the guide to my financial life - putnam investments€¦ · •millennials professionals...

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EMPOWER, ELEVATE, ACHIEVE:

The guide to myfinancial life

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Agenda

1

2

3

Women’s surging economic power

Preparing for your financial future

Financial life stages

How to take action4

Women’s surging economic power

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Women are poised to lead in controlling assets

• 95% of families will have a woman as the primary financial decision maker at some point in their lives

• Women are majority owners of 11.6 million businesses, which generate $1.7 trillion in revenues

• Will control two thirds of the nation’s wealth by year 2030

• Will control 75% of discretionary spending worldwide by 2028

Sources: Family Wealth Advisors Council, 2015; BMO Wealth Institute, 2015; Ernst & Young, 2016; National Association of Women Business Owners, 2017.

Women control 51% of personal wealth in the United States

51%

WOMEN’S SURGING ECONOMIC POWER

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Women face different challenges

Sources: Census Bureau 2018; Joint Economic Committee, 2016; Rice University, 2015; HealthView Services, 2017; Social Security Administration, 2019.

Earn only 80 cents for every dollar a man earns

EARNINGS GAP

Lose out on $324,044 in wages and Social Security to care for others

INCOME DISRUPTIONDUE TO CAREGIVING

Women now live, on average, 86.7 years versus males who live 84.3 years

LONGEVITY


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Prepare for the challenge

• Electricity

• Travel

• Utilities

• Clothes

• Vacation

• Health

DAILY EXPENSES

• Home

• Emergency repairs

• Health

• Education

• Taxes

SAVINGS

• Income

• Legacy

• Charitable

• Business

RETIREMENT


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Consider a bucket approach to manage savings priorities

Meet immediate cash-flow needs, emergency fund, etc.

• Cash

• CDs/money market

• Short-term bonds

• Immediate annuities

• Social Security, pension income

• Wages

SHORT-TERM INCOME (0–2 years)

Mix of growth and income, replenish short-term bucket, guard against market volatility

• Bonds

• Deferred annuities

• Absolute return funds

• Asset allocation funds, balanced funds

MID-TERM INCOME (2–10 years)

Inflation hedge, address longevity risk

• Balance of stocks/bonds

• Real estate

• Longevity insurance

LONG-TERM INCOME (10+ years)


Preparing for your financial future

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Four things to talk to your financial advisor about

PREPARING FOR YOUR FINANCIAL FUTURE

SOCIAL SECURITY

RETIREMENT SAVINGS

INVESTMENTS

FINANCIAL PLANNING

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Social Security won’t cover it all

• Nearly 55% of Social Security recipients are women*

• On average, Social Security only replaces about 40% of pre-retirement earnings

* ssa.gov/pubs/EN-05-10127.pdf

† Census Bureau, 2017.

‡ In today’s dollars. Average benefit retiring at age 65.

The maximum Social Security benefit in 2019 for an individual at full retirement age (66) is $34,332.

Sources: NWLC calculations based on U.S. Social Security Administration, Annual Statistical Supplement to the Social Security Bulletin, 2016, Bureau of Labor Statistics, 2016.


SOCIAL SECURITY

Women age 55‒64 earned 80 cents for every dollar earned by men†

$57,304

$42,224

$18,252$14,400

Single men Single women

Median annual

income of full-time

worker (age 55-64)What you can expect

from Social Security ‡

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Put time on your side by starting now

• On average, women maylive longer in retirement: A 65-year-old woman can expect to live, on average, until age 87, while a 65-year-old man can expect to live to age 84

Source: Putnam. Assumes 25-year retirement period, 100% of final annual income withdrawn each year, 6% annual return compounded monthly with a 3% annual inflation adjustment (inflation adjusted effective return is 3.08%).


RETIREMENT SAVINGS

If your current annual income is: You’ll need to save:

$50,000 $875,480

$100,000 $1,750,960

$250,000 $4,377,401

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$100,421

$154,809

$307,111

$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000

Start investing, stay invested

• Reduce risk by diversifying your investments.

• By staying fully invested over the past 15 years, you would have earned over $150,000 more than someone who missed the market’s 10 best days.

Source: Putnam, December 2019. Data is historical. Past performance is not a guarantee of future results. The best time to invest assumes shares are bought when market prices are low. Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.


INVESTMENTS

$100,000 invested in the S&P 500 (12/31/04–12/31/19)

Stayed fully invested

7.77% annualized total return

Missed 10 best days

2.96%

Missed 20 best days

0.03%

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Financial planning

• 41% of women wish they had invested more of their money*

• Just over half (52%) of women say they are confident about investing (compared with 68% of men)†

* ml.com/women-financial-wellness-age-wave.html. “Women and Financial Wellness,” Merrill Lynch, 2017.

