1. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company1 The aging Baby Boom generation has focused attention on the importance of retirement planning Between 1990 and 2000 55% increase in 50 to 54 year old age group –largest % growth for any 5-year age group –due to ‘early Baby Boomers’ born between 1946 - 1950 45% increase in the 45 to 49 year old age group –2nd largest % growth for any 5 year age group –due to ‘later Baby Boomers’ born between 1951 – 1964 Source: http://www.census.gov/Press-Release/www/2001/cb01cn184.html

2. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company2 According to the U.S. Census Bureau, the percentage growth in older age groups will continue to rise through 2050, making financial planning for this older age group increasingly important in the coming years

3. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company3 Source: http://www.census.gov/ipc/www/usinterimproj/natprojtab02a.xls

4. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company4 Retirement Planning is Interdisciplinary Benefit / Compensation Planner Estate Planning Skills Financial Planner

5. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company5 Retirement Planning is Multifaceted Clients may be: far from or close to retirement business owners crafting own retirement key executives with bargaining power rank and file employees with no say in plan

6. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company6 3 Fundamental Steps In Retirement Planning 1.Assess client’s financial need at retirement 2.Use current income and assets to determine how much of this need will be met at retirement 3.Establish plan to meet any projected shortfall in cash flow

7. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company7 But first Determine client’s current –assets –income sources Evaluate impact of client’s major financial goals on assets and income

8. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company8 Current Income Sources and Assets 1.Obtain benefit plan information –for client and spouse –current and previous benefit plans –private employer and government plans –use actual plan documents

9. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company9 Current Income Sources and Assets When examining benefit plans focus on: –employee’s vested benefits –plan provisions at retirement if employee continues employment –prediction of future benefits –extent to which employee can control benefits available at retirement

10. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company10 Current Income Sources and Assets 2.Obtain Current Information on Assets and Liabilities –value assets accurately –retirement assets of owners of closely held business inextricably tied to business succession issues –consider outstanding debts and legal obligations (e.g. alimony, child support, property settlements, etc.)

11. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company11 Current Income Sources and Assets 3.Develop complete profile of client goals –education expenses –long term care for self or dependent –future windfall –desire to leave bequest

12. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company12 Retirement Need Analysis 7 Step Planner 1.List assumptions and identify factors to be used to estimate income required at retirement –expense method –replacement ratio 2.Adjust income sources for inflation 3.Identify income from current assets 4.Identify income from future savings

13. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company13 Retirement Need Analysis 7 Step Planner 5.Identify fixed income and amounts payable at retirement 6.Calculate retirement income shortfall (or surplus) 7.If shortfall, calculate monthly or annual savings needed to fund shortfall

14. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company14 Financial Needs at Retirement Depend on decisions made regarding: Housing Health care

15. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company15 Financial Needs at Retirement cont. Depend on decisions made regarding: Pensions and Social Security Capital needs at death

16. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company16 Closing Retirement Funding Shortfalls -Increase rate of savings pre-retirement -Scale back living expenses pre- or post- retirement -Retire later -Work part-time after retirement -Develop a more secure or adequate plan if a business owner

17. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company17 True or False? 1.Retirement planning is interdisciplinary. 2.A single advisor can usually develop an adequate retirement plan working alone. 3.Benefits such as life insurance or fringe benefits such as use of company athletic facilities may be important in the retirement planning process.

18. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company18 True or False? 4.All retirement programs have formal documentation requirements. 5.Long term care for a parent is an example of a contingency that can affect retirement planning. 6.Serious retirement planning must begin well in advance of actual retirement.

19. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company19 True or False? 7.The expense method is more accurate than the replacement ratio method for estimating retirement income needs. 8.Because of difficulty in estimation, the effects of inflation on future earnings and savings is not usually considered in retirement planning.

20. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company20 True or False? 9.Funding capital needs at death is part of a prudent retirement plan. 10.If it appears that a client will fall short of fulfilling retirement needs, an investor should encourage the client to make higher-risk investments.

21. Planning for Retirement Needs Chapter 2 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company21 Discussion Question Despite the existence of tax-favored retirement plans, a substantial portion of Americans have not saved enough to fund their retirement. What factors keep individuals from saving? What should be done to further encourage retirement savings? Is the answer in government policy, education, or something else?