Retirement: Closer Than You Think

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+ Challenges Faced Today

+ Four Strategies to Consider

+ Take Action

Agenda

Retirement: Closer Than You Think

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Challenges Faced Today

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Challenges Faced Today

+ There’s a widening gap between income and expenses

+ In 2016, the average American family (individual household) owed $8,377 in credit card debt, up 6% from 20151

+ Student loan debt now totals over $1.4 trillion, with the average graduate in the U.S. having $17,1262

+ The average amount of debt households are carrying into retirement has increased by nearly 160% from 1989 to 2010, according to AARP

Debt on the Rise

1 “Here’s how much the average US family has in credit card debt,” CNBC.com, May 17, 2017. 2 “How much student loan debt people owe in each state shows some graduates are getting screwed,” Business Insider, November 17, 2017

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Challenges Faced Today

+ The mean retirement savings of all working–age families in America between 32 and 61 years old is $95,7761

+ The median savings (those in the 50th percentile) is just $5,0001

+ A couple retiring in 2017 will need an estimated $275,000 to cover health care costs through retirement2

Saving for Retirement

1 “Here’s how much the average family has saved for retirement at every age,” CNBC.com, April 7, 2017. 2 “Health care will cost couples $275,000 in retirement,” money.cnn.com, August 24, 2017.

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Challenges Faced Today

+ Longevity: A 55-year-old man has a 76% chance of reaching age 90, while a woman of the same age has an 82% chance1

+ Volatility: Markets can’t be predicted or prevented, and as market swings occur, they can have a profound affect on retirement savings

+ Inflation: Even as the inflation rate has been hovering between 1% and 3% in recent years, if can still have a harmful effect on purchasing power over time

Hurdles to Saving Enough for Retirement

1 “Overcoming Your 5 Biggest Retirement Challenges,” Morganstanley.com, October 11, 2017.

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Four Strategies To Consider

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+ Pay Down Debt

+ Save for Retirement, It’s on You

+ Expect the Unexpected

+ Get Organized

Four Strategies to Consider

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Pay Down Debt

+ The single-most indebted birth cohort in the nation are 44-year-olds1

+ A 44-year-old owes on average $142,077. This is mainly composed of mortgage debt

+ Gen Xers are in even worse shape financially than the baby boomers who preceded them or the millennials who follow2

+ When it comes to millennials, the focus becomes student loan debt. 61% of adult millennials have attended college.3 This is more than any other generation of young adults, and it in turn has led to more debt

+ There is $1.3 trillion in student loan debt in the U.S.

+ With incomes rising more slowly over the past 20 years than at any time since the end of WWII, the average earner needs to borrow if she wants to replicate the steadily increasing standards of living that her parents enjoyed4

The Facts

1 Federal Reserve Bank of St. Louis economists William Emmons and Bryan Noeth, 2014. 2 Bloomberg 3 whitehouse.gov, Council of Economic Advisers, “15 Economic Facts About Millennials,” 2014. 4 FORTUNE, “America’s Most Indebted Generation? Gen X,” Chris Matthews, Aug. 27, 2014.

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Pay Down Debt

+ The three major credit reporting bureaus must give you one free copy of your credit report every year

+ Who they are:

• Experian

• TransUnion

• Equifax

+ According to the U.S. government, “It’s important to check your credit report regularly to ensure that your personal information and financial accounts are being accurately reported and that no fraudulent accounts have been opened in your name.”

How to Obtain Your FICO Score

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Pay Down Debt

+ A recent survey from the National Foundation for Credit Counseling indicates that more people would be embarrassed to admit their credit scores (30%) than their weight (12%)1

+ Prioritize extra payments on maxed-out cards

+ Don’t miss a payment. A third of your credit score depends on whether you pay your creditors on time

+ Don’t neglect your other payments. Credit card activity is not the only activity that gets reported to credit bureaus

+ The bottom line is that having lots of money does not automatically equal a good credit score and vice versa. Instead, it is all about making the right choices with what you have

Three Ways to Improve Your FICO Score

1 Forbes, “11 ways to Raise Your Credit Score, Fast,” Curtis Arnold, May 2, 2014.

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Save For Retirement

+ Established in 1978, the 401(k) plan is the most popular employer-sponsored retirement plan in America

+ You can contribute up to $18,500 of your own dollars to your 401(k) in 2018

+ The maximum allowable employer/employee joint contribution limit for 2018 is $55,000

+ If you are over age 50 you can contribute an additional $6,000 as a catch-up contribution

401(k)s: The Basics

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Save For Retirement

+ An Individual Retirement Account (IRA) can be set up by anyone who has earned income (or whose spouse has earned income)

+ In 2018 you can contribute $5,500 into an IRA

+ If you are over age 50 you can contribute an additional $1,000 as a catch-up contribution

IRA: The Basics

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Save For Retirement

+ Both 401(k)s and IRAs are available in two forms: Traditional and Roth (please note that not everyone has access to Roth 401(k)s or IRAs)

+ With Roth 401(k)s you will pay taxes on the money you invest now, and no taxes when you withdraw the money at retirement

• Contributions to a traditional 401(k) are tax-deductible, and are not tax-deductible with a Roth 401(k)

+ Traditional IRA contributions are tax-deductible on both the state and federal level for the year you make the contribution. Withdrawals taken in retirement are taxed as ordinary income

+ Roth IRAs do not provide a tax break at the time of contribution; however earnings and withdrawals are generally tax-free

Traditional vs. Roth

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Save For Retirement

+ Employers often will offer a matching contribution for their the 401(k)

• For example, John makes $100,000 per year. John’s employer has a 5% match on 401(k) contributions. John decides to contribute 5% of his earnings so that his employer will match his contribution. Every year John puts $5,000 into his 401(k), and with the 5% match, his employer also contributes $5,000. This means that $10,000 is contributed to John’s 401(k) every year rather than $5,000.

