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Transcript of 1 SAVING : INVESTING : PLANNING Retirement planning 1 SAVING : INVESTING : PLANNING PREPARE...
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SAVING : INVESTING : PLANNING
Retirement planning1 SAVING : INVESTING : PLANNING
PREPARERetirement Income PlanningPlanning for Financial Security
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SAVING : INVESTING : PLANNING
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SAVING : INVESTING : PLANNING
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1 Retirement planning
2 Sources of retirement income
3 Cost of procrastination
4 Action steps
Retirement Planning 1
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Seminar objectives
•Comprehensive education
> Resources that will assist you in reaching your goals
•Action steps
> How are you going to get there and by when?
•Personalized plan
> What’s your lesson plan look like?
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Retirement planning
•Reasons to start planning now:
>Benefit from tax advantages
>The power of compound interest
>Social Security and pensions aren’t enough
>Rising cost of living
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Retirement costs
•Planning for retirement
>How do you visualize retirement?
− Years in retirement will exceed the number of years worked
>What are your necessities?
>How much will it cost?
− 780 opportunities to save
>Where will the money come from?
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Retirement costs
•Total income needs
Assumes a 3% annual inflation rate.
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Sources of retirement income2
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Sources of retirement income
•Sources of retirement income
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19%Social Security
42-45%Employer’s Pension Plan
36-39%Personal savings and investments
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Sources of income
•Social Security
>Eligibility
>Full retirement age
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Sources of retirement income
•Social Security Year of Birth Full Retirement Age % Received at Age 62
1937 or before 65 80.0
1938 65 + 2 months 79.1
1939 65 + 4 months 78.3
1940 65 + 6 months 77.5
1941 65 + 8 months 76.6
1942 65 + 10 months 75.8
1943-1954 66 75.0
1955 66 + 2 months 74.1
1956 66 + 4 months 73.3
1957 66 + 6 months 72.5
1958 66 + 8 months 71.6
1959 66 + 10 months 70.8
1960 and after 67 70.0
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Sources of retirement income
•State sponsored plans
>Pension/defined benefit plans (MPSERS)
− Depending on Basic or MIP members, 30 YOS and generally between ages of 52-55
− Benefits are based on a set formula
− May be inflation protected
− Becoming less common
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Sources of retirement income
•Employer-sponsored plans
>Defined contribution plans
− Traditional 403(b) and Roth 403(b)
− 401(a)/401(k)
>Deferred compensation plans
− 457(b)
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Sources of retirement income
•Why contribute to your employer’s plan?
>Pretax contributions
>Tax-deferred growth
>Dollar-cost averaging
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Sources of retirement income
•Paycheck comparison
Taxable Account Tax-qualified Savings Plan
Salary $3,000 $3,000
Pretax contribution $0 $200
Taxable income $3,000 $2,800
* Federal marginal income taxes $750 $700
Total take-home pay $2,250 $2,100
After-tax savings $200 $0
Net take-home pay $2,050 $2,100
This table is hypothetical and only an example. It does not reflect any specific investment and is not a guarantee of future income.
*25% marginal tax rate and single filer.
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Sources of retirement income
•Dollar-cost averaging
Date Quarterly Investment Share Value Shares Purchased
January 15 $500 $15 33.33
April 15 $500 $17 29.41
July 15 $500 $ 9 55.55
October 15 $500 $12 41.66
Totals $2,000 $13.25 (avg) 159.95 shares
Average price per share $13.25
Average cost per share $12.50 ($2,000 ÷ 159.95)
This table is hypothetical and only an example. It does not reflect any specific investment and is not a guarantee of future income.
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403(b) retirement plan
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403(b)
•Maximum contribution
>$17,500 in 2013
•Catch-up contributions
>403(b) catch-up provisions
>If age 50 or older, an additional $5,500 in 2013
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403(b)
•Investment flexibility
•Accessing your money
> Attainment of age 59.5
> Substantial equal payments – 72(t)
> Separation from service in the year in which
you turn 55 or older
457(b) Deferred compensation plan
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457(b) Deferred Compensation Plan
•Maximum contributions
>$17,500 in 2013
•Catch-up contributions
>457(b) catch-up provisions
>Age 50 or older, an additional $5,500 in 2013
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457(b) Deferred Compensation Plan
•Investment flexibility
•Accessing your money
> Separation from service regardless of age
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Side-by-side 403(b), 457(b) programs
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Side-by-side 403(b), 457(b) programs
•Increased contribution limits
>Annual maximum may be contributed to 457(b) and a 403(b)
>Eligible catch-up may be contributed annually to 457(b) and either a 403(b) or 401(k)
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Side-by-side 403(b), 457(b) programs
•Roth 403(b)
>After-tax contributions
>Maximum contribution
− $17,500 in 2013
>Catch-up contributions
− $5,500 (age 50 and older)
− 403(b) catch-up provision
>Tax-free earnings
>Tax-free distributions after five years and
− Attainment of age 59½
− Death or disability
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Sources of income
•Summarizing ages of distributions from sources
>Social Security
− Reduced benefit at 62
>MPSERS
− Generally 52-55, assuming 30 YOS and no purchased years
>Personal Savings
− 403(b), 401(k), IRA’s generally 59.5
− 457(b) separation from service
The cost of procrastination3
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The cost of procrastination
Start at age 25 Start at age 35 Start at age 45
At age 55$74,518
At age 55$29,451
At age 55$9,147
Investing $50 a month earning 8% annually
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The cost of procrastination
•Retirement planning considerations
>Estimated cost of retirement
>Expected income sources
>Current savings rate
>Maximization of contribution limits
>Investment options
>Time horizon
Action steps4
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SAVING : INVESTING : PLANNING
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Action steps
1 Calculate the cost of retirement
2 Create a plan
3 Take advantage of tax-qualified plans
4 Increase savings with increases of pay
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Action steps
•Take action
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Action steps
•Evaluation
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Retirement planning1 SAVING : INVESTING : PLANNING
THANK YOURetirement Income Planning Michael DeTone, CFP®
248.274.7200 Planning for Financial Security [email protected]
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The information in this presentation is general in nature and may be subject to change. Neither VALIC nor its financial advisors or other representatives give legal or tax advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For legal or tax advice concerning your situation, consult your attorney or professional tax advisor.
Securities and investment advisory services are offered by VALIC Financial Advisors, Inc., member FINRA and an SEC-registered investment advisor.
•VALIC represents The Variable Annuity Life Insurance Company and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company.
Copyright © The Variable Annuity Life Insurance Company.All rights reserved.VALIC.com
VC17899 (02/2012) J85320 EE