Planning for Your Financial Future

1
Planning for Your Financial Future

• Presented
• by
• Andrew Harr
• Consolidated Financial Corporation

2
Introduction - Goals

• Leave with concrete information
• Basis for tough decisions
• Some math required
• Not rocket science just takes some thought.

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How Much Income Do I Want to Retire With?

• 80-85 of pre-retirement income?
• 100 of pre-retirement income?
• Use todays dollars
• Setting Goals Write it Down!!!

4
Four Components to Retirement Income

• Pension
• Social Security
• Other Active/Passive Income
• Investments

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MPSERS Pension

• Assumes MIP (Basic has some additional issues)
• Final Average Compensation
• Average of your highest consecutive 3 years
• X 1.5
• X Total Years of Service Credit
• Annual Pension Payout

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Pension Options

• Straight Life Benefit
• 100 Survivor Option After your death your
  beneficiary continues to receive the same payment
• 75 Survivor Option Beneficiary receives 75 of
  the payment you received prior to your demise.
• 50 Survivor Option See 75 Survivor Option

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Maximizing your Pension

• Through the use of life insurance, you can
  receive the equivalent of the 100 survivor
  option, but receive a higher net monthly payment
  than you would under the MPSERS 100 option.
• Requires careful coordination
• Outside the scope of this presentation

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Social Security

• Second component of Retirement Income
• Reduced benefits dont start until 62, at the
  earliest.
• Full benefits dont start until 65 at the
  earliest, and 67 at the latest.
• Maximum benefit is just under 24,000/year, or
  2,000/month.
• Write it down!!!

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Social Security (contd)

• Timing issues
• How do you subsidize the time between retirement
  and the time you receive SS benefits?
• If you retire before 59 ½, a 457 is a great
  option.
• After 59 ½, you can use any retirement savings.

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Other Income

• Third component of Retirement Income
• Consulting work
• Other jobs
• Passive income (rental property, etc.)
• Baby Boomers
• Competitive issue
• The Im never going to retire issue
• Write it down!!!

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Total Income Already Planned For

• Pension
• Social Security
• Other Income
• Total Income

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Total Income Need from Investments

• Total Desired Post-Retirement Income
• Total Income already Planned For
• Total Income Need from Investments
• Does not take into account taxes, timing,
  individual circumstances.

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How Much Do I Need???

• Assume a 4 withdrawal rate
• Conservative, maybe too conservative
• Relieves pressure
• Allows for regular, substantial raises
• Total Income Need from Investments
• X 25
• Total Asset Needed to Produce Total Income
  Need
• Goal is to not deplete the asset.

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How Much Do I Need???

• If you think a 4 withdrawal rate is too
  conservative, assume a 5 withdrawal rate
• Still conservative
• Some years youll make it, some you wont.
• Total Income Need from Investments
• X 20
• Total Asset Needed to Produce Total Income
  Need
• Goal is to not deplete the asset.

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Timing Issues

• Youll need more early on if you retire before
  Social Security
• Expenses tend to decline as we age
• With the exception of health care
• Inflation must be accounted for

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25,000 Question

• How am I doing?
• Total up all of your existing retirement savings
• Should be able to make a good estimate
• Write it down!!!
• Divide What you have by What you need.
• Results in a percentage
• The next slide shows where you should be at
  different stages in your career.

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Timing Issues

• Youll need more early on if you retire before
  Social Security
• Expenses tend to decline as we age
• With the exception of health care
• Inflation must be accounted for

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25,000 Question

• How am I doing?
• Total up all of your existing retirement savings
• Should be able to make a good estimate
• Write it down!!!
• Divide What you have by What you need.
• Results in a percentage
• The next slide shows where you should be at
  different stages in your career.

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But First, a Palate Cleanser

• Old age may seem a long way off. But on the day
  it doesn't, it will be too late to do anything
  about it.
• Start early and begin raising the bar throughout
  the day. Bruce Jenner

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Best Estimate

• Assumptions
• 10,000/year funding
• 7 annual return, which is not guaranteed.

