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Life in retirement: making your income last (resources to help your planning)
Retirement
Education
Presented by:
Ruth E. Maroun
Senior Wealth Strategy Associate
UBS Institutional Consulting Group - Northwest
UBS Financial Services, Inc.
800-905-5574
The information contained in this seminar presentation is
intended to be general in nature.
Neither UBS Financial Services Inc. nor any of its employees
provide legal or tax advice, or investment advice to
retirement plan participants.
You must consult with your legal, tax and/or investment
advisors regarding your personal circumstances.
Loma Linda University Health Care Retirement Education
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Your LLUHC Retirement Team
Investment consultants for
retirement plan
Help committee select &
monitor funds
Investment education for you
Help you with retirement
planning ongoing
Help desk: 800-905-5574
Plan administration, record-keeping
Quarterly statements &
account access for you View investments anytime, &
easy system for changes Account access:
Toll-Free: 1-866-767-1212
or www.MillimanBenefits.com
Plan custodian (for assets)
Provide access to mutual funds via trading platform Invests your money based on your instructions (Executes your trades relayed via Milliman)
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Changes to Plan Investments – Week of October 30, 2017
Retirement plan committee meets regularly to select and monitor Plan investments
- occasionally changes are made (e.g., underperforming fund may be replaced,
fund(s) added, Plan qualifies for lower cost investments).
Effective week of Oct. 30, 2017, the following changes will be made to the
investments in the Plan:
U.S. Equities
Large Company: Value AlianzGI NFJ Dividend Value Instl T. Rowe Price Value I TRPIX www.troweprice.com
Medium Company: Value Goldman Sachs Mid Cap Value Instl JP Morgan Mid Cap Value R6 JMVYX https://am.jpmorgan.com
Medium Company: Growth Ivy Mid Cap Growth Y Vanguard Mid-Cap Growth Index Admiral VMGMX https://investor.vanguard.com
Small Company: Value Royce Pennsylvania Mutual Invmt Goldman Sachs Small Cap Value R6 GSSUX https://www.gsam.com
Small Company: Blend Vanguard Small Cap Index Adm Vanguard Small Cap Index I VSCIX https://investor.vanguard.com
Total U.S. Stock Market Fidelity Total Market Index Investor Fidelity Total Market Index Premium FSTVX www.fidelity.com
International Equities
Fidelity International Index Investor Fidelity International Index Premium FSIVX www.fidelity.com
Investment Category Current Fund Replacement Fund Fund Family WebsiteTicker
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Your LLUHC Retirement Plan
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LLUHC Retirement Plan
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Your Retirement Plan consists of two parts:
1) MERP – employer annual contributions (discretionary)
All eligible employees are automatically enrolled and Loma Linda makes
contributions to your account
2) TSA - 403(b) – employee elective salary deferrals
You choose to enroll and decide how much to save from your paycheck
LLUHC MERP
1) MERP - Employer Annual Contribution (discretionary):
Eligibility – you must be at least 20 years old and work at least 1,000 hours during the plan year
Enrollment – all eligible employees are automatically enrolled in the Plan on the date of hire (or the date they turn 20 years old)
Amount of discretionary contribution – announced by March 15th for the previous year; deposited to your account no later than Sept. (e.g., receive contribution for 2016 plan year in 2017)
Broad range of investment choices
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Vesting Schedule for MERP Contributions
“Vesting” is when LLUHC’s or your participating employer’s
contributions belong to you!
You’re always 100% vested in your TSA - 403(b) salary deferrals and
any rollovers from other qualified plans.
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You will become vested in your account immediately if you are employed at
LLUHC and reach age 65, or due to disability or death.
Years of Vested
Service Interest
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
Elective Salary Deferrals (TSA-403b)
2) TSA – 403(b) Employee Elective Salary Deferral:
Eligibility – 1st of the month following your date of hire
Employee payroll deduction – tax advantaged
– You choose how much you want to save from your paycheck
– Current tax savings (i.e., pre-tax contributions) or after tax savings (i.e., Roth) – your choice, details to follow
– Automatic saving & investing is easier!
