How To Retireon a nonprofit employee’s salaryPAUL MERRIMAN | THE MERRIMAN FINANCIAL EDUCATION FOUNDATION

Bainbridge Community Foundation recognizes that nonprofit organizations are vital to the quality of life here, and

employees are the backbone of a successful nonprofit. We want nonprofit employees to feel successful, appreciated, and that a career in the nonprofit sector can be a livable

endeavor. Financial planning is key to this.

The Merriman Financial Education Foundation believes “knowledge is power” and is dedicated to providing comprehensive financial education to investor, with information and tools to make informed decisions in

their own best interest and successfully implement their retirement savings program.

MY GOAL

Educate

Motivate

Encourage

Inspire

HERE WE GO

TOP REASONS TO SAVE FOR THE FUTURE

Who wants you to save for the future?

Who wants you to spend NOW?!

How much should I save?

AGEINCOME

SPOUSE/PARTNERRISK TOLERANCE

COMFORT

What do we know about those that are saving for retirement? Half of Americans are not saving for retirement

80 is the new retirement age

Americans do not trust stock market for the long term

Employees are not taking advantage of retirement plans

Most investors do not know how much they need to retire

40% of investors don’t think they’ll have enough to retire

Fewer women than men are involved in the retirement planning process

23% believe that the only path to financial freedom is to win the lottery

What do we know about those that are saving for retirement? According to one study, the median balance of workers’ retirement

accounts – including 401(k)s, IRAs, etc – is $63,000

AGE GROUP MEDIAN RETIRMENT SAVINGS20s $16,00030s $45,00040s $63,00050s $117,00060s 172,000

Transamerica Center for Retirement Studies

The Good News: Investing has never been simpler, more productive, or more predictable

“Genius is 1% inspiration and 99% perspiration”

– Thomas Edison

The Life Changing Impactof making an extra 0.5%

Assumptions: Invest $5,000 a year (invested monthly) for 40 years. Take 5% of the value (paid monthly) for distributions. 7% return on investments after

retirement.

Percent Return Value at 65 Total Distributions Estate Total

8% Return $1,464,283 $2,499,798 $3,947,406 $6,447,194

8.5% Return $1,694,691 $3,110,897 $5,172,415 $8,383,312

9% Return $1,965,180 $3,608,913 $6,000,459 $9,609,372

How to be a successful first time investor

Pay yourself first Make reducing your cost of living a priority Start small to get into the saving habit Automate the process Dollar cost average without fail Use low cost index funds If not interested in managing your portfolio, use target date funds Make sure your partner is in agreement with your saving and investing program Don’t ever take investment advice from someone who earns a commission Don’t market time or second guess the future Celebrate bear markets

Where Should You Invest Your Retirement Money?

Traditional IRA, Roth IRA, Simple IRA, 403(b)

If no match, IRA allows tax-free growth

If no match, IRA allows more investment choices

If match available, maximize free money and then use IRA

“To be a success, you only have to do a very few things right…”

“…as long as you don’t do too many things wrong.”

– Warren Buffett

The few “things” you have to do right (Good Choices)

Trust Wall Street vs. Main Street

vs. University Street

Stocks vs. Bonds

Fine Tuning Your Asset Allocation

100% Bonds 10/90 20/80 30/70 40/60 50/50 60/40 70/30 80/20 90/10 100%

Stocks

6.2% 6.8% 7.4% 8.0% 8.6% 9.1% 9.6% 10.1% 10.6% 11.0% 11.3%

-4.5% -5.4% -11.6% -17.5% -23.2% -28.5% -33.6% -38.3% -42.9% -47.1% -51.1%

0.8% 0.0% 0.3% -2.1% -4.4% -6.8% -9.2% -11.5% -13.8% -16.2% -18.5%

1.0 % 1.7% 1.9% 1.2% 0.4% -.5% -1.3% -2.2% -3.2% -4.1% -5.1%

Years1970-2015

Annualized Return

Worst 12 Months

Worst 36 Months Annualized

Worst 60 Months Annualized

One Company vs. Many Companies

One Industry vs. Many Industries

One Equity Asset Class vs. Many Asset Classes

One Country vs. Many Countries

You Pick Stocks vs. Mutual Fund

Load vs. No-Load Funds

High vs. Low Cost Mutual Funds (expense ratio)

High vs. Low Turnover (internal trading)

Invest When Comfortable vs. Dollar Cost Average

Add Bonds vs. All Stocks

Actively Managedvs. Passively Managed Funds

(Index Funds)

Why Index Funds?