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What Now?

• If Youre Behind
• Find ways to save more
• Work longer than you planned
• Seek better returns
• Cut your income expectations

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What Now?

• If Youre Ahead
• Put less away, youre doing great
• Retire sooner than youd planned
• Scale back the risk youre taking
• Increase your income expectations

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Shifting Gears Investment Options

• Mutual Funds
• Economies of scale
• Diversified
• Can be do it yourself, or included professional
  advice
• Wide array of choices

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Investment Options

• Variable Annuities
• Questionable value within retirement accounts
• Typically higher expenses than mutual funds
• Usually come with surrender charges, i.e.
  back-end fees
• In essence, an investment product with an
  insurance wrapper.
• Very common in TSA market, because of higher
  commissions than mutual funds.

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Investment Options

• Fixed and Index Annuities
• Generally less risk than Mutual Funds and
  Variable Annuities
• Insurance products, with guarantees provided by
  insurance companies.
• Contracts can be adjusted, very rarely do the
  adjustments favor the client.
• Can have a place in a portfolio for some clients.

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Investment Options

• Know what you own!!!
• Dont confuse variable annuities with mutual
  funds.
• Dont confuse fixed annuities with index or
  variable annuities.
• Dont take too much or too little risk.
• Ask questions!!!
• Know what fees and expenses you are paying, and
  what you are getting in return.

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Role of Consolidated Financial

• Our clients run the gamut
• Superintendents
• Administrators
• Teachers
• Secretaries
• Bus Drivers
• Maintenance Staff

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Role of Consolidated Financial

• We are the hand-holders
• Not all of your staff are as sophisticated as
  yourselves.
• Their savings need is even greater than yours.
• The difference between 30k per year and 20k per
  year is much greater than the difference between
  90k per year and 80k per year.
• Were the people that sit across the kitchen
  table at 700, having tea and explaining their
  future.

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Role of Consolidated Financial

• One on One attention
• Not limited to one provider
• Big difference between us and our competitors
• Constant attention paid to what products were
  recommending
• Or else we lose clients
• No cop-outs

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Role of Consolidated Financial

• The calculation we did today, we do for all of
  our clients.
• Our goal is to manage the clients expectations
  of what the future holdsno false promises, only
  level with them.
• We increase awareness of individual situations,
  and attempt to educate our clients.

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Current Participation

• Currently, of all people in the State of Michigan
  who are eligible to contribute to a 403(b), only
  23 are contributing.
• Unacceptable.

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The Current Environment

• Too many vendors, primarily insurance companies
  and dabblers.
• Very competitive
• Lots of false promises
• Driven by marketing and sales, rather than truth.

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Results of the Current Environment

• Highly restricted access
• Lack of understanding and trust
• Higher burden on administrators
• Or, in more rural districts
• Lack of attention
• Better access, but little control
• Higher burden on administrators

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Results of the Current Environment

• Lower Education
• Lower Participation
• Lower Standards
• Everyone suffers

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Solutions?

• 403(b) Regulations?
• Elimination of many vendors
• Focus on maximizing choice and standards within
  limited vendors
• Reestablish partnerships between the
  administrators and the vendor...outsource the
  education and administration functions, but limit
  the points of contact.

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Solutions?

• Have clearly defined rules of engagement for
  vendor-client interaction
• Facilitate this interaction, which enables
  greater control and oversight
• Allow for vendor-client confidentiality, and
  respect the sanctity of that relationship.

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Potential Pitfalls

• Dont eliminate the opportunity for one on one,
  on-demand consultation.
• Dont curtail choice too severely.
• Dont make commitments that your limited HR
  resources will not allow you to keepoutsource as
  much as possible to the vendor, while still
  retaining control.

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Thank you for having me!

• For further questions call or e-mail Andrew Harr
  at Consolidated Financial Corporation
• 800-232-2383
• harra_at_consolidated-financial.com