RETIREMENT READINESS GUIDELittle-known secrets to help you prepare for retirement

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THE DISAPPEARING PENSIONMany employer pension plans are underfunded, which means that the value of the plans’ assets is less than their accrued pension liabilities for current workers and retirees. 2 As a result, fewer employers are offering pensions.

RISING HEALTHCARE COSTSAccording to a Fidelity report, a sixty-five-year-old couple retiring in 2017 will need an estimated $275,000 in savings just to cover health-care costs during their retirement. This is an increase of $15,000 from 2016.4

TAX UNCERTAINTYA prominent desire for tax reform appears to occur once every generation.

MARKET VOLATILITYStocks have become more volatile as we enter into a global economy and news travels at the press of a button.

INTRODUCTIONIt used to be that American workers retired with an easy formula made up of a guaranteed benefit from Social Security, lifetime pension and an amount of savings invested in the stock market where it was likely to earn returns.

Times have changed. Today, retirees are dealing with a lot more uncertainty...

THE FUTURE OF SOCIAL SECURITY According to several government estimates, Social Security funds are likely to be depleted by 2034 – if no changes are made. If that happens, payment checks won't disappear, but they'll likely shrink by about 25%, according to the Social Security Administration, leaving beneficiaries with about 75% of what they were expecting.1

In other words, if you were expecting to get $2,000 a month, your payout would shrink to $1,500 a month.

Private Sector Workers With Pensions

1980 2015Washington Post, 2016 3

How do we face these uncertainties? Here's a list of plays to help you get

retirement ready.

40%

35%

30%

25%

20%

15%

10%

5%

0%

1 PLAN TO LIVE LONG

It’s no big secret that we are living longer than ever before. In 1950, a sixty-five-year-old man lived to an average age of 77.8, while a woman lived to an average age of eighty. In 2017, a sixty-five-year-old man's average life expectancy has increased to 84.3, while a woman’s has reached 86.6.5

This all sounds like really exciting news, until you look at your investment portfolio. Many retirement plans were not designed with the possibility of living more than two decades in retirement. A retirement plan structured that way might not provide enough income to last your lifetime. Couples also need to consider joint life expectancies and the probability that one spouse might long outlive the other.

PURE'S PLAY1. Look into your health history and your family’s life expectancy when planning income needs.

2. Prepare cash flow projections to determine any future shortfall or surplus.

3. Don’t underestimate current and future expenses, especially healthcare.

2 CREATE INCOME TO LAST YOUR LIFETIMECan you safely retire with the money that you’ve saved? Do you need more?

If this is a question you ask yourself, pay close attention. When it comes to savings and investments, do you know how much money you will need in order to retire? An accurate estimate of your postretirement living expenses is critical to credibly project how large your nest egg needs to be to ensure a comfortable retirement.

Unfortunately, accurately estimating these expenses can

be challenging, and retirees who depend too much on optimistic estimates of their future expenses might find themselves facing shortfalls. Many retirement expense calculators confidently predict that retirees will spend as much as 20 percent less in retirement than they do before retiring. However, changes in spending do not always happen the way people expect.

Healthcare costs are one of the major contributors to increased living expenses after retirement. The rapid increase in medical costs over recent years has caused considerable angst for retirees since, as people age, their healthcare expenses tend to rise.

Longer lifespans may also increase the effect that healthcare costs have on living expenses, and many retirees face the issue of paying for assisted living facilities or retirement communities when independent living is no longer possible.

PURE’S PLAY1. Don’t underestimate when it comes to your expenses, think about future expenses such as healthcare.

2. Fill out the following chart to determine the percentage that you will need to withdraw from your portfolio each year in retirement, based on your spending goal.

3. If the percentage is higher than 4%, there is a higher probability of running out of money in retirement.

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s

s

1950 77.82017 84.3

1950 802017 86.6

3 UNDERSTAND YOUR SOCIAL SECURITY OPTIONSOne of the most important decisions facing a retiring worker is when to start taking Social Security benefits. While the dependable income can relieve the anxiety of losing a steady paycheck, there are some valuable arguments in favor of delaying benefits. Full retirement age (FRA) is the age at which you’re eligible to receive your full Social Security benefits. It used to be sixty-five for everyone, but current laws mean that for those born after 1938, normal retirement age is somewhere between sixty-five and sixty-seven.

While the right age to start taking benefits depends on a retiree’s individual circumstances, in general, delaying benefits is often a better choice for most people for the following reasons:

• Delaying Social Security means you get increased benefits each year, reducing your risk of running out of money later in life.