† mlaem.fs.ml.com/content/dam/ML/Registration/ml-womens-study.pdf


FINANCIAL PLANNING

Five things that take money out of your pocket

Financial life stages

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Your financial life

FINANCIAL LIFE STAGES

LIFESTAGES

DISTRIBUTING WEALTH

• Retirees

• Supporting decision makers

GROWING LITERACY

• Millennials professionals

• Beneficiaries/heirs


ACCUMULATING WEALTH

• Established professionals

• Business owners/Self-employed

• Working mothers


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Growing literacy: Establishing a framework for growth

❑ Create or review your budget

❑ Establish an emergency fund

❑ Pay yourself first

❑ Review employer-sponsored retirement savings options

❑ Consider opening an IRA and HSA

❑ Ask about systematic investing options

❑ Establish a timeline for student loan repayment

❑ Build credit intentionally

❑ Review insurance options:

❑ Health

❑ Disability

❑ Life

1. Financial literacy: Take charge of your financial life

2. Budgeting: Find direction in everyday spending and saving

3. Savings: Create a plan to achieve long-term goals

4. Debt: Investigate options for building credit and repaying loans

5. Insurance: Protect your hard work by preparing for unforeseen challenges

FIVE ESSENTIAL LIFE STAGE COMPONENTS TO-DO LIST


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Accumulating wealth: Creating your retirement nest egg

❑ Annually review retirement accounts

❑ If applicable, understand basics of retirement account consolidation

❑ Adjust contributions if necessary

❑ Review beneficiary designations

❑ If applicable, ask about 529 plans and college savings options

❑ Understand future benefit options such as Social Security and Medicare

❑ If applicable, discuss considerations for company stock in retirement plans

❑ Investigate estate planning considerations

❑ Pursue tax diversification in accounts

1. Financial literacy: Be engaged in your financial life

2. Advanced planning: Optimize your personal savings for future goals

3. Family considerations: Help support your loved ones

4. Legacy building: Establish a plan to support what’s important to you

5. Tax management: Defend the wealth that you’ve built



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Distributing wealth: Enjoying your retirement years


❑ Annually review your health care coverage options

❑ Discuss Medicare enrollment options with a professional

❑ Decide when you will begin collecting Social Security

❑ Review budget and bucketed savings approach

❑ Incorporate tax smart withdrawal strategies

❑ Consider charitable giving strategies

❑ Investigate long-term care living options

❑ Introduce your heirs to your financial advisor

❑ Prepare for wealth transfer conversations

1. Financial literacy: Sharing your knowledge with loved ones

2. Health care: Plan for unforeseen expenses

3. Income planning: Optimize your withdrawal strategy

4. Long-term care: Understanding your options

5. Estate planning: Leave a legacy for your loved ones


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Planning and preparing for the unexpected


❑ Complete and retain important documents

❑ Medical directives

❑ Beneficiary designations

❑ Power of attorney

❑ Establish a “backup” budget in case of sudden income loss

❑ Consult a financial advisor for referrals to:

❑ CPA

❑ Lawyer/Estate planner

❑ Schedule a family meeting with spouses, partners, and heirs to develop:

❑ “I love you” letter

❑ Financial emergency preparedness plan

1. Share knowledge: Keep an open dialogue with loved ones

2. Important documents: Ensure its easy for others to access

3. Support network: Work with qualified professionals who can help

4. Financial protection: Defend what you’ve worked to build

5. Continued education: Stay informed on what matters most

FIVE CONSIDERATIONS FOR THE UNEXPECTED TO-DO LIST

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Special considerations for widows and divorced individuals


❑ Update important documents

❑ Beneficiary designations

❑ Power of attorney

❑ Medical directives

❑ Work with a financial advisor to navigate:

❑ Lifetime income risk

❑ Social Security considerations

❑ Insurance coverage updates

❑ Tax considerations

❑ Secure credit by reviewing credit score and history

❑ Review employee benefits, and, if applicable, consider coverage for children

1. Seek support: Keep an open dialogue with loved ones

2. Important documents: Ensure its easy for others to access

3. Income planning: Work with qualified professionals who can help

4. Asset protection: Defend what you’ve worked to build

5. Tax considerations: Stay informed on what matters most

FIVE CONSIDERATIONS FOR THE NEWLY INDEPENDENT TO-DO LIST

How to take action

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Put your plan into action

• Take inventory of your financial goals

• Review the guide to your financial life with a qualified financial advisor

• Share knowledge to empower other women

HOW TO TAKE ACTION

Appendix: A deeper look

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$1,731,989$1,861,592

-$472,238

Retire in 1980 Retire in 1990 Retire in 2000

Sequence risk: When you retire can make a big difference

Assumptions

• $1 million portfolio

• 5% withdrawn annually and increased each year to keep up with inflation

• Invested in a portfolio of 60% stocks, 30% bonds, and 10% cash

Source: Putnam research, December 2019.

