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Post on 29-Jan-2015



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Preparing and maintaining a retirement income.


  • 1. FINANCIAL ISSUES IN LATER LIFE Bill Taylor University of Wyoming Extension Community Development Area Educator April 2014

2. REFERENCES Barbara ONeill, Ph.D. CFP, Rutgers Cooperative Extension; eXtensionPersonal FinancesEstate Planning at http://www.extension.org/personal_finance Financial Recovery in Later LifeCatch-Up Retirement Planning Strategies for Late SaversCreating a Retirement PaycheckHow to Make Minimum Withdrawals from Retirement Savings PlansMaking the Most of IRAs and Other Tax-Deferred Retirement Savings 2 3. FINANCIAL RESILIENCE3 4. FINANCIALRESILIENCE is the ability to withstand economic life events, both negative and positive Lossof job Birthof grandchild Essentialbecause nothing isstatic4 5. FINANCIAL CHALLENGES Unemployment Jobretraining often necessary Healthinsurance often lostCOBRA providesfor continuance of coverage for 18 monthsExpensive 102% of full premiumOnlyw/ employers w/ 20+ employees5 6. FINANCIAL CHALLENGES (cont.) Poor/uncertainhealthRequiresrevised retirement saving analysis Adjustlife expectancy & retirement savings plan contributions6 7. FINANCIAL CHALLENGES (cont.) Deathof spousePossibleless income Requires many decisions & adjustments Delaymajor decisions Placefunds in CD or money mkt mutual fund until there is time to explore long-term alternatives7 8. FINANCIAL CHALLENGES (cont.) InvestmentlossesMaintainpatience & longterm perspective Evenat 55, you may have another 30 years of investingLimitwithdrawals during mkt downturns Avoidrisk of outliving assets 8 9. INCREASING FINANCIAL RESILIENCE MonetaryresourcesEmergency HealthsavingsinsuranceGood-payingjob/retirementbenefits9 10. INCREASING FINANCIAL RESILIENCE (cont.) HumancapitalKnowledge Skills Experiences Health10 11. INCREASING FINANCIAL RESILIENCE (cont.) SocialcapitalSupportsupportsystem/emotionalFamily Friends Co-workers Neighbors Others11 12. STRATEGIES 1.Maintain a low debt-toincome ratio Consumerdebt limited to 15% of monthly take-home Above 20% - in danger zone i.e. $275 debt payments divided by $2500 net pay = 11% ratio12 13. STRATEGIES (cont.) 2.Maintain an emergency fund Atleast 3 months expensesLiquidcash savings, money market mutual fund, shortterm CD 13 14. STRATEGIES (cont.) Keep skill set sharp3. Never consider education or training finishedKeep developing marketable skills14 15. STRATEGIES (cont.) 4.Purchase adequate insurance Life& disability insuranceTryto always have health insurance through employer, COBRA, public benefits or individual policy 15 16. STRATEGIES (cont.) 5.Practice good health habits Diet,weight, exercise, sleep,etc.16 17. STRATEGIES (cont.) 6.Increase knowledge of financial topics Learnbasic investment principles, characteristics of specific securities eXtension Investing For Your Future at www.extension.org/pages/In vesting 17 18. CATCH-UP STRATEGIES FOR LATE SAVERS18 19. THREE PROFILES 1.2. 3.Procrastinators didnt bother or had to put off building retirement fund Saving, but got late start trying to make up time Been saving, but lost ground due to markets or emergency 19 20. MAKE-UP PRACTICES Canbe divided into 2 basic strategies: Takeaction before retirement to increase savings Take action after retirement to decrease amount of savings required 20 21. BEFORE RETIREMENT: Saving more money Reducing expenses & saving the difference Accelerating debt repayment Moonlight for extra income Investing aggressively Automating investment deposits Maximizing tax-deferral opportunities Preserving lump-sum distributions by rolling into another tax-deferred savings plan 21 22. AFTER RETIREMENT: Tradingdown to smaller home Moving to less expensive location Delaying retirement Working Reverse mortgage or saleleaseback on home Tax efficient asset withdrawals 22 23. TRADE-OFFS Catchingup requires trade-offs i.e.spending less now to have more later23 24. COMBINING STRATEGIES Examples: Investingmore in 401(k) & moving to less expensive locationMoonlightingwhile delaying retirementInvestingmore aggressively & downsizing to smaller home 24 25. MOST EFFECTIVE CATCH-UP TECHNIQUES Working2-3 years longer Postponing collection of Social Security until full retirement age 25 26. ADDITIONAL HELP Guidebook to Help Late Savers Prepare for Retirement by National Endowment for Financial Education at www.smartaboutmoney.org (type Late Savers Guidebook in search box) 26 27. RETIREMENT PAYCHECK27 28. A Retirement Paycheck is income received on a regular basis after retirement. Easier to pay monthly bills Provides more financial security & peace of mind Continues monthly money management system used before retirement Safe withdrawal rate from retirement funds28 29. SAFE WITHDRAWAL Withdrawalamount adjusted to reduce risk of outliving assets Inflation-adjusted withdrawal of 4% of 50% stock- 50% bond portfolio balance will generally last 30 years29 30. RETIREMENT PAYCHECK STRATEGIES AutomaticWithdrawal Plans available w/ mutual funds, until balance is depleted IncomeReplacement Mutual Funds actively managed funds w/ choice of maturity dates pay monthly income until balance is depleted30 31. RETIREMENT PAYCHECK STRATEGIES (cont.) Bondor CD Ladder staggered portfolio w/ different maturities; as each matures, proceeds are reinvested at longest interval 31 32. RETIREMENT PAYCHECK STRATEGIES (cont.) RegularWithdrawals from Cash Assets set aside 3-5 years income in cash assets (money mkt funds, CDs, savings accounts) to ride out recessions Remainderof assets in stocks, bonds, mutual funds Cash assets replenished regularly from stocks, bonds, or mutual funds 32 33. RETIREMENT PAYCHECK STRATEGIES (cont.) Post-RetirementAge Income continuing employment past retirement age Providesmoney for daily living Allows for continued deposits into retirement funds Earns higher Social Security Postpones withdrawal of retirement assets33 34. RETIREMENT PAYCHECK STRATEGIES (cont.) Annuities Investorpays into contract w/ life insurance company and company make regular payments for investors lifeShopfor low expense fees w/ high financial stability rating 34 35. RETIREMENT PAYCHECK STRATEGIES (cont.) ReverseMortgage can remain in home while receiving cash Basedon equity Must be 62 or older Must be primary residence No minimum credit or income requirement Can be received as lump sum, cash payments, or line of credit 35 36. RETIREMENT PAYCHECK STRATEGIES (cont.) MonthlyIncome Paymentsi.e.rent or mortgage paymentsCouldrent out land, garage or buildings, part of residence36 37. FOUR-LEGGED CHAIR Three-leggedstool ofpension, Social Security, personal savings is commonly being converted to four-legged chair by adding later employment. 37 38. 38