• If you begin taking Social Security retirement benefits as soon as you become eligible at age sixty-two, you permanently give up a significant chunk of monthly income. By claiming benefits at your FRA, you'd be eligible for 100 percent of your full benefits; however, by delaying longer, you qualify for an annual increase (8 percent for most retirees). Monthly benefits claimed at age seventy* are 76 percent higher than those claimed at age sixty-two for a retiree whose FRA is sixty-six.

* Calculation: Internal Rate of Return (IR R) Age 70 at $2,640 minus

age 62 $1,500 divided by $1,500

Example

You may, however, consider claiming benefits early if:• You are forced into early retirement.• You need current income.• You have a serious health condition or a lower-than-average life expectancy.

If you make a mistake and claim benefits too early, there still may be time to change your mind. After 12 months, however, this decision cannot be undone.

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$1,500 $1,600 $1,732 $1,866 $2,000$2,160 $2,320 $2,480 $2,640

706968676665646362

Assumes full retirement age is 66

Age

The longer we go on living, the greater our chances for a chronic health condition such as diabetes, arthritis and heart disease. According to Centers for Disease Control and Prevention, in 2009, 75% of people over 40 experienced a critical illness at some point during their lives. What’s even more eye-opening is that surviving an illness like this could very well end up creating an alternate problem: financial hardship due to medical costs is the number one cause of bankruptcy in the US.6

HOW MUCH IS LIVING LONGER GOING TO

COST YOU?

As we mentioned before, a sixty-five-year-old couple retiring in 2017 will need an estimated $275,000 in savings just to cover health-care costs during their retirement. This is an increase of $15,000 from 2016.4 Some estimates put healthcare inflation at over 6 percent a year, and if future trends continue, healthcare could be retirees’ second-largest expense after housing.4

Social Security regulations changed significantly in 2015, making it critical for married couples to carefully coordinate their claiming strategies to maximize income. We strongly recommend that you work with a professional who understands your personal financial circumstances before making decisions about when to claim Social Security.

PURE’S PLAY1. Understand all the variables that affect when to claim your Social Security benefit and consider filing when you will receive the maximum amount of lifetime retirement income.

4 PLAN FOR RISING HEALTHCARE COSTS Longer life-spans, rising medical costs, declining medical coverage, and funding shortfalls for Medicare and Medicaid mean retirees face a serious challenge in managing their healthcare costs in retirement.

Technology constantly advances the ability to extend life and maybe improve lifestyle. That puts constant upward pressure on health care costs.

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PURE’S PLAY

In order to understand and plan for your healthcare expenses in retirement, consider the following strategies:

1. Earmark a portion of your retirement savings specifically for healthcare expenses. Take advantage of tax-favored vehicles, such as health savings accounts.

2. Understand your health insurance options after retirement. While most retiring workers will lose their employer-sponsored coverage, some firms still offer retirement healthcare coverage.

3. Understand how Medicare fits into your health coverage and learn whether you will need to bridge the gap to Medicare.

4. Be a smart healthcare shopper. When visiting a healthcare provider, be prepared with information about existing conditions and any symptoms you are experiencing. Ask questions about a diagnosis and prescribed medications to be sure you understand all alternatives and outcomes. Know what you’re paying for so that you fully understand your out-of-pocket costs for any treatment plans.

5 ADJUST YOUR INVESTMENT STRATEGYRevisit your goals. Every investor, whether they are married or single, has two financial phases: the accumulation phase and the distribution phase.

The accumulation phase represents your working years. This is when the goal of your investments is to earn the highest returns possible, given your risk profile.

The distribution phase represents your golden years. This is when the goal of your investments is to give you income so you can pay your bills, since you are no longer working. As such, your tolerance for risk may be different in your golden years than your working years.

“"It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for."

ROBERT KIYOSAKI

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PURE’S PLAY1. Review your allocation of stocks and bonds to make sure your portfolio is properly weighted to align with your goals and the amount of risk you can afford to take.

2. Don’t try to outguess the market – the market’s pricing power works against mutual fund managers who try to outperform through stock picking or market timing. As evidence, only 17% of US equity mutual funds and 18% of fixed income funds have survived and/or outperformed their benchmarks over the past 15 years.

4. Practice global diversification - Diversification helps reduce risks that have no expected return, but diversifying within your home market is not enough. Global diversification can broaden your investment universe.

