Test Drive your Retirement

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Test Drive Your Retirement

Making Your Retirement Income and Resources Last

© 2012, Janney Montgomery Scott LLC

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Answering the Difficult Questions

• Have I saved/am I saving enough?• What are my retirement income sources?• Are my retirement income spending goals realistic?• Will my assets last through my retirement?• How can I best monitor my investments and

spending during retirement?

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Roadblocks to a Financially Secure Retirement

• Risks you generally can control– Not saving enough for retirement– Retiring too early– Spending too much during retirement

• Risks that aren’t under your control– Longevity– Inflation– Financial market uncertainty– Long-term illness


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Recognize the Importance of Planning

An NBER study found that roughly

46% of Americans

die with

less than $10,000 in financial assets

Source: Were They Prepared for Retirement?, James M. Poterba, Steven F. Venti, David A. Wise, National Bureau of Economic Research Working Paper No. 17824, February 2012


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Look at Life Expectancy Realistically

• 57% of preretirees underestimate the life expectancy of the average person their age and gender

• 62% of retirees underestimate life expectancy

Current Age 45 50 55 60 65 70

Women 82.8 83.2 83.8 84.5 85.3 86.5Men 78.9 79.6 80.4 81.5 82.7 84.2

Life expectancy at different ages

Sources: National Vital Statistics Report, Vol. 60, No. 4, January 11, 2012 (based on preliminary 2010 data) and 2011 Risk and Process of Retirement Survey Report of Findings, The Society of Actuaries, March 2012


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Account for Inflation When Assessing Needs

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Food at Home$169

Fuels & Utilities$188

Medical Care$214

Price Changes1993 – 2012

All Items$163

$100 at the Beginning of 1993

Source: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers, Series Reports 1993 through August 2012


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Account for Inflation When Investing

0%

1%

2%

3%

4%

5%

6%

7%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

12-S

ep

Yiel

ds/In

tere

st R

ates

Ann

ual I

ncom

e

6-Mo. CDs6-Mo. Treasuries

$7,000

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Income from a $100,000 Investment

Source: Federal Reserve


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Watch Out for Market Volatility

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Stocks BondsCash Alternatives 60% Stock/40% Bond PortfolioInflation

$449,861$445,696

$352,487

$186,498$163,709

Growth of $100,000 (1992–2011)

Stocks are represented by the S&P 500 Stock Index, bonds by Barclays Capital U.S. Aggregate Bond Index, cash alternatives by 91-day T-bills and Morningstar Cash Index as of 1/1/2010 and inflation by the Consumer Price Index — All Urban Consumers.


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Factor In Long-term Care Costs

• 70% of people over age 65 may need long-term care services• Average nursing home stay is about two and a half years• Median assisted living stay is about two years

$81,030 $73,000

$43,472 $41,184 $39,600$15,860

Nursing Home(private room)

Nursing Home(semi-private room)

Licensed HomeHealth Aide

Services

LicensedHomemaker

Services

Assisted LivingFacility (one

bedroom/singleoccupancy)

Adult Day HealthCare

Median Annual Cost of Care (2012)

Sources: National Clearinghouse for Long-Term Care Information; 2012 Consumer Action Handbook, GSA Federal Citizen Information Center; 2011 Market Survey of Long-Term Care Costs, MetLife; and Genworth 2012 Cost of Care Survey


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Today’s Retirement Has a Different Look

• People are staying on the job longer– In 1991, 11% of Americans planned to retire after age 65– By 2012, that percentage had grown to 37%

• Some are changing careers later in life• Others are easing into full retirement

– Freelancing or consulting after they retire– Working part-time to conserve resources for later

Source: 2012 Retirement Confidence Survey, the Employee Benefit Research Institute


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You May Not Have a Choice

• Health problems or disability can end employment• So can employer changes

– Downsizing – Closure

• Don’t depend too heavily on working past traditional retirement age

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Not All Income Is the Same

• Guaranteed income– Like a retirement “paycheck”– Pays a reliable set amount– At regular intervals

• Nonguaranteed Income– Generally from investments– Pays a variable income– Depends on investment returns


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Review Your Guaranteed Income Sources

• Pensions– Becoming less common– Only about a third of workers can expect to receive a

defined benefit pension• Social Security benefits

– $30,396 maximum payment in 2013– $15,132 average payment in 2013

• Personal annuitySources: 2012 Retirement Confidence Survey, the Employee Benefit Research Institute and Fact Sheet, Social Security Administration, 2013


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Consider Nonguaranteed Income Sources

• Retirement savings plans – An employer-sponsored 401(k) or 403(b) plan – Individual retirement account (IRA)

