Introduction to managing your retirement income : what you need to know about retirement risks, spending and closing income gaps : planning worksheets, includes the Lincoln's case study.

              What you need to know about re􀆟 rement risks, spending and closing income gaps
PLANNING WORKSHEETS
Includes the Lincoln’s Case Study
Introduc􀆟 on to
Managing Your Re􀆟 rement Income
P E R S
1 © 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Meet Linda and Dave Lincoln
Linda and Dave Lincoln live in Oklahoma City, Oklahoma. Linda is 55 years
old and Dave is 67 years old. They have three grown children (two sons and a
daughter) and three grandchildren. Dave and Linda’s home equity loan will be fully
paid-off within ten years.
Linda has been a third grade teacher for 25 years. Linda plans to retire in two
years at age 57. Her estimated initial monthly retirement benefi t will be $1,234.
Linda will be eligible for Social Security at age 62. After retirement, Linda plans
to work part-time in her school district to supplement her retirement. She is in
excellent health.
Dave was an industrial engineer for a mid-sized, privately-held company and has
been retired for two years. He does regular freelance contract work on a part-time
basis that generates $36,000 per year of income. His rollover IRA from his 401(k)
plan is worth $180,000. Dave retired from Social Security at the full retirement age
of 65 and has been receiving $1,800 per month in Social Security benefi ts. Dave’s
father and two brothers all passed away before age 70 from heart disease.
Current Expense
Dave and Linda have set up 529 college savings accounts for each of their three
grandchildren. They contribute $425 per month. They expect all contributions
to employer-sponsored plans to cease upon Linda’s retirement but intend to
contribute to fund the 529 plans for as long as possible. Dave, an avid hunter,
spends approximately $400 per month for gear and licenses. Linda spends her
free time quilting, costing approximately $325 per month.
Year 1 of Retirement
The Lincolns assume the cost of living/infl ation will grow by an average of 4% a
year throughout retirement. Linda is working part-time in retirement. Dave has
reduced his working hours to spend more time with Linda now that she is retired.
Linda has invested in her SRP (supplemental retirement plan) throughout her
career. She expects to have approximately $41,200 in her plan account at
retirement. She does not plan to take a distribution from this account until she
reaches age 70½.
In Year 3, their youngest daughter, Holly, plans to get married. The proud parents of
the bride plan to pay $10,000 for the wedding from their liquid, after-tax savings of
$23,000. After the wedding, a much needed 21-day European vacation is planned and
is expected to cost approximately $13,000.
© 2005-2011, InFRE Retirement Resource Center. All rights reserved. 2
Stage 1: Year 5 of Retirement
The infl ation rate has grown 4% each year, for a 22% compounded growth in liv-ing
expenses for this period. Linda’s investments through her 403(b) investment
account have steadily increased by 4% per year since she is invested primarily in
the money market fund and a short-term bond fund. Dave’s Rollover IRA, how-ever
was 60% in equities, and the value of the account over fi ve years has lost
value due to the market being down and the withdrawals needed to meet living
expenses.
Linda’s pension has increased by an average of 2.9% compounded annual ben-efi
t adjustment each year.
Linda has an accident leaving her with a disabling injury, and she can no lon-ger
work. This reduces the couple’s retirement income by $12,600 annually.
Due to Linda’s accident there is an increase in out-of-pocket medical expenses
(prescriptions for the rest of her life) in the amount of $165 per month in current
dollars. Because of all this she chooses to begin her Social Security spousal
benefi t at age 62.
Dave’s RMDs began during this time. Dave hasn’t been feeling well and has
stopped working altogether.
Stage 2: Year 10 of Retirement
The infl ationary rate continues to average 4% per year, for a compounded in-crease
of 48% since Year 1. Linda’s pension has continued to increase by an
average of 2.9% compounded annual benefi t adjustment each year, or a com-pounded
increase of 33%.
Dave suddenly passes away. Linda receives Dave’s Social Security as a wid-ow’s
benefi t.
Linda’s monthly expenses are reduced overall. Her mortgage is paid off but
home repairs have increased on their older home, as well as property taxes.
Stage 3: Year 15 of Retirement
Linda wants to downsize her home, but her daughter and granddaughter who
have been living with her for two years do not want her to for “old memories”
sake. Linda’s RMDs begin.
Step 1: Identify Your Defi nition of Retirement Success
3
Identifying retirement spending needs is not just about money
What are you retiring to? In other words, are you ready for a
month of Saturdays?
