American Library Association



Seminar Five

Managing Money During Retirement

This seminar explores some of the concepts and theories associated with managing money during a happy and relaxing retirement.

Few retirees today will enjoy the generous pensions and retiree health benefits granted to many of their parents. Participants in the seminar will review the changing landscape of retirement today with its growing challenges, e.g., increasing longevity, increasing medical costs, lower Social Security benefits, disappearing pensions, need for financial expertise, etc.

The seminar will define the NEEDS of the twenty-first century retiree – what you should have before your retire. Then, realistically, since few get to choose the IDEAL moment of retirement, the seminar will explore various plans for making money last through a secure retirement. Methods for determining spending during retirement (how much can you spend each year and not run out of money?), allocation for remaining invested asset (so that, hopefully, inflation will not destroy your buying power), review of safety net needs, and hints for reducing unnecessary expenses (and extending limited assets) while enjoying life more.

The seminar is recommended for anyone who is struggling with the retirement conundrum of managing assets so they last through a comfortable retirement. This includes those who have already entered retirement, those who are about to enter retirement, and those who are thinking about the retirement issues ahead. The goal is that participants will learn they can navigate the insanely complex financial marketplace, follow some basic ideas, manage their own money, and take pleasure in their retirement.

Marsha Yelick CFA (retired)

Financial Programs Consultant myelick@

970-586-8116

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The Average American Is NOT Prepared

for Retirement

[pic]

Average retirement savings by age: 2006

|. |All |25-34 |35-44 |45-54 |55+ |

|Age | | | | | |

|Less than |52% |70% |50% |41% |39% |

|$25,000 | | | | | |

|$25,000 |13% |12% |15% |14% |12% |

|$50,000 |11% |9% |14% |13% |7% |

|$100,000 |12% |5% |10% |17% |23% |

|$250,000 |11% |4% |10% |16% |19% |

Who Are the Retirees Today?

During the years 2011 to 2029, the size of the over-65 population in this country will double, and it’s a safe bet that by the end of that 18-year stretch, today’s life-expectancy of 75.6 years will be little more than a historical curiosity, as more and more of us blow past 80 as we steam our way to the century mark.

Percent of US population by age and sex, 1970, 1990 and projections for 2010



How do Retirees Today Differ from Retirees in the Past?

Yesterday: Leisure-defined lifestyle

• golf every day,

• cocktail parties,

• relaxation

• grand parenting

Today: Activity-defined lifestyle with redirection to

• retirement careers to keep mentally active, to keep physically active, and to keep connected with others,

• a daily schedule fueled by the same kind of “boomer energy ” as in their 50s,

• performing physically, mentally, and attitudinally the way 50 year-olds did in the past,

• focusing on philanthropic causes and missions – a different kind of work experience

• alternating periods of work and leisure,

• reflecting attitudes which more closely resemble middle-class values, with focus on income and expenses

• life activities that provide freedom, satisfaction, and service to others

New Challenges Facing Retirees

1. Retirement savings, already barely adequate because of their low savings rate, were diminished even further by the 2008 bear market. Some of the losses have been recovered but not all and in many cases not even some. Many are still sitting on the sideline waiting for some all-clear signal to get back into equities.

2. Second, the value of homes has been crushed by the bursting of the housing bubble. Even if you find a buyer, the offers will be significantly below a few years ago. Downsizing may not be an option for many.

3. Third, it’s possible that many will be hit by the rising income tax. Also, a value-added tax to try to bring down the federal deficit could affect everyone. This is a real wild card within the political arena.

4. Fourth, at a time when many are looking to move significant parts of their retirement savings out of the stock market to less volatile, income-producing investments, the rates of returns on bonds, especially government bonds, are low, meaning generating income to supplement Social Security is difficult. Further, anyone moving heavily into long-term bonds now will suffer a capital loss on them when interest rates rise.

5. Fifth, there is a danger that a wave of inflation could inflict further damage on retirees if the Federal Reserve, by accident or design, allows inflation to get out of control.

6. And then there’s the list of regular stuff:

a. Living longer

b. Rising (unpredictable) medical expenses

c. Disappearing pensions

d. Lower (?) social security benefits

e. Managing assets during retirement (do you know enough?)

f. Volatile market swings

g. Required minimum distributions

h. Retiring with debt

i. Staying active / Part-time employment

j. Sandwich generation (retirees still helping kids and parents)

k. Diverse locales (no longer living close to family)

Retirement is NOT a Destination

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Emotional stage 1: Imagination (6 – 15 years before retirement)

About a decade before retiring, people begin imagining retirement, but it may not be a top priority if they have college-age children or aging parents. People in this stage often save for retirement in both personal and employer-sponsored accounts. However, many have not taken the time to figure out how much money they'll need to enjoy the retirement they imagine. Saving without a pre-determined goal often leaves them feeling unsure and unprepared.

