2. Agenda
Briefly address “Gender Retirement Gap”
Basic Tenants of a Successful Financial Future
Calculating savings required to meet future financial goals
Savings vehicles to help accumulate assets
Tools to help manage your finances
Q&A
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3. Gender Retirement Gap
Women need to save more than men in order to have same amount of
assets at retirement and through retirement
Two New Graduates; same job, same starting wage
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4. Reasons For Gender Retirement Gap
Fewer years in the workforce – 75% of the years men work
Advanced studies, children, elder care of parents, etc.…
Fewer years in workforce impacts savings
Lower Social Security benefits
Gender pay gap – 78 cents on the dollar
Showing signs of gradual improvement
Women tend to be more risk adverse than men
Risker assets improve returns over time
Recent research illustrates women more risk aware
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5. Gender Retirement Gap, Cont.
What we have discussed thus far only applies to same standard of living to
male counterpart up to retirement
During retirement, women tend to spend more
Women consistently live longer
Sole Provider late stage in retirement
Higher healthcare costs for women – 18% more
Need to plan for this reality
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6. Basic Tenants of Financial Success
Basic tenants of a successful financial future
Spend less than you make
Invest early and often
Understand risk and its relationship to your tolerance and goals
Have a plan in place
Financial success takes discipline
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7. Spend Less than you make
Must pay yourself first
Funding a future liability
Have a budget in place
See Sample budget
Use resources – Mint, Personal Capital
Review monthly budgets vs. actual spending
Put in place a system of accountability
I.e., recurring monthly review with spouse or significant other
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8. Invest Early and Often
Investing earlier allows you do reduce amount your saving
Saving early and often allows you to maximize opportunity of
compounding
Time can be your best friend or worst enemy
Playing catch-up is hard to do
Illustrations – next two slides
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10. Invest Early and Often Cont.
Hypothetical: Emily and Dave. Emily saves $200 per month into 401k
beginning at age 25 earning 6% per year. Dave starts saving $200 per
month into his 401k, earning the same return of 6%, but starts at age 35.
Both continue to add $200 per month until 65 years old.
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11. Understanding Risk
Taking greater risk improves outlook
Two traditional asset classes – Stocks
and Bonds
Stocks 9.53% Annual Return
Bonds 4.91% Annual Return
Stocks carry much greater risk, but
diversification can be your friend
Would you rather earn a smooth 5%
or a lumpy 9.5%
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12. Understanding Risk, Cont.
Risk tolerance has two dimensions
Capacity
Time horizon, stability of income, age, required rate of return to meet your goal(s)
Willingness
Ability to accept losses/volatility, emotional and cognitive biases
Being risk aware is important to your success
Portfolio mix should mirror tolerance for risk
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13. Have a Plan in Place
A proper financial plan will address the following
Your financial goals
i.e., maintain current lifestyle through retirement
Your risk tolerance – capacity & willingness
Your current financial position
Net worth
Current savings rate
Taxation
Required annual savings rate and return to meet your financial goal(s)
Other sources of future income (Social Security)
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14. Saving for Retirement
Basic Rules of Thumb
Will want to replace 70% of current income, adjusted to inflation
Save 15% of gross wages per year once you begin working
Caveat: rule of thumb can fall short. Everyone’s situation is different
Hypothetical:
A 40 year old female earning $45,000 today
She plans to retire at 70 years of age
Wants to plan on replacing 70% of current income (no more mortgage)
Currently has $97,000 in her 401(k) with $4,000 annual additions per year
High capacity for risk and average willingness given her age
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15. Saving for Retirement, Cont.
