1. WILL YOUR RETIREMENT YEARS BE “GOLDEN”?
TEST YOUR RETIREMENT KNOWLEDGE
(And yes, there will be math)

2. 1. According to a recent Retirement Confidence Survey, what percent of respondents said that they would rather “scrub a bathroom” than plan for retirement?
A) 23%
B) 31%
C) 17%

3. Employee Benefits Institute
2. What percentage of today’s workers have NEVER made an attempt to calculate the amount they need to save for retirement?
A) 54% B) 46% C) 37%
Employee Benefits Institute

4. 3. What percentage of today’s workers have NOTHING saved for retirement?
18%
31%
46%
Employee Benefits Institute and Matthew Greenwald & Associates Inc Retirement Confidence Surveys

5. Center for Retirement Research at Boston College
4. What percentage of households with a head-of-household between 62 and 65 years of age has saved enough to maintain its standard of living in retirement without postponing the milestone?
A) 33% B) 25% C) 41%
Center for Retirement Research at Boston College

6. 5. What percentage of workers under the age of 25 are actively saving for retirement ?
> 1/3
1/3
< 1/3
MSN Money

7. 6. What percentage of adult children are a primary source of financial support for their retired parents?
25%
35%
10%
*New York Times

8. Don’t Be an Ostrich
The ostrich effect is a term used by sociologists and economists to explain the avoidance of apparently risky financial situations by pretending they do not exist
The name comes from the common (but false) legend that ostriches bury their heads in the sand to avoid danger
Wikepedia

9. Wall Street Journal Feb. 19, 2011
7. What percentage of your “working income” will likely be needed in your post-retirement years to maintain a comparable standard of living?
85%
55%
70%
Wall Street Journal Feb. 19, 2011

10. 8. To ensure that you do not outlive your nest egg, what percentage of retirement savings should you plan on withdrawing annually in retirement? 4% 2% 8%

11. I’ll only need 4 % of my savings per year!?
What a Relief…
I’ll only need 4 % of my savings per year!?
CONSIDER THIS:
Let’s assume the same rate of inflation that we have seen over the past 3 decades (around 3%) continues over the next 3 decades:
An individual who plans to retire in 2038 and would like to live off the equivalent of $50,000 per year (in today’s dollars) will need to withdraw $150,000 annually. If this represents 4% of his total nest egg, he will need to have saved $3.75 million (future dollars)!

12. 9. What is the recommended average rate of deferral for an employee participating in a retirement savings plan (including company contributions)?
A) 5-7%
B) 8-10%
C) 12-15%
Vanguard Group

13. ALERT
DEFERRAL
For three decades, the average recommended rate of deferral has been 9-12% of gross annual earnings
Recently, the many 401(k) providers have increased the recommendation to 12-15% (including the employer contribution)
Reason: As a result of rising healthcare costs and uncertainty about the future of social security and Medicare, it is now believed that a retiree must save 15 times their pre-retirement earnings as opposed to 10 times that amount, the previously recommended savings target
Current average deferral rate: 9%
Vanguard Group

14. 10. What are the estimated OUT-OF-POCKET post- retirement healthcare expenses for a healthy couple reaching age 65 in 2018?
$178,000
$232,000
$511,000

15. ABOUT POST-RETIREMENT HEALTH CARE
FUN FACTS
The average couple retiring today will spend approximately $338,000 for out-of-pocket healthcare expenses during retirement (NOT INCLUDING assisted living needs)
It is estimated that two-thirds of people over the age of 65 will need long term care, home care, assisted living, or nursing home care
The U.S. median monthly rate for assisted care living in 2010 was $3,185 (one bedroom/single occupancy). This rate is expected to grow by 7% annually
No problem, you’ll just keep working for as long as possible? Forty percent of people currently receiving long term care services are ages 18-64!
National Care Planning Council

16. 11. What was the average monthly social security payout in 2010?
$2,327
$1,177
$3,011
Social Security Administration's 2010 Annual Report to the Board of Trustees

17. Math… Time For Some $1177 X 12 = $14,124
So, the current average annualized social security benefit amounts to about:
$1177 X 12 = $14,124
Do the math … if you were to retire today:
$14,124 – (Your Total Living Expenses X .85) = ??
I would bet there is not a lot left over to purchase that private island in Tahiti?