Retirement Readiness Profi le
Engagement
(Psycho-Social)
Wealth
(Geo-fi nancial)
Health
(Bio-medical)
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
4
Emotional Stages of Retirement*
Stage 1: Imagination
15-6 years before
Stage 2: Anticipation
5 years before
Stage 3: Liberation
retirement day and one year to
follow
Stage 4: Reorientation
2-15 years after
Stage 5: Reconciliation
16 or more years after
*The 2005 New Retirement Mindscape by Ameriprise and Ken Dychwald/AgeWave
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Step 1: What is Your Personal Defi nition of Retirement Success?
Health & Wellness
Family
Work
Spiritual
Volunteer
Hobbies
Travel/Entertainment
5 © 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Qualities of a Satisfying Retirement
1. Work reorientation – the degree to which you have emotionally distanced yourself from
receiving your personal identity from work.
2. Attitude toward retirement – your perception of what your next life stage will be like
once you transition beyond your current job.
3. Directedness – the degree to which you rely on your own sense of personal guidance
for making plans and decisions for your retirement life, rather than relying on others to
give you directions.
4. Health perception – your opinion of the current condition of your overall wellness.
5. Financial security – your opinion that you have done suffi cient planning to sustain adequate
fi nancial security and maintain your desired lifestyle during your retirement/renewal years.
6. Current life satisfaction – the degree to which you believe you have achieved
contentment and peace at this point in your life.
7. Projected life satisfaction – the degree to which you look forward to personal success,
achievement, contentment and peace in the future years of the retirement/renewal phase
of life.
8. Life meaning – the degree to which you have found a life direction for retirement which
offers you a driving purpose and a deep sense of personal fulfi llment.
9. Leisure interests – the degree to which you have found personally satisfying
endeavors outside of your work/career which rejuvenate your body, stimulate your mind,
and/or enrich your spirit.
10. Adaptability – the degree of personal fl exibility you can exercise at any given time in any
given situation.
11. Life stage satisfaction – the degree to which you live in the present and fi nd your
current life fulfi lling, rather than living in the past.
12. Dependents – the degree to which you are free from a sense of burden or strain from
caregiving responsibilities either for aging parents or relatives (including children).
13. Family & marital issues – the degree to which you derive satisfaction, intimacy,
connectedness, love and a sense of well-being from your marriage and family life.
14. Perception of age – the degree to which you see your own maturation process as a time
of emotional and psychological vitality and vibrancy, full of potential for dynamic and on
going personal growth.
15. Replacement of work function – the degree to which you have planned to replace or
project that you can replace, the fi ve functions of working: fi nancial security, socialization,
time management, status, sense of utility.
© 2005-2011, InFRE Retirement Resource Center. All rights reserved. 6
Step 2: Identify Your Retirement Resources and Income Gaps
a) Monthly Income Need: Essential Expenses
If in case you would prefer to further customize or more specifi cally defi ne your
spending categories, circle additional items on the following tables. Enter their name
and estimated amount on the spending plan form in the rows on page 10.
Common Essential Expenses Categories
Fixed Expenses
• Alimony
• Boat loans
• Car (gas, parking, tires, insurance, etc.)
• Child Support
• Credit card debt
• Day care
• Education
• Electricity
• Gas (heating)
• Medical insurance
• Rent/mortgage
• Land contract payments
• Student loan(s)
• Telephone
• Union dues
• Miscellaneous
• Other
Ways to cut or eliminate essential costs
If your numbers aren’t adding up, consider using some of the following ways to dig
up dollars from your fi xed expenses:
• Examine insurance policies for potential lost savings, i.e., raise the deductible on
your car from $250 to $500.
• Refi nance debt to a lower cost loan such as a home equity loan.
• Be conservative with the use of utilities.
• Participate in retirement savings programs which then reduce taxes.
• Cancel unnecessary insurance, i.e., children’s life insurance.
• Avoid using credit cards - pay cash.
• Sell big items that you don’t use much, i.e., boat, snowmobile, etc.
Periodic Expenses
• Income taxes
• Disability insurance
• Safety deposit box
• Post offi ce box
• Property taxes
• Homeowner’s insurance
• Renter’s insurance
• Christmas
• Seasonal dues
• Water bill
• Trash pickup
• Miscellaneous
• Other
7 © 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Step 2 (continued)
b) Monthly Income Need: Discretionary Expenses
If in case you would prefer to further customize or more specifi cally defi ne your
spending categories, circle additional items on the following tables. Enter their name
and estimated amount on the spending plan form in the rows on page 12.
Common Discretionary Expenses Categories
• Books
• Charitable contributions
• Children’s expenses
• Clothing/cosmetics
• Eating out
• Dry cleaning
• Education
• Entertainment (movies, theater,
concerts, etc.)
• Gifts
• Groceries
• Haircuts/beauty salon
• Health club
• Hobby
• Home equipment (small appliances,
kitchen equipment and tools)
• Home furnishings
• Home repairs
• Home supplies
• Housecleaning
• Investments
• Laundry
• Legal expenses
• Magazines/newspaper
• Medical expenses
• Personal care
• Personal growth
(seminars, therapy, etc.)