Assumptions
Pre-tax income required in retirement $76,459
$45,000 income, adjusted for 3% annual inflation, over 30 year period @ 70%
Annual portfolio return of 7% pre-retirement
Annual Social Security income of $26,625
We have reduced projected figure of $35,500 by 25%
Will begin social security benefits income at retirement age of 70
Ending balance (FV) at time of retirement of $1,245,850
Needs to support safe withdrawal rate of 4%, adjusted for annual inflation
Needs to support pre-tax withdrawals of $49,834
Income required – Social Security Benefit ($76,459 – $26,625)
Not adjusting for difference in taxation from pre to post-retirement
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16. Saving for Retirement, Cont.
Solve for required annual savings needed in order to ensure you can
maintain your same standard of living in retirement with little to no
concern of outliving your assets
Future Value of assets = $1,245,850
PMT = X
Rate of Return = 7%
Present Value of Portfolio = $97,000
N = 30 years of saving
Required annual savings to meet retirement goal = $5,372
An increase of $1,372 in annual savings to maintain lifestyle in retirement
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17. Various Savings vehicles
401k’s, 403b’s, SEP’s, Simple IRAs, Roth IRA’s, Rollover IRA’s, oh my...
401(k) – McGrath Auto
Pre-tax retirement savings vehicle
Money grows tax deferred; taxed upon withdrawal
2017 maximum $18,000 annual employee deferrals
Plus $5,500 catch-up for those 50+
Roth IRA
Income limitations begin at $118,000 (single), 186,000 (married)
Post-tax savings vehicle
Money grows tax free; no future taxation
2017 maximum contribution limit is $5,500
Plus $1,000 catch-up for those 50+
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18. Various Savings Vehicles, Cont.
When saving for education
529 Accounts preferred vehicle
Underutilized
Qualify for state tax deduction on contributions of $3,239 per spouse per beneficiary
(child)
Maximum annual additions 0f $14,000 per spouse per beneficiary
Contributions grow tax free as long as they are used for qualified college expenses
Tuition, books, support material and technology, ‘reasonable room & board
A 10% penalty and income tax will be applied to unqualified withdrawals
Retain ability to change beneficiary at your discretion
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19. Tools to Help Meet Your Goals
Budgeting Apps
Mint
Personal Capital
Financial Calculators
Schwab MoneyWise
http://www.schwabmoneywise.com/public/moneywise/tools_resources/calculators_w
orksheets/calculators
Examples: credit card payoff, retirement savings, etc.
Vanguard Tools & Calculators
https://investor.vanguard.com/investing/investment-calculator
Retirement planning, education savings, investment vehicles, etc.
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20. Final Thoughts
What you can do today
Record your financial goals
Begin understand what’s required to meet those goals
Use tools or seek professional assistance
Ensure you have a plan in place
Goals evolve, as do your circumstances. Review and maintenance is key
Success requires discipline and a system of accountability
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21. Midwestern Financial Group
Beginning Investor Program
Designed for those beginning to invest or have yet to establish a financial plan
Pricing
Individuals $199 one-time fee
Couples $349 one-time fee
Contact information for Midwestern Financial Group:
Email: service@midwesternfinancial.com
Phone: (319) 499-1620
Website: www.midwesternfinancial.com
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22. Disclaimer
Midwestern Financial, LLC (“MFG”) is a registered investment adviser offering
advisory services in the State of Iowa and in other jurisdictions where
exempted. Registration does not imply a certain level of skill or training. The
presence of this website on the Internet shall not be directly or indirectly
interpreted as a solicitation of investment advisory services to persons of another
jurisdiction unless otherwise permitted by statute. Follow-up or individualized
responses to consumers in a particular state by MFG in the rendering of
personalized investment advice for compensation shall not be made without our
first complying with jurisdiction requirements or pursuant an applicable state
exemption.
All written content of this presentation is for information purposes only. Opinions
expressed herein are solely those of MFG, unless otherwise specifically
cited. Material presented is believed to be from reliable sources and no
representations are made by our firm as to another parties’ informational accuracy
or completeness. All information or ideas provided should be discussed in detail
with an advisor, accountant or legal counsel prior to implementation.
Past performance is not indicative of future results.
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