Portfolio balance remaining after 10 years of withdrawals

RELATED PLANNING IDEAS

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Income: Importance of guaranteed sources

Example

• Balanced portfolio: 60% stocks, 30% bonds, 10% cash

• 5% withdrawn annually

• Guaranteed income based on current immediate annuity rates

This example is based on rolling historical time period analysis and does not account for the effect of taxes, nor does it represent the performance of any Putnam fund or product, which will fluctuate. Assumes historical rolling periods from 1926 to 2015 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (as represented by U.S. 30-day T-bills) to determine how long a portfolio would have lasted given a 5% withdrawal rate. A one-year rolling average is used to calculate performance of the 20-year bonds. Guaranteed income is based on a single premium, immediate annuity for a 65-year-old male assuming single life expectancy at current (August 2016) annuity rates. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.


Probability of portfolio survival over 30 years


77% 94%

No guaranteed income

25% guaranteed income

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Choose the right withdrawal rate

Percentage of your portfolio’s original balance withdrawn each year

This example assumes a 90% probability rate. These hypothetical illustrations are based on rolling historical time period analysis and do not account for the effect of taxes, nor do they represent the performance of any Putnam fund or product, which will fluctuate. These illustrations use the historical rolling periods from 1926 to 2015 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (as represented by U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.


STOCKS 60%

CASH 10%

Allocation

10%will last10 years

9%will last11 years

4%will last33 years

5%will last20 years

6%will last16 years

7%will last13 years

8%will last12 years

3%will last50 years


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Optimizing Social Security

Considerations

• Only source of guaranteed income for many retirees

• Risk of taking too early

• Consider maximizing survivor benefit to address longevity risk

• Special rules apply for divorced and widowed retirees

Monthly benefits increase as you delay Social Security

Age 62 Age 66 Age 70

$1,394

$1,983

$2,660

Social Security Quick Calculator benefit estimate

based on an individual age 62 with $75,000 in

current earnings. Does not include increases in

benefit levels due to regular cost-of-living

adjustments.


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• Generally no premium

• Nursing care, hospital stays, home health, hospice, limited nursing home care

• Annual deductible of $1,408 (hospital inpatient)

• Doctor visits, outpatient procedures, tests, therapy, x-rays, etc.

• Base premium of $144.60 per month with a deductible of $198.00/year

• 80/20 coverage — no coinsurance for most preventative services

• Optional prescription drug coverage

• Offered by private insurance companies that are approved by Medicare

• Maximum annual deductible cannot exceed $435.00

Understand Medicare and Supplemental coverage

Based on 2020 rates. Medicare beneficiaries who are currently receiving Social Security benefits are not subject to an increase of their Part B premium in 2016 due to the hold harmless clause. A hold harmless provision in the Social Security Act

disallows an increase in the Medicare Part B premium for qualifying Social Security recipients if their COLA is not large enough to cover the increase in the Part B premium. For that group, the Part B base premium will remain at $104.90.


PART A (Hospital) PART B (Doctor) PART D (Drug)

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Make sure you have supplemental coverage


• Private alternative to Medicare Parts A and B — must have at least equivalent benefit, regulated by Medicare

• Generally offers additional benefits, such as vision, dental, and hearing, and many include prescription drug coverage

• Eliminates some Medicare co-payments and deductibles

• Plans have service areas — most coverage offered through an HMO or PPO network

• Offered through private insurance companies

• Extra insurance that will cover certain expenses not covered by Medicare such as deductibles, copays, and uncovered services

• Premiums will vary by area and are paid separately from Medicare Part B and D premiums

• Generally higher cost than Medicare Advantage but lower out-of-pocket expense

MEDICARE ADVANTAGE (Part C) MEDIGAP POLICY

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Applying NUA treatment on company stock

Example

Participant contributes $50,000 into company stock within their employer-sponsored retirement plan, which appreciates in value at retirement to $300,000.

Example assumes maximum 37% income tax bracket and 20% capital gains rate.

Source: Putnam, January 2019.