• Sports
• Vacations
• Miscellaneous
Ways to cut or eliminate discretionary costs
If your numbers aren’t adding up, consider using some of the following ways to dig
up dollars by cutting variable costs:
• Cut down on pleasure spending (buy one C.D. a month instead of four).
• Eat at home more often; shop for groceries after a meal.
• Buy in bulk and at discount stores.
• Make a list before you shop and stick to it.
• Do repairs and maintenance yourself.
• Use coupons.
• Buy generic goods.
• Buy used furniture and autos.
• Buy clothing, toys, etc. secondhand at garage sales, estate auctions and thrift shops.
• Cut out spending on goods or services that hold no value to you.
• Limit the number of evenings and/or lunches when you go out.
© 2005-2011, InFRE Retirement Resource Center. All rights reserved. 8
Monthly Income Need: Essential Expenses
Please fi ll in the amount of expenses you have now and expect to
have in Year 1 and through the three stages of your retirement. Refer
to pages 7-8 for examples of names of expense categories to use.
Essential Expenses
Current
Monthly
Expenses Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: _____________________
Age:
Name: _____________________
Age:
Years of retirement
Housing (include property taxes)
Utilities
Health care (including
Medical insurance)
Household (furnishings,
equipment and supplies)
Transportation
Food at home
Insurance (life and other
personal)
Debts
Income taxes (including tax on
Social Security benefi ts)
Total Essential Monthly $ $ $ $ $
Choose a
compounded
infl ation factor:
3% – 1.03 1.16 1.34 1.56
4% – 1.04 1.22 1.48 1.80
5% – 1.05 1.28 1.63 2.08
Linda
Dave
55
67
5 10 15
57
69
$ $ $ $ $
– 1
1,168 1,215
225 234
250 260
200 208
525 350
300 312
125 125
250 250
950 720
3,993 4,067
9
393 Taxation of Social
Security Benefi ts
Linda and Dave’s
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Monthly Income Need: Essential Expenses
Please fi ll in the amount of expenses you have now and expect to have
in Year 1 and through the three stages of your retirement. Refer to
pages 7-8 for examples of names of expense categories to use.
Essential Expenses
Current
Monthly
Expenses Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: _____________________
Age:
Name: _____________________
Years of retirement
Housing (include property taxes) $ $ $ $ $
Utilities
Health care (including
Medical insurance)
Household (furnishings,
equipment and supplies)
Transportation
Food at home
Insurance (life and other
personal)
Debts
Income taxes (including tax on
Social Security benefi ts)
Total Essential Monthly $ $ $ $ $
Choose a
compound
infl ation factor:
3% – 1.03 1.16 1.34 1.56
4% – 1.04 1.22 1.48 1.80
5% – 1.05 1.28 1.63 2.08
© 2005-2011, InFRE Retirement Resource Center. All rights reserved. 10
Monthly Discretionary Expenses
Please fi ll in the amount of expenses you have now and expect to
have in Year 1 and through the three stages of your retirement. Refer
to pages 7-8 for examples of names of expense categories to use.
Discretionary Expenses
Current
Monthly
Expenses Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: _____________________
Age:
Name: _____________________
Age:
Years of retirement
Meals out
Clothing
Entertainment (recreation,
books, etc.)
Personal care (products and
services)
Professional services
Charitable giving
Gifts
Total Discretionary
Monthly Expenses
$ $ $ $ $
Linda
Dave
55
67
5 10 15
57
69
$ $ $ $ $
– 1
300 260
250 175
300 400
100 200
75 –
300 250
425 425
250 380
850 370
2,850 2,460
MONTHLY ESSENTIAL
AND DISCRETIONARY
EXPENSE TOTALS
$ $ $ $ $ 6,843 6,527
ANNUAL
EXPENSE TOTALS
$ $ $ $ $ 82,116 78,322
529 Plans
Hobbies
Savings (403(b), other)
11
Linda and Dave’s
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Monthly Discretionary Expenses
Please fi ll in the amount of expenses you have now and expect to have
in Year 1 and through the three stages of your retirement. Refer to
pages 7-8 for examples of names of expense categories to use.
Discretionary Expenses
Current
Monthly
Expenses Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: _____________________
Age:
Name: _____________________
Years of retirement
$ $ $ $ $
Total Discretionary
Monthly Expenses
$ $ $ $ $
Meals out
Clothing
Entertainment (recreation,
books, etc.)
Personal care (products and
services)
Professional services
Charitable giving
Gifts
MONTHLY ESSENTIAL
AND DISCRETIONARY
EXPENSE TOTALS
$ $ $ $ $
ANNUAL
EXPENSE TOTALS
$