test drive your retirement
DESCRIPTION
Introduction to Janney's Retirement Income Evaluator Tool. This concept is really starting to hit home considering the amount of baby boomers retiring evey day. Would you buy a car without first test driving it?TRANSCRIPT
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Test Drive Your Retirement
Making Your Retirement Income and Resources Last
© 2012, Janney Montgomery Scott LLC
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Answering the Difficult Questions
• Have I saved/am I saving enough?• What are my retirement income sources?• Are my retirement income spending goals realistic?• Will my assets last through my retirement?• How can I best monitor my investments and
spending during retirement?
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© 2012, Janney Montgomery Scott LLC
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Roadblocks to a Financially Secure Retirement
• Risks you generally can control– Not saving enough for retirement– Retiring too early– Spending too much during retirement
• Risks that aren’t under your control– Longevity– Inflation– Financial market uncertainty– Long-term illness
© 2012, Janney Montgomery Scott LLC
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Recognize the Importance of Planning
An NBER study found that roughly
46% of Americans
die with
less than $10,000 in financial assets
Source: Were They Prepared for Retirement?, James M. Poterba, Steven F. Venti, David A. Wise, National Bureau of Economic Research Working Paper No. 17824, February 2012
© 2012, Janney Montgomery Scott LLC
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Look at Life Expectancy Realistically
• 57% of preretirees underestimate the life expectancy of the average person their age and gender
• 62% of retirees underestimate life expectancy
Current Age 45 50 55 60 65 70
Women 82.8 83.2 83.8 84.5 85.3 86.5Men 78.9 79.6 80.4 81.5 82.7 84.2
Life expectancy at different ages
Sources: National Vital Statistics Report, Vol. 60, No. 4, January 11, 2012 (based on preliminary 2010 data) and 2011 Risk and Process of Retirement Survey Report of Findings, The Society of Actuaries, March 2012
© 2012, Janney Montgomery Scott LLC
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Account for Inflation When Assessing Needs
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Food at Home$169
Fuels & Utilities$188
Medical Care$214
Price Changes1993 – 2012
All Items$163
$100 at the Beginning of 1993
Source: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers, Series Reports 1993 through August 2012
© 2012, Janney Montgomery Scott LLC
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Account for Inflation When Investing
0%
1%
2%
3%
4%
5%
6%
7%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
12-S
ep
Yiel
ds/In
tere
st R
ates
Ann
ual I
ncom
e
6-Mo. CDs6-Mo. Treasuries
$7,000
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Income from a $100,000 Investment
Source: Federal Reserve
© 2012, Janney Montgomery Scott LLC
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Watch Out for Market Volatility
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Stocks BondsCash Alternatives 60% Stock/40% Bond PortfolioInflation
$449,861$445,696
$352,487
$186,498$163,709
Growth of $100,000 (1992–2011)
Stocks are represented by the S&P 500 Stock Index, bonds by Barclays Capital U.S. Aggregate Bond Index, cash alternatives by 91-day T-bills and Morningstar Cash Index as of 1/1/2010 and inflation by the Consumer Price Index — All Urban Consumers.
© 2012, Janney Montgomery Scott LLC
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Factor In Long-term Care Costs
• 70% of people over age 65 may need long-term care services• Average nursing home stay is about two and a half years• Median assisted living stay is about two years
$81,030 $73,000
$43,472 $41,184 $39,600$15,860
Nursing Home(private room)
Nursing Home(semi-private room)
Licensed HomeHealth Aide
Services
LicensedHomemaker
Services
Assisted LivingFacility (one
bedroom/singleoccupancy)
Adult Day HealthCare
Median Annual Cost of Care (2012)
Sources: National Clearinghouse for Long-Term Care Information; 2012 Consumer Action Handbook, GSA Federal Citizen Information Center; 2011 Market Survey of Long-Term Care Costs, MetLife; and Genworth 2012 Cost of Care Survey
© 2012, Janney Montgomery Scott LLC
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Today’s Retirement Has a Different Look
• People are staying on the job longer– In 1991, 11% of Americans planned to retire after age 65– By 2012, that percentage had grown to 37%
• Some are changing careers later in life• Others are easing into full retirement
– Freelancing or consulting after they retire– Working part-time to conserve resources for later
Source: 2012 Retirement Confidence Survey, the Employee Benefit Research Institute
© 2012, Janney Montgomery Scott LLC
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You May Not Have a Choice
• Health problems or disability can end employment• So can employer changes
– Downsizing – Closure
• Don’t depend too heavily on working past traditional retirement age
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© 2012, Janney Montgomery Scott LLC
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Not All Income Is the Same
• Guaranteed income– Like a retirement “paycheck”– Pays a reliable set amount– At regular intervals
• Nonguaranteed Income– Generally from investments– Pays a variable income– Depends on investment returns
© 2012, Janney Montgomery Scott LLC
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Review Your Guaranteed Income Sources
• Pensions– Becoming less common– Only about a third of workers can expect to receive a
defined benefit pension• Social Security benefits
– $30,396 maximum payment in 2013– $15,132 average payment in 2013
• Personal annuitySources: 2012 Retirement Confidence Survey, the Employee Benefit Research Institute and Fact Sheet, Social Security Administration, 2013
© 2012, Janney Montgomery Scott LLC
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Consider Nonguaranteed Income Sources
• Retirement savings plans – An employer-sponsored 401(k) or 403(b) plan – Individual retirement account (IRA)
• Personal savings and investments• Real estate
– Rental income– Home equity
• Sale of a business• Wages or self-employment income
© 2012, Janney Montgomery Scott LLC
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Look at How Different Incomes Work Together
Basic Living Expenses• Food• Housing• Transportation• Health care and other insurance
premiums• Debt repayment
• Fund for unexpected expenses• Discretionary spending• Inflation protection
Pension(s)
Social Security Benefits
Investments
Expenses Income
© 2012, Janney Montgomery Scott LLC
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Take Steps To Close Any Income Gap
• Work longer or work part-time during retirement
