Ready to Retire- David Johnston

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READY to RETIRE?!
Are You?
You Can Be!
Retirement sits best on a “threelegged stool.
The “Three-Legged” Stool
Social Security
Employer Pension Plan
Personal Financial Preparation
Miscellaneous Musings
The next several slides are a
compilation of Miscellaneous Musings
At some point, regardless of your
age, you WILL begin to consider
retirement
As you consider your future you will
also have to begin to consider the
impact on current finances
Worthwhile Statements
Earn all you can; Save all you can;
Give all you can. John Wesley
Money is good to Enjoy, to Invest,
and to Give. Dave Ramsey
Key Ingredient in Preparation
Don’t live UP TO someone else’s
standard of living
Live BELOW your own standard
Really?
80% of Americans believe their
standard of living will go UP at
retirement
97% of retired Americans cannot
write a $600 check
Reverse Mortgage
A Reverse Mortgage is not a
retirement plan
It is an abdication of personal
responsibility if it is part of your
current plan
Government came up with this as a
means of relief for cash strapped
retirees
Myth vs. Truth
If I do a WILL I might die
You ARE going to die – so do it with
a will
First Leg of the Stool –
GOVERNMENT’S CONTRIBUTION
Review YOUR SOCIAL SECURITY
STATEMENT
– Your earnings
– Your retirement benefits (age specific)
– Your disability benefits
– Your age at retirement affects your
benefit payment
Myth vs. Truth
I heard that Social Security is almost
broke and I probably won’t get any
retirement benefits
Solvent through 2041
Subsequently able to support 78%
just through current payments from
payroll tax
Social Security is Socialism!
Social Security replaces earnings at…
– 81% for low income workers
– 42% for high income workers
– 60% for average workers
Medicare is available at age 65
True or False
My Social Security payments are
based on my last 5 years of earnings
– False
Social Security payments are
affected by the money I earn while
drawing benefits
– True
What Can I Do?
Take personal responsibility for SE
Tax payments (do you receive SE Tax
reimbursement)
– Roll reimbursement into your salary (it’s
taxable anyway)
– Save for annual bills and SE tax
– Make your quarterly payments
– Benefit: affects bonus, and raises
What Can I Do?
Realize that the IRS now discounts
SE Tax in an attempt to account for
the lack of ‘an employer match’
– On SE form total compensation is
reduced by 7.65%
– On front of 1040 reduce Adjusted Gross
Income by ½ of SE tax
What Can I Do?
Pay full SE Tax
– It affects your future benefits
– Pay on the total of:
Salary
Housing allowance
Parsonage + Utilities (don’t discount FMRV)
SE tax reimbursement
Schedule “C” income
Any other self-employed income
Cautions!
Don’t rely on what “someone” tells
you about Social Security
Do your own research and determine
how your decisions affect your SS
benefits
– www.socialsecurity.gov
– www.medicare.gov
Second Leg of the Stool –
EMPLOYERS’ CONTRIBUTION
The days of DEFINED BENEFIT
pensions are fading
A growing number of employers are
moving to DEFINED CONTRIBUTION
pension plans
Defined Benefit Pension
Employer bears the responsibility to
fund and supervise
Usually based on a fomula
– Employees pay
– Years of service
– Age at retirement
– Etc.
Defined Contribution Pension
Employee bears the responsibility to
fund and supervise
Risk and reward are assumed by the
employee
– Employer may match in a prescribed
manner (some dropping match)
– Employer may provide the program
– Employee must oversee
“Company” Pension
50% of working people don’t have
pension
If this leg is “short” that throws
increased burden on the other two
– Social Security
– Personal Preparation
Your Nazarene Pension
Is it Defined Benefit or Defined
Contribution?
Now – Defined Contribution
How much do they contribute?
How many of you are
“grandfathered” from the old Defined
Benefit program?
My Nazarene Pension
P&B APS source balance: $16,829
Assumed Monthly Benefit: $104
Basic Pension Plan: $287
Total Monthly Benefit: $391
What will be my monthly check from
P&B?
$287
It is Your Pension
Become Interested
Become Educated
Become Involved
Become Ready for Retirement
Third Leg of the Stool –
MY PERSONAL CONTRIBUTION
The other two “legs” are important,
but this one is critical
– You have greatest control here
Know where you are financially –
Your Current Net Worth
– Assets minus Liabilities
Know where you want to go – What
You Will Need for Retirement
– The size of your “nest egg”
Know How Money Works
Understand interest on Savings (Rule
of 72’s)
Understand interest on Debt
Understand the impact of Debt on
Income
Some Practical Steps
If you can’t afford it, don’t buy it
Be debt-free by the time you retire
Build tangible assets
Don’t borrow money just because
you can
Be a Generous Giver
Owning a House
For most people their home is 60%
of their Net Worth
Do you have one?
Can you afford one?
Should you buy one now?
If you have never owned a home
buying one after you retire may not
be the best option
Financial Advice
Everyone has opinions and advice
Filter “professional” advice carefully
“Advisors” make their money by
selling products
– Know what you NEED
– BUY only what you NEED
Investments Fluctuate
“Do they ever!!!”
Don’t panic!!!!
Realize…
– Probably don’t need the money today
– Certainly don’t need it all today
Investing for Retirement
Be debt free (mortgage excluded)
Invest 15% of gross earnings for
retirement
Calculating for your retirement nest
egg (handout)
Calculating for Retirement
Amount you wish to draw annually
Divide by .08
Equals total nest egg needed
Multiply by “factor” provided
Equals amount needed to save each
month
Calculating for Retirement (con.)
Example
Target Annual Income = $30,000
Divide by .08 = $375,000
Nest Egg times .001051 (40 yr old)
Need to save monthly = $394.12
Calculating for Retirement (con.)
Example
Nest Egg times .001698 (45 yr old)
Need to save monthly = $636.75
Nest Egg times .000436 (30 yr old)
Need to save monthly = $163.50
Calculating for Retirement (con.)
P&B is making a maximum of $1000
per year to your 403b, Defined
Contribution plan
Over 40 years @ 8% = $54,000
If you add $100/mon = $119,000
If you add $200/mon = $183,000
This is in today’s dollars without
figuring an inflation factor
CONCLUSION
Get Ready to Retire
Assess where you are in your
retirement planning
Begin to build a workable plan
Consider all three legs of the “stool”
Decide on a retirement protocol
Expect to enjoy retirement
READY to RETIRE?
YES
I
AM!
If you want more Information or
Interaction
Feel free to contact me at:
[email protected]
Or
330.604.1270, cell
330.491.0115, office
Or
Pastor Dave Johnston
82 Waterford Way
Tallmadge, OH 44278
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