Personal Finance: Another Perspective

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Personal Finance Another Perspective

• Retirement Planning 5
• Questions and Answers

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Objectives

• A. What are some strategies for each of the three
  stages of retirement 1. Accumulation (between
  now and retirement), 2. Retirement (annuitization
  of certain retirement assets), and 3.
  Decumulation (the use of those assets during
  retirement)?
• B. How do I determine the taxable / retirement
  split from the hourglass?
• C. What is the most important thing I can do now
  to prepare for retirement?

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Strategies for Accumulation

• What are some examples of possible strategies for
  the Accumulation stage of retirement?
• 1. Live on a budget and save 20 of everything
  you make after school
• Of that 20, put half or 10 into retirement
  vehicles for your retirement
• 2. Follow the priority of money (for saving and
  investments)
• Get free money first, then tax advantaged money
  (tax eliminated and tax deferred), and then
  tax-efficient and wise investing

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Accumulation (continued)

• 3. Depending on your tax views, maximize the
  amount of money in Roth vehicles versus
  traditional retirement vehicles

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Strategies for Retirement

• What are some examples of possible retirement
  strategies for the Retirement stage of
  retirement?
• 1. Determine your minimum acceptable level of
  retirement income (your survival amount). Try to
  get that part of your monthly expenses annuitized
• a. Determine how much money you will have with
  Social Security each month
• b. Determine any funding you will have from all
  defined benefit plans each month

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Retirement (continued)

• c. Determine the difference between these
  amounts and your acceptable level, and obtain an
  annuity that would give you that amount
• That way you will have your minimum amount
  covered
• Then, depending on the size of your retirement
  assets and your risk levels, you can annuitize
  more if you have a lower risk tolerance, or
  annuitize less, if you have a higher risk
  tolerance

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Strategies for Distribution

• What are some examples of possible decumulation
  strategies for the decumulation stage of
  retirement?
• 1. Use money from your deferred retirement
  accounts first, until you get to a target level
  for taxes to be paid
• Additional money beyond your target level of
  taxes can be taken out of your Roth (tax
  eliminated) vehicles tax free. Use them wisely
• 2. If you are required to take minimum
  distributions from your tax-deferred accounts and
  you dont need the money, you can roll those
  distributions into another qualified plan, i.e.,
  another Rollover IRA without taxes

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Distribution (continued)

• 3. Watch the percentage of your total portfolio
  that you take out each year, i.e., your
  distribution percentage.
• If you take out a maximum distribution of
  3.5-3.9 of your portfolio each year (or less),
  your money is more likely to last your lifetime
• 4. Use the time on your missions to transfer
  money from your tax-deferred accounts to Roth
  accounts.
• If you are under the income limits, you can
  transfer funds to a Roth at a low level of taxes

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Distribution (continued)

• 5. While it is important to help your kids who
  are having financial problems, realize that your
  first priority is to take care of you and your
  spouse and to make sure you have the financial
  resources to do that adequately
• Make sure you plan sufficient resources to cover
  your medical cost and expenses and the impact of
  inflation

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How do I Determine the Taxable / Retirement Split?

• The split between taxable and retirement assets
  is determined by
• a. Your personal goals, and
• b. Your available retirement vehicles
• Personal goals might be save 20, and half or
  10 goes into retirement vehicles build your
  emergency fund save for childrens education and
  missions, etc.
• The goal would determine the category
  retirement (retirement), missions (taxable),
  education (retirement), down payment (taxable),
  etc.
• Note that education funds are similar to
  retirement in that you cannot take out the funds
  without a penalty

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Taxable / Retirement Split?

• Available retirement vehicles are based on what
  you are able to invest in. This is determined by
  whether you have a qualified retirement plan
  (QRP) currently at work and whether your current
  income is within IRA deductibility limits.
• With a QRP and within IRA limits You can put up
  to 15,500 per year into a QRP (401k/403b/457
  Plan) and up to 5,000 into an IRA.
• Your spouse can also contribute up to 5,000 into
  an IRA account
• With QRP and outside IRA limits You can
  contribute up to 15,500 to the QRP
• You nor your spouse can contribute to an IRA

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C. What is the Most Important Thing I can do Now
to Prepare for Retirement?

• What is the most important thing?
• Realize that you cannot spend your way to a
  successful retirement. It is critical that you
  begin saving now! Assume a 2 million goal at
  8. To save for this goal for the following
  years you would need to put the following amounts
  away each month
• Years Till Retire Amount Years Amount
• 40 Years 573 35 Years 872
• 30 1,342 25 2,103
• 20 3,395 15 5,708
• 10 10,932 5 27,219
• 1 160,644

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Most Important Thing to Do Begin Now

• The key is to start now!