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Basic Retirement Financial Planning- Part 1 - ACS RIA
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Basic Retirement FinancialPlanning Workshops
Part 1: Plan Your Use of Available Time
A presentation from
Army Community Service (ACS)Rock Island Arsenal
Edition of September 10, 2004
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Jon Cook, PHR, AFC Financial Readiness Program
Contractor for
Army Community Service
ATTN: AMSTA-RI-CF-ACS
Building 110, 1st Floor, Southeast Wing
U.S. Army Rock Island Arsenal
Rock Island, IL 61299-5000(309) 782-0829 e-mail: [email protected]
see RIA email public folder ERC INFO
www. riamwr. com / acsnew. htmwww. riamwr. com / acsnew. htm
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Basic Retirement FinancialPlanning Workshops
• Part 1: Plan Your Use of Available Time
• Part 2: Retirement Requirements Planning
• Part 3: Retirement Capabilities Planning
• Part 4: Retirement Decision Time-gates
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Sequence of this presentationPart 1: Plan Your Use of Available Time
• Introduction and purpose
• Rule of 72 (3 versions)
• Plan your use of available time
• Next lesson in the series
• Closing, and request for class
critiques
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PurposeTo get you started or to continue your retirement planning explorations, discussions and decisions for yourself and in coordination with your family members, significant others and your advisors and coaches.
Scope and Limitations
• Each person and family is unique – basic methods and factors need to be adapted to each.
• The class is “basic” and regards “financial” aspects; retirement is complex and made up of many factors: wealth accumulation, debt, risk management and insurances, health care, long term care, tax planning, and estate planning (to name a few).
• Make no immediate decisions and seek advice and consent of other involved people (family members and advisors).
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Covey, S. (1989). The 7 Habits of Highly Effective People. NY: Fireside. p. 125; pp. 109-128 and Appendix A.
Family Money
Spouse Work
Self Possessions
Church Pleasure
Enemy Friend
Principles
Life
Plannin
g
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Stein, M. (1998). Prosperous Retirement. Boulder, CO: EMSTCO Press. p. 19.
Mental PhysicalHealth Health
Social Spiritual
Exercise Diet
Personal Intellectual
Finances
$
The
Prosperous
Retirement
Wheel
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Like pieces of a puzzle …
Let’s start assembling
the pieces of your money
puzzle
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The 3 Components of theTime Value of Money
Time
APR Money%
The Rule of 72 and its three uses
How to estimate Doubling Periods!
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The Rule(s) of 72!= Doubling Periods of TIME
Version 1:
Divide 72 by the annual % rate = the number of years it will take your money to double
72 / APR = Years to double
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72 / APR = Years to Double $One deposit of $100 at 10 % APR
compounded monthlyYear Principal Amount Annual Earnings at 10% End of Year Amount 1 Original $100 $10.47 $110.472 $110.47 $11.57 $122.043 $122.04 $12.78 $134.824 $134.82 $14.12 $148.945 $148.94 $15.59 $164.536 $164.53 $17.23 $181.767 $181.76 $19.03 $200.79 .2 $200.79 $ 3.36 = $204.15
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The Rule(s) of 72!= Doubling Periods of TIME
Version 2:
Divide 72 by the number of years in which you wish to double your money = the annual % rate
72 / Years to double = APR
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72 / Years to Double $ = APROne deposit of $100 you want to
double in 6 years = 12% APR compounded monthly
Year Principal Amount Annual Earnings at 12% End of Year Amount
1 Original $100 $12.68 $112.682 $112.68 $14.29 $126.973 $126.97 $16.11 $143.084 $143.08 $18.14 $161.225 $161.22 $20.45 $181.676 $181.67 $23.04 = $204.71
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The Rule(s) of 72!= Doubling Periods of TIME
Version 3:Divide 72 by the inflation rate (Consumer Price Index) = the amount of years it will take to divide your spending power in half.
