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How to Pick Up the Pace

How to Pick Up the Pace. Financial Jogging Toward Retirement. Wealth Distribution. Estate Planning. Retirement Planning. Children’s Education. Wealth Accumulation. Investments. Home. Credit Management. Financial Goals. Risk Management. Tax Management. Wealth Protection.

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How to Pick Up the Pace

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  1. How to Pick Up the Pace Financial Jogging Toward Retirement

  2. Wealth Distribution Estate Planning Retirement Planning Children’s Education Wealth Accumulation Investments Home Credit Management Financial Goals Risk Management Tax Management Wealth Protection Emergency Cash Reserve Cash Management “Investing for Your Future,” Nancy M. Porter, PhD, CFCS

  3. A Word to the Wise "Save for your retirement; otherwise you're going to be screwed. You can't start over. You can't make it up when you're 65." Cindy Hounsell, a lawyer for the Pension Rights Center, an advocacy group.

  4. What retirement track are you on? • “Ageless Explorers”: people in control of their lives and eager to attack new ventures. • “Comfortably Contents”: those who are financially fit and perfectly happy to live the Golden Years lifestyle. • “Live for Todays”: people who see retirement as a whole new life, but are anxious about their financial preparedness • “Sick & Tireds”: those who failed to plan adequately and feel unfulfilled in retirement. Source: AIG SunAmerica; Harris Interactive as reported in the WSJ, April 20, 2002

  5. Routes to Retirement

  6. Lessons Learned • Many people do not contribute enough to retire when they expect to. • Many have grown overly dependent on stocks. • Many put too much into a single aggressive mutual fund or a single company’s stock.

  7. How Basic Retirement Benefits Stack Up for Men • Suppose your final salary as you retire is $40,000 • Suppose you are 62 years of age at the time of retirement with 30 years of creditable service • Suppose the inflation rate averages 3% per year • Suppose you live to the median age which is 82 for men Amt Reqd CSRS FERS Soc Sec

  8. The Issue is More Critical for Women • Women tend to live longer – an average of seven years longer than men. • Women tend to earn less during their working years than men do. • 56-percent of women born between 1946 and 1964 had no retirement savings at all; those with savings had an average about $10,000. • Women need to maintain 90 to 95-percent of their current income.

  9. How Basic Retirement Benefits Stack Up for Women • Suppose your final salary as you retire is $40,000 • Suppose you are 62 years of age at the time of retirement with 30 years of creditable service • Suppose the inflation rate averages 3% per year • Suppose you live to the median age which is 86 for women Amt Reqd CSRS FERS Soc Sec

  10. The Available Options? • Avoid the gap. • Don’t retire! • Live with the Gap • Go ahead and retire, but reduce your standard of living! • Close the gap • Supplement your retirement with other options (e.g., 401(k), 403(b), IRA, stocks, bonds, mutual funds, other investments, etc.)

  11. Steps in the Retirement Process

  12. What are the steps in retirement planning? • Know your retirement needs: • Retirement is expensive. • Experts estimate you will need from 70-80 percent (90-percent for low wage-earners) of pre-retirement income to maintain the same standard of living when you stop working.

  13. Steps in retirement planning. . . • Learn about your employer’s pension plan, 401(k), and your Social Security benefits: • Know what your retirement and 401(k) benefits are worth. • Before you change jobs, find out what your pension options are. • Learn what benefits you may have from previous employment. • Find out if you will be entitled to benefits from your spouse’s plan.

  14. Steps in retirement planning . . . • Contribute to a tax-sheltered savings plan: • If your employer offers a tax-sheltered savings plan (e.g., 401(k)/Thrift Savings Plan). Sign up and contribute all you can. • Your taxes will be lower; many employers kick in more for their employees; and automatic deductions makes it easy. • Over time, deferral of taxes and compounding of earnings make a big difference in the amount of money you will accumulate.

