Retirement By the Numbers

Transcription

1 Retiremet By the Numbers Fiacial priorities may vary depedig o your age, but every perso wats a successful retiremet. This workbook ca help you estimate your retiremet eeds ad explai the optios available to you ad your family.

2 Every perso has the same ultimate goal: a successful retiremet. Retiremet should be a major cocer o matter what your stage of life. Every perso has the same ultimate goal: A successful retiremet. With all the troublig ews pesio programs ad the Social Security system i sigificat deficit, the stadard retiremet age growig past 65 ad people eedig more retiremet icome tha ever as they live well ito their 80s ad 90s it ca feel overwhelmig to try to estimate what your retiremet eeds will be. 1 There s good ews, though. With appropriate preparatio, you ad your fiacial relatioship maager ca create a effective retiremet formula ad this white paper ca help. What does it take to retire successfully? While there are as may ways to calculate a successful retiremet as there are idividuals, oe factor i that calculatio is the same for everyoe the desire for fiacial idepedece. With that as your primary goal for retiremet, the ext step is to make a pla. That s easy to say but ca be complex to execute determiig the relevat variables ca be a dautig task. To factor i the right iformatio, cosider these five key questios: Where am I i life? What are my expectatios for retiremet? How much do I eed to save? How should I maage my retiremet spedig ad icome? What are my retiremet savigs optios? Let s look at each of these i more detail. 1 Source: ssa.gov, Status of the Social Security ad Medicare Programs, Page b Retiremet by The Numbers

3 Where am I i life? Your first cosideratio is your curret stage of life you re i ad the resposibilities you have. Review the etire list of variables below ad check those that apply to you. Talk to your relatioship maager about how these factors ca affect your retiremet calculatio. Cosideratios for your 20s Job beefits, especially the retiremet program Retiremet savigs, icludig takig advatage of employer matchig, if available Traditioal or Roth IRAs, especially if your employer does t offer a retiremet program Life isurace Credit status Life chages, such as buyig a house or startig a family Cosideratios for your 30s Retiremet savigs, icludig maximizig your savigs by takig advatage of employer matchig if it s available Rollover or traditioal IRAs, depedig o employmet status ad retiremet program availability College savigs accouts if you have childre Cosequeces of borrowig agaist your retiremet savigs Distributio optios for your retiremet accout if you chage jobs, whether it s a rollover, cash or combiatio of the two, ad potetial tax cosequeces Legal documets, icludig wills, livig wills, estate plas ad durable power of attorey Cosideratios for your 40s Retiremet plas ad retiremet savigs goals Retiremet savigs College savigs, icludig decidig if grats or scholarships will be eeded Agig parets health care ad log-term care isurace eeds Cosideratios for your 50s Retiremet plas ad desired retiremet age Retiremet savigs, icludig prelimiary calculatios to determie if your retiremet savigs goal is o target Maximum allowed cotributios to your retiremet pla ad catch-up cotributios if you re behid i your retiremet savigs Page c Retiremet by The Numbers

4 What else should I cosider? Aticipatig ad plaig for major life evets expected or uexpected ca mea the differece betwee a successful retiremet ad oe that just does t add up. Remember, your retiremet eeds will chage over time. Cosider possibilities like these: Sedig a gradchild to college Payig for assisted livig costs for yourself or a family member Buyig a secod home Experiecig disablig evets ad emergecies You should factor the possibility of such evets ito your retiremet calculatio. Cosideratios for your 60s: Retiremet savigs distributio optios 401(k) rollovers, depedig o employmet status Retiremet pla fializatio The trasitio from accumulatio of savigs to distributio Work optios if you ca t afford to retire or wat to cotiue workig Medicare applicatio (three moths before turig 65) Employer-provided isurace, Medigap isurace, log-term health care isurace, prescriptio drug coverage ad other optios for meetig health care eeds Social Security beefits Estate plaig Ed-of-life istructios ad wishes Cosideratios for your 70s: Required distributios from your retiremet accouts at age 70½ Estate plaig Adequacy of your distributio track Cosideratios for ay age: A solid workig relatioship with a trusted fiacial relatioship maager A complete set of fiacial iformatio, especially beeficiary desigatios Your et worth Your retiremet pla Employer-sposored retiremet accout cosolidatio Debt Your credit ratig Moey for emergecies Life-alterig evets, such as disability Your medical history Local, state or federal tax law chages Page d Retiremet by The Numbers

