 (7,000 x 25) $10,000 - 3,000 (pt work) $7,000 $3,000 = $250 a month

  11. Reduce Expenses Every $1,000 reduction in expenses means you can reduce your savings shortfall by $25,000. Example: You need to save $25,000 to support your iphone bill $7,000 - 1,000 expense reduction $6,000

  12. So where are we at? Taxable Income Desired $60,000 WRS Pension - 25,000 Social Security - 15,000 Personal Savings (250,000 TSA) - 10,000 Part time Work ($250 a month)- 3,000 Reduce Expenses - 1,000 Deficit $6,000 Shortfall $150,000 (6,000 x 25)

  13. So, we have a deficit of $150,000 Further options Increase WRS and SS benefits by working longer Save more - $400,000 instead of $250,000 More part-time work Spend less

  14. Conclusion So the basic framework to determine if you are on a reasonable path is: Desired Income - Actual Income Balance x 25

  15. Savings Vehicles Pay Taxes* Later Pay Taxes* Now No Taxes** Pension TSA (403b) IRA Roth TSA (403b) Roth IRA HSA (Health Savings Acct.) *Distributions are taxed as ordinary income **If used for certain medical expenses

  16. Pay Income Taxes Later Pension 7% deducted from salary* 7% contributed by District* Payroll Deduction/Mandatory Vesting Requirements *determined by WRS, can vary year to year Tax Sheltered Annuity (403b) $17,500 Max. Contribution Payroll Deduction/Optional WEA Trust (Catch-up options available) Choices Variety of Mutual Funds Choices Core Balanced Fund Results averaged over 5 years Floor on payout Core/Variable Variable is not balanced results are not smoothed No floor on payout IRA $5,500 Max Contribution Self-directed (Catch-up options available) Choices Mutual Funds, Stocks, etc. (Depends on Vendor)

  17. Pay Income Taxes Now Tax Sheltered Annuity (Roth 403b) $17,500 Max. Contribution Payroll Deduction/Optional WEA Trust (Catch-up options available) Roth IRA $5,500 Max Contribution Self-directed (Catch-up options available) Choices Variety of Mutual Funds Choices Mutual Funds, Stocks, etc. (Depends on Vendor)

  18. No Income Taxes HSA (Health Savings Account) $3,300 Max. Single Contribution* $6,550 Max. Family Contribution* *including District Contributions – 2014 Spending Limited to Health Expenses (Catch-up options available) Choices Bank Account* *actually you have more choices but it involves more work

  19. Thank you Questions or Comments Jonathan Marin jonmarin@yahoo.com You can find more indepth financial planning calculators at www.weabenefits.com This presentation is also posted on www.tomahawkea.org Remember to consult a professional if you’re thinking of retiring.

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