• Personal savings and investments• Real estate

– Rental income– Home equity

• Sale of a business• Wages or self-employment income


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Look at How Different Incomes Work Together

Basic Living Expenses• Food• Housing• Transportation• Health care and other insurance

premiums• Debt repayment

• Fund for unexpected expenses• Discretionary spending• Inflation protection

Pension(s)

Social Security Benefits

Investments

Expenses Income


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Take Steps To Close Any Income Gap

• Work longer or work part-time during retirement

• Reduce discretionary expenses

• Pay off debt• Cash in a life insurance

policy• Downsize your home


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Purchase an Immediate Annuity [Optional screen]

• Turn retirement investments into guaranteed income– Personal investments– IRA– 401(k) or 403(b) retirement savings plan account– Cash value of a life insurance policy

• Similar to a pension• Income won’t fluctuate with the value of your

investments


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Plan Your Withdrawals

• Don’t withdraw too much too soon• Set a withdrawal rate for the year and stick with it,

even if the value of your investments declines• Lower your discretionary spending to compensate

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Monitor and Reevaluate

• Your priorities may change– Active retirement = greater discretionary income needs– Passive phase = expenses more fixed

$58,050 $53,616$44,646

$32,688

Age 45-54 Age 55-64 Age 65-74 Age 75 and older

Average Annual Expenditures by Age

Source: Consumer Expenditure Survey, 2011, U.S. Department of Labor, U.S. Bureau of Labor Statistics, September 2012


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Monitor and Reevaluate

• Types of expenses may change– Discretionary spending may decrease– Medical expenses may increase– Housekeeping and home maintenance expenses could

increase• You may be less able to compensate for market

drops by decreasing discretionary spending• Your withdrawal rate may need to be adjusted


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Reconsider Your Risk Tolerance

Ten+ Years to Retirement

20%

80%

Within Five Years of Retirement

40% 60%

Throughout Retirement

60% 40%

Some Sample Portfolios

Stocks Fixed Income


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Be Open to Changes in Your Asset Allocation

• Many retirees invest to preserve principal and produce income

• Don’t overlook the need for continued growth• Invest too conservatively and

– Investment returns may not keep pace with inflation– You could have difficulty meeting your income needs

• Holding some high-quality stocks may help reduce overall risk and produce more consistent returns

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Take Asset Allocation a Step Further

• Include guaranteed income as an asset class• Determine an income coverage ratio

– Income generated by guaranteed income sources versus

– Income from nonguaranteed sources


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Look at Guaranteed Income Need Factors

• Your age• Risk tolerance• Legacy goals• Your investment time frame• The amount of your

investable assets• Your preference for or against using insurance

products


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Create a Retirement Picture

Current achievable income goalBasic retirement income needs

Income needed to meet income needs and wants


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Optimize Your Income Sources

Asset Income and Portfolio Withdrawals

46% versus 67%

Guaranteed Income

25%

Client Social Security

16%

Guaranteed Income

29%

Client Social Security

16%

Annuity Added

4%


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Set a Personalized Asset Allocation


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Update Your Retirement Picture




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Better Understand Your Current Expenses

• We give you a visual of– Where you can save money,

if necessary– How different cuts would affect

your retirement income picture• We show you

– Current expenses that will continue through retirement– Expenses that will decrease or go away– Expenses that are likely to increase


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Get Started

• Make a list of your expenses and categorize them as needs and wants

• Gather information about your retirement income sources

• Complete the Retirement Income Evaluation Information sheet

• Mail or drop off your information and any accompanying statements and documentation to your financial advisor


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What’s Next?

• Your Janney Financial Advisor will contact you • An initial analysis will be prepared• You’ll meet with your advisor to discuss the analysis• He or she will present and discuss our initial

recommendations• You approve the final recommendations you and

your advisor have worked out• You and your advisor meet periodically to review

and update the analysis and recommendations

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Questions?

Annuity products are insurance products that aim to provide a guaranteed stream of fixed payments over a period of time. Any guarantees made are subject to the claims-paying ability of the annuity-issuing insurance company. Annuities are not designed for short-term investment needs and are not liquid investments. If an annuity is surrendered early, certain fees and charges may be incurred as well as potential tax penalties.

This is not a solicitation to sell a specific product, but rather, is an illustration of the effects of adding guaranteed income to the risk, return and stability of a portfolio over time.

Please consult with the appropriate financial and investment professional(s) regarding any specific situations before implementing any of the strategies discussed.

Neither Janney nor its financial advisors provide tax or legal advice and this Report shall not be construed as providing tax or legal advice.

Test Drive your Retirement

Economy & Finance

consumer price

guaranteed

meet income

asset allocation

income needed

urban consumers

private room

withdrawal