Electing NUA treatment

Total taxes due:

$68,500

($50,000 x 37% income tax rate, $250,000 x 20% capital gains rate)

COST BASIS

NUA

$300,000

$250,000

$50,000


Rolling over company stock

Total taxes due:

$111,800

($300,000 x 37% income tax rate)

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Understanding the impact of tax diversification

Tax diversification offers some distinct benefits:

1. Flexibility to draw income from different sources depending on your tax situation and changes in overall life circumstances

2. Opportunity to hedge your portfolio against the direction of tax rates, which could move higher in the future


• Savings accounts and CDs

• Brokerage accounts

• Mutual funds

TAXABLE ASSETS

• Traditional IRAs

• Retirement plans (e.g., 401(k), 403(b))

• Annuities

TAX-DEFERRED ASSETS

• Roth IRA and Roth 401(k)

• Municipal bonds

• College savings accounts (e.g., 529)

TAX-FREE ASSETS

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Putnam Retail Managementputnam.com

All funds involve risk, including the loss of principal.

This material is for informational and educational purposes only. It is not a recommendation of any specific investment product, strategy, or decision, and is not intended to suggest taking or refraining from any course of action. It is not intended to address the needs, circumstances, and objectives of any specific investor. This information is not meant as tax or legal advice. Investors should consult a professional advisor before making investment and financial decisions and for more information on tax rules and other laws, which are complex and subject to change.

Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581.

Please read the prospectus carefully before investing.

PUTNAM INVESTMENTS PPT002 321499 4/20 1

Your financial wellness can influence your lifestyle.

In this presentation, we want to focus on three goals:

Empower — Illustrate how women represent a growing economic driver

Elevate — Expand awareness of key considerations, such as health care, longevity, and investing for

the future.

Excel — Provide strategies to help women achieve short- and long-term goals.


At today’s meeting we will review:

• Facts about women’s surging economic power

• How to prepare for your financial future

• Identify and manage financial life stages

• How to take action to achieve goals


It has only been in the last 60 years that women gained financial equality in the eyes of the law:

• Prior to 1971: States could give preference to men over women in assigning estate administrators

• Prior to 1974: Women couldn’t apply as an individual for credit cards

• Prior to 1981: Husbands could have unilateral control over joint property

• Prior to 1988: It was legal to require a male relative’s signature on a business loan

Women are now poised to lead in controlling assets:

• 95% of families say that a woman will be the primary financial decision maker at some point in

their lives

• Women are majority owners of almost 12 million businesses today that generate close to

$2 trillion in revenue

• And, most importantly, women control over half of the personal wealth in the U.S. today, and

that is expected to increase to two-thirds by 2030


There are three key challenges that women still face when preparing for retirement:

1. The Earnings Gap

• While progress has been made, women still earn 80 cents for every dollar that a man earns. Census

Bureau, 2018 (based on 2017 data)

• Lower career earnings mean less retirement income. The median income for women age 65 and older

is $17,400 — 44% less than the median income for men of the same age ($31,200) (Joint Economic

Committee, 2016)

2. Caregiving

• Caregiving is another factor that can reduce income, and 66% of caregivers are women. Women are

more likely to take on the caregiving role for children and elderly parents, requiring that they either

reduce hours at work, give up a promotion, or temporarily leave the workforce. (Family Caregiver

Alliance, 2015)

• In total, the cost impact of caregiving on the average female caregiver in terms of lost wages and Social

Security benefits is estimated to be $324,044. (Rice University, 2015)

3. Longevity

• Women live longer than men. A woman turning 65 years old today can expect to live to age 86.7 on

average, compared with 84.3 for men (Social Security Administration, 2018). They also need to

financially prepare for more years in retirement because they live longer and on average, marry older

men. Health-care costs, which are already rising, have a disproportionate impact on women because

they live longer. This creates many challenges for women if they have not properly planned.

• Many women could face a four-year window where they will be solely responsible for household

expenses including health care. (HealthView Services, 2017)


Economic challenges grow more complex over time. Women may need to focus on a comprehensive

financial plan and save more as they face the impact of the earnings gap and longevity trends.


One strategy for managing current spending and future savings goals is to consider a bucket

approach. There are many different versions of this strategy.

In order to meet current income needs and prepare against any short-term circumstances, a portion

of the overall savings would be invested in liquid accounts (CDs, money market, etc.). For the mid-

term and longer-term buckets, accounts would be allocated according to their investment objective.

For example, the longer-term bucket might consist of growth stocks or funds, real estate, and

commodities in order to keep up with inflation and protect against the risk of outliving your assets.


When working with a financial advisor, consider these topics to help drive your discussions. Over the

next few slides, we will review each of these areas in greater detail.

