planning for retirement n.c. department of environment and natural resources
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At what age do you plan to retire? A. Never! I’ll have one foot in the office and the other in the grave! B. 70 or above C (or age when I’d get full social security benefits) D. 60 or belowTRANSCRIPT
Planning for Retirement
N.C. Department of Environment and Natural Resources
Why is Retirement Planning Important?
Good Question!Here are some more questions…..Pop Quiz!
At what age do you plan to retire?A. Never! I’ll have one foot in the office and
the other in the grave!B. 70 or aboveC. 65-67 (or age when I’d get full social
security benefits)D. 60 or below
How Long Will You Be In Retirement?
(What is your life expectancy)
Fill in the Blank: The general rule of thumb is that retirement income will need to replace ____% of your working income.
A. 30-60%B. 40-70%C. 70-100%
In 2008, the average replacement percentage of average final compensation for all new retirements in the N.C. Teachers and State Employees’ Retirement System was ____%.A. 85%B. 65%C. 45%D. 25%
Time to Answer All of Our Questions!
At what age do you plan to retire?
This answer depends on your personal goals, but:
Beware of “Never”: you still need to plan for retirement even if you never plan to retire!
Remember, the earlier you plan to retire, the more planning you have to do!
How Long Will You Be In Retirement?
(What is your life expectancy?)
Did You Know? A 65-year-old man has a 20% chance of living to age
90. A 65-year-old female has a 32% chance. For married couples, there is a 45% chance that one
spouse will live to this age. Source: Vanguard Investments at www.vanguard.com
Underestimating life expectancy can derail any retirement plan!
Fill in the Blank: The general rule of thumb is that retirement income will need to replace ____% of your working income.
A. 30-60%B. 40-70%C. 70-100%
In 2007, the average replacement percentage of average final compensation for all new retirements in the N.C. Teachers and State Employees’ Retirement System was ____%.A. 85%B. 65%C. 45%D. 25%
How are you going to fund the other 26-56% ?
Social security?
Personal savings?
So, why do you need to be saving for retirement in addition to your pension plan?
To Bridge the Gap!And when should you get started?
NOW!
The Compounding Effect Start saving early! Time matters…
Start Age 25 Age 35 Age 45Total
Contributions$1,000
X 40$40,000
$1,000X 30
$30,000
$1,000 X 20
$20,000Value at 65 at
6%$154,762 $79,058 $36,786
Earnings $114,762 $46,058 $16,786
The Compounding Effect
Plus, the longer you wait, the more it “costs” to save:
To match the $154,762 retirement balance of the 25-year-old in the example, the person who waited until 45 would have to: Save ________ per year, or Generate annual earnings of ______
per year, or Retire at the age of ___!
Tax-Advantaged Retirement Accounts for State Employees
NC 401(k) plan NC 457 plan (Deferred Compensation) Traditional IRAs Roth IRAs
Individual Retirement Accounts (IRAs) Types:
Traditional (potential for tax savings now) Roth (potential for tax savings in retirement)
Contribution Limits for 2009 $5,000 if under age 50 $6,000 if age 50+ ($5,000 limit plus $1,000 catch-up
provision) Contribution Deadline
January 1 of current year – April 15 of following year
RETIREMENT SAVINGS PLAN
Save for retirement
Use an available tax- advantaged account
Decide how to invest my savings
Investing Basics Considerations
when choosing investments: Diversification Time Horizon Risk Tolerance
**Past performance is not a guarantee of future returns.
Diversification Avoid putting all of your eggs in one
basket!! An easy way to diversify: mutual funds! Anatomy of a mutual fund:
Stocks (equities) Bonds (fixed income) Short-term investments
So What is a Mutual Fund?
A pool of investors’ money used to purchase hundreds of securities such as stocks, bonds, and short-term investments
Mutual funds provide instant diversification, thus reducing risk.
Taking Risks Why should I Put My Money At Risk?
When saving long-term, you are battling a little monster named:
INFLATION
The Effects of InflationThe Effects of Inflation
Today:Today:
Cost of 1 Gallon of Milk = $4.00Cost of 1 Gallon of Milk = $4.00
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The Effects of InflationThe Effects of Inflation
In the 1960’s, $4.00 would have bought you: 1 gallon of milk ($.60) 2 dozen oranges ($.90) 10 gallons of gas ($.25/gallon
= $2.50) You could also buy:
¨ A new house for $15,000¨ A Ford Mustang for $2,368
The Effects of InflationThe Effects of Inflation
If the cost of milk were to increase over the next 50 years at the same rate that it has increased since 1960, the price of milk would be….
Bottom Line…
Investing in securities provides the potential for returns that can outpace inflation over time.
If you will be investing for the long-term, you may want to consider investing in securities such as mutual funds.
Am I on track for retirement?No way to know for sure. Keep in mind: You are responsible for providing at least a
portion of your own retirement income You might live beyond your life expectancy Starting early is the key!!!! When markets are down your dollars purchase
more shares: stay the course and keep investing!
ANY QUESTIONS???