5. Let the markets work for you. The financial markets have rewarded long-term investors. People expect a positive return on the capital they supply, and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation.

6. Use strategies such as tax-loss harvesting and asset location to produce higher net after-tax returns.

7. Pay attention to fees and transaction costs.

US-BASED MUTUAL FUND PERFORMANCE7 2002–2016

174 winners547 survivors

958 Beginning

Fixed Income

451 winners

2,587 Beginning

Equity1,253 survivors

GROWTH OF A DOLLAR8

1926–2016 (compounded monthly)

1926 1946 19861966 20061936 1956 19961976 2016

$20,544 us small cap

$6,031 us large cap

$134 long-term government bonds$21 treasury bills$13 inflation

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6 TACKLE YOUR TAX PLANUnlike your investments, taxes are something you can control. You may have noticed the subject of taxes already coming up several times in your retirement planning process.

Your investments are grouped into three types of accounts; taxable, tax-deferred and tax free. As you may guess from looking at the account names, each account has different tax treatments.

Careful tax planning can give you more control over the tax bracket you are in now and in the future. Many people make the mistake of thinking they will be in a lower tax bracket in retirement because they are no longer working. However, the opposite may be true if most of their money is sheltered in tax-deferred accounts.

Why?

During retirement, you need to understand how your various income sources will be taxed.

If most of your assets are held in tax-deferred accounts, then all of that income is going to be taxed at the highest of rates. Eventually you are going to be forced to take distributions from those accounts and pay ordinary income tax rates. However, if you strategically diversify your assets over time, you can have more control over the taxes you pay.

PURE’S PLAY1. Don’t just pay your taxes during retirement, plan for them and take advantage of diversification strategies that can lower your overall tax burden.

7 PLAN FOR LONG-TERM CAREIf you are turning 65, there is a 52% chance you will need long-term care at some point in your life.9 In fact, the odds of you needing long-term care are higher than the chances of you getting in a car accident, but you still purchase car insurance. Make sure you have a plan for long-term care, whether through an insurance policy or self-insuring.

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Distributions:Capital Gains

Distributions:Ordinary Income

Distributions:Tax-Free

2017 TAX RATES

*When assets qualify for long-term capital gains, held for over one year. Additional

3.8% tax on net investment income is assessed when taxpayer’s modi fied adjusted

Long-Term Care Covers• Home care• Assisted living• Adult day care• Respite care• Nursing home stays• Alzheimer’s care

Long-term care is not covered by Medicare. A long-term care policy payout is income tax-free.

Source: US Department of Health & Human Services & AARP

CAR ACCIDENT HOUSE FIRE

60%

50%

40%

30%

20%

10%

0%

25% 25%

52%

0-20%* 10-39.6%

0%

TAX-FREE

Deposits:After-Tax

Deposits:After-Tax

Deposits:Pre-Tax

TAXABLE TAXDEFERRED

Roth IRAs

IndividualAccounts& Trusts

IRAs, 401(k)

NEEDING LONGTERM CARE

Chances of...

If you are turning 65, there is a 52% chance you will need long-term care at some point in your life.9

How Much Long-Term Care Will You Need?

• Women need an average of 3.7 years• Men need an average of 2.2 years10

Long-Term Care Isn't for You if...

• You have little to no assets• You're disabled• You have limited ability to pay premiums

National Median Cost of Long-Term Care2017

Options to Cut Long-Term Care Insurance Costs

• Limit the terms• Split the term with a spouse• Choose a longer elimination period• Stretch your coverage• Don’t buy too much coverage• Spring for inflation protection

PURE’S PLAY1. Purchasing long-term care when you are younger may make it more affordable.

2. Understand the policy’s provisions.

3. Shop around and be flexible.

4. Consider you ability to self insure.

5. Always talk to your financial professional about your options for paying for long-term care.

Source: Genworth Cost of Care Survey

Assisted Living

$45,000 /yr

Nursing Home97,455 /yr

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8 PROTECT YOUR LEGACY64% of Americans don’t have an estate plan.11 Individuals put off estate planning because they think they don’t have enough assets. Your estate is comprised of everything you own. No matter how large or modest, everyone has an estate that should be protected.

PURE'S PLAY1. Work with an estate planning attorney to establish a will or trust.

2. Appoint a medical power of attorney and a financial power of attorney.

3. Avoid probate by creating a living trust or titling assets with a transfer on death designation.

4. Minimize future estate and income taxes if you anticipate that your beneficiaries will owe estate and income tax on the amounts that they inherit.

