Embed Size (px)
Citation preview
RETIREMENT READY
2
re∙tire∙mentThe action or fact of leaving one’s job and ceasing to work.
/rə`ti(ə)r mənt/noun
3
DO I HAVE ENOUGH?AM I ON TRACK?HOW MUCH DO I NEED?CAN I RETIRE EARLY?
4
REPLACEMENT INCOME
75%
It is T. Rowe Price’s view that investors will need75% of their pre-retirement income in retirement.
5
REPLACEMENT INCOME
§ Wages§ Savings§ Social Security§ Pensions
6
REPLACEMENT INCOME
Source: Employee Benefit Research Institute and Greenwald & Associates, Inc., 2019 Retirement Confidence Survey.
84%of workers expect Social Security to be an income source
88%of current retirees report Social Security as an income source
7
REPLACEMENT INCOME
Source: Employee Benefit Research Institute and Greenwald & Associates, Inc., 2019 Retirement Confidence Survey.
82%of workers expect their workplace retirement savings to be an income source
54%of current retirees report workplace retirement savings as an income source
WHAT ROLE WILL YOUR RETIREMENT SAVINGS PLAY?
9
RETIREMENT SAVINGS: HOW MUCH?
Assumptions: These benchmarks assume you’ll be dependent primarily on personal savings and Social Security benefits in retirement. However, if you have other income sources (e.g., pension), you may not have to rely as much on your personal savings, so your benchmark would be lower. Benchmarks are based on a target multiple at retirement age and a savings trajectory over time consistent with that target and the savings rate needed to achieve it. Household income grows at 5% until age 45 and 3% (the assumed inflation rate) thereafter. Investment returns before retirement are 7% before taxes, and savings grow tax deferred. The person retires at age 65 and begins withdrawing 4% of assets (a rate intended to support steady inflation-adjusted spending over a 30-year retirement). Savings benchmark ranges are based on individuals or couples with current household income between $75,000 and $250,000. Target multiples at retirement reflect estimated spending needs in retirement (including a 5% reduction from preretirement levels); Social Security benefits (using the SSA.gov Quick Calculator, assuming claiming at full retirement ages and the Social Security Administration’s assumed earnings history pattern); state taxes (4% of income, excluding Social Security benefits); and federal taxes (based on rates as of January 1, 2018). While federal tax rates are scheduled to revert to pre-2018 levels after 2025, those rates are not reflected in these calculations. “Dual income” means that the one spouse generates 75% of the income that the other spouse earns. For the benchmarks in "Savings Benchmarks" by "Investor's Age", we assume the household starts saving 6% at age 25 and increases the savings rate by 1% annually until reaching the necessary savings rate.
INVESTOR’S AGE:
30
35
40
45
50
55
60
65
SAVINGS BENCHMARKS:
half of salary saved today
1x salary saved today
2x salary saved today
3x salary saved today
5x salary saved today
7x salary saved today
9x salary saved today
11x salary saved today
10
THE LEVERS: WHAT YOU CAN ADJUST
WAGES
SAVINGS
SOCIAL SECURITY
HOUSEHOLD PLAN
LESS MORE
11
SOCIAL SECURITY: DELAYING
Social Security payments calculated using the Social Security Quick Calculator. This assumes an individual who is currently age 62 in 2020 (date of birth 1/15/58), who is continuing to work, and who is earning $40,000 each year until benefits begin. All figures are estimated, rely on an assumed earnings history, and reflect current dollars. Actual benefits would be higher to reflect future adjustments for inflation. Each year that this individual waits to initiate his/her Social Security benefits, his/her annual retirement income from Social Security would increase by about 7% to 8%, regardless of any potential increases due to additional years of earnings. These results are for illustrative purposes only and are generic in nature. Source: Social Security Quick Calculator.
