Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
Projected Population of the United States
2000 - 2050
40.0
35.0
Percent of Population
30.0
2000
25.0
2010
2020
20.0
2030
2040
15.0
2050
10.0
5.0
0.0
..0-4
..5-19
..20-44
..45-64
..65-84
..85+
Age Categories
Source: http://www.census.gov/ipc/www/usinterimproj/natprojtab02a.xls
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
Retirement Planning is Interdisciplinary
Benefit / Compensation Planner
Financial Planner
Copyright 2009, The National Underwriter Company
Estate Planning Skills
4
Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
Copyright 2009, The National Underwriter Company
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
But first
Determine client’s current
– assets
– income sources
Evaluate impact of client’s major financial goals on
assets and income
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7
Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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.)
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
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11
Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
Copyright 2009, The National Underwriter Company
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
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13
Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
Financial Needs at Retirement
Depend on decisions made regarding or options for:
Housing
Health care
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14
Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
Financial Needs at Retirement
Depend on decisions made regarding or options for:
Pensions and Social Security
Capital needs at death
Copyright 2009, The National Underwriter Company
15
Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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
Copyright 2009, The National Underwriter Company
16
Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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.
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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.
Copyright 2009, The National Underwriter Company
18
Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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.
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19
Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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.
Copyright 2009, The National Underwriter Company
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Planning for Retirement
Needs
Chapter 2
Employee Benefit & Retirement Planning
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?
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