Financial Planning for Retirement. The financial planning process for retirement 1. Review your savings and investments 2. Estimate your retirement income.

Financial Planning for Retirement

The financial planning process for retirement

1. Review your savings and investments

2. Estimate your retirement income

3. Calculate your replacement ratio

4. Estimate your expenses

5. Anticipate the effect of inflation

6. Use professionals wisely

Step one

Review your savings and investments

What factors do you consider when you save or invest your money?

3-month T-bill

Treasury bill annual returns (1996-2005)

5.2% 5.2% 5.1%

4.7%

6.0%

4.1%

1.7%

1.2%1.4%

3.2%

0%

1%

2%

3%

4%

5%

6%

7%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

CitiCorp Corporate Bond Index

Long-term bond annual returns (1996-2005)

2.5%

5.6%

8.7%9.4%

10.9%

9.3%8.6%

-1.6%

3.3%

10.2%

-3%

-1%

1%

3%

5%

7%

9%

11%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

S&P 500 Index

Common stock annual returns (1996-2005)

4.9%

10.9%

28.7%

-22.1%

-11.9%

21.0%

28.6%

33.4%

23.0%

-9.1%

-30%

-20%

-10%

0%

10%

20%

30%

40%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Comparison: Annualized rates of return (1996-2005)

6.6%

9.1%

2.5%

3.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

T-Bills Stocks Bonds Inflation

High-grade convertibles

High-grade preferred stock

Balancedmutual funds

Insured bank accounts

Treasurysecurities

EE and HHbonds

Certificatesof deposit

High-grademunicipal bonds

High-gradecorporate bonds

Money market funds

Blue chip stocks Growth mutual funds

Speculative stocks

Collectibles

Futures contracts

Real estateinvestment properties

Puts andcalls

Limited partnerships

Incr

easi

ng R

isk

/ Pot

entia

l Ret

urns

Investments: Risk/reward pyramid

Step two

Estimate your retirement income Your City Pension DROP (statement and DROP calculator) Social Security Deferred Compensation (monthly statements) Savings and investments Employment

Step three

Calculate your replacement ratio

A = Gross income in year before retirement Minus:

Taxes Work-related expenses Savings and investments

This is your net pre-retirement income Add taxes in retirement

B= Gross income in first year of retirement

Replacement ratio = B / A

Step four

Estimate your expenses

How do you spend your money currently?

Which expenses are likely to decrease in retirement?

Which expenses are likely to increase in retirement?

Step five

Anticipate the effect of inflation

Which expenses will be most affected by inflation?

How can you use a nest egg to overcome the impact of inflation?

Step six

Use professionals wisely

Which type of expert do you need?

How do you locate candidates?

How do you determine their competence?

How much can you expect to pay them?

Click link below to continue...

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