3. What do you want your post-retirement standard of living to be?

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3. What do you want your post-retirement standard
of living to be?

• Realistic strategy is to plan on having the same
  standard of living both pre- and post-retirement.

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Retirement Income Options for Discretionary
Retirement Savings?

• Typical Considerations include
• minimizing risk (via diversification)
• minimizing taxes
• some liquidity
• ease of transfer upon the death of the retiree

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What happens to my property if I die without a
will?

• Probate
• Legal process required to administer an estate or
  a will
• Only legal way to change the title when the owner
  has died
• Costly
• 1500-2000 for the average estate in Utah
• Time consuming
• National average 9 months 2 years
• UT typically 2-3 months
• Source Kyle H. Barrick, estate planning attorney

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Intestate Succession Laws

• Intestate succession laws
• Property transfers with no will according to the
  law of the state in which you reside
• Surviving spouse descendents parents
  descendents of parents ½ to each set of
  grandparents or descendents of grandparents
  state of Utah school fund
• 120 hour survival rule
• If you do not survive the decedent by 120 hours,
  you are treated as predeceasing the decedent
• Step-parent rules
• If decedent has descendents that are not
  descendents of the surviving spouse, the spouse
  inherits 50,000 plus ½ of the balance of the
  remaining estate

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Property Ownership Transfer Laws

• Joint tenancy with rights of survivorship
  (JTWROS)
• John and Mary will inherit from each other
• Tenancy in common
• John leaves his portion to Susie
• Mary leaves her portion to Bobby
• If it is not specified, Utah law assumes tenancy
  in common

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Another interpretation of PVA

• The present value of an annuity (PVA) calculation
  answers the following question
• How much do I need to have invested today so that
  I can withdraw a certain sum each year for a
  specified time period?

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• Suppose
• you aspire to have a post-retirement consumption
  per year (FV) of 30,000,
• A life expectancy of 30 more years after
  retirement (n), and
• A real rate of return on investments of 3
• PVA 588,013

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4. What interest rate will you get on retirement
investments?

• Difficult to answer with high degree of accuracy
  because
• of investment risks
• But remember
• The real rate of return on ALL financial
  investments has averaged 3.5 over the last 100
  years
• And the real rate of return on stock market
  investments has averaged 7 over the last 100
  years

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5. What other retirement saving is being done for
you?

• Social Security
• Private Pension Plans
• There are some elements of risk associated with
  each of these...

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Risks with mandatory savings plans...

• Social Security
• solvency of plan in the future
• future changes in eligibility rules
• Private Pension Plans
• DB plans and default risk - Pension Benefit
  Guaranty Corporation
• DB plans and vesting requirements / portability

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The SS crisis not enough workers/retirees ratio
Table 2 Americans Age 65  or Older 1880-1990 Table 2 Americans Age 65  or Older 1880-1990
Year Number of Americans Age 65 or Older
1880189019001910192019301940195019601970198019902000  1.7 million2.4 million3.0 million3.9 million4.9 million6.7 million9.0 million12.7 million17.2 million20.9 million26.1 million31.9 million34.9 million
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6. When will you start to save?

• The present value payment (PVP) formula
• Suppose
• savings goal FV 588,013
• r 3

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6. When will you start to save?

• If you save over a 20 year period
• PVP 21,833 per year
• If you save over a 30-year period
• PVP 12,359 per year
• If you save over a 40-year period
• PVP 7,798 per year
• The earlier you start investing for retirement,
  the less you must personally invest

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One more example

• Try it with r7, n40, FV588,013
• 2,945 per year

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Just remember

• Increased retirement savings
• Increased Freedom
• Dont rely on the govt or an inheritance
• Take responsibility for yourself
• ANYONE can become a millionaire
• Its all about choices

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How much should you invest for retirement?

• A common benchmark figure used by financial
  planners is 10 of your income
• This assumes that your income will grow at a 7
  real r before retirement and 3 real r after
  retirement
• Assumes the same pre- and post-retirement
  consumption

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But, this savings goal may be more daunting if...

• Labor force participation is intermittent
• reduces Social Security and risks eligibility
• reduces likelihood of vesting in a private
  pension plan (temptation to cash out if option
  offered!)
• Earnings are low
• high opportunity costs of investing for
  retirement
• cant capitalize on tax advantages of defined
  contribution plans, IRAs, etc.

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Whos at Greatest Risk of Under-Saving for
Retirement?

• Women
• Greater discontinuities in labor market work
• More likely to think of husband as being the only
  one who needs to have retirement savings because
  he is consistent wage earner.
• Reliance on Social Security dependent benefits as
  retirement savings
• Greater longevity

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• But
• four out of five women who do not end their
  marriages through divorce will out-live their
  husbands
• these women on average will live another 15 years
  (with little prospect of remarriage)
• In those households where husbands have private
  pension plans, 60 do not continue after his death

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• Social Security benefits are also cut back when a
  spouse dies
• Roughly 1/3 of all newly widowed women who were
  non-poor prior to their husbands deaths
  experience one or more years of poverty in the
  first five years after they become widows
• BOTTOM LINE - Saving for retirement is critical
  for women

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Pros fess up to their retirement-building blunders

• USA Today 9/23/07
• Mark Zandi (Chief Economist at Economy.com)
• Mistake Letting savings languish
• He saved in low-yielding cash instruments through
  his 30s
• Wishes he had set up automatic transfers to a
  stock index fund

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• Sheryl Garrett (founder of Garrett Planning
  Network fee-only financial planners for middle
  income consumers)
• Mistake Investing in time shares
• Skip the freebies and dont get caught up in the
  pitch
• Time shares are more expensive than you think

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• Tom Gardner (founder of The Motley Fool)
• Mistake Selling too soon
• Think of yourself as an investor in the business,
  and not an investor in stock
• Quotes Buffett saying, I would have made more
  money if I had never sold a share of stock Id
  bought since I was 11 years old. I lost a lot of
  money fiddling around.

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• Robert Willens (managing director Lehman Bros)
• Mistake Waiting too long to sell
• Have a stop-loss in your head I will sell if it
  loses this much
• Jim Gillespie (CEO of Coldwell Banker)
• Mistake Begin saving too late
• Start now! Dont wait for 8-10 years

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• Robert Rodriguez (manager of FPA funds)
• Mistake Overconfidence
• Always be suspicious dont think you know more
  than you really do