Contribution limits:
– 1-90% of your income to $18,000 in 2017 ($18,500 in 2018)
– ’50 & Over’ Catch-Up of $6,000 more in 2017 ($6,000 in 2018)
(total $24,000 in 2017; $24,500 in 2018)
– You may change your contribution rate at any time (VRU or website)
Broad range of investment choices
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Your Contributions: Pre-tax, ROTH or Both?
Traditional 401(k) = Pay Taxes Later
– Pre-tax contribution
– Tax-deferred accumulation
– Pay taxes at distribution
ROTH 401(k) = Pay Taxes Today
– After-tax contribution
– Tax-free accumulation*
You may choose pre-tax &/or ROTH for your contributions
– Company contributions are pre-tax
* Requires minimum of 5 years + age 59 ½ before distribution
This data is taken from sources deemed to be reliable, but we cannot guarantee their accuracy nor completeness.
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Accumulation vs. Distribution Phases of Retirement Management
Note: Social Security full eligibility age is increasing and depends on birth year. Source: UBS Investment Research provided through UBS Securities LLC (2004)
age 20 age 30 age 40 age 50 age 60 age 62 age 65-67 age 70.5 age 80 age 90
Accumulation Phase
Early S.S. eligibility
Full S.S Eligibility
Retirement Assets
Distribution Phase
IRA required minimum distribution age
How Do You Manage One "Paycheck" to Make it Last a Lifetime?
Before retirement
After retirement
Monthly expenses
Discretionary spending
Savings and investments
Salary
Investment income
Other sources
Lifetime expenses
Lifetime discretionary spending
Retirement plan and IRA distributions
Other assets
Social Security
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Life Expectancy Probabilities
If you're 65 today, the probability of living to a specific age or beyond
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The impact of inflation on your money (higher prices)
1As of March 2014 2Cover price, March 2014 3U.S. Bureau of Labor Statistics, April 2014 4Kelley Blue Book, December 2013 5U.S. Census Bureau, March 2014 6Trends in College Pricing 2013, The College Board’s Annual Survey of Colleges, 2013-14
Item 1980 Current
First-Class Stamp $0.15 $0.491
TV Guide $0.40 $3.992
Loaf of Bread $0.52 $1.393
Average New Car $7,571 $32,8904
Average New Home $64,600 $290,0005
College Education $4,806 $18,3916 (4-year public annual tuition and room and board)
Reasons to Save for Retirement
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Inflation – Impact on Lifestyle Expenses Often overlooked, inflation can have a dramatic effect on assets needed to cover retirement lifestyle expenses
Source: U.S. Department of Labor, Bureau of Labor Statistics Inflation calculator
20-year Period
Retirement Expenses: First year
Retirement Expenses: 20 years later
1953 – 1972 $60,000 $94,200
1963 – 1982 $60,000 $189,611
1973 – 1992 $60,000 $184,164
1983 – 2002 $60,000 $108,600
Health Care: Medicare and Medi-gap Supplemental Insurance
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Health Care Costs
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Medicare Basics (www.medicare.gov)
Medicare is health care insurance for people age 65 or older
Medicare Part A (Hospital Insurance)
Helps cover inpatient care in hospitals (includes hospitals, inpatient rehabilitation, and long-term care hospitals)
Helps cover skilled nursing facility (not custodial or long-term care), hospice and home health care services
You usually don’t pay a monthly premium for Part A coverage if you or your spouse paid FICA taxes (includes Medicare) for 40 calendar quarters (10 years)
Enrolling in Medicare Part A is automatic with Social Security benefits (unless you delay Social Security beyond age 65)
Medicare Part B (Medical Insurance)
Helps cover doctor services and outpatient care
Helps cover some preventive services to help maintain health and to keep certain illnesses from getting worse
You have to pay a premium to enroll in Medicare Part B (usually deducted from Social Security benefits) – the current standard monthly premium is $134 per person (can be higher or lower depending on taxable income)
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Medicare Basics (www.medicare.gov) Medicare is health care insurance for people age 65 or older
Medicare Part C (Medicare Advantage Plans)
A way to get Medicare benefits through private companies approved by and under contract with Medicare
Includes Part A, Part B, and usually other benefits Medicare doesn’t cover
Most plans also provide prescription drug coverage
Medicare Part D (Prescription Drug Coverage)
Run by private companies approved by Medicare, either Medicare Advantage Plans or separate Medicare Prescription Drug Plans
Helps cover the cost of prescription drugs
Each plan can vary in cost and drugs covered – higher-income consumers may pay more
Medicare Counseling