Actions you can take: Start thinking about when and how you want to retire. Determine how much you'll need and take a systematic approach to saving.

Emotional stage 2: Hesitation (Up to 3 – 5 years before retirement)

The hesitation stage is new to the 2010 study and is a result of the economic anxiety many people feel prior to retirement. During this stage, people begin to more clearly visualize their retirement, causing them to question their preparedness. Economic stress intensifies these feelings of uncertainty. However, people in this stage generally accept that retirement day is approaching, and often respond by seeking advice.

Actions you can take: Maximize your retirement contributions and explore savings strategies.

Emotional stage 3: Anticipation (0 – 2 years before retirement)

Excitement about retirement builds during the anticipation stage. Most people have been preparing for retirement and are looking forward to it. People in the Anticipation stage are most likely to feel "on track" for retirement, and more than half are working with a financial advisor.

Actions you can take: Start planning for your income in retirement. Learn about solutions that can provide guaranteed retirement income.

Emotional Stage 4: Realization (Retirement Day and the year following)

The reality of retirement strikes people on or shortly after their retirement day. In 2005, this stage was called "Liberation" because people were generally looking to fulfill retirement dreams. However, the recession has muted this euphoria. Today, people often feel less empowered and adventurous, and worry more about having enough money to enjoy retirement.

Actions you can take: Consider building a relationship with a financial advisor. Research shows retirees are more optimistic when they're working with a financial advisor.

Emotional Stage 5: Reorientation (2 – 15 years after retirement)

During the first year of retirement, most people adjust and find ways to manage any early feelings of disappointment. In the Reorientation stage, comforting routines are in place, goals have been adjusted and happiness increases. People who are working with a financial advisor and have set aside money in employer-sponsored retirement accounts and personal savings accounts generally feel more confident.

Actions you can take: Assess the most common risks to your retirement and begin preparing for them.

Emotional Stage 6: Reconciliation (16 or more years after retirement)

As people get older, they begin to encounter illness and the loss of friends and family. They become more concerned about every day physical needs. Many people continue to feel happy, yet feelings of anxiety and depression can start to creep in.

Actions you can take: Plan for long-term health care expenses and for your estate.

From:

Retirement Check List

1. A clear idea (on paper) of your net worth and your annual budget (Seminar One – absolutely necessary for doing withdrawal calculations)

2. A Master List of all your accounts, policies, passwords, personal papers, tax records, last wishes, etc. (Seminar One – your heirs will bless you!)

3. Health insurance (to carry you to 65 when Medicare is available)

4. A means of regular income (pension) hopefully with cost of living increases

OR

5. A major nest egg (Seminar Two, Three, and Four -properly allocated)

6. No kids at home (or on the payroll)

7. Life insurance if your are married (reduced benefits increases need)

8. No debt (Good plan any time!)

9. Low housing expenses (this is called down sizing)

10. Low living expenses (Simple living is not depravation, it allows your investments to grow and enjoyment can be found in many ways.)

11. A job, perhaps! (Not at the high stress / high earning level of pre-retirement, but something to keep you socially active, with the added bonus of enough money to fill the gap between retirement income and your expenses.)

12. A simple and clear spending and investing plan (No doodles on a yellow pad. Consider taxes, inflation, interest rates, your investment portfolio, sources of income, different market scenarios, etc.)

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How Long Will the Money Last?

|This chart depicts the average rate of annual withdrawals that a hypothetical portfolio of U.S. stocks and Treasury bonds was able to sustain during a |

|series of 30-year holding periods since 1926. The average sustainable rate for all 30-year rolling periods from 1926 to 2005 was 5.5% when adjusted for |

|actual consumer price inflation. |

| |

|Source: Standard & Poor's. |

In view of the variability of inflation and investment returns, as well as the risk of living beyond your average life expectancy, you may want to err on the side of caution and choose an annual withdrawal rate somewhat below 5.5%. The goal, after all, is to crack your nest egg in such a way that it will provide a reliable stream of income for as long as you live. That may mean taking out less in the early years of retirement with the hope of having sufficient income for your later years.



Become familiar with

online calculators and

revisit every year.

Measure your progress!

Test various scenarios in retirement (and in the savings years preceding retirement).

1. Adjust for how your portfolio has performed in the prior year (the annual total rate of return).

2. Adjust for last year’s inflation (CPI) and what you anticipate (or fear) for the future.

3. Adjust the starting balance of the calculation to match the year-end balance of your portfolio from prior year.

4. Adjust the withdrawal amount to meet your spending budget for the new-year (of you are in retirement).

5. Adjust the number of years you think you have left (to save or to enjoy your nest egg).

Play with scenarios until you get a sense of what is right for you.

(all kinds of calculations including withdrawals)

(all kinds of calculations)

(decide how much is needed for your retirement)

(all kinds of calculations)

(interactive estimator that highlights all the variable effecting your retirement)

Example One – How Much Can I Withdraw Each Year

and NOT run out of Money?

Retirement Withdrawal Schedule

Retire in 0 years

Spend 30 years in retirement

Amount Saved at Time of Retirement = $ 100,000.00

Annual Interest Rate = 5% (compounded Annually)

Annual Inflation Rate = 3.5%

Withdraw $ 4,074.98 (in today's dollars -2011) at the beginning of each Year

$ .0 will be left in your account. (Purchasing power of $.0 today-2011)

Beginning

Balance

Year Amount Withdrawal Earnings Remaining

2011 100,000.00 4,074.98 4,796.25 100,721.27

2012 100,721.27 4,217.61 4,825.18 101,328.85

2013 101,328.85 4,365.22 4,848.18 101,811.80

2014 101,811.80 4,518.01 4,864.69 102,158.49

2015 102,158.49 4,676.14 4,874.12 102,356.47

2016 102,356.47 4,839.80 4,875.83 102,392.50

2017 102,392.50 5,009.19 4,869.17 102,252.48

2018 102,252.48 5,184.51 4,853.40 101,921.36

2019 101,921.36 5,365.97 4,827.77 101,383.16

2020 101,383.16 5,553.78 4,791.47 100,620.84

2021 100,620.84 5,748.16 4,743.63 99,616.31

2022 99,616.31 5,949.35 4,683.35 98,350.31

2023 98,350.31 6,157.58 4,609.64 96,802.37

2024 96,802.37 6,373.09 4,521.46 94,950.74

2025 94,950.74 6,596.15 4,417.73 92,772.32

2026 92,772.32 6,827.02 4,297.27 90,242.57

2027 90,242.57 7,065.96 4,158.83 87,335.44

2028 87,335.44 7,313.27 4,001.11 84,023.28

2029 84,023.28 7,569.23 3,822.70 80,276.74

2030 80,276.74 7,834.16 3,622.13 76,064.71

2031 76,064.71 8,108.35 3,397.82 71,354.18

2032 71,354.18 8,392.15 3,148.10 66,110.13

2033 66,110.13 8,685.87 2,871.21 60,295.48

2034 60,295.48 8,989.88 2,565.28 53,870.88

2035 53,870.88 9,304.52 2,228.32 46,794.68

2036 46,794.68 9,630.18 1,858.22 39,022.72

2037 39,022.72 9,967.24 1,452.77 30,508.26

2038 30,508.26 10,316.09 1,009.61 21,201.78

2039 21,201.78 10,677.15 526.23 11,050.85

2040 11,050.85 11,050.85 .0 .0

Totals $210,361.48 $110,361.48



Copyright© 1997-2011

Example Two – Let’s See the 4% Rule

Retirement Withdrawal Schedule

Retire in 0 years

Spend 30 years in retirement

Amount Saved at Time of Retirement = $ 100,000.00

Annual Interest Rate = 5% (compounded Annually)

Annual Inflation Rate = 3.5%

Amount Withdrawn (at the beginning of) each Year = 4% of the initial balance and adjusted annually for inflation

Beginning Withdrawal Today's

Year Balance Amount Equiv. $ (2011) Earnings Remaining

2011 100,000.00 4,000.00 4,000.00 4,800.00 100,800.00

2012 100,800.00 4,140.00 4,000.00 4,833.00 101,493.00

2013 101,493.00 4,284.90 4,000.00 4,860.41 102,068.51

2014 102,068.51 4,434.87 4,000.00 4,881.68 102,515.32

2015 102,515.32 4,590.09 4,000.00 4,896.26 102,821.48

2016 102,821.48 4,750.75 4,000.00 4,903.54 102,974.28

2017 102,974.28 4,917.02 4,000.00 4,902.86 102,960.12

2018 102,960.12 5,089.12 4,000.00 4,893.55 102,764.55

2019 102,764.55 5,267.24 4,000.00 4,874.87 102,372.18

2020 102,372.18 5,451.59 4,000.00 4,846.03 101,766.62

2021 101,766.62 5,642.40 4,000.00 4,806.21 100,930.44

2022 100,930.44 5,839.88 4,000.00 4,754.53 99,845.09

2023 99,845.09 6,044.27 4,000.00 4,690.04 98,490.85

2024 98,490.85 6,255.82 4,000.00 4,611.75 96,846.78

2025 96,846.78 6,474.78 4,000.00 4,518.60 94,890.60

2026 94,890.60 6,701.40 4,000.00 4,409.46 92,598.67

2027 92,598.67 6,935.94 4,000.00 4,283.14 89,945.86

2028 89,945.86 7,178.70 4,000.00 4,138.36 86,905.51

2029 86,905.51 7,429.96 4,000.00 3,973.78 83,449.33

2030 83,449.33 7,690.01 4,000.00 3,787.97 79,547.29

2031 79,547.29 7,959.16 4,000.00 3,579.41 75,167.55

2032 75,167.55 8,237.73 4,000.00 3,346.49 70,276.31

2033 70,276.31 8,526.05 4,000.00 3,087.51 64,837.78

2034 64,837.78 8,824.46 4,000.00 2,800.67 58,813.99

2035 58,813.99 9,133.31 4,000.00 2,484.03 52,164.71

2036 52,164.71 9,452.98 4,000.00 2,135.59 44,847.31

2037 44,847.31 9,783.83 4,000.00 1,753.17 36,816.65

2038 36,816.65 10,126.27 4,000.00 1,334.52 28,024.90

2039 28,024.90 10,480.69 4,000.00 877.21 18,421.43

2040 18,421.43 10,847.51 4,000.00 378.70 7,952.61

Totals $206,490.71 $114,443.32

You will have $7,952.61 remaining.

That's the equivalent to $2,833.34 today -2011 (at 3.5% annual inflation)



Copyright© 1997-2011

Example Three – With Supplemental Income

I need “x” dollars/month and I have additional sources of income.

Supplemental Retirement Withdrawal Schedule

Beginning Mar. 2011

Amount Saved for Retirement = $100,000.00

Average Annual Interest Rate = 5% (compounded Annually)

Average Annual Inflation Rate = 3.5%

Amount needed to live on each month = $2,000.00 (2011)

Monthly Pension Plan Income = $500.00 (2011) Beginning with month #1 and increasing 2% per year in Jan.

Monthly Social Security Income = $1,000.00 (2011) Beginning with month #1 and increasing 2.5% per year in Jan.

Beginning Amount Supplemental

Year Balance Needed to Pension Plan Social Security Withdrawal

Live Income Income Amount Earnings

2011 Totals $100,000.00 $20,000.00 $5,000.00 $10,000.00 $5,000.00 $4,036.22

2012 Totals $99,036.22 $24,840.00 $6,120.00 $12,300.00 $6,420.00 $4,779.23

2013 Totals $97,395.45 $25,709.40 $6,242.40 $12,607.50 $6,859.44 $4,685.38

2014 Totals $95,221.39 $26,609.28 $6,367.20 $12,922.69 $7,319.40 $4,564.31

2015 Totals $92,466.30 $27,540.60 $6,494.52 $13,245.75 $7,800.36 $4,413.63

2016 Totals $89,079.57 $28,504.56 $6,624.36 $13,576.90 $8,303.28 $4,230.77

2017 Totals $85,007.07 $29,502.24 $6,756.84 $13,916.32 $8,829.12 $4,013.01

2018 Totals $80,190.96 $30,534.84 $6,891.96 $14,264.23 $9,378.60 $3,757.44

2019 Totals $74,569.80 $31,603.56 $7,029.84 $14,620.83 $9,952.92 $3,460.94

2020 Totals $68,077.82 $32,709.72 $7,170.48 $14,986.36 $10,552.92 $3,120.21

2021 Totals $60,645.11 $33,854.52 $7,313.88 $15,361.01 $11,179.68 $2,731.73

2022 Totals $52,197.16 $35,039.40 $7,460.16 $15,745.04 $11,834.16 $2,291.74

2023 Totals $42,654.74 $36,265.80 $7,609.32 $16,138.67 $12,517.80 $1,796.24

2024 Totals $31,933.18 $37,535.16 $7,761.48 $16,542.13 $13,231.56 $1,240.98

2025 Totals $19,942.59 $38,848.92 $7,916.76 $16,955.69 $13,976.52 $621.42

2026 Totals $6,587.49 $40,208.63 $4,037.52 $8,689.79 $6,647.24 $59.74

more than available less than needed

Grand Totals $499,306.63 $106,796.72 $221,872.91 $149,803.00 $49,803.00

Copyright© 1997-2011

Managing Your Income During Retirement

From SIFMA Foundation for Investor Education

1. Create a draw down strategy: first and most critical so you won’t outlive your money.

2. Work from a budget: essential to adjust reality to strategy!

3. Check your balances: read your statements and understand them.

4. Consolidate accounts: easier for you and easier for your heirs.

5. Gauge your pace: by budgeting and checking your accounts, you will be able to compare your pace of spending to your remaining saving and investment nest egg.

6. Have sufficient liquidity to withstand market declines: rule of thumb for retirees = two years in laddered investments.

7. Keep an eye on ALL inflation: Although 3.5% is historic, retirees expenses do not match the overall numbers (they are usually higher due to health care.)

8. Understand how your age and your income affects retirement benefits: for example, social security benefits can be affected by earned income, health insurance cost may decrease when you reach 65 (Medicare), tax exemptions and deductions may increase with age, etc.

9. Lower your tax liability: not all retirement income is equal in the eyes of the IRS so try to thoughtfully examine the monies you are drawing to select the most appropriate.

10. Monitor returns: though fluctuations are to be expected, watch the general trends and revisit the calculators.

11. Protect and grow unused income: And reinvest whenever possible, not allowing idle funds to sit idle.

Mindfully Manage Your Dollar Outflow

A New Way of Thinking

(Make those dollars S-T-R-E-T-C-H!)

Apply for exemptions or utility discount programs: May become available in Colorado again sometime. You must qualify.

Ask for Discounts: Local, senior, AAA, AARP, cash etc. Visit .

Check for fees: Eliminate as many fees as possible (bank, credit cards, club extras, annual service fees, unused services, etc.)

Comparison shop: Of course, this applies to all items, but be sure to watch for savings on prescription drugs. Samples, generics, big box stores, mail-order are all examples of how to save on medications.

Estimates, referrals, and negotiations: Search for reliable, well-established businesses and ask for estimates in writing so agreements are clear and comparable. If you are a good customer, negotiations are always possible.

Lower medical costs: Stay Healthy! Also use fee or reduced-rate medical and healthcare services in the community.

Barter: Although it’s a technique often used by the young, consider offering your time, skill or services in exchange for a needed service or item. It’s tax free!

Review your insurance coverage: In retirement, you may not need as much insurance coverage. Compare coverage to cost. Your agent might be helpful, especially if consolidation of policies would bring down your total cost.

Check out what’s free: Libraries, universities, parks, churches, city events, social groups, non-profit’s services, seminars, concerts, movies, volunteering, tax services… The list is endless.



Larger Changes to Consider



Move to an ultra-low cost location: This does not mean leaving Estes Park. You could just move to a small condo or a compact residence. You can also consider other locations outside the United States. Any downsizing will produce money to invest, PLUS it should also decrease your monthly living expense.

Get rid of your STUFF! Time spent just cleaning out the “collection of a life time” can produce monetary results. Think garage sales, e-bay, etc. Not only will your house be more enjoyable, but your children will thank you for cleaning out the junk.

Get a Job: Not the high stress job of years past, but something you enjoy doing part-time.

Lose one of your expensive cars: There’s a lot of money being absorbed in your garage. Consider whether you can share transportation with friends and relatives.

Eliminate or decrease expensive vacations: Since you live in a premier location, invite friends and family here and have them take you out to dinner.

Consider Moving in Together: One of the lessons learned during the Great Recession was the sharing of shelter. Be creative in house partners. Not all parents and children can reside together.

Frequent all FREE things: Become active (and maybe even volunteer) at the Senior Center and the Library. A new social circle will be good for your mental health.

Join the Peace Corp: This will “DO GOOD” AND eliminate all your living expenses. (It does include foreign travel, just in case your already eliminated your expensive vacations and still want to travel.)

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