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Chapter 14

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Chapter 14

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  1. Chapter 14 Retirement Mistakes

  2. Sources of Retirement Income

  3. Growing Doubts WSJ , 5/10/2001

  4. Building a Nest Egg How much money do you have saved for retirement? Excludes pension plan benefits. WSJ , 5/10/2001

  5. How much will $100K get you? • $100,000 (PV of Annuity) • 8% • 20 years • Monthly receipts? • $836 • Annual receipts • $10,185

  6. Progress in Planning Where do you stand in planning and saving for retirement? WSJ , 5/10/2001

  7. Debt Burden Growing – 65+ • Carries no debt: • 2001 41.2% • 1992 65.5% • Amount of debt: • 2001 $23,000 • 1992 $8,000 • Bankruptcy filings: • 2001 82,200 • 1992 23,890 Using equity to borrow

  8. Thomas Hill – 78 years old • Retired security aide • Ran up $19K in credit card bills • $48K in home and auto loans • Took job delivering newspapers

  9. Struggling with Debt Percentage of people filing for bankruptcy by age 1991 vs. 2007 (WSJ, Sept. 13-14, 2008)

  10. Retirement Worries Surveyed adults said their biggest concerns about retirement (WSJ, Sept. 13-14, 2008)

  11. 3 Biggest Pitfalls for Retirement Planning • Start too late • Put away too little • Invest too conservatively

  12. Starting Too Late • Save $2,000 per year at 8% • Start at 25, retire at 65 -- $518K • Start at 45, retire at 65 -- $92K • I double checked these numbers!

  13. When do people plan retirement? • Of people 55 and older • 29% started in their 40s • 27% started in their 50s • Among all adults: start at age 32 Start planning (WSJ, Sept. 13-14, 2008)

  14. On average, a man and a woman who reach age 65 can expect to live to: Man Woman 79 82 85 88 • 79 • 82 • 85 • 88 Life expectancy (WSJ, Sept. 13-14, 2008)

  15. On average, a man and a woman who reach age 65 can expect to live to: Man Woman 79 82 85** 88 • 79 • 82** • 85 • 88 Life expectancy (WSJ, Sept. 13-14, 2008)

  16. Once they reach age 65, men and women have the following chances of reaching these ages • Men • 49% chance of reaching age 86 • 26% chance of reaching age 92 • Women • 29% chance of reaching age 89 • 23% chance of reaching age 95 • At least one person in a marriage • 47% chance of reaching age 93 • 26% chance of reaching age 97 Life expectancy (WSJ, Sept. 13-14, 2008)

  17. SaveToo Little • Save for 40 years and earn 8% • Save $2,000 per year -- $518K • Save $1,000 per year -- $259K

  18. Workers with access to 401(k) plans, what % don’t participate? • 6% • 16% • 26% • 36% 401(k) (WSJ, Sept. 13-14, 2008)

  19. Workers with access to 401(k) plans, what % don’t participate? • 6% • 16% • 26% *** • 36% 401(k) (WSJ, Sept. 13-14, 2008)

  20. What is the maximum SS benefit one would receive in 2008 at full retirement age? • $1,985 per month • $2,185 per month • $2,385 per month • $2,585 per month Social Security (WSJ, Sept. 13-14, 2008)

  21. What is the maximum SS benefit one would receive in 2008 at full retirement age? • $1,985 per month • $2,185 per month *** • $2,385 per month • $2,585 per month Social Security (WSJ, Sept. 13-14, 2008)

  22. When a woman outlines her husband, her income and expenses fall by what %? Income Expenses 20% 30% 40% 50% • 20% • 30% • 40% • 50% Social Security (WSJ, Sept. 13-14, 2008)

  23. When a woman outlines her husband, her income and expenses fall by what %? Income Expenses 20%*** 30% 40% 50% • 20% • 30% • 40% • 50%*** Social Security (WSJ, Sept. 13-14, 2008)

  24. Invest Too Conservatively • Save $2K for 40 years • At 8% -- $518K • At 4% -- $190K • Less than half as much! Need stock!

  25. Incorrectly Identify the recommended rate of withdrawal from nest egg as >7%? * • 39% • 49% • 59% • 69% * While preserving principal Money (WSJ, Sept. 13-14, 2008)

  26. Incorrectly Identify the recommended rate of withdrawal from nest egg as >7%? • 39% • 49% • 59% • 69% ** • 43% said 10% or more • Correct figure: 4% Money (WSJ, Sept. 13-14, 2008)

  27. Questions?