18. FUN FACTS ABOUT SOCIAL SECURITY
Social Security is the sole or primary source of income for 44% of today’s retirees
Twenty percent of retirees living on social security live below the poverty line
Americans today are living 50% longer than they were in the 1930s when the social security benchmark retirement age of 65 was established
The Importance of Planning Ahead
Nearly 75% of people claim social security benefits as soon as they are eligible (age 62). This “early” retirement reduces the monthly payout by about 25%. Waiting until age 70 results in a monthly benefit check that is 75-80% higher than those who opt for “early retirement”
Birth Date
Current Age
6/15/50 61
$1593
$3589
6/15/80 31
$3972
$9006
*Employee Benefits Research Institute

19. 12. What is the average number of years that will be spent between retirement and death for someone who retired in 2010? 18 12 15

20. More Fun Facts…
A 65-year-old healthy man has a 50% chance of living to age 85 and a 25% chance of living to 92.
A healthy 65-year-old woman has a 50% chance she'll see 88 and a 25% chance to reach 94.
If those two people are married, there's a one-in-two chance one of them will celebrate a 92nd birthday
So, chances are fairly good that you and/or your spouse will outlive your retirement savings unless you plan for 25+“GOLDEN” years
Society of Actuaries 2010

21. 13. On average, how much does a typical person in the workforce spend during each work week on “non-essentials” such as coffee, lunch, snacks…?
$12
$28
$21

22. The Latte Factor $$ COMPOUND INTEREST $$
Latte Factor® is a euphemistic label for all that extra money we spend daily on nonessentials such as candy, bottled water, lunches, doughnuts, soda, magazines, newspapers, and yes, lattes.
How can a few dollars a day make a difference???
$$ COMPOUND INTEREST $$
Compound interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest.
The Latte Factor

23. SHOW ME THE MONEY! THE BOTTOM LINE…
Let’s say that beginning at age 25 you drink 3 lattes a week at $4 each. By the time you reach 65 years old, that’s 6,240 lattes, totaling $24,960 (with no price increase). If you invest this money instead of “drinking” it, and you earn a return of 12.14% (average rate of return since 1976) you would have $558, at retirement.
How did we get from $24,960 to $558,690? Because during all those years, you were earning a return on your return, not just the principal amount.
What about $15/week for 25 years at just 10% interest? $86,244.17
($19,500 out-of-pocket + $66,477 interest earned)
Let’s try $18/week for 25 years at 10% interest? $103,493.01
($23,400 out-of-pocket + $80,093 interest earned)
Now we’re talking about some expensive lattes!

24. (assumes 10% return compounded annually)
THE ADVANTAGE OF TIME - THE POWER OF COMPOUNDING
(assumes 10% return compounded annually)
ANNUAL CONTRIBUTION
$7500
($625/month)
$5000
($416/month)
$2500
($208/month)
$1000
($83/month)
$3,651,388
$2,434,259
$1,217,129
$486,851
$300,000
$3,351,388
$200,000
$2,234,259
$100,000
$1,117,129
$40,000
$446,851
$811,363
$540,908
$270,454
$108,181
$187,500
$623,863
$125,000
$415,908
$62,500
$207,954
$25,000
$83,181
$262,132
$174,748
$87,374
$34,949
$112,500
$149,632
$75,000
$99,748
$37,500
$49,874
$15,000
$19,949
$131,483
$87,655
$43,827
$17,531
$56,483
$50,000
$37,655
$18,827
$10,000
$7,531
$50,367
$33,578
$16,789
$6,715
$12,867
$8,578
$12,500
$4,
$5,000
$1,715 40 25 15 10 5
YEARS OF GROWTH
*Principal
*Interest

25. 15. At age 55, which brother had a larger Nest Egg?
A TALE OF TWO CHOICES…
Hypothetical twins, Earl and Lance - 25 years old:
Earl decides to start saving for his retirement immediately. He can only afford to contribute $1,000 to his 401(k) each year. Ten years later, when Earl is 35, he decides to stop contributing to his nest egg.
Lance decides to postpone saving for retirement because he expects to be earning much more once he has an established career. He decides not to contribute to his 401k for the first 10 years of his working life and then contributes $3,000 per year for the next 20 years of his life. 
Let's assume that Earl and Lance both invest their savings into an open-end mutual fund  with a 15% annual return
To Recap:
Earl saves a  total of $10,000 over 10 years (beginning at age 25)
Lance saves a total of $60,000 over 20 years (beginning at age 35)
LAST QUIZ QUESTION:
15. At age 55, which brother had a larger Nest Egg?
Earl
Lance
C)They had saved the same amount

26. EARL
Earl's $10,000 has turned into $340,000 Lance's $60,000 has grown to $314,000 THE POWER OF COMPOUNDING!

27. Action is the Only Option
TRUTH #1: You need to make a plan that is realistic and that begins with reassessing your current lifestyle and identifying opportunities to “trim the fat” and divert that money to your 401(k). There is no “magic” solution – just a commitment to stay the course and the discipline to say “NO” to immediate gratification.
TRUTH #2: Youth is an undeniable advantage that should be capitalized on by those who are so fortunate as to still possess it! Do NOT waste the opportunity!