• Reduce discretionary expenses
• Pay off debt• Cash in a life insurance
policy• Downsize your home
© 2012, Janney Montgomery Scott LLC
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Purchase an Immediate Annuity [Optional screen]
• Turn retirement investments into guaranteed income– Personal investments– IRA– 401(k) or 403(b) retirement savings plan account– Cash value of a life insurance policy
• Similar to a pension• Income won’t fluctuate with the value of your
investments
© 2012, Janney Montgomery Scott LLC
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Plan Your Withdrawals
• Don’t withdraw too much too soon• Set a withdrawal rate for the year and stick with it,
even if the value of your investments declines• Lower your discretionary spending to compensate
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© 2012, Janney Montgomery Scott LLC
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Monitor and Reevaluate
• Your priorities may change– Active retirement = greater discretionary income needs– Passive phase = expenses more fixed
$58,050 $53,616$44,646
$32,688
Age 45-54 Age 55-64 Age 65-74 Age 75 and older
Average Annual Expenditures by Age
Source: Consumer Expenditure Survey, 2011, U.S. Department of Labor, U.S. Bureau of Labor Statistics, September 2012
© 2012, Janney Montgomery Scott LLC
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Monitor and Reevaluate
• Types of expenses may change– Discretionary spending may decrease– Medical expenses may increase– Housekeeping and home maintenance expenses could
increase• You may be less able to compensate for market
drops by decreasing discretionary spending• Your withdrawal rate may need to be adjusted
© 2012, Janney Montgomery Scott LLC
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Reconsider Your Risk Tolerance
Ten+ Years to Retirement
20%
80%
Within Five Years of Retirement
40% 60%
Throughout Retirement
60% 40%
Some Sample Portfolios
Stocks Fixed Income
© 2012, Janney Montgomery Scott LLC
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Be Open to Changes in Your Asset Allocation
• Many retirees invest to preserve principal and produce income
• Don’t overlook the need for continued growth• Invest too conservatively and
– Investment returns may not keep pace with inflation– You could have difficulty meeting your income needs
• Holding some high-quality stocks may help reduce overall risk and produce more consistent returns
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© 2012, Janney Montgomery Scott LLC
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Take Asset Allocation a Step Further
• Include guaranteed income as an asset class• Determine an income coverage ratio
– Income generated by guaranteed income sources versus
– Income from nonguaranteed sources
© 2012, Janney Montgomery Scott LLC
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Look at Guaranteed Income Need Factors
• Your age• Risk tolerance• Legacy goals• Your investment time frame• The amount of your
investable assets• Your preference for or against using insurance
products
© 2012, Janney Montgomery Scott LLC
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Create a Retirement Picture
Current achievable income goalBasic retirement income needs
Income needed to meet income needs and wants
© 2012, Janney Montgomery Scott LLC
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Optimize Your Income Sources
Asset Income and Portfolio Withdrawals
46% versus 67%
Guaranteed Income
25%
Client Social Security
16%
Guaranteed Income
29%
Client Social Security
16%
Annuity Added
4%
© 2012, Janney Montgomery Scott LLC
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Set a Personalized Asset Allocation
© 2012, Janney Montgomery Scott LLC
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Update Your Retirement Picture
Current achievable income goalBasic retirement income needs
Income needed to meet income needs and wants
© 2012, Janney Montgomery Scott LLC
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Update Your Retirement Picture
Current achievable income goalBasic retirement income needs
Income needed to meet income needs and wants
© 2012, Janney Montgomery Scott LLC
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Update Your Retirement Picture
Current achievable income goalBasic retirement income needs
Income needed to meet income needs and wants
© 2012, Janney Montgomery Scott LLC
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Update Your Retirement Picture
Current achievable income goalBasic retirement income needs
Income needed to meet income needs and wants
© 2012, Janney Montgomery Scott LLC
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Better Understand Your Current Expenses
• We give you a visual of– Where you can save money,
if necessary– How different cuts would affect
your retirement income picture• We show you
– Current expenses that will continue through retirement– Expenses that will decrease or go away– Expenses that are likely to increase
© 2012, Janney Montgomery Scott LLC
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Get Started
• Make a list of your expenses and categorize them as needs and wants
• Gather information about your retirement income sources
• Complete the Retirement Income Evaluation Information sheet
• Mail or drop off your information and any accompanying statements and documentation to your financial advisor
© 2012, Janney Montgomery Scott LLC
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What’s Next?
• Your Janney Financial Advisor will contact you • An initial analysis will be prepared• You’ll meet with your advisor to discuss the analysis• He or she will present and discuss our initial
recommendations• You approve the final recommendations you and
your advisor have worked out• You and your advisor meet periodically to review
and update the analysis and recommendations
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Questions?
Annuity products are insurance products that aim to provide a guaranteed stream of fixed payments over a period of time. Any guarantees made are subject to the claims-paying ability of the annuity-issuing insurance company. Annuities are not designed for short-term investment needs and are not liquid investments. If an annuity is surrendered early, certain fees and charges may be incurred as well as potential tax penalties.
This is not a solicitation to sell a specific product, but rather, is an illustration of the effects of adding guaranteed income to the risk, return and stability of a portfolio over time.
Please consult with the appropriate financial and investment professional(s) regarding any specific situations before implementing any of the strategies discussed.
Neither Janney nor its financial advisors provide tax or legal advice and this Report shall not be construed as providing tax or legal advice.