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“A-Day” – a pensions bonanza?
• More choice and a fundamental change
• Pensions – NOT products, investments
• “Long-term tax-relieved like ISAs or PEPs”*
• To fund 30 years of changing lifestyle
• “A period of work, education and leisure”**
* William Kay, Sunday Times, July 2005
** HSBC Survey, May 2005.
As You Approach Retirement
“How do I accumulate more funds?”
“Will my funds last throughout my retirement years?”
Consider Retirement Phases
• Trips in segments — Retirement in Phases • Phases defined by activity levels• Retirement expenses vary with activity
Retirement Expenses by Phases
70% Basic Needs – 20% Extra Wants
70% Basic Needs – 10% Extra Wants
70% Basic Needs
60% of Prior Income
“How much do we need to maintain our lifestyle and to have the retirement we’ve dreamed?”
Retirement Planning
• Family Tree• Better Health Care• Medical Advances
“How long should we plan for?
We don’t want to outlive our assets!”
Investments During Retirement
• Predictable income for current phase • Predictable income from very
conservative investments• More risk and return for assets used for
later phases• Longer time horizon prior to phase, the
more aggressive the investments• Shift assets as retirement phases
change
Steps for Retirement Journey
Determine the likely times of retirement phases
Requirements– Basic Needs
– Additional Wants
Known Income–State Benefits
–Pension
–Retirement Plans
–Annuities & Other
Analysis Desired Income
less Known Income
equals Remaining Requirements
Six Questions
1. When do you want to retire?
2. How much monthly income do you need?
3. Current value of retirement plans? (Co. Schemes, Pers Pens, Stakeholder,SIPPs, SASSs etc.)
4. Current value of retirement assets?
5. Illustrate State Benefits ?
6. Any other retirement income?
Retirement Destination
Monthly Needs in Today’s Money(Typical Needs in Today’s Pounds if Current Income Is £5,000 Monthly)
Begins at Robert’s Age
Basic Needs
Additional Wants
Total Desired
65 £3,500 £1,500 £5,000
75 £3,000 £1,000 £4,000
85 £2,700 £0 £2,700
92 £2,500 £0 £2,500
Comparing Income & Sources
• Show monthly needs and additional wants• Adjust for estimated inflation
Comparing Income & Sources
• Add income from other known sources• Determine the remaining amount required
Required for Remaining IncomeAssets Required in Today’s Money
Basic Needs
Additional Wants
Total Desired
£18,654 £235,619 £254,273
£54,039 £135,578 £189,617
£84,590 £0 £84,590
£151,776 £0 £151,776
Total £309,059 £371,197 £680,256
Funding Each Phase
• If income is being received, very conservative – predictable
• If next phase, conservative so little fluctuation when time to convert to income
• For phases years away, seek maximum yields – moderate and aggressive
• Funding changes as you move to next phase
Timing Determines Investments
Very Conservative
Conservative
Moderate
Aggressive
Capital PreservationVery secured, predictable
Income AssetsSecured, minimum fluctuation
Income and GrowthFluctuates with market conditions
Growth AssetsLong-term growth but fluctuations
Money Required for Each Phase
• Funding early retirement phase• £254,273 invested conservatively until retirement• At retirement, it could be invested very
conservatively—predictably• It could provide the additional income for this phase
Money Required for Each Phase
• Funding seasoned retirement phase• £189,617 invested moderately until retirement• At retirement, invested conservatively• When seasoned retirement starts, invest predictably• Income during the seasoned retirement years very
secured
Money Required for Each Phase
• Funding matured retirement phase• £84,590 invested aggressively until retirement• At retirement, invested moderately• When seasoned retirement starts, invest conservatively• When matured retirement starts, invest very conservatively• Income during the matured retirement years very secured
Money Required for Each Phase
• Funding survivorship phase• £151,776 invested aggressively until seasoned phase• When seasoned retirement starts, invest moderately• When matured retirement starts, invest conservatively• At spouse’s death, invest very conservatively• Income during the survivorship years very secured
Combination of Funding for All Phrases
A year-by-year allocation of investments for the remaining monthly needs
Asset Mix for Remaining Amounts Required
“Can I use this as a guide to adjust my investments at the start of each phase?"
Applying Retirement Assets
Assets designated for retirement can provide a portion of the remaining income desired.
“Will our retirement assets solve our needs?”
Annuity for Guarantee IncomeLife InsuranceRe-Investment of AssetsAre Goals Unrealistic?Best Use of Qualified PlansEstate Planning Comprehensive Planning Delay Retirement Unexpected ExpensesAnnuity as the Conservative Investment Allocation of Assets
What Should You Recommend?
How do you decide what to recommend?
Proceed with Recommendations
• “Intelligent” recommendations at end of PlanFacts (quick fact finder)
• Only recommend if appropriate• Provides calculations needed to decide• Re-calculates with each recommendation• Complete all recommendations in one pass!• Prints “Brochure,” “Analysis,” and
“Recommendations” at one time
How Should You Take Your Retirement?
• As Needed—defers needs• Level—spreads over retirement years• Required Minimum Distributions—less early income
What is an annuity?
• When Payments Begin– Immediate– Deferred
• How Values Are Determined– Fixed – a stated interest rate– Variable – fluctuates based on equities
• Ways Annuities Pay Lifetime Income– Lifetime income– Guaranteed payment periods– Based on two lives
“What are the different types of annuities?”
An Alternative – Using an Annuity
A lump sum could be added to an annuity and an income could be received throughout retirement, reducing the amount required for the remaining monthly income needs.
Assuring Survivor’s Income
• Life insurance for survivorship phase• Eliminates remaining needs for that phase• Monthly needs increased by monthly premiums• Remaining assets could be used for other retirement phases
Survivorship Questions
• Permanent, cash value life insurance is the key• If death occurs earlier than assumed, we’ll probably
have extra• If death is later, the cash value (via withdrawals or
policy loans) may be used• You must examine all policy provisions well before
purchasing any life insurance
“But wouldn’t the amount of life insurance be determined by when one of us dies? It’ll probably be different than what we are assuming?”
Recommendations Applied
• Qualified retirement plan distribution applied• Includes annuity income• Illustrates life insurance • Assets applied to remaining objectives
The Unexpected—”What if…?”
• Illustrate affects of an unexpected retirement need • Long-Term Care, Critical Illness, Cancer, Accident• Show how insurance protects against the
unexpected
Personalized Recommendations
• All recommendations are detailed as part of presentation
• Company specific products recommended
• Other planning can be recommended:– Estate Planning– Comprehensive Planning– Qualified Plan Distribution– Asset Allocation
• Annual reviews
A new name for pensions?
• Save• Money and
• Invest for
• Life’s
• Enjoyment
* William Kay, Sunday Times, July 2005