1. Social Security

2. Retirement savings

3. Investments

4. Financial planning


Equal pay has been the law since 1963. But today, women are still paid less than men — even with

similar education, skills, and experience.

In 2017, working women ages 55–64 were paid only 80 cents for every dollar a man was paid,

according to the Census Bureau.

Over time, this gap in earnings will have an impact on a woman’s ability to save during her working

years — and on her Social Security benefit, which is based on work and salary history.

In 2017, the Bureau of Labor Statistics (2016 data) reported that the earnings gap could cost a

woman more than $1,055,000.

(Source: Bureau of Labor Statistic; TED: The Economics daily, Median usual weekly earnings of

women and men who are full-time wage and salary workers, by age, 2016 annual averages. Age

Wave Analysis.)

A woman would have to work an extra 10 years to make up the wage gap. (National Women’s Law

Center 2017).

Another factor influencing earnings is that women are more likely than men to take on the role as a

caregiver of children or elderly parents. More than one third of caregivers reduce their work hours or

leave the workforce.

While Social Security is one source of income, it’s important to understand that it will provide only a

fraction of the income needed in retirement. Many people over-estimate the amount of income they

will receive from their savings and, as a result, rely more heavily on Social Security to pay the bills.

PUTNAM INVESTMENTS PPT002 321499 4/20 ‹#›

To maintain your standard of living in retirement, you will have to make up the difference

through your own savings and investments.

The maximum Social Security benefit in 2020 for an individual at full retirement age (66) is

$36,132.

If you are married, it’s important to note that the age at which your spouse starts taking Social

Security benefits can affect your long-term benefits. Most married men start claiming Social

Security benefits at age 62 or 63, far short of the age that maximizes the value of the average

benefit. What results is a much lower long-term survivor benefit amount. If your husband

postpones his claim, it could significantly increase your long-term benefit.


Because of longevity, women are in a unique position when it comes to saving for retirement. A

woman who is age 65 today can expect to live on average until 86.7 years of age. In fact, the majority

of people who are age 85 or older today are women.

A consequence of longevity is that, statistically, people pay an increasing amount for health care and

related expenses as they age. Health-care spending is projected to rise 5.8% annually over the next

10 years. Therefore, women need to make sure that retirement planning takes into account a longer

life span and an increase in health-care costs.

One way to prepare for this challenge is to avoid procrastination. Put time on your side by starting

now.


Over the past 70 years, there have been 13 bear markets, lasting an average of 13 months and

declining a total of 25.8% before recovering. By contrast, the 14 bull markets since 1949 have lasted

roughly 47 months on balance, each growing an average of 124.6%

Although selling may feel better in times of market turbulence, the fact is that market gains have

more than made up for losses for those investors who stay invested over time.


• 41% of women say their biggest financial regret is not investing more.

• About half of women versus 68% of men say they are confident about investing. Strong financial

planning and supportive advice can help close that confidence gap because it can help us

navigate the five things that take money out of our pocket as we balance our current spending

needs with saving for the future.

Taxes:

• The likelihood of higher tax rates increases, as the federal budget deficit rises.

• At current federal income tax rates, one dollar inside a traditional retirement plan or IRA may

only provide 60 cents of income once taxes are accounted for (assuming the highest current

income tax bracket of 37.0%). Since many retirees hold a large portion of their savings inside

these traditional retirement accounts and IRAs, taxes can have a major impact on their ability to

generate necessary income.

Inflation:

• A dollar today will likely be worth less at retirement because of inflation.

• While it is difficult to predict inflation rates, even a 3.2% rate of inflation (just below the historical

average of 3.43%) can have a significant impact on purchasing power and standard of living.

• Consider how the cost of a new home has risen over the years. The average cost of a new home

was $143,000 in 1991. Yet by 2016, the average price was $384,000 and that’s expected to rise to

$843,964 by 2041.

Low Interest Rates:

• Between 1994 and 1995, the 10-year treasury bond had a yield of around 8%. Today, the yield is

just above 3%. This means that you are earning less from your long-term fixed income


investments, and even less in your liquid savings accounts.

• Since the impact of the pandemic, the yield has dropped to historic lows.

Health Care Costs:

• It’s clear that health-care costs are rising and pose a significant challenge for retirees. But

how do health-care costs compare with overall inflation and wages from employment?

The answer is striking.

• Over the past decade, health-care costs have risen cumulatively by more than 200% while

inflation (as measured by historical CPI) has risen roughly 47% and wages only 64%.