5. Review your estate plan from time to time based on changes in your life, or at least every five years.

6. Once you create a plan, make sure your heirs know where to find the documents.

Cost of CA Probate Attorney

Excluding court, accounting/appraisal and executor fees

4% of the first $100,0003% of the next $100,0002% of the next $800,0001% of the next $9 million

.5% of the next $15 million

BASED ON VALUE OF ESTATE

11

12

10

Americans without estate plan

Americans with estate plan

64%

36%

11

P R I N C I P L E S O F L O N G - T E R M I N V E S T I N G | A

P U R E F I N A N C I A L . C O MT O L L F R E E : 8 7 7 - 2 2 2 - 6 0 4 4

SOURCES:

1) Maranjian, Selena. “33 Jaw-Dropping Stats About Social

Security.” The Motley Fool, The Motley Fool, 30 Sept. 2017, www.

fool.com/retirement/2017/09/30/33-jaw-dropping-stats-about-

social-security.aspx.

2) Russek, Frank. “The Underfunding of State and Local Pension

Plans.” Congressional Budget Office, May 2011, www.cbo.gov/sites/

default/files/cbofiles/ftpdocs/120xx/doc12084/05-04-pensions.pdf.

3) The Washington Post, 2016

4) “Retiree Health Care Costs Continue to Surge.” Fidelity, 6

Sept. 2017, www.fidelity.com/viewpoints/retirement/retiree-

health-costs-rise.

5) “Table 22. Life expectancy at age 65.” CDC. http://www.cdc.

gov/nchs/data/hus/2011/022.pdf [Accessed May 20, 2016]

“Social Security Calculators: Life Expectancy.” SSA. https://www.

ssa.gov/planners/lifeexpectancy.html [Accessed Oct 2, 2017]

6) LaMontagne, Christina. “NerdWallet Health Finds Medical

Bankruptcy Accounts for Majority of Personal Bankruptcies.”

NerdWallet, 7 Aug. 2017, www.nerdwallet.com/blog/health/

medical-bankruptcy/.

7) The sample includes funds at the beginning of the 15-year

period ending December 31, 2016. Each fund is evaluated relative

to the Morningstar benchmark assigned to the fund’s category at

the start of the evaluation period. Surviving funds are those with

return observations for every month of the sample period. Winner

funds are those that survived and whose cumulative net return over

the period exceeded that of their respective Morningstar category

benchmark. 15-year time period is consistent with what SPIVA uses

in their scorecard. Previous versions of this annual study used

CRSP data set, and we were limited to 15 years due to investment

objective identifiers; this is not the case with Morningstar data

our source for the 2017 version, but we are still limited by return

histories for some of the benchmarks.

8) In US dollars. US Small Cap is the CRSP 6–10 Index. US

Large Cap is the S&P 500 Index. Long-Term Government Bonds

is the IA SBBI US LT Govt TR USD. Treasury Bills is the IA SBBI

US 30 Day TBill TR USD. US Inflation is measured as changes in

the US Consumer Price Index. CRSP data is provided by the Center

for Research in Security Prices, University of Chicago. The S&P

data is provided by Standard & Poor’s Index Services Group. Long-term

government bonds and Treasury bills data provided by Ibbotson Associates

via Morningstar Direct. US Consumer Price Index data is provided by

the US Department of Labor Bureau of Labor Statistics. The historical

performance of the indices do not reflect the deduction of transaction

costs, custodial charges, or management fees which could decrease

historical performance results. An index is unmanaged and not available

for direct investment.

9) “Long-Term Services and Supports for Older Americans: Risks and

Financing Research Brief.” U.S. Department of Health & Human Services.

https://aspe.hhs.gov/basic-report/long-term-services-and-supports-older-

americans-risks-and-financing-research-brief [Revised, February 2016]

10) 2017 US Department of Health & Human Services & AARP

11) 2014 US Survey by Harris Poll on behalf of Rocket Lawyer

12) California Probate Code Section 10810-10814

DISCLOSURES:

This material is for information purposes only and is not intended as an

offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No

investment strategy can guarantee a profit or protect against loss in

periods of declining values.

Opinions expressed are not intended as investment advice or to predict

future performance.

Past performance does not guarantee future results.

Consult your financial professional before making any investment decision.

Opinions expressed are subject to change without notice and are not

intended as investment advice or to predict future performance.

All information is believed to be from reliable sources; however, we make

no representation as to its completeness or accuracy. Please consult your

financial advisor for further information.