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Cal Poly Pomona EGR 403 - Introduction to Retirement Planning

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EGR 403 Introduction to Retirement PlanningPart III - SavingPension PlansPension Plan Basics - 1Pension Plan Basics - 2CSU Retirement Plan “2% at 55” Benefit = Highest salary x % from tableAdjusting Total Investment Income NeededAdjusting Total Investment Assets NeededEstimate Savings Goals - 1Estimate Savings Goals - 2Estimate Savings Goals - 31EGR 403 Retirement Planning - Part IIIEGR 403 Introduction to Retirement Planning•Part I - Basic Approach•Part II - Determine Total Capital to Invest•Part III - Saving Strategy•Part IV - Investment StrategyDr. Phillip R. RosenkrantzIME Department, Cal Poly PomonaClick here for streaming audio to accompany presentationEGR 403 Retirement Planning - Part III2Part III - Saving•Estimate pension income and, if necessary, adjust your total assets needed.•Estimate your rate of return for investments.•Determine your annual savings goals needed to accumulate your target asset amount. Use gradients to balance out your savings plan.•Play with the numbers until you are happy with the plan.EGR 403 Retirement Planning - Part III3Pension Plans•Pension plans can be a very important part of your retirement plan. •Plans are typically based on four things:–Your age at retirement–Length of service to the company–Your final salary level–Surviving spouse optionsEGR 403 Retirement Planning - Part III4Pension Plan Basics - 1•The older you are when you retire, the higher your monthly pension. This is because your life expectancy is shorter.•Rule of thumb: You will receive 2% of your final salary level for each year of service.–55 years old with 30 years of service = 60%–65 years old with 20 years of service = 40%EGR 403 Retirement Planning - Part III5Pension Plan Basics - 2•Many companies: points system where age plus years of service must be greater than or equal to 85.•Some organizations have a minimum retirement age with provisions for special early retirement that are not always favorable.–General Motors: 60, (55 years for special early)–CSU: 50 years + min 5 years of serviceEGR 403 Retirement Planning - Part III6CSU Retirement Plan “2% at 55”Benefit = Highest salary x % from tableAge 53 54 55 56 57 58 59 60 61 62 63+Factor 1.640 1.820 2.000 2.064 2.126 2.188 2.250 2.314 2.376 2.438 2.500Years21 34%22 40%23 46%24 50%25 53%26 57%27 61%28 65%29 69%30 73%31 78%EGR 403 Retirement Planning - Part III7Adjusting Total Investment Income Needed•Suppose you need $130,000 you live on at retirement•Suppose you estimate your salary at retirement to be $100,000/year and you have worked there 20 years. •Est. pension is 2% x $100,000 = $40,000•Adjusted amount needed from investments is $130,000 - $40,000 = $90,000EGR 403 Retirement Planning - Part III8Adjusting Total Investment Assets Needed •Using the previous example for return on investment assets, your revised total investment assets needed would be:–For 5% return: $90,000 / 0.05 = $1,800,000–For 9% return: $90,000 / 0.09 = $1,000,000EGR 403 Retirement Planning - Part III9Estimate Savings Goals - 1•Determine your target investment return during your working years. This is a target number over your investing lifetime:–8% or lower: Not too difficult–8% - 12%: Very possible–12% or higher: Risky and not likely•The higher returns involve more risk and study. If you are not going to be an active investor, use a lower return.EGR 403 Retirement Planning - Part III10Estimate Savings Goals - 2•Now you can estimate savings needed–A first estimate can be made by calculating the uniform series of savings needed to generate the target investment amount at a reasonable rate of return–Example: using 9%, 20 years, and target assets of $1,000,000.Annual savings = $1,000,000 (A/F, 9%, 20) = $1,000,000 (0.0195) = $19,500/year or $1625/monthEGR 403 Retirement Planning - Part III11Estimate Savings Goals - 3•Using this initial calculation, you can play with the numbers and develop a plan that is realistic:•Examples:–Same but using 12% ($13,900/yr or $1158/mo)–10%, 25 years ($10,200/yr or $850/mo)–10%, 30 years ($6080/yr or $507/mo)•Use gradients to make plan more


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Cal Poly Pomona EGR 403 - Introduction to Retirement Planning

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