Five Risks we can prepare for Building a successful retirement

1. Longevity

2. Inflation or Rising Prices

3. Medical and long-term-care costs

4. Taxes

5. Investment risks

65 70 75 80 85 90 95 100+

#1 Longevity: Plan on spending25 to 30 years in retirement

National Center for Health Statistics, U.S. Life Tables, 2003.

Age

Your lifespan probability after reaching age 65

Living to age 83Probability: 56%Living to age 83Probability: 56%

Living to age 89Probability: 29%Living to age 89Probability: 29%

Living to age 94Probability: 13%Living to age 94Probability: 13%

#2 Inflation and Rising prices

No COLA adjustment on Social Security in 2010

Common expenses Today 2038

Cup of coffee $1.37 $3.33

Postage stamp $0.42 $1.02

Gallon of gas $3.50 $8.50

Movie ticket $6.88 $16.70

Mid-priced car $27,800 $67,478

Mid-priced home $244,825 $594,255

#3 Cost of medical care• Couple age 65 will need $225,000 for medical

expenses over the next 20 years– Expect medical care and health insurance costs to

be 20% of pre-retirement income during retirement

• Retiree medical care issues– Health-care costs expected to rise 8% annually

over the next 20 years — 3 to 4 times current inflation rate

– More employers reducing or eliminating future retiree health-care benefits

– Medicare does not cover cost of long-term care

#4 Taxes• Are you going to be in a lower tax bracket

when you retire?

• Expect tax rate to go up

• Capital gain tax at 0% goes away for 15% tax bracket taxpayers

#5 Poor Return - Stock market Risk

Issue: Need a balanced strategy to generate income and growth in retirement

Too conservative

Erosive effectof inflation

Too aggressive

Downside yearsimpact principalvs.

Building a successful retirement

1. Create an income plan according to your needs and longevity

2. Protect your savings or income stream from inflation

3. Plan for increase in Medical cost

4. Take advantage of tax savings

5. Create a well diversified portfolio and monitor account performance and asset allocation regularly

#1 How to prolong life of your Assets

Buckets of Money Concept

1. Short term needs and for fixed expenses 1-3 yrs

2. Mid term needs – discretionary expenses 5-7 yrs

3. Long term goals - growth and inflation hedge 10-30 yrs

1 2 3

Create an income plan – which account to use first?

SocialSecurity IRA

withdrawals

Real estate

Later in retirement

401(k)withdrawals

Part/full-timeworkPension

income

Immediateannuity

Early in your retirement

Life insurance

Choose the rightwithdrawal rate

0

10

20

30

40

50

Years

Percentage of your portfolio’s original balance you withdraw each year

How long will your money last?

10%will last10

years

9%will last11year

s

4%will last28

years

5%will last21

years

6%will last17

years

7%will last15

years

8%will last13

years

3%will last50

years

#2 What Assets Class appreciates with inflation

•Real Estate (public or private REITs)

•Commodities (Natural Resources)

•Precious Metals (Gold …)

•Common Stocks (price appreciation)

•Interest Rate Sensitive ( Floating rate, TIPs)

#3 How to Mitigate Cost of Medical Care

•Medigap supplemental coverage

• Long-term-care insurance

•Health-care “emergency fund”

•Cash Value of Life insurance

•Irrevocable life insurance trust

#4 Taxes – Pay attention to order of withdrawalsType of income Taxability

Social SecurityMay be partially taxable as ordinary income

Pension income Taxed as ordinary income

IRA and 401(k) distributions

Ordinary income rates

Dividend income 15% rate

Long-term capital gains 15% rate

Liquidation of investment principal

Not subject to taxation

Roth IRANot subject to taxation

9.9%9.9%

3.7%3.7%

Equity investors’ performance:

Returns for 20 years, 1990 - 2010

S&P 500

Buy and Hold

Average Investor Returns

12%

10%

8%

6%

4%

2%

0%

#5 Investor Decisions May Compromise Long-Term

Results

Typical Resource Allocation

Watch your asset allocation

PORTFOLIO TYPE ALLOCATION 20 YEARS 30 YEARS 40 YEARS

PRESERVATION0% stocks70% bonds30% cash

CONSERVATIVE20% stocks50% bonds30% cash

BALANCED60% stocks30% bonds10% cash

GROWTH80% stocks20% bonds 0% cash

These portfolios are hypothetical illustrations based on a Monte Carlo simulation using historical data and are not intended as investment advice. You should consider your other assets, income, investment options, and risk tolerance when planning for your specific investment goals. Consult your financial representative for more information. Past performance is not a guarantee of future results.

75–100% probability 50–74% probability 0–49% probability

98%

93%

89%

50%

71%

71%

17%

57%

60%

95% 3%24%

How long will your money last?The information below shows how various asset allocations affect a portfolio’s expected longevity. It assumes that 5% of the original account balance is withdrawn each year and that withdrawals are increased by 3% each year to account for inflation and 7% growth

Causes of price movement

19

Diversification

SMG

Individual investorHolds an average of 3.6 funds across

1 or 2 asset classes

Institutional investorHolds a broad range of styles and

asset classes

LCG

MultiG

RealE

Comm LCG

LCV

SmCV

SmCG

LCC

MdCGMdCV

CorpB

GovB

HYB

Cash

How well are you doing With the 5 steps?

income plan

1 3

5 7 9

10

1

3

5

7

9

10

1 2 3 5 7 9

10

Inflation

protection

Med

ical

covera

ge

Tax strategies

Investm

ent

perform

ance10 9 7

5 3

1

10 9 7 5 3

1

Rate 5 categories of your successful retirement by marking on each line on the scale from 1 to 10, where 10 is being the highest

Additional resourcesBooks

• Longevity Revolution: As Boomers Become Elders, Theodore Roszak

• AgeQuake, Paul Wallace

• Age Power: How the 21st CenturyWill Be Ruled by the New Old,Ken Dychtwald, Ph.D.

• We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World,Walter Updegrave

• How Not to Die Broke at 102,Adriane Berg

On the Web

• AARP, www.aarp.org

• Social Security Administration, www.ssa.gov

• American Savings Education Council, www.asec.org

• ElderWeb, www.elderweb.com

• Medicare, www.medicare.gov

• National Association of Home Care Providers, www.nahc.org

The CFP® difference• Clients First mentality

• Independent objective advice

• A prudent approach to investing

• Asset classes for every investment goal

• A commitment to doingwhat’s right for investors

• Industry-leading service

Presenters:

Larysa Prytula, CFP®

Phone: ( 408 ) 370-3303