(Kaiser Family Foundation, 2017)

• Costs are expected to grow significantly in the future

• Health-care spending increases significantly with age

Procrastination:

• The biggest challenge is an individual’s own fear of getting started. Which is exactly why it

is important to have discussions like we are having today, and why it is important to work

with a professional who can help you craft a unique roadmap tailored to your own

financial life.


As you navigate your financial life, there are several identifiable life stages:

Growing Literacy: This group of individuals are establishing their financial lives. Perhaps this is a

millennial woman just entering the workforce or your younger beneficiaries and heirs who are

focused on broadening their financial literacy.

Accumulating Wealth: These are established professionals who have careers or who are helping to

manage the household. They are further along on their financial journey and may have started to

develop a more substantial nest egg for their retirement. Their financial planning needs may be more

complex. For example, they may have multiple retirement accounts or are navigating their finances

in combination with income from a partner.

Distributing Wealth: These are individuals who are no longer generating income through

employment. For the first time, they are living off of the wealth they’ve accumulated by generating

an income stream. We typically associate this stage with those in retirement, but this category could

also include someone with a long-term disability that inhibits them from working.

It is important to plan for each financial life stage, as well as unexpected events that can impact your

financial roadmap. Some of these events include sudden disability or illness, career changes, sudden

cash windfalls, becoming a caregiver, and starting a family.

Over the next few slides, we will take a deeper look at each of these life stages by reviewing the Top

Five Essential Life Stage Components and a to-do list that you can use to help drive your

conversations with loved ones and the financial professionals you work with.


For individuals starting to take control of their finances, there are five key areas for discussion:

1. Financial literacy

2. Budgeting

3. Savings

4. Debt

5. Insurance

Consider the following to-do list:

• Create or review your budget

• Establish an emergency fund

• Consider retirement savings options

• Student loan repayment

• Building credit

• Review insurance options


At this stage, the focus is on the distribution of wealth. Here are five essential components for

discussion:

1. Financial literacy

2. Health care

3. Income planning

4. Long-term care

5. Estate planning

On the to-do list, consider these items to review with an advisor:

• Review health coverage options

• Determine when to claim Social Security

• Review budget and savings approach

• Long-term care options

• Introduce heirs to your advisor

• Prepare for wealth transfer


As we all realize, life stages do not always flow smoothly and individuals need to be prepared for

unexpected changes and transitions. We cannot prepare for everything, but there are a number of

considerations when planning for the unexpected:

1. Share knowledge with loved ones

2. Update important documents

3. Utilize a network of professionals

4. Financial protection

5. Continued education

A to-do list to discuss with an advisor may include:

• Maintain important documents

• Have a backup budget

• Ask your advisor for referrals (CPA, etc.)

• Hold a family meeting with partners

• Write an “I love you” letter

• Discuss financial emergency preparedness


For unexpected transitions, such as the loss of a spouse through death or divorce, there are many

planning considerations. Topic to discuss with an advisor include:

1. Seek support

2. Update important documents

3. Income planning

4. Asset protection

5. Tax considerations

On a to-do list:

• Update documents

• Work with an advisor to navigate income risk

• Social Security

• Insurance coverage updates

• Tax considerations

• Secure credit

• Review employee benefits


We’ve covered a lot today. So, how do you get started following this conversation. Consider the

following steps.

• Take inventory of your financial goals

• Review the guide to your financial life with a qualified financial advisor

• Share knowledge to empower other women


When you retire can also have a major impact on your financial success in retirement. The math

behind withdrawing or distributing assets IN retirement is much different than saving, or

accumulating assets FOR retirement.

If you begin withdrawing from a portfolio during a deep market downtown — like the latter half of

2008 for example — you have to liquidate more shares to create the same amount of income

(because of the decline in the value of those shares). This is often referred to as “sequence of returns”

risk.

If you analyze three different scenarios — retiring in 1980, retiring in 1990, or retiring in 2000 — it’s

clear that timing can make a huge difference in outcomes. Those who retired and began withdrawals

in 1980 or 1990 fared well over the first 10 years of their retirement (based on the given assumptions).

In fact, even with taking 5% withdrawals each year adjusted for inflation, after 10 years the value of

the initial $1 million nest egg had risen dramatically. Conversely, those retiring in 2000 didn’t fare as

well. Their retirement nest egg was decimated first in early 2000 when the tech bubble burst and

then again in 2008/2009 with the credit crisis and ensuing “Great Recession.” For this reason, it’s

critical that retirees invest to avoid potential sharp market downturns or “shocks” when they are

withdrawing assets from their portfolio.