Statewide Health Insurance Befits Advisors (SHIBA) offers free, unbiased Medicare counseling
Call SHIBA at 800-562-6900
Additional information at www.insurance.wa.gov/your-insurance/medicare/
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Other Health Care Issues
“Medigap” (Supplemental Insurance) Policies
A Medigap policy is health insurance sold by private insurers to fill the “gaps” in Original Medicare Plan coverage
Medigap policies help pay some of the health care costs the Original Medicare coverage doesn’t cover
If you are in the Original Medicare Plan and have a Medigap policy, then both will pay covered health care costs
You can choose from twelve (12) different standardized Medigap policies (Medigap Plans A through L), each with a different set of basic and extra benefits (dozens of Medicare Advantage insurance carriers)
Generally when you buy a Medigap policy you must have Medicare Part A & B – you will have to pay the monthly Part B premium as well as the Medigap policy premium
You and your spouse must each buy separate Medigap policies
Medicare Coverage Choices (www.medicare.gov) STEP 1: Decide how you want to get your coverage
Part A
Hospital Insurance
Part B
Medical Insurance
"Original Medicare" or Medicare Advantage Plan (MA)
Part C (like an HMO or PPO)
Combines Part A, Part B, and usually Part D
STEP 2: Decide if you want or need to add drug coverage
Part D
Prescription Drug Coverage
Part D
Prescription Drug Coverage
(Most MA plans cover prescription drugs. You may be able to add drug coverage in some plans if not already
included.) STEP 3: Decide if you need to add supplemental coverage
Medigap: Medicare Supplement Insurance
If you join a MA plan, you can't use and can't be sold a Medigap or Medicare
Supplemental Insurance.
21 This data is taken from sources deemed to be reliable, but we cannot guarantee their accuracy nor completeness.
Medicare Selection Tools at Medicare.gov
Medicare choices can seem complicated, but there are tools available at medicare.gov to help you with your research.
Other resources include SHIBA, a volunteer service noted on Slide 19.
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Social Security: Maximize by Delaying
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Social Security Basics (www.ssa.gov)
Maximize Your Income by Delaying Benefits
1 Federal Insurance Contributions Act (Social Security + Medicare)
For most people Social Security replaces 25-45% of income
To receive full benefits you need to have paid FICA1 taxes for 35 years
Basic eligibility requires a minimum of 40 quarters (10 years) with $1,300 in covered earnings each quarter
You will receive reduced benefits if you start benefits before your “full retirement age” (FRA, sometimes called “normal retirement age” or NRA)
Starting benefits after your FRA will increase your lifetime income (at least up to age 70)
Your spouse receives a separate income, based on the greater of his / her own earnings or 50% of your benefit (often called “spousal benefit”)
The current average monthly benefit is $1,360 and is adjusted for inflation
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Social Security Basics Social Security pays a monthly income for life, and continues for your spouse
Your income is adjusted for inflation (most private pensions aren’t)
Social Security benefits are not affected by the economy or the stock market
Social Security Full Retirement Age (FRA)
If you were born in Then your FRA (or NRA) is
1937 or earlier 65 years
1938 65 years, 2 months
1939 65 years, 4 months
1940 65 years, 6 months
1941 65 years, 8 months
1942 65 years, 10 months
1943‐1954 66 years
1955 66 years, 2 months
1956 66 years, 4 months
1957 66 years, 6 months
1958 66 years, 8 months
1959 66 years, 10 months
1960 or later 67 years
Half of all Americans start taking benefits at age 62, the earliest possible age that generates the lowest amount of monthly
income
Maximize Social Security Benefits by Waiting
The data is taken from sources believed to be reliable but we cannot guarantee their accuracy nor completeness
Avoid starting Social Security benefits too early
Taking benefits too early
If you're working between 62 & full retirement age (FRA) at ages 66-67 then you will forfeit
part of the Social Security benefit until you reach FRA
Forfeiting benefits
Each year after FRA your benefit grows by 8%
per year
Waiting = growth
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(Courtesy of Fidelity Social Security Presentation, December, 2015)
Waiting 8 years provides
$775 more a month
for life (76% more)
Waiting 4 years provides
$435 more a month for life
The Value of Waiting: Up to 8% Per Year
$1,360
$1,020
$1,795
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Social Security and Working
Working while taking Social Security early has its drawbacks
This data is taken from sources deemed to be reliable, but we cannot guarantee their accuracy nor completeness.
