Retirement Planning Strategies and Challenges
Explore expert insights on retirement planning from William Sharpe and Truepoint Wealth. Learn how to manage risks, control factors affecting your retirement, understand budgeting, and prepare for healthcare expenses and longevity. Gain valuable tips to optimize social security benefits and make informed decisions for a secure retirement future.
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Wealth Management Plan November 2015 www.truepointwealth.com 0
William Sharpe on Retirement Planning Retirement is a meaty topic. It s meaty because there are no obvious solutions. There s no ah-ha moment, where the answer is x . The only way you can look at the retirement problem is through probability. You can t look at it not with probability. Everywhere you turn there are probabilities: of inflation, of market performance, or mortality. It s true that you don t know the range of possible outcomes for next year, let alone 40 years from now. But you try to come up with the most credible set of probabilities that you can. William Sharpe 1990 Nobel Prize in Economic Sciences Professer of Finance, Emeritus Stanford University 1 TruepointWealth.com
Focus on What Can Be Controlled Health Longevity Portfolio Risk Policy Saving Spending Investment Returns Employment Inflation CONTROL Less More 2 TruepointWealth.com
Policy: Understand Risks Social Security Benefits Optimize lifetime Social Security benefits Primary Full Retirement Age Early 3 TruepointWealth.com
Spending: Understand Your Budget The concept of essential and discretionary expenses: A continuum not 2 distinct buckets Flexibility provides higher levels of sustainable spending over long-periods EXPENSES Essential Discretionary Food Charity Entertainment Healthcare Travel Housing Transportation 4 TruepointWealth.com
Spending: Understand Changes Over Time Source: Estimating the True Cost of Retirement, Morningstar 5 TruepointWealth.com
Spending: Understand Risks Longevity 50% Probability Either Lives to age 92 30% Probability Either Lives to age 95 6 TruepointWealth.com
Spending: Understand Risks Healthcare Healthcare Source: Consumer Expenditure Survey, Morningstar 7 TruepointWealth.com
Spending: Understand Risks Long Term Care Average Duration of Nursing Home Care: Likelihood of Long Term Care Use: Source: Center for Retirement Research at Boston College, Long Term Care: How Big a Risk? 8 TruepointWealth.com
Spending: Understand Risks Portfolio Volatility All Trials Average Return Bad Timing 9 TruepointWealth.com
Spending: Financial Projection Scenario Analysis Base Scenario Alternate Scenarios Retire Age 52 Retire Age 55 Options 0% Growth 52/58 2016 55/61 2019 52/58 2016 Retirement Age / Year Retirement Safe Spending $80,000 $90,000 $50,000 Retirement Discretionary Spending $40,000 $50,000 $50,000 Retirement Total Spending $120,000 $140,000 $100,000 College Yes Yes Yes Separation Payment Yes No Yes P&G Price Appreciation 5% 5% 0% 10 TruepointWealth.com
Investment Management I d compare stock pickers to astrologers but I don t want to bad mouth astrologers. Eugene Fama, Nobel laureate in Economics and University of Chicago Finance Professor 11 TruepointWealth.com
Focus on What Can Be Controlled Health Longevity Portfolio Risk Policy Saving Spending Investment Returns Employment Inflation CONTROL Less More 12 TruepointWealth.com
Theres No Free Lunch Longevity Many Choices and Tradeoffs Don t invest at all Longevity and inflation risk Cash Longevity and inflation risk Bonds Credit and interest rate risk Annuities Liquidity and credit risk Alternatives Liquidity, credit, and market risk Stocks Market risk Market 13 TruepointWealth.com
Its a Balancing Act Source: JP Morgan 4Q15 Guide to the Markets 14 TruepointWealth.com
Gambling is for the Casino, Not the Portfolio Attempting to identify winners can be a losing strategy 15 TruepointWealth.com
Concentrated Position Test Retire Age 52 Single stocks carry idiosyncratic risk that as an investor, you are not compensated for. The markets reward diversified risk. 16 TruepointWealth.com
Timing is Everything 17 TruepointWealth.com
Employee Stock Options You don t need a crystal ball, but you might need to change your strategy. 18 TruepointWealth.com
Focus on What Can Be Controlled Health Longevity Portfolio Risk Policy Saving Spending Investment Returns Employment Inflation CONTROL Less More 19 TruepointWealth.com
Historical Marginal Tax Rates: Why Should You Care? Historically speaking, our top federal marginal rate is low 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1913 1918 1923 1928 1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 20 TruepointWealth.com
Why Does Type Matter? Current rate 15% for most / 20% for high income taxpayers 21 TruepointWealth.com
Surtaxes An Alarming Trend How to increase tax revenue without increasing the tax rate... 22 TruepointWealth.com
Surtaxes An Alarming Trend This is not the only surtax: Medicare surtax: On excess wage/self employment income 0.9% Itemized deduction / exemption phase-out: When income exceeds thresholds 1.9% Actual top marginal tax bracket is in excess of 45% 23 TruepointWealth.com
Lets Add in Quasi-Means Testing Medicare premiums dependent upon taxpayer income 24 TruepointWealth.com
What One Hand Giveth... The Alternative Minimum Tax continues to thrive... 25 TruepointWealth.com
Alternative Minimum Tax By State 26 TruepointWealth.com
What You Can Control Timing of Income Bonus deferrals Option exercise P&G lump sum distribution Roth IRA conversions Roth Two Step Outright conversions IRA withdrawals 27 TruepointWealth.com
What You Can Control Type of Income Long term capital gain income Line 9b Line 13 Tax free income Line 8b Line 15a 28 TruepointWealth.com
Identifying Timing Opportunities Shift / defer higher taxed income into lower tax years: 29 TruepointWealth.com
Significant Arbitrage Opportunity Profit Sharing Trust and Savings Plan Distribution Choices Individual annuity Leave none in the Plan Lump sum distribution taxed or rolled Leave all in the Plan Use Retirement Plus feature of the Plan for investments Must maintain 40% of Plus account in P&G stock Take annuity, lump sum, or other form of distribution later Annual distributions Leave some in the Plan Take partial distributions Use Retirement Plus feature of Plan for investments Must maintain 40% of Plus account in P&G stock Monthly distributions Ad hoc distributions Conversion of Marginal Tax into Capital Gain Tax 30 TruepointWealth.com
Duke Technique Example IRA $ 1,000,000 + $300,000 $1,300,000 PST 60-day rollover of P&G stock Non-P&G P&G Common $ 500,000 P&G Preferred $ 800,000 $1,000,000 (Trustees Cost = $ 300,000) Taxable Brokerage Computer Share $1,300,000 - $300,000 $1,000,000 $1,300,000 Proper application of 60-day rollover of fair market value of P&G stock equal to or exceeding trustees costmayresult in zero federal or state tax on qualified lump sum distribution 31 TruepointWealth.com