+ This is FREE MONEY, an added benefit – don’t waste it!

The Power of “The Match”

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Expect the Unexpected

+ You probably have a network of doctors to rely on

+ Why not have a network of other professionals you can go to?

• Financial Advisor

• CPA

• Estate/Trust Attorney

Professional Support Network

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Expect the Unexpected

+ If you have loved ones who count on you to care for them, you may want to consider carrying life insurance

+ How much do you need? Many factors need to be taken into account here:

• Can your partner earn money?

• How long do you need to provide money for?

+ A general rule of thumb is to make sure that life insurance will subsidize 70% of the wage earner’s income for seven years should the wage earner die

+ There are various rules of thumb when it comes to dual income earners with no kids, as well as if there is a non-working spouse, or a large family

Life Insurance

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Expect the Unexpected

+ Between the ages of 25 and 65, people’s chances of becoming disabled are much higher than their chances of dying1

+ Most people rely on their company’s disability policy – but group policies generally only cover 60% of income in the case of disability1

+ Unless you have the financial security to cover being without income until you retire, it is important that you have adequate disability coverage

Disability Insurance

1 “Insurance the ignored component in financial planning,” Jennifer Woods, CNBC.com, November 5, 2013.

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Expect the Unexpected

+ Nationally, nearly one in every six jury awards for personal negligence tallied $1 million or more, and the average award was $2,959,0471

+ Reach out to your local insurance provider to inquire about your policies and potentially adding an umbrella policy

Excess Liability Coverage is Often Overlooked

1 “Toward Broader Coverage,” Smart Business Magazine, November 25, 2006.

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Expect the Unexpected

+ Will

+ Medical Power of Attorney

+ Digital Assets

+ Do your parents have a Power of Attorney set up?

Basic Estate Planning

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Get Organized

+ A binder or file system to store important financial documents helps families manage their affairs after a catastrophe or serious illness, disability or death

+ Your advisor may be able to provide you a template to get started

+ We recommend keeping a backup organizer in a safety deposit box or with a trusted relative

Financial Records Organizer: What is it?

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Get Organized

+ Insurance – health, long-term care, property and casualty, disability and life policies

+ Taxes – last three years of returns

+ Retirement – 401(k), pension and Social Security statements and correspondence

+ Banking – checking, savings and credit card statements; mortgages and outstanding loan documents

+ Investments – brokerage statements and 1099 mailings

+ Legal documents – wills, trusts, durable power of attorney and health care proxies

Financial Records Organizer: Sample Tabs

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Get Organized

+ Establish a benchmark of your expenses as you approach retirement by reviewing credit card, debit card and bank statements for a one-year period

+ Make adjustments for those expenses that may decline, such as commuting and contributions to retirement plans, and those that may increase, such as travel and leisure

+ Divide expenses into needs, wants and wishes to help you prioritize

• Travel and leisure

• Eating out

• Child’s education

• Paying for a wedding

Personal Budget: How to Begin?

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Get Organized

+ Do you have an emergency fund? According to CNBC, 66 million Americans have no emergency savings. We suggest you have six months to a year of expenses saved in an emergency fund

+ Health Insurance: make sure you have it, and know the difference between the plans your company may offer

• HSA vs. FSA

+ Additional unexpected costs may include financial support for family members and long-term care costs for aging parents

Personal Budget: Expect the Unexpected

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Get Organized

+ Insurance policies, variable annuity contracts and IRAs will transfer to your designated beneficiary, regardless of what your wills or trusts may stipulate

+ Oftentimes, these designations were completed many years ago, and a change in your family circumstances may warrant a different designation

+ Any new beneficiary designation will automatically supersede previous designations

Update Your Beneficiaries

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Take Action

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Take Action

+ Collect all important financial documents

+ Write down your primary concerns and questions

+ Set an appointment with a trusted advisor

Next Steps

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Important information

The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a professional advisor. Federal and state laws and regulations are complex and subject to change. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Janus Henderson does not have information related to and does not review or verify particular financial or tax situations, and is not liable for use of, or any position taken in reliance on, such information.

A retirement account should be considered a long-term investment. Retirement accounts generally have expenses and account fees, which may impact the value of the account. Non-qualified withdrawals may be subject to taxes and penalties. For more detailed information about taxes, consult IRA Publication 590 or a tax attorney or accountant for advice.

In preparing this document, Janus Henderson has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources.

Tax information contained herein is not intended or written to be used, and it cannot be used by taxpayers for the purposes of avoiding penalties that may be imposed on taxpayers. Such tax information and any estate planning information is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice.

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