  15. Steps in retirement planning. . . • Put money into an IRA: • Currently you can put up to $3,000 into an IRA and delay playing taxes on investment earnings until retirement ($3,500 if you are over the age of 50) – and as much as another $3,000 for your spouse ($3,500 if over 50). • If you are single with an AGI of less than $50,000 or married filing a joint return of less than $70,000 will result in a reduction of taxes. • In addition, look into investing in a Roth-IRA and take advantage of what may be even greater tax savings.

  16. Steps in retirement planning . . . • Don’t touch your savings: • Don’t dip into your retirement savings. You’ll lose principal and interest, and you may lose tax benefits. • If you change jobs, roll over your savings directly into an IRA or your new employer’s retirement plan.

  17. Steps in retirement planning. . . • Start now, set goals, and stick to them: • The sooner you start, the more time your money has to grow. • Put time on your side. • Make retirement savings a high priority. • Devise a plan, stick to it, and set goals for yourself.

  18. Steps in retirement planning. . . • Ask questions: • Talk to your human resource specialist, your bank, your financial advisor. • Ask questions and make sure the answers make sense to you. • Get practical advice and act now.

  19. Steps in retirement planning. . . • Take advantage of tax planning: • Postpone taxes whenever possible. • Take the income tax bite when your tax bracket is the lowest. • Funnel deductible expenses into a year when your tax bracket is high.

  20. 401(k) Thrift Savings Plan

  21. Example of a 401(k) Account's Future Value Initial salary of $25K with 3% annual salary adjustment; 10% average annual yield CSRS: $488,019 FERS, 5% with 5%: $610,023 FERS, maximum: $1,098,042

  22. Portfolio Mix of G, LBA, S&P 500, Wilshire 4500, EAFECompound Annual Returns 1983 - 2002 7.9% 9.6% 10.1% 10.2% 10.2% 10.5% 11.3% 12.7%

  23. Thrift Savings Plan Withdrawal Options • Rollover • Total withdrawal • Partial withdrawal • Annuity • Series of payments • Based on an amount you choose • Based on life expectancy • Combination of partial withdrawal, annuity, and/or series of payments.

  24. Example of a Systematic Withdrawal Program

  25. IRAs

  26. Individual Retirement Accounts (IRAs) • Traditional IRAs • Contributions may be fully deducible, partially deductible, or non-deductible depending upon your income and other retirement coverage. • Roth IRA • Contributions are non-deductible, but, under certain circumstances, when Roth monies are taken out, the distribution is tax-free. This is an ideal plan for individuals in a lower tax bracket now, but anticipate being in a higher tax bracket at retirement.

  27. Individual Retirement Accounts (IRAs) • Education IRA/Coverdell ESA • Coverdell Educations Savings Account contributions are non-deductible since the account is for the benefit of a child, not the contributor. The earnings and withdrawals are tax free. • Simplified Employee Pension (SEP-IRA) • A company-sponsored IRA that can be opened by the smallest of businesses, the sole proprietor. The contributions are tax-deductible.

  28. Individual Retirement Accounts (IRAs) • Savings Incentive Match Plans (SIMPLE IRA) • Like the SEP-IRA, the SIMPLE IRA is a company sponsored plan which allows a business owner to match each employee’s pay up to 3-percent or $8,000, whichever is less. Contributions are fully deductible.

  29. Individual Retirement AccountsTraditional IRA (deductible)

  30. Individual Retirement AccountsTraditional IRA (non-deductible)

  31. Individual Retirement AccountsRoth IRA

  32. Close the gap • Supplement your retirement with other options • (e.g., 401(k), 403(b), IRA, stocks, bonds, mutual funds, • other investments, etc.) A Word to the Wise "Save for your retirement; otherwise you're going to be screwed. You can't start over. You can't make it up when you're 65." Cindy Hounsell, a lawyer for the Pension Rights Center, an advocacy group.

  33. References • IRS Publication 590 • IRS Publication 721 • http://www.asec.org • http://www.irs.gov • http://moneycentral.msn.com • http://www.opm.gov • http://www.quicken.com • http://www.socialsecurity.gov • http://www.tsp.gov

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