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Presented by:. Peter Dan Sullivan, CFP® Sullivan Financial Group 111 N Last Chance Gulch St, STE3-C Helena, MT 59601-4144 Securities and Investment Advisory Services offered through ING Financial Partners, Member SIPC - PowerPoint PPT PresentationTRANSCRIPT
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Not FDIC Insured
May Lose Value
No Bank Guarantee
Not FDIC Insured
May Lose Value
No Bank Guarantee
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Presented by:Peter Dan Sullivan, CFP®Sullivan Financial Group111 N Last Chance Gulch St, STE3-CHelena, MT 59601-4144
Securities and Investment Advisory Services offered through ING Financial Partners, Member SIPC
Sullivan Financial Group is not subsidiary of nor controlled by ING Financial Partners
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Topics for today• 5 key challenges to prepare for in retirement• Achieving a successful retirement• Putting an income plan into practice
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Five challenges we can prepare for
• Longevity• Inflation• Health-care costs• Public policy changes• Investment risks and volatility
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65 70 75 80 85 90 95 100+
Longevity: Plan on spending25 to 30 years in retirement
Source: National Center for Health Statistics, U.S. Life Tables, 2005. Most recent data available.
Age
Your lifespan probability after reaching age 65
Living to age 83Probability: 56%
Living to age 89Probability: 31%
Living to age 94Probability: 14%
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2% 4% 6%
Even low levels of inflation make a difference over time
• 30 years• $50,000 income
Amount needed to maintain purchasing power:
$90,568
$162,169
$287,174
Inflation rate
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1999
2000 20
0120
0220
0320
0420
0520
0620
0720
0820
09 2010 20
1120
12
Health-care costs outpacing inflation and earnings
• A couple age 65 retiring in 2013 needs over $200,000 in savings to fund healthcare needs in retirement
– Fidelity Consulting Services, 2011
Source: Kaiser Family Foundation, April 2012.
Health insurance premiums
172%
Workers’ earnings
47%Overall inflation
38%
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What about Social Security?
Source: Social Security Administration 2012 Annual Report.
1950 Today Today 2033
There were 16 U.S. workers for each Social Security beneficiary
2.8 workers for each beneficiary
Benefits owed currently exceed taxes collected
The Social Securitytrust fund willbe exhausted
$$ $0
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0
20
40
60
80
100
Where are income taxrates headed?
This chart reflects the maximum federal income tax rate at each year-end.Source: Internal Revenue Service, 2012.
U.S. federal income tax rates, 1962–2013 (%)
Tax
rate
(%)
1962
2013
Kennedytax cuts Tax
Reform Act of ’86
Bush/Clintontax hikes
Bushtax cuts
Bush tax cuts extended
Fiscal cliff deal
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Achieving a successful retirement
• Diversify to manage volatility and achieve growth
• Make sure you’re not withdrawing too much• Consider adding guaranteed income• Be smart about taxes• Address other potential risks
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Choose the rightwithdrawal rate
This example assumes a 90% probability rate. These hypothetical illustrations are based on rolling historical time period analysis and do not account for the effect of taxes, nor do they represent the performance of any Putnam fund or product, which will fluctuate. These illustrations use the historical rolling periods from 1926 to 2012 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (as represented by U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.
0
10
20
30
40
50
Year
s
Percentage of your portfolio’s original balance withdrawn each year
How long would your money have lasted?
10%will last10
years
9%will last11year
s
4%will last33
years
5%will last
20 years
6%will last16
years
7%will last13
years
8%will last12
years
3%will last
50 years
Stocks60%
Bonds30%
Cash10%
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Address longevity risk
Mix 20 years 30 years 40 years
Conservative20% Stocks50% Bonds30% Cash
Balanced60% Stocks30% Bonds10% Cash
Growth80% Stocks20% Bonds0% Cash
Historical success of three asset mixes(assumes 5% withdrawal rate, adjusted for inflation annually)
These illustrations are based on a rolling historical time period analysis and do not account for the effect of taxes, nor do they represent the performance of any Putnam fund or product, which will fluctuate. These illustrations use the historical returns from 1926 to 2012 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.