5 What are my expectatios for retiremet? With life spas icreasig, your retiremet could last as log as your workig career, which is why it s importat to have a pla that clearly idetifies your persoal objectives. How do you wat to divide your time ad more importatly, your savigs durig retiremet? Workig o the garde of your dreams or workig to make sure you have eough icome? Buyig a summer home or payig off your curret mortgage? Playig golf or playig fiacial catch-up? Whether your retiremet goals iclude Europea vacatios, sedig your gradchildre to college or doatig to charities, remember, most experts say you ll eed about 70% of what you make ow to maitai your curret stadard of livig i retiremet. That s why it s critical to idetify the compoets of your dream retiremet, so you ad your relatioship maager ca ivest your assets appropriately. 1 Sum it up To get you started thikig about your retiremet wish list, use the space below to record your top five retiremet objectives. My top five retiremet objectives Sample retiremet objectives 1. Travelig 2. Buyig a secod home 3. Helpig sed my gradchildre to college 4. Spedig more time with frieds ad family 5. Ejoyig my hobbies Page e Retiremet by The Numbers

6 Most experts say you ll eed about 70% of what you make ow to maitai your curret stadard of livig i retiremet. 1 AGE: 57 Curret savigs: $1,000,000 Savigs goal: $3,000,000 Years before retiremet: 10 Required mothly savigs: $4,237 AGE: 27 Curret savigs: $0 Savigs goal: $3,00,000 Years before retiremet: 40 Required mothly savigs: $854 MY AGE: My curret savigs: $ My savigs goal: $ Years before retiremet: Required mothly savigs: $ How much do I eed to save? The variables that ifluece each idividual s retiremet are uique. That s why o sigle umber ca equate to a successful retiremet for everyoe there s oly your umber. You ll eed to cosider several key factors to determie your umber, icludig these: Curret savigs Risk tolerace Iflatio Taxes Social Security beefits Curret savigs. The closer you are to retiremet, the more you ll eed to save to make sure you have eough to cover expeses. For example, if you re 10 years from retiremet, your savigs goal is $3,000,000 ad you have $1,000,000 saved, you would eed to ivest a additioal $4,237 per moth to make up the differece. 1 With the same $3,000,000 savigs goal, 40 years util retiremet ad o savigs, a $854 mothly ivestmet would equal the same amout. 1 Remember, startig early is the best way to esure you have the fiacial stadig you wat i retiremet but it s ever too late to begi savig. Risk tolerace. This is the most importat factor to determie how you ca arrive at retiremet with the right amout of assets. May people make the mistake of thikig they re more risk tolerat tha they actually are. For example, you might decide to start skydivig i retiremet, but that kid of risk-takig behavior has othig to do with your ability to tolerate fiacial risk. While riskier ivestmets have historically produced higher returs tha less risky oes, recet market evets have show they also icrease your probability of losig pricipal. With coservative ivestmets such as U.S. Treasury bods, the opposite is true ad the lower retur rates mea you must cosider ivestig more moey to esure you hit your retiremet fiacial target. Talk to your relatioship maager about how much risk you re willig to take, so together you ca determie how much you eed to save ad the appropriate ivestmet vehicles i which to ivest those savigs to cover your full retiremet. Iflatio. Agai, with today s icreasig life spas, you ll likely have a log retiremet, so iflatio could substatially deflate the value of your assets. For example, $1,000,000 saved today would be valued at $300,591 i 30 years if we assume a 4% iflatio rate. 2 Because iflatio is here to stay, it s importat to have a ivestmet pla that ca help your savigs keep pace with iflatio ad ot leave you with a fractio of what you ll eed for retiremet. NOTES: 1 This hypothetical example assumes a 8% average aual retur ad does ot represet the results for ay ivestmet product or ivestor. Your actual retur likely wo t be cosistet every year, ad there is o guaratee of ay specific rate of retur. 2 The hypothetical estimate of 4% iflatio is for illustrative purposes oly. 3 Source: ssa.gov, Taxes. Just because you retire does t mea the Iteral Reveue Service (IRS) will. So, taxes will still subtract from the value of your retiremet assets. You ll have to pay federal icome taxes o ay withdrawals you make from a tax-deferred accout, such as a 401(k), ad you ll have to pay ay applicable property ad state taxes. Social Security beefits. Coutig o Ucle Sam for the majority of your retiremet dollars is t the best idea by the Social Security Admiistratio s ow admissio especially if your retiremet is decades away. You should thik of Social Security beefits as a supplemet to persoal savigs because they likely wo t provide eough icome to fud your retiremet. 3 Page f Retiremet by The Numbers

