Building a Resource Base For Retirement October 3, 2005 In the time we have remaining this evening, there are three parts. Building a resource base for retirement and analyzing your net worth statement for retirement assets Health care issue Time to put pencil to paper on what you need to be doing now to prepare for retirement.

If your expenses are greater than your income in retirement, what are your options? ______________________ Let’s brainstorm a bit. If my expenses are greater than my income, what are my options? Let the audience develop a list. Their responses will likely fit in these categories: Increase income Decrease expenses Dip into savings, sell off something Go into debt. Run up bills, run up credit cards. Leave bills unpaid Ask for charity – church, government, friends, family, neighbors Do something illegal

If your expenses are greater than your income, what are your options? Reduce expenses Increase income Go in debt Sell off assets Ask for charity Do something illegal… My main point is that if expenses are greater than income, there is a very short list of options. The key is to plan ahead to have adequate income and resources for retirement.

How much income will you need? Rule of thumb is that you’ll need 70% to 80% of your income to maintain your lifestyle in retirement. The closer you are to retirement, the more meaningful your individual analysis of expenses will be. Track household spending for 60 days – I guarantee you’ll learn something! One of the first issues of retirement is projecting how much income you will need. The rule of thumb of 70% to 80% of income is just a starting place in your planning. In general, you’ll need nearly as much as you are living on now in your retirement.

Realistic estimate of retirement expenses No mortgage payment Debt retired Increased health care insurance and costs Increased recreation/travel Lower clothing/business related costs Don’t have costs to go to work Meals away from home? Home energy costs may be higher Review list

Review your projected Social Security benefits each year. Step 2. How much will you get from Social Security and company pensions? Employers and pension managers are used to being asked about projected benefits. Review your projected Social Security benefits each year. Do you or a spouse have company pensions? Ask about projected benefits. This is a common question that pension plans expect to get from employees. Are you reviewing your social security statement that comes annually about 3 months before your birthday? Valuable information for planning.

Step 3. How much more do you need? Savings Part-time work Convert assets to income How long will you live? If you reach age 65, men tend to live 16 more years, women 18 more years Some sources suggest planning to live to age 90 If there is a gap between expected income and expected expenses, start planning now. Options: Dip into savings Part-time work Convert assets to income

Matching income to out-go – slide 1 Save more money. Increase income prior to retirement. Part-time work during retirement. Increase your retirement contributions at work especially if tax advantages or matching. 39% of US households have no retirement savings. Of the 61% that do have retirement savings, most have underestimated the amount they will need. Study by Raddon Financial Group

Matching income to outgo –slide 2 Delay retirement Reduce your retirement expenses Housing Relocate to less expensive place Work in Yellowstone/Estes Park rather than vacation there for a summer Tap into the equity of your home or farm

Financial security tips Start planning and preparing early Save and invest wisely Explore career directions you can pursue later in life. Turn a hobby into an income? Don’t retire from _____. Retire to _______. Mentally prepare yourself Carefully consider early retirement incentive plans. Do you have substantial savings and investments? Health insurance until Medicare kicks in. Review the list. Don’t tell me what you’re retiring from. Tell me what you are retiring to.

Suze Orman reminds us… You are what you do today – not what you did yesterday. No one rescues us – except ourselves. You must have an accurate starting point for dealing with what is really going on and for taking the necessary actions to get where you want to be. This is your ___ ______ ________. This is your net worth statement.

More from Orman… Your starting point is today. The past has no power over you, unless you give it power. Inability to accept the loss of anything you had is what keeps you from recognizing the gains that you have already made. Denial of your present-day financial reality is one of the biggest obstacles to wealth, both financial and every other kind.

Suze Orman The purpose of planning is to help your life go forward from where you are. You cannot go forward by looking back. The road to wealth isn’t paved with what you once had. It’s created out of what you do have and how you use it. If you live in yesterday, you will never be able to get to where you want to be tomorrow.

True or false? “You fail when you focus on what you want now, rather than what you want most.” What are some examples of focusing on what you want now, rather than what you want most. Spending all your money now … not having money for retirement. Eating all the sweets you want … not having the good health you want. How does this thought relate to retirement planning?

Examining your net worth statement You will not be asked to reveal any confidential information from your net worth statement. Pull out your net worth statement. Circle the items that you plan to use first to fund your retirement. Go back through your net worth statement and put a check next to things that you would use, if you had to for funding retirement. Finally, put an x next to assets that you would only use as last resort to fund retirement. This will be a challenging exercise for many in the room. Items they may circle first include savings and investments for retirement. Pension plans. The second and third pass through the net worth statement will be very different from person to person. One person, for example, may be very open to selling agricultural land to fund retirement, while another person may be adamant that ag land must be passed on to heirs. What is one major asset for retirement that doesn’t appear on your net worth statement? Social security benefits. Finally inquire of the group, is there anything on your net worth statement that could not be used for retirement if it was absolutely necessary?

How much of your net worth is available to fund retirement? 100%? - if don’t have the goal of leaving wealth to the next generation 50%? None? What is the dollar value of your net worth? 100% of a small number is still a small number Most people are not as financially ready to retire as they think.