72 / Inflation Rate (CPI) =Years ‘till spending power cut ½
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72 / 1.5% CPI = 48 years
72 / 4% CPI = 18 years
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Practical Exercise inDoubling Periods over Time
Pat and Chris both invest at 8%72 / 8 % = 9 years to double
Pat• Starts at age 22• Invests $1,040 a year• for 9 years, and stops• and just “lets the
$9,000+ ride.”
Chris• Waits to invest,• Starts at age 35• Invests $1,040 a year• for 31 years! and• Invests +$32,000 !
Who has the most money at age 65 ? WHY? !
Handout P. 4
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To give a 1 yr old child $1 million at their 65th Birthday9% APR 72 / 9% = 8 year doubling perioddoubling period
Dbl Period Age A single investment of:
0 65 $1,000,000
1 57 500,000
2 49 250,000
3 41 125,000
4 33 62,500
5 25 31,250
6 17 15,625
7 9 7,813
8 1 $ 3,907
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It’s never too late to start!
How many years -Doubling Periods - until your:
– 65th birthday– 80th birthday– 90th birthday
Time
APR Money%
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PowerSave Software
Forecast!
• Compounding over Time
• Impact of inflation
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Personal Financial
Management
Software
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Retirement Planning
work sheet
Paper or MS Excel (.xls)
Forecast! Lay out your
Persons Dates Ages
Retirement options
Financial obligations and options
Grateful acknowledgement is given to Steven Shagrin, CFP, for
the concept
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Social Security Agency (www. ssa. gov)
Unisex Life Expectancy at Retirement Table
Ret Age @ 66 + 17.5 yrs = 83.5 average
life expectancy
Life Expectancy ??• Nobody is average• Women tend to live longer than men• for every person earlier there is a person later …• life style, family history, attitude !!!• “Beat the Odds!”
Page 7
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Building Your Time Line
Paper or MS Excel (.xls) work sheet
Lay out your
Person(s)
Dates
Ages
Retirement options & time frames
Financial obligations and options
Handout P. 5
Life Expectancy ?
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Building Your Time Line
Paper or MS Excel (.xls) work sheet
Lay out your
Person(s)
Dates
Ages
Retirement options & time frames
Financial obligations and options
Plan Your Use of
Available Time
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Objective Setting:Objective Statement Components• basic questions (interrogatives)
– Who– What (positively stated in the past tense)
– Where– Why– How Much– By when– How well
• State your BIG Picture of the end product = vision
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Objective Setting:Objective Statement Components
• basic questions (interrogatives)– Who: I– What: completed my retirement financial plan
– Where: on my MS Excel (.xls) Work Sheet
– Why: in order to better plan for retirement
– How Much: by listing my time line, requirements, capabilities, and decision time gates
– By when: at the end of the month (and updated at least annually)
– How well: so that I can coordinate retirement planning actions with my family, significant others and advisors.
Sample #1
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Objective Setting:Objective Statement Components
• basic questions (interrogatives)– Who: I– What: completed my retirement financial timeline
– Where: on my MS Excel (.xls) Work Sheet
– Why: in order to better plan for retirement
– How Much: by listing my family members, dates, ages, and key retirement time points
– By when: at the end of next week
– How well: so the work sheet is complete and ready to use for next class.
Sample #2
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Basic Retirement FinancialPlanning Workshops
Part 1: Plan Your Use of Available Time
• Part 2: Retirement Requirements Planning
• Part 3: Retirement Capabilities Planning
• Part 4: Retirement Decision Time-gates
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Calculator &E-Pamphlets
(as Adobe Acrobat
Reader .pdf) at ACS
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From Federal
Employee News Digest
Available for your use at
ACS RIA
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Other Questions?
And hopefully good answers ...
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Please fill out
the
evaluations!
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Social Security Agency (www. ssa. gov)
Unisex Life Expectancy at Retirement Table
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The Money Rascals ©
• Susan Zimmerman, M.A., ChFC, CLU• Changing troublesome money habits from the
inside out.• The Assessment and its (limited) uses
The 8 Money Rascals
• Flashers
• Rashers
• Clashers
• Dashers
• Bashers
• Ashers
• Cashers
• Stashers