7 How should I maage my retiremet spedig ad icome? Most people have a ubalaced retiremet equatio because they pla the best way to save for retiremet without cosiderig the best way to sped durig retiremet to make their savigs last. Work with your relatioship maager well i advace to make sure your pla is complete ad to help make sure your savigs last for your full retiremet. Create a budget You ve already decided what you wat from retiremet. Now add up your aticipated essetial expeses, such as food, health care ad housig, ad also cosider your oessetial costs, like vacatios. Remember to earmark some savigs for emergecies. Your budget will serve as a good startig poit for decidig how much you ll eed to withdraw each moth after you retire. Decide which assets to use first No oe likes payig taxes, so delay payig them as log as possible by usig your taxable accouts first those accouts that iclude assets i which you have ivested after payig taxes o them. More savigs ca compoud over time tax-free if you do t touch tax-deferred accouts util you have to. Oce you tur age 70½, you re obligated to take required miimum distributios (RMDs) age-based, IRS-specified dollar amouts from your retiremet accouts (except Roth IRAs). You should use RMDs before calculatig ay additioal savigs withdrawals. Select a withdrawal method There are basically two ways to withdraw fuds from your retiremet accouts: dollaradjusted withdrawals ad percetage withdrawals. With dollar-adjusted withdrawals, you pull out a iitial base amout ad adjust it for iflatio every year. Percetage withdrawals mea you remove a certai percetage of your portfolio s value each year. Dollar-adjusted withdrawals will give you a more cosistet, iflatio-adjusted cash flow, but you ru the risk of depletig your portfolio too quickly if markets experiece a dowtur. Percetage withdrawals will fluctuate depedig o your accout balace, so you ll have to adjust your spedig if your balace drops substatially from dow markets or excessive early spedig. The percetage method is typically cosidered the best way to icrease the likelihood of your savigs lastig through retiremet. Withdrawal Methods The chart below illustrates the differeces betwee the two withdrawal methods for the same accout with a iitial balace of $3,000,000. Returs (%) Dollar-Adjusted Withdrawals 1 ($) Accout Balace ($) Percetage Withdrawals 2 ($) Accout Balace ($) Iitial 150,000 3,000, ,000 3,000,000 Year ,000 3,078, ,900 3,078,000 Year ,240 2,775, ,895 2,777,895 Year ,730 2,456, ,033 2,468,660 Year ,479 2,562, ,971 2,639,422 Year ,498 2,387, ,373 2,507,451 1 Dollar-adjusted withdrawals (5% of iitial portfolio balace adjusted aually for 4% iflatio) 2 Percetage withdrawals (5% of portfolio balace) Page g Retiremet by The Numbers

8 Take RMDs You have to calculate RMDs separately for each retiremet accout, but you do t always have to take them separately. Your aual total RMD amout for 403(b) ad IRA RMDs ca come from oe accout, or you ca take RMDs from each accout separately. NOTE: You ca aggregate RMDs from IRAs or 403(b) plas, but ot both. As metioed, the IRS requires you to take RMDs from all your retiremet accouts except Roth IRAs startig at age 70½. If you do t take the full, specified distributio, you ll be hit with a 50% federal tax pealty o the remaiig amout you should have take. Plus, you ll still have to withdraw the total RMD amout ad pay applicable taxes. RMDs should become part of your withdrawal strategy to help you avoid payig uecessary pealties ad get the most from your savigs. Accout for market dowtur No oe likes to see his or her ivestmet values drop. Durig the first few years of retiremet, a bear market could sigificatly deplete your savigs, especially if you pla to use the dollar-adjusted withdrawal method for distributios. The order of returs or the timig of positive or egative market returs is importat because the later a market dowtur comes i your retiremet, the loger your savigs have had time to compoud, so your portfolio is more likely to last through your retiremet. Negative returs early o, coupled with withdrawals, will mea smaller savigs balaces will compoud, icreasig the likelihood that your retiremet fuds may ru out before the ed of your retiremet. You ca hadle a variable like market dowturs by adaptig to the coditios. You could delay retiremet to icrease savigs or decrease your spedig if you re already retired. Workig is aother way to help add eeded icome. Talk with your relatioship maager to make sure your decisios are appropriate i terms of how they affect your status i retiremet. Market Returs Durig Retiremet The chart below shows the effects of early market declie versus late market declie o a accout with a iitial balace of $3,000,000 usig the dollar-adjusted withdrawal method. 1 Early Market Declie Late Market Declie Aual Retur (%) Portfolio Balace ($) Aual Retur (%) Portfolio Balace ($) Year ,560, ,142,800 Year ,220, ,293,136 Year 3-5 2,016, ,451,455 Year 4 8 2,069, ,618,235 Year 5 8 2,120, ,793,984 Year 6 8 2,172, ,979,244 Year 7 8 2,223, ,174,594 Year 8 8 2,272, ,569,421 Year 9 8 2,321, ,101,625 Year ,369, ,824,850 This iformatio is ot iteded as legal or tax advice. Ivestors should cosult a attorey or tax advisor. 1 This hypothetical example assumes a aual withdrawal of 3% from the first year s balace that is adjusted 4% aually for iflatio. Page h Retiremet by The Numbers