96%
96%
76%
79%
54%
68%
89% 3%27%
80%–100% probability60%–79% probability0–59% probability
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When you retire can make a big difference
• Assumptions– $1 million nest egg– 5% withdrawn annually and increased each year to keep up with
inflation– Invested in a portfolio of 60% stocks, 30% bonds, and 10% cash– Results over a 10-year time frame
Sequence of returns risk refers to adverse effect negative investment returns in the early stages of retirement can have on a nest egg
Retire in 1980 Retire in 1990 Retire in 2000
$1M
$1,731,989 $1,861,592
$472,238
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Consider diversifying more broadly in retirement
U.S. large-cap stocks
Commodities
U.S. small-cap stocks
U.S. high-yield bonds
Developed country
international stocks
Emerging-market stocks
U.S. Treasury bills
Global investment
grade bonds
Inflation-protected securities
Hedge funds
Real estate investment
trusts
U.S. growth and value stocks
Floating rate bank loans
U.S. investment grade bonds
Emerging-market bonds
Traditional asset classes are defined as those included in traditional balanced portfolios, such as stocks, bonds, and cash, and that have been widely owned by individual investors since the post-war emergence of modern portfolio theory. Modern asset classes are specialized investments that were created or have become more accessible since the advent of broader market participation by individual investors due to tax-advantaged retirement saving
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Consider adding guaranteed income
Example• Balanced portfolio –
50% stocks, 40% bonds, 10% cash
• 5% withdrawn annually• Guaranteed income
based on current immediate annuity rates
69%
93%
Probability of portfolio survival over 30 years
No guaranteed
income
25% guaranteed
incomeThis example is based on rolling historical time period analysis and does not account for the effect of taxes, nor does it represent the performance of any Putnam fund or product, which will fluctuate. Assumes historical rolling periods from 1926 to 2012 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (as represented by U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Guaranteed income is based on a single premium, immediate annuity for a 65-year-old male assuming single life expectancy. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.
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Pay attention to taxesType of income Taxability
Social Security May be partially taxable as ordinary income
Pension income Taxed as ordinary incomeIRA and 401(k) distributions Ordinary income rates Dividend income 20% maximum rateLong-term capital gains 20% maximum rateRoth IRAs Not subject to taxationLiquidation of investment principal Not subject to taxation
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Use a Roth strategy to control your tax bill
• Source of tax-free income in retirement– Access to tax-free source of income provides more
options on where to draw income from• No mandatory withdrawals at age 70½• Having a portion of retirement savings in a
Roth IRA can provide a hedge against the threat of rising taxes in retirement
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Preserve your wealth in retirement through tax efficient withdrawalsRetirement situation Proposed course of actionLower marginal tax rate Draw from traditional retirement accounts to
maximize use of lower relative tax bracket, which may help to reduce RMDs at age 70½
Higher marginal tax rate Use tax-free or taxable assets to avoid higher income tax rates and potentially take advantage of lower capital gains rates
Significant appreciation in a taxable account
If leaving an inheritance, preserve taxable assets to take advantage of “stepped-up” cost basis at death
Working in retirement Avoid traditional retirement accounts, which will increase overall income (higher income could trigger taxes on Social Security benefits)
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Address other specific risksPost-retirement risk Risk management toolUnexpectedhealth-care costs
Medigap supplemental coverage orhealth-care “emergency fund”
Loss of ability to live independently
Long-term-care insurance or health-care “emergency fund”
Catastrophic medical orlong-term-care costs Life or long-term-care insurance
Lawsuits or creditors TrustsSpending the children’s inheritance
Life insurance/irrevocable lifeinsurance trust
Inability to fulfillcharitable intent
Charitable remainder trust orcharitable annuity
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Putting an income plan into practice
• Expense approach:Matching income sources with expenses
• Time-frame approach:Considering a bucket strategy
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Match potential sources of income to expenses in retirementEssential expenses • Annuities
• Social Security• Dividends• Pension income• Interest• Required minimum distributions
Discretionary expenses
• Employment income• Portfolio withdrawals• Personal savings
Unforeseen expenses
• Real estate• Life insurance• Long-term-care insurance
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Consider a bucket approach
• Growth stocks/funds• Real estate• Commodities• Longevity insurance
• Bonds• Deferred annuities• Absolute return funds• Asset allocation funds,
balanced funds
• Cash• CDs/money market• Short-term bonds• Immediate annuities• Social Security/pension
income• Wages
Inflation hedge, address longevity risk
Mix of growth and income, replenish short-term
bucket, guard against market volatility
Meet immediate cash-flow needs, emergency fund,
etc.
Long-term income (10+ years)
Mid-term income (2–10 years)
Short-term income (0–2 years)
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Closing thoughts• The retirement landscape will continue to
evolve• It’s critical for investors to prepare for certain
(and uncertain!) risks• A thoughtful income strategy can help you
address these challenges and attain the lifestyle in retirement you desire
• Meet with your financial advisor to assess your personal situation
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Additional resourcesBooks
• Longevity Revolution: As Boomers Become Elders, Theodore Roszak
• AgeQuake, Paul Wallace• Age Power: How the 21st
CenturyWill Be Ruled by the New Old,Ken Dychtwald, Ph.D.
• We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World,Walter Updegrave
• How Not to Die Broke at 102,Adriane Berg
On the web• AARP, www.aarp.org• Social Security
Administration, www.ssa.gov• American Savings Education
Council, www.asec.org• ElderWeb,
www.elderweb.com• Medicare, www.medicare.gov• National Association of Home
Care Providers, www.nahc.org
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A BALANCED APPROACH
A WORLD OF INVESTING
A COMMITMENT TO EXCELLENCE
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Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing. Putnam Retail Management putnam.com
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Not FDIC Insured
May Lose Value
No Bank Guarantee