Low cost to buy and sell

Low cost to manage

Most diversified

Most control of holdings

Lower taxes

Should be in the top 10 & over 20 years

Recommended by the most respected people in the industry (Warren Buffett, John Bogle, Charles Schwab and virtually all academics)

How To Know When To Take Less Risk?

120-Your Age

Stock Portion

100-Your Age

Stock Portion

Target Date Funds

1 2 3

Target Date Funds:The almost perfect solution

One investment decision for life

All the advantages of no load mutual funds to pick the best stocks

All the advantages of having a professional advisor to pick the best balance of stocks and bonds

Vanguard info on Target Date Funds: https://investor.vanguard.com/mutual-funds/target-

retirement/#/?WT.srch=1&cmpgn=PS:RE

Schwab info on Target Date Funds: http://www.schwab.com/public/schwab/investing/accounts_products/

investment/mutual_funds/mutual_fund_portfolio/target_funds

What’s wrong with target date funds?

Too much in stocks

Too little in stocks

Too little in value stocks

Too little in small cap stocks

Long Term Return of Large Cap and Small Cap Companies

LARGE CAP BLEND SMALL CAP VALUE88 Year CRR 9.7% 13.4%Best 1 Year Return 54.0% 125.2%Worst 1 Year Return -43.3% -54.7%

Summary of 1 Year Period Results (1928-2015)

LARGE CAP BLEND SMALL CAP VALUE88 Year CRR 10.9% 16.1%Best 15 Year Return 18.9% 26.4%Worst 15 Year Return 0.6% -1.6%

Summary of 15 Year Period Results (1928-2015)

CRR: Compound Rate of Return

* Results do not include taxes or

management fees

Long Term Return of Large Cap and Small Cap Companies

LARGE CAP BLEND SMALL CAP VALUE88 Year CRR 10.9% 16.2%Best 40 Year Return 12.5% 19.0%Worst 40 Year Return 8.9% 11.8%

Summary of 40 Year Period Results (1928-2015)

LARGE CAP BLEND SMALL CAP VALUE88 Year CRR 10.9% 16.1%Best 15 Year Return 18.9% 26.4%Worst 15 Year Return 0.6% -1.6%

Summary of 15 Year Period Results (1928-2015)

CRR: Compound Rate of Return

* Results do not include taxes or

management fees

Impact of Adding Small Cap to Target Date Fund

Add Small-Cap Value 0 25% 40%Pre-retirement Growth Rate 8% 9.5% 10.2%Value in 40 years $1.3M $1.93M $2.31M1st Year Payout $51,811 $77,213 $92,454Total of 25 Annual Payouts $1.71M $2.99M $3.58MValue After 65 Years $2.43M $3.94M $4.5MTotal Initial Investments $200,000 $200,000 $200,000Lifetime Return $4.14M $6.93M $8.08M

Recap: How to be a successful first time investor

Pay yourself first Make reducing your cost of living a priority Start small to get into the saving habit Automate the process Dollar cost average without fail Use low cost index funds If not interested in managing your portfolio, use target date funds Make sure your partner is in agreement with your saving and investing program Don’t ever take investment advice from someone who earns a commission Don’t market time or second guess the future Celebrate bear markets

Meet Joe & Diane

Saved one salary

Owned used cars

Bought modest homes

Went camping for family vacations

Planned for and retired at 48

Worked for a few hours part time in the early years of retirement

Never took great risk but always took some risk

Never took more than 4% to live on plus Social Security

Still don’t eat in expensive restaurants

Vacation by trading their house over 100 times; traded their modest home for a NYC condo on Central Park that rents for $23,000/mo

Sources of Ways to Save More Money

Articles on Money Saving Tips http://www.thesimpledollar.com/little-steps-100-great-tips-for-saving-money-

for-those-just-getting-started/ http://www.goodfinancialcents.com/ways-to-save-money/ http://www.doughroller.net/smart-spending/51-painless-money-saving-tips/

Books on money saving tips available through Amazon Matthew Paulson: Simple Savings: 274 Money-Saving Tips That Will Help You

Save $1,000 or More Every Month Tom Meitner: How to Save Money on Almost Anything: 50+ Proven Time

Tested Tips Ron Tomby: 701 Money Saving Tips

What do Successful Investors Have in Common?

They have a plan. Suggested resource: Personal Finance for Dummies 2016 Edition

They identify the risks they are taking and do something about it

They ignore noise, predictions, and panic. Suggested resource: Dalbar Study

They know they are their own worst enemies. Suggested resource: Your Money & Your Brain by Jason Zweig

NOVEMBER 3rd 6:30-8:30PM

Getting The Most Out of Your 401K

BIMA Auditorium

Questions?