One of the biggest differences current and future retirees face compared with previous generations is

the lack of guaranteed income in retirement. The transition from Defined Benefit pension plans to

Defined Contribution plans places more responsibility on the individual retirees to manage and draw

down those assets in retirement. Incorporating guaranteed income as part of an overall plan can

help avoid market-related “shocks” and provide a “floor” of income.

Consider this example of a balanced portfolio with 5% being withdrawn annually, to be increased

each year to account for inflation. Based on historical results, this portfolio would have survived 77%

of the time. Meaning that, at the end of roughly 30 years the portfolio would not run out of money.

Now, what if we allocated 25% of the portfolio to create a guaranteed income stream? Based on

current immediate annuity rates for a 65-year-old male, adding guaranteed income would increase

the survival likelihood of the remaining variable portfolio from 77% to 94%. Basically, since there is a

guaranteed stream of income, there is less stress on the remaining portfolio to achieve the goal of a

5% income stream adjusted annually for inflation.

Of course, committing funds to an annuity product involves relinquishing control over those funds in

many cases. However, there are other products such as Guaranteed Minimum Withdrawal Benefits

(GMWBs) that provide some additional flexibility to the contract owner, albeit at a higher cost.


One of the important expectations to manage is how much you can withdraw from your portfolio if

you want it to last. This idea is called “sustainable withdrawals.”

This chart takes a balanced portfolio mix of 60% equities, 30% fixed income, and 10% cash, then

shows how long it would last at different withdrawal rates. What’s interesting is that because we’re

dealing in percentages, the dollar amount of your nest egg doesn’t matter. Whether you have $100 or

$100,000, 50% is still half.

The chart shows that if you took 10% out of your savings each year, you could have expected your

savings to last about 10 years. Based upon this mix, a 6% annual withdrawal rate, increased each

year to keep up with inflation, would have lasted around 16 years.

The message here is that you should try to limit your withdrawals to no more than 5%, given what

we know about how long you are likely to spend in retirement.


For today’s retirees, the importance of making the right decisions around Social Security cannot be

overstated. Generally, people are living longer and many do not have access to traditional pension

plans providing guaranteed lifetime income. With the rise of defined contribution plans, Social

Security will be the only source of guaranteed income for many in retirement.

In fact, for 61% of elderly beneficiaries, Social Security provides the majority of their cash income.

Claiming Social Security early locks you into a lower monthly benefit amount for the rest of your life.

In fact, many retirees opt to take benefits early resulting in lower lifetime income for them and

potentially their surviving spouse. Many underestimate life expectancy. Married couples without

guaranteed income should consider options to maximize the survivor benefit for whichever spouse

lives the longest, especially in cases where one spouse was the primary earner. They need to think in

terms of joint life expectancy, not just that of the worker.

Lastly, there are special rules which apply to divorced and widowed individuals. Divorced individuals

may receive benefits based on the ex-spouse’s earnings record. There are certain conditions that

must be met:

• The marriage lasted 10 years or more

• The ex-spouse is eligible for Social Security benefits (even if he or she has not filed for benefits yet)

• The spouse making claim on the ex-spouse’s record is unmarried and age 62 or older

Unlike spouses or ex-spouses, widows may receive benefits as early as age 60. However, the benefit

amount for beginning benefits that early would be 71.5% of the full amount and is based on the

deceased spouse’s earnings. The longer benefits are delayed, the greater the amount. However,

unlike retirement benefits, survivor (and spousal) benefits do not increase if claimed after full

retirement age. Lastly, survivor benefits are lost if you remarry prior to age 60, unless that marriage

ends in divorce or death.


Here’s a summary of the three main parts of Medicare — Part A for hospitalization, Part B for doctor

visits, and Part D for prescription drug coverage.

Medicare Part A

There is no premium, assuming you paid Medicare payroll taxes while working. Part A provides

inpatient care in hospitals, skilled nursing facility care, hospice care, and home health care. For long-

term care in a nursing home, you pay nothing for the first 20 days of each benefit period, a

coinsurance for days 21 to 100 of each benefit period, and all costs for each day after 100 days in a

benefit period.

Medicare Part B

Medicare Part B (Medical Insurance) helps cover medically necessary doctors’ services, outpatient

care, home health services, durable medical equipment, and other medical services. Part B also

covers many preventative services. You pay nothing for most covered preventive services if you get

the services from a doctor or other qualified health-care provider who accepts assignment.

Medicare Part D

There are two ways to get Medicare prescription drug coverage. One is through Medicare

Prescription Drug Plans. These plans (sometimes called “PDPs”) add drug coverage to Original

Medicare, some Medicare Cost Plans, some Medicare Private Fee-for-Service (PFFS) plans, and

Medicare Medical Savings Account (MSA) plans. You must have Part A or Part B to join a Medicare

Prescription Drug Plan. The second is through Medicare Advantage Plans (like HMOs or PPOs) that

offer prescription drug coverage.

Note that some of the items and services that Medicare doesn’t cover are most dental care, eye

examinations related to prescribing glasses, dentures, cosmetic surgery, acupuncture, and hearing

aids and exams for fitting them.


Since original Medicare includes deductibles and coinsurance that could lead to significant out-of-

pocket expenses in retirement, many retirees opt for supplemental insurance to cover these costs.

First, Medicare Advantage (MA) plans that bundle Parts A, B, and D coverage into one policy. There

are several types, including:

Medicare Preferred Provider Organization (PPO) — A network of doctors, clinics, hospitals, and other

health-care providers. With this type of plan, you don’t have to choose a primary care physician up

front to coordinate your care.

Medicare Health Maintenance Organization (HMO) — A plan in which you choose a primary care

physician who will coordinate your care and refer you to any specialists you have to see. An HMO

typically has a network of health-care professionals, and going outside of that network could require

you to pay completely out-of-pocket for any services.

Other plans — Medicare Private Fee-for-Service (PFFS), Medicare Special Needs Plans (SNPs), and

Medicare Medical Savings Account (MSA).

Alternatively, some retirees opt for original Medicare and purchase a separate Medigap policy to

cover at least some of the out-of-pocket expenses. Here’s some additional information on Medigap

plans:

• You pay the private insurance company a monthly premium for your Medigap policy in addition

to the monthly Part B premium that you pay to Medicare

• A Medigap policy only covers one person. If you and your spouse both want Medigap coverage,

you'll each have to buy separate policies

• You can buy a Medigap policy from any insurance company that's licensed in your state


• Policies are grouped by letters A through N — All plans with the same letter must offer the

same base benefits (certain plan types are not available to new subscribers)

• No higher premiums for those with pre-existing conditions who enroll during the open

enrollment period (6-month period when you reach age 65 and are enrolled in Medicare

Parts A and B)

• Any standardized Medigap policy is guaranteed renewable even if you have health

problems. This means the insurance company can't cancel your Medigap policy as long as

you pay the premium

• Medigap policies generally don't cover long-term care, vision or dental care, hearing aids,

eyeglasses, or private-duty nursing and do not provide prescription drug coverage


For retirees holding company stock in their qualified retirement plan, they may have another option

in addition to rolling over the stock into a Rollover IRA. Under IRC section 402(e)(4) the IRS allows

special tax treatment on the distribution of employer stock from an ERISA plan. Upon distribution

(not rollover), only the cost basis of the stock is taxable income. There is no tax on the appreciation

of the stock until it is sold, and then long-term capital gains treatment applies. This may create tax

savings since retirement distributions are ordinarily taxed as ordinary income rates, which are

currently higher than the capital gains rate.

Here’s a quick example:

Participant contributes $50,000 toward the purchase of company stock in their retirement plan

Over time this grows to $300,000 — the $250,000 in market gains is known as the NUA (net unrealized

appreciation)

The benefit is the difference in taxes paid ($50,000) on the $300,000 distribution from the company

plan (assuming a 20% long-term capital gains rate, and 37% income rate)

The more the stock has appreciated within the plan and the higher the tax rate expected in

retirement, the better the prospect for using the NUA strategy. Note that there are several

requirements before being able to apply NUA treatment. First, the distribution from the plan must be

a lump-sum distribution (all funds distributed from the plan during the calendar year). The stock

must be transfer in-kind (not sold or rolled over) to a brokerage account.

* Clients should consult a qualified tax professional when considering this strategy as certain

requirements apply.


Being mindful of the tax status of assets in retirement and how funds are allocated among them, is

an important aspect of planning when considering potential tax exposure in the future.

One of the challenges many retirees face is that a disproportionate percentage of their overall

savings is held in tax-deferred retirement accounts that can be taxed at a rate as high as 37% upon

withdrawal.

Retirees who have a large majority of their savings in traditional retirement accounts could be in for

a surprise when they have to pay taxes.

Creating tax diversification means allocating assets over time across taxable, tax-deferred, and tax-

free sources.

Tax diversification offers several benefits:

• Flexibility to draw income from different sources depending on your tax situation and changes in

overall life circumstances

• May help your portfolio last longer

• Allows you to hedge your portfolio against the direction of tax rates, which could be higher in the

future.

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