COA 4131 1st Edition Lecture 30 Outline of Last Lecture I. Esoteric Investments II. Thinking of Retiring? III. Considerations for Retiring IV. Negative of Retiring at the Wrong Time V. What are the Best Options?VI. AgeVII. MedicareVIII. Receiving Benefits while you Still WorkIX. Early Retirement X. Retirement Age ConsiderationsXI. How your Social Security affects your Spouse Outline of Current Lecture I. Importance of Retirement PlanningII. Common Pitfalls to Sound Retirement Planning III. The Five Risks of Retirement IV. Personality of People V. Longevity RiskVI. Healthcare RiskVII. Estimating Retirement Needs and Developing a Plan Current LectureA. Importance of Retirement Planninga. Greater life expectancy b. Gender gapc. Early retirement d. Social security and pensions not stretching as long as they once dide. Uncertaintyf. Anticipated retirement lifestyle needs B. Common Pitfalls to Sound Retirement Planning a. Do not start too late or save too littleb. Stay with one jobc. Estimate for more needs d. Retirement savings and level of education i. The more education you have, the more money you saveii. Inflation1. Rising property taxesiii. Weatherproof your retirement funds C. The Five Risks of Retirement a. Longevity b. Healthcarec. Inflationd. Investment e. Withdrawal D. Personality of Peoplea. Planners i. More than twice as likely to learn about savings in childhood 1. From parents or a part-time jobb. Strugglersi. Every time they get ahead, something is going to pull them back ii. Tend not to be savers because they believe it is going to go awayc. Deniers i. Do not save because they do not think about it or the futureii. The kids will take care of you or you do not think you will live to be that old so why bother to save d. Impulsers i. Very hard to save for the futureii. Impulsive shoppers will buy immediately without thinking of any consequences iii. Change jobs all of the time iv. Usually 30 to 35 is when people settle1. Marriage and jobs E. Longevity Riska. Among top concerns for pre-retirees worried they will outlive their money b. Ways to managei. Work longer and retire later in lifeii. Reduce living expenses and save more1. Retirement perks in restaurants, movies, ectiii. Adjust your investment allocation to produce income during retirement 1. Annuity, stocks, bongs, and renting out real estate are all ways to keep getting money F. Healthcare Riska. Medicarei. Designed to provide medical coverage for those on Social Securityii. 65 and olderiii. Part D is added to Medicare to include prescription drug coverage b. Manage healthcare risksi. Review your family medical history ii. Investigate costs of long-term care facilities in your areaiii. Research long-term care insurance policiesiv. Understand rules on Medicare/Medicaid G. Estimating Retirement Needs and Developing a Plan a. Step 1i. Estimating net worthii. Start doing this 60 and up, but should begin earlier iii. Want to be debt free b. Step 2i. Estimate how much money will be needed at retirement c. Step 3i. Building and maintaining retirement income 1. Want to remain steady 2. The older you get, the more careful you have to be in where you keep your money d. Individual retirement accounts and homes as assets i. IRA1. Anyone can set up one; do not have to be working 2. Self-employed and homemakers can do this e. Whole life insurance as an asset f. Reduced expenses during retirementi. No longer dry cleanii. Entertainment expenses are cheaper g. Increased expenses during retirementi. Healthcare is always going to go upii. Leisure expenses is going to go up1. More time, more leisure2. More money spent on recreation h. Sources of retirement incomei. Can be difficult to think of what it is going to be like at age 65 when you are 40ii. Social security1. Have to work for 10 years2. Can be from different employers just needs to be the ten years 3. For every $1.00 that comes from Social Security, 70 cents goes into a trust fund iii. Public pension plans 1. Ex: federal employees iv. Employer sponsored retirement plans including 401k’s v. Typically, social security supplements about 40% of a retiree’s income vi. This leaves the individual to come up with the other 60%1. Savings2. Investments3. Pensions4. Annuities i. Popularity of 401k’si. Changing jobsii. Vesting iii. Define contribution plan 1. Fixed at a certain level 2. Direct your investment in your plan 3. Return from investments and choosing well will reflect in your monthly payouts 4. More common now a daysa. Need to make sure you will make good choices; not everyone does iv. Defined benefit pension plan 1. More like a traditional plan2. You work for so many years, and you get a certain amount of money3. You don’t get to choose4. Becoming less popular j. Personal Retirement Plansi. Individual retirement accounts (IRAs)ii. Roth IRA’siii. Educational IRA k. Personal Retirement Plans i. Simple IRAii. Simplified Employee Pension Plans (SEPs)1. Mostly for self-employed iii. Keogh Plans 1. Tax-deferred pension plans 2. Employed and self-employed can do this3. Part-time or full-time workers4. Like an IRA but a little more
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