9 What are my retiremet savigs optios? There are several retiremet ivestmets to help you prepare fiacially ad create a balaced equatio for a successful retiremet. Talk with your relatioship maager about which of these optios is right for you ad make sure your uique retiremet pla variables are icluded i ay ivestmet decisio. Idividual retiremet optios Roth IRA Idividual retiremet plas that allow tax-free earigs ad distributios. Traditioal IRA Idividual retiremet plas that permit tax-deferred savigs for workers youger tha 70½. Rollover IRA Auity Idividual retiremet plas for retiremet assets rolled over from other eligible retiremet plas, such as 401(k) plas, profit-sharig plas ad SEP IRA accouts (see below). Idividual isurace cotracts desiged to provide icome from premium paymets ad taxdeferred asset growth. Employer-sposored retiremet plas 403(b) SEP IRA SIMPLE IRA SOLO 401(k) Age-weighted, ew comparability ad super comparability plas Profit-sharig plas 401(k) plas Roth 401(k) plas Safe harbor 401(k) plas Defied-beefit plas Pretax salary deferral plas for employees of oprofit orgaizatios, public schools ad churches. Low-cost retiremet plas for small busiess owers ad the self-employed that allow for taxdeferred earigs. Payroll deductio plas that permit employees to make pretax salary deferral cotributios i additio to their respective employers cotributios. 401(k) plas for ower-oly busiesses with o plas to add employees i the ear future. Plas that categorize employees ito groups that ifluece the value of employer-made cotributios. These plas provide the optio for 401(k)-like deferrals. Plas that allow for discretioary aual cotributios by employers. Qualified plas that allow for employee pretax cotributios. The value of a 401(k) ivestmet grows tax-deferred util withdraw, whe it s taxed as ordiary icome. Qualified plas that combie some of the most advatageous aspects of both the 401(k) ad the Roth IRA. Employees ca decide to cotribute fuds o a post-tax elective deferral basis, i additio to, or istead of, pre-tax elective deferrals uder their traditioal 401(k) plas. 401(k) plas desiged with a madatory employer cotributio. Plas that offer predetermied employer cotributios based o factors such as salary history ad legth of employmet. 457 plas Noqualified plas that allow for employee pretax cotributios ad tax-deferred growth of ivestmet value util withdraw, whe it s taxed as ordiary icome. Talk to your relatioship maager about calculatig your persoal retiremet formula ad ask how Atlatic Trust ca help you achieve the retiremet you deserve. Page i Retiremet by The Numbers

10 Atlata Austi Baltimore Bosto Chicago Dever Housto Newport Beach New York Sa Fracisco Washigto, D.C Wilmigto Follow us o Facebook: AtlaticTrustPWM, ad LikedI: Atlatic Trust Private Wealth Maagemet, a CIBC compay, icludes Atlatic Trust Compay, N.A. (a limited-purpose atioal trust compay) ad AT Ivestmet Advisers, Ic. (a registered ivestmet adviser), both of which are wholly-owed subsidiaries of Atlatic Trust Group, LLC. This documet is iteded for iformatioal purposes oly, ad the material preseted should ot be costrued as a offer or recommedatio to buy or sell ay security. Cocepts expressed are curret as of the date of this documet oly ad may chage without otice. Such cocepts are the opiios of our ivestmet professioals, may of whom are Chartered Fiacial Aalyst (CFA ) charterholders or CFP professioals. Chartered Fiacial Aalyst ad CFA are trademarks owed by CFA Istitute. The Chartered Fiacial Aalyst (CFA ) desigatio is a globally recogized stadard for measurig the competece ad itegrity of ivestmet professioals. Certified Fiacial Plaer Board of Stadards Ic. ows the certificatio marks CFP ad CERTIFIED FINANCIAL PLANNER i the U.S., which it awards to idividuals who successfully complete CFP Board s iitial ad ogoig certificatio requiremets. There is o guaratee that these views will come to pass. Past performace does ot guaratee future comparable results. The tax iformatio cotaied herei is geeral ad for iformatioal purposes oly. Atlatic Trust does ot provide legal or tax advice, ad the iformatio cotaied herei should oly be used i cosultatio with your legal, accoutig ad tax advisers. To esure compliace with requiremets imposed by the IRS, we iform you that ay U.S. federal tax advice cotaied i this commuicatio (icludig ay attachmets) is ot iteded or writte to be used, ad caot be used, for the purpose of (i) avoidig pealties uder the Iteral Reveue Code or (ii) promotig, marketig or recommedig to aother party ay trasactio or matter addressed herei. To the extet that iformatio cotaied herei is derived from third-party sources, although we believe the sources to be reliable, we caot guaratee their accuracy. Approved T For Public Use. Ivestmet Products Offered are Not FDIC-Isured, May Lose Value ad are Not Bak Guarateed. Page j Giftig to Gradchildre