$16,920
$44,880
Income limits are as of 2017 (subject to change)
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Federal Tax on Benefits – Provisional Income
This data is taken from sources deemed to be reliable, but we cannot guarantee their accuracy nor completeness.
You may request federal tax withholding from your benefits. Currently these income limits are fixed and are not adjusted for inflation.
Distributions: Spending and Investment Strategy
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Match sources of income with category of expenses
Lifetime Income Sources and Expenses
Essential Needs
Housing
Health Insurance
Food/Living Expenses
Lifestyle Needs
Travel
Entertainment
Hobbies/Leisure
Cash Flow Budget
Income Sources
Lifestyle Expenses
Social Security
Pension
Earned Income
Other (annuities, reverse mortgage, etc.)
Personal Investments:
Tax Deductible
Tax-Deferred
After Tax
Retirement Planning Example
If working income = $40,000/yr.
70% retirement income = $28,000/yr.
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Approx. half is Social Security = $14,000
Approx. half is from 401(k)/other = $14,000
Requires approximately $350,000 in assets
to generate $14,000/year at 4% spending rates *
* These calculations provide only a simple example – outcomes are not guaranteed. Each participant's situation is unique and requires specific planning needs.
The Milliman website tool (PlanAhead) can help you determine if you are on track. If not, it can help you consider changes to
your strategy (work longer, more saving, etc.)
The data is taken from sources believed to be reliable but we cannot
guarantee their accuracy nor completeness
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Retirement Income Challenge
Understand Key Risk Considerations
Living longer than one’s savings Longevity
Drawdown
Market
Healthcare
Decrease in “real” purchasing power, income needs rise to keep pace
“Real” rate of withdrawal may deplete assets prematurely
Expected returns on investments not realized
Rising Costs associated with medical care and extended long-term care
Inflation
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What If You Encounter Weak Financial Markets Early in Retirement?
Note: Transaction costs are not included. Source: Ibbotson, UBS 1 1973 period illustrates the devastating combination of low returns and high inflation – even worse than 1929 period when portfolios dropped
by 45% in four years, but rebounded to last 32 years after retirement . 2 (Past performance does not guarantee future results)
Timing is Everything
$500,000 at Retirement Invested in 50% Stocks, 50% Bonds Annually, With a 5% Real Annual Withdrawal Rate at Varying “Starting Points”
Average
2000
1929
19731
godear [printed: ____] [saved: ____] Presentation1
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Spending Rates Given a life expectancy of 20+ years in retirement, a fixed withdrawal rate that is inflation adjusted may not last as long as needed
Hypothetical value of $500,000 invested at year-end 1972. Portfolio represents 50% Large Company Stocks, 50% Intermediate-Term Bonds. Assumes reinvestment of income and has been adjusted for inflation, but does not take into account transaction costs, fees, taxes or other expenses an investor would normally incur. Indexes are unmanaged. You cannot invest directly in an index. Source: Ibbotson Presentation Materials, ©Ibbotson Associates, Inc. All rights reserved. Used with permission.
$100,000
$300,000
$500,000
$600,000
$0
$400,000
$200,000
9% Withdrawal Rate 8% Withdrawal Rate 7% Withdrawal Rate 6% Withdrawal Rate 5% Withdrawal Rate
9% 8% 7% 6% 5%
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Probability of Outliving Your Retirement Assets in a 25-Year Retirement
Source: UBS Quantitative Research Team (2004) based on historical return data for large-cap stocks and long-term Treasury bonds (from 1926-2003) This hypothetical example is provided for illustrated purposes only and is not intended to represent a specific investment or portfolio.
Stock/Bond Allocation (%)
100/0 80/20 60/40 40/60 20/80 0/100
2% 0.8% 0.3% 0.1% 0.0% 0.0% 0.1%
3% 3.7 2.2 1.1 0.6 0.8 3.2
4% 9.5 6.8 5.8 5.2 8.1 19.9
5% 17.5 15.2 15.2 18.3 28.9 50.1
6% 27.8 28.1 30.9 37.5 56.8 76
7% 39.8 40.9 48.2 60.7 78.4 90.5
8% 51.6 55.8 65.3 79.6 91.9 96.6
9% 61.6 69.3 78 90.2 97.3 99.1
10% 71.1 77.5 87.9 96.2 99.2 99.7
Re
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Wit
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raw
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ate
Which Will Last Longer … My Money or Me?
Planning points the way to:
Preparing Your Portfolio for What’s to Come
Creating a budget and balance sheet
Identifying income gaps and sources
Developing and evaluating a portfolio
Update your beneficiary designation
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Conventional Asset Drawdown Methodology
Address Income Gap
1 2 3
3 2 1
Savings Hierarchy
Pre-Tax 401(k)/403(b)/457
IRA PS/MP/DB
SEP SIMPLE
HSA
After-Tax Tax-Deferred
IRA Roth
Annuities Non-Qualified Plans
After-Tax Taxable
Stocks Bonds
Mutual Funds
Using Hierarchy
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Retirement Income – Strategy-Approach
Financial Planning Investment Management
Budgeting
Cash Flow Projection
Gap Analysis (Projections vs. Goals)
Mapping of Planning Solutions (reduce expenses, retire later, save more)
Implementation
Review
Strategy
– Address Income Needs Long Term View
Asset Allocation and Diversification
Rebalancing
Ongoing Review
“Choose Your Own Mix”
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Your Retirement Plan’s Investments
“One-Step Mix” (“instant diversification”)
Investment Category Investment Options
Money Market/Stable Value/ American Funds Money Market (TSA only)
(Cash) ColumbiaTrust Stable Income IV (MERP only)
Bonds (Fixed Income) Vanguard Short-Term Bond Index
Vanguard Inflation-Protected Securities
PIMCO Total Return
US Equity
Large Company: Value T. Rowe Price Value
Index Vanguard Institutional Index
Blend American Funds Fundamental Investors
Growth Columbia Select Large Cap Growth
All-Cap Index Fidelity Total Market Index
Medium Company: Value JP Morgan Mid Value
Blend Eagle Capital (MERP only)
Growth Vanguard Mid Cap Growth Index
Small Company: Value Goldman Sachs Small Cap Value
Index Vanguard Small Cap Index
Growth Hartford Small Cap Growth
Specialty: Real Estate Cohen & Steers Realty Shares
International Equity
Value Brandes International (MERP only)
Growth Oppenheimer International Growth (MERP only)
Index Fidelity International Index (both plans)
Blend American Funds Europacific Growth (TSA only)
* All investment options are mutual funds except Eagle Capital and Brandes Int'l.
which are separately managed accounts.
Balanced
2005 2035
T. Rowe Price 2010 2040
Retirement Date 2015 2045
Funds 2020 2050
2025 2055
2030 2060
“One-Step Mix” Adjusts Over Time The Retirement Date Funds are a diversified portfolio of T. Rowe Price stock and bond funds that represent various asset classes and sectors. As the fund nears its target retirement date, its allocation becomes more conservative
based on a "glide path" similar to the one below.
(This information has been obtained from sources believed to be reliable, but we cannot guarantee it’s accuracy or completeness Past performance does not guarantee future results.)
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Inflation Focused Bonds
US Investment-Grade Bonds
Int'l & High Yield Bonds
Real Assets
Int'l Stocks
US Stocks
Target Retirement Date Funds Performance (as of 9/30/17)
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Core Mutual Funds Performance (as of 9/30/17)
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Need Help?
Account Access/Website
(including investment changes, forms, retirement calculators, etc.)
Milliman (plan administrator)
1-866-767-1212
or
www.MillimanBenefits.com
Do you have questions regarding…?
Investments/Retirement Planning
1-800-905-5574 (no account access)
UBS Institutional Consulting
Financial Wellness Website (budgeting, credit, student loans, etc.)
www.ubs.com/financialwellness
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