Start receiving Social Security benefits at age 70… Social Security Payment: $21,588
Start receiving Social Security benefits at age 62…Social Security Payment: $11,280
62 70 80 90
Soci
al S
ecur
ity P
aym
ent $
Age
12
YOU HAVE OPTIONS
YOUR RETIREMENT SAVINGS
CASH DISTRIBUTION
LEAVE IN CURRENT PLAN
NEW EMPLOYER’S PLAN
ROLLOVERIRA
Address current
expensesDefer taxes
13
RETIREMENT INCOME: FIRST YEAR
WE BELIEVE THE INITIAL WITHDRAWAL PERCENTAGE FOR MOST INVESTORS SHOULD BE
Increase dollar amount by 3% in subsequent years (based on 3% inflation assumption)
4%
14
RETIREMENT INCOME: $500,000 SAVED
This illustration is hypothetical and not representative of any specific investment or strategy. All investments involve risk, including possible loss of principal.
$18,000
$20,000
$22,000
$24,000
First Year Second Year Third Year
$20,000 withdrawal($500,000 x 4%)
$20,600 withdrawal($20,000 x 1.03)
$21,218 withdrawal($20,600 x 1.03)
15
RETIREMENT INCOME: TYPICAL ORDER
1 2 3Taxable
AccountsTax-Deferred
AccountsTax-Free Accounts
We believe this allows the tax-advantaged accounts to stay invested longer for most investors
WHAT ABOUT HEALTH CARE?
17
TOP FIVE FEARS ABOUT RETIREMENT
Source: Employee Financial Wellness Survey, PwC US, 2019.
51%
Running out of money
1
24%
Health issues
5
28%
Health care costs
2
25%
Inability to meet
monthly expenses
4
25%
Inability to maintain
standard of living
3
18
MEDICARE ALONE WON’T BE ENOUGH
Medicare is representative of Part A and Part B coverage. Source: Medicare.gov
WHAT MEDICARE COVERS
Inpatient hospital costs
Surgeries
Doctor visits
Lab tests
Preventive screenings
Equipment, such as wheelchairs
Hearing aids
Most vision care
Most dental care
Personal aid services to help you stay in your home
Most nursing home and other long-term care
Assisted living
WHAT MEDICARE DOES NOT COVER
19
Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). HRS public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA U01AG009740). Ann Arbor, MI. All costs are rounded to the nearest hundred. Premium percentage of total health care expenses includes the median percentage share of individual health insurance premiums (ages 65 and above) for Medicare Parts A, B, D and Medigap.
HEALTH CARE COSTS IN RETIREMENT FALL INTO TWO CATEGORIES
Variable Out-of-Pocket Costs
Fixed Premium Costs1
2
75%of expenses go topremium costs
WHAT ABOUT YOUR VISION FOR RETIREMENT?
21
Source: Retiree Insights 2018 Survey of Consumers Ages 50-59, Greenwald & Associates/The Diversified Services Group
TWO SIDES TO RETIREMENT
of preretirees have made a serious effort to plan for financial aspects of retirement.
of preretirees have made a serious effort to plan for emotional aspectsof retirement.
74% 35%
22
CREATING A VISION CAN HELP YOU:
Work with others toward your vision.
Establish a framework.Create clarity.
23
w w w w w
WHO WHAT WHERE WHEN WHY
THE 5 WS OF YOUR RETIREMENT VISION
IT’S YOUR FUTURE.
25
IMPORTANT INFORMATION
This material has been prepared by T. Rowe Price Investment Services, Inc., for general and educational purposes only. This material does not provide recommendations concerning investments, investment strategies, or account types. It is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price Investment Services, Inc., its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.
T. Rowe Price Investment Services, Inc. is not affiliated with the third party financial professional/presenter or firm.
T. ROWE PRICE, INVEST WITH CONFIDENCE and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc. © 2020 T. Rowe Price. All rights reserved.
T. Rowe Price Investment Services, Inc.
THANK YOU
CCON0051798201912-948109
6/20
