Assessing Retirement ReadinessOptions and Strategies for Reaching the Target

• How retirement savings fit into the bigger picture• Analyzing current and future living expenses• Assessing sources of retirement income• Projecting how long my retirement savings will last• Examine the role of the farm business as a source of income• Develop action steps for building a retirement plan

Typical Family Life Cycle Stages and Prominent Financial IssuesIncome

1. Live beneath your means2. Pay off your credit cards3. Pay yourself first4. Save six months living expenses5. Make a will6. Seek wise counsel7. Fund a retirement savings plans8. Plan major expenses9. Educate yourself10. Review progress

Source: 2011 Wellness Council of America www.welcoa.org

10 Essential Steps to Financial Wellness

We all know the prescriptions for Financial Wellness, but the real question is . . . . . . . . . . .

Do we have the discipline to stick with the program?????

Temptations are Everywhere

Financial ManagementPriorities for

Building Wealth

Step 1 Build a Nominal Emergency Savings Fund - $1,000 to $3,000

Step 2 Pay off High Interest Rate (credit card type) Debt – using the “debt snowball” (paying off smallest balance account first) or concentrating on the highest rate debt first – whichever provides the greatest emotional motivation.

Step 3 Revisit the Emergency Fund – building it to an amount equal to 6-12 months worth of living expenses.

Step 4 Contribute to Retirement Savings at a level that represents 10-15% of household income. Employer plans, ROTH, SEP, etc..

Step 5 If applicable, consider Savings Plans for Education such as Coverdell or 529 Savings Plans, Coverdell, etc. for children/grandchildren.

Step 6 Retire low interest debt.

Step 7 Enjoy Prosperity as You Define It!

Employee Benefit Research Institute SurveyThe Number, Lee Eisenberg, 2006

• 4 out of 10 workers say they’ve saved nothing whatsoever for the future.

• No more than 4 out of every 10 people admit they have never taken steps to calculate the actual cost of a comfortable retirement – their “NUMBER”.

• Of those who have calculated their “Number,” one in 3 doesn’t remember what those calculations revealed.

• 45 % have saved less than $25K for retirement.• Only 18% have saved more than $100K in reserves for

retirement.

Assessing current and future living expenses

• Work through Retirement Needs Worksheet • Incorporate you desired retirement lifestyle into

your projections– General rule of thumb is 75 – 80% of pre-retirement

income will be needed– HOWEVER – that does not factor in you individual

preferences for how you’d like to spend retirement. You may find that you need close to 100% of pre-retirement income to do the things on your bucket list

ACTIVITY

Assess sources of retirement income

• Work through Retirement Planning Asset Worksheet OR• Complete the Retirement Income Calculator OR• Complete the 5 Questions in the Assessing Retirement Readiness My Plan Snapshot

• Consider Earned Social Security Benefits• On-Going Farm/Ranch related income that will be generated through cash/share rents

and asset sales of resources no longer needed for your desired role in retirement

• Examine how much income can be generated and withdrawn from your retirement savings.– General rule of thumb is 4% withdrawal rate– Look at the Retirement Nest Egg Calculator to see how alternative withdrawal rates impact the

likelihood that you’ll outlive your money.

ACTIVITY

www.ssa.gov/estimator - Including expected Social Security

Estimate Life ExpectancyAssess when to begin drawing benefits

Estimate social security benefits earned

Outstanding & EASY Retirement Needs Calculators

• T. Rowe Price's Retirement Income Calculatorhttps://www3.troweprice.com/ric/ricweb/public/ric.do

• Fidelity's My Plan Snapshot - 5 Questions to Assess Retirement ReadinessAudio guided tour of questions that provide retirement resource assessmenthttp://personal.fidelity.com/planning/retirement/content/myPlan/index.shtml

• Vanguard's Nest Egg calculator and https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/ RetirementNestEggCalc.jsf?cbdForceDomain=false

• Fidelity's Retirement Income Planner.

http://personal.fidelity.com/planning/retirement/income_planner.shtmlGet a sense of what you're on track to have in retirement and how small changes can improve your plan.

T. Rowe Price's Retirement Income Calculatorhttps://www3.troweprice.com/ric/ricweb/public/ric.do

How much have you saved for retirement so far?

Specify your Desired Asset Allocation

This is where the income generating capabilities of the farm/ranch business will be included. Preferred transition strategies (i.e. cash or share rental arrangements) will greatly influence the value and variability of this figure.

Monthly Income Worksheet Components

Sample Assessment Results

Monthly Estimates

Ability to See How Changes to savings plans, retirement age, asset allocation impact projections

Fidelity's My Plan Snapshot - 5 Questions to Assess Retirement ReadinessAudio guided tour of questions that provide retirement resource assessmenthttp://personal.fidelity.com/planning/retirement/content/myPlan/index.shtml

Retirement Nest Egg Calculator 4% Withdrawal Rate

Retirement Nest Egg Calculator6% Withdrawal Rate

Determine financial reliance on the farm business as a source of income generation

• Determine what role you want to continue to play in retirement as it relates to the farm business. – Do you prefer the stability of cash rents or do you prefer the added

risks/rewards that may come from share leases? • Keep in mind that in the focus is on income-generating capabilities.

Equity acquired over time can only be converted into income by renting or selling the asset.– Closely consider the farm/ranch assets and decide whether renting or selling

best fits you required income generating needs with other motivations that might exist (semi-retirement, passing the farm to heirs, etc..).

ACTIVITY

Defining your own Retirement “Number”The Number, Lee Eisenberg, 2006

• Assuming a 4% drawdown, every $100,000 in retirement savings will provide $4,000 per year during retirement.

• $1 million provides $40K per year; $1.5 million - $60K• Assets generating post-retirement income, or other

benefit programs should be factored into your calculation. Consider a part-time post-retirement job– $100 per month is equivalent to $30K in retirement savings – $6/hr. job - 20hrs/wk – 50 wks/yr. – makes up for a $150K

retirement savings deficiency.

Retirement Savings Plan Alternatives

• Thrift Savings Plan, 401(k), 403(b) etc. – pre-tax contribution, tax deferred growth, may have “matching” contributions

• ROTH IRA – after-tax contributions, tax free growth• Traditional, Deductible IRA – deductible contributions, tax

deferred growth• Traditional, Nondeductible IRA – tax deferred growth• SEP, SIMPLE IRAs – tax deductible contributions, tax deferred

growth• Taxable Investment Account – long-term capital gains and

dividends get preferred tax treatment, no restrictions

Data from IRS Publication 590, Graphics from http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/

Data from IRS Publication 590, Graphics from http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/

Data from IRS Publication 590, Graphics from http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/

Data from IRS Publication 590, Graphics from http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/

Data from IRS Publication 590, Graphics from http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/

Retirement Savings Mistakes• Choosing not to Participate in any Savings Program• Improper Asset Allocation :

Guideline for retirement:100-Age = % Stock Allocation• Improper Use of “Dollar Cost Averaging” with

Monthly Contributions• Failure to Periodically Rebalance• Incurring Penalties – early/late withdrawals• Failure to Keep Beneficiary Info Updated

Early Savers (30)– Asset Class Categories All About Asset Allocation, Richard Ferri, 2006

US EquityInternational EquityReal EstateAggregate Bond

• US Equity – 40%• International Equity – 20%• Real Estate – 10%• Aggregate Bond – 30%

Retirement Savings Allocation Guidelines

Mid-Life Savers (45)– Asset Class Categories All About Asset Allocation, Richard Ferri, 2006

US EquityInternational EquityReal EstateAggregate Bond

• US Equity – 30%• International Equity – 15%• Real Estate – 10%• Aggregate Bond – 45%

Retirement Savings Allocation Guidelines

Pre-Retirees & Active Retirees (50)– Asset Class Categories All About Asset Allocation, Richard Ferri, 2006

US EquityInternational EquityReal EstateAggregate BondUS Treasuries

• US Equity – 35%• International Equity – 10%• Real Estate – 5%• Aggregate Bond – 35%• US Treasuries – 15%

Retirement Savings Allocation Guidelines

Mature Retirees (65) – Asset Class Categories All About Asset Allocation, Richard Ferri, 2006

US EquityInternational EquityReal EstateAggregate BondUS Treasuries

• US Equity – 25%• International Equity – 10%• Real Estate – 5%• Aggregate Bond – 35%• US Treasuries – 25%

Retirement Savings Allocation Guidelines

Develop next steps/action for a retirement plan that satisfies your goals

ACTIVITY

If you don't save and invest, and you aren't rich now, the only other options are to • inherit money, • marry money • or win the lottery.