Date post: | 09-Apr-2017 |
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Kathleen Wyble Graham, First Vice- PresidentWells Fargo Advisors
Avoiding big mistakes when saving for retirement
Proper retirement planning is key
Maintain standard of living Generate retirement income to last your lifetime
Retirement planning
Know where you are. Determine where
you are going. Follow your plan.
Mistake #1 – Forgetting about inflation’s effects
Inflation’s powerful effects If prices rise 4% annually:
$1.00 82¢ 66¢ 44¢
Today Five yearsfrom now 10 years
from now 20 yearsfrom now
Source: Consumer Price Index
Relative worth
Mistake #1 – Forgetting about inflation’s effects
$
Years from now1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Purchasing power of $50,000Assuming 4% inflation
$
$
$
$
$
$
Mistake #2 – Not having a proper asset allocation
Asset allocation … Is the combination of asset classes in a portfolio and
their proportion to one another Requires building a balanced portfolio with
appropriate diversification across asset classes May help reduce the effects of market volatility Can help you take advantage of your return potential
Asset allocation does not eliminate fluctuating prices or uncertain returns.
Mistake #2 – Not having a proper asset allocation for your portfolio
Mistake #2 – Not having a proper asset allocation for your portfolio (cont.)
Past performance is no guarantee of future results. You cannot invest directly in an index.
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Mistake #2 – Not having a proper asset allocation for your portfolio (cont.)
Mistake #3 – Underestimating the effect of taxesThe benefits of tax deferral
Example is for illustrative purposes only and does not reflect the performance of any specific investment. Wells Fargo Advisors is not a legal or tax advisor.
Tax-deferred investment
Taxable investment
$
$645,100 value after taxes, assuming a 39.6% tax bracket and a lump sum distribution
$1,068,047
$561,202
$
$
Mistake #4 – Underestimating spending during retirement 38% of retirees report their actual expenses in retirement
are somewhat or much higher than expected.1
42% of those who experienced higher than expected expenses coped by reducing spending and the quality of life.1
32% of retirees indicate their current debt level is at least a minor problem in retirement.1
1. Source: Employee Benefit Research Institute retirement confidence survey, March 2016.
Mistake #5 – Having unrealistic investment expectationsMarket timing — The risk of missing major opportunitiesIbbotson Large Company Stock Index annualized returns, 1996-2015
Source: Morningstar. This hypothetical illustration is based on the Ibbotson® Large Company Stock Index with dividends reinvested over the 20-year period of 1996 through 2015. Past performance is no guarantee of future results. An index is not managed and is unavailable for direct investment.Returns and principal invested in stocks are not guaranteed. Holding a portfolio of securities for the long-term does not ensure a profitable outcome, and investing in securities always involves risk of loss.
Mistake #6 – Underestimating the time you will spend in retirementAmericans are living longer
Source: RP-2000 Mortality Table Projected to 2013
Life expectancy (years)
Mistake #7 – Mismanaging tax-deferred assets Tapping into your tax-deferred investments
at or before age 59½. Spending from your tax-deferred
investments first.
Mistake #8 – Failing to plan for unexpected health-care expenses Long-term care is the assistance
you receive when you cannot care for yourself and require help with the daily living activities.
The need for long-term care can result from: Accident Chronic illness Short-term disability Advancing age
Mistake #8 – Failing to plan for unexpected health-care expensesA growing problem
2015 CareScout Nationwide survey.This illustration assumes a private room and 4% annual increase in costs. Insurance products offered through affiliated nonbank insurance agencies.
Projected annual nursing-home costs (private room)
2015 2020 2025 2030 2035
The big mistakes
$
6. Underestimating time spent in retirement
4. Underestimatingspending during retirement
8. Unexpected health-care expenses
1. Forgetting inflation’s effects
3. Underestimating taxes
7. Mismanaging tax-deferred assets
5. Unrealistic investment expectations
2. Improper assetallocation
Retirement planning
You should identify: What you have What you need How to get there
The Envision® process
An Envision investment plan …Can help you work toward your financial goalsUses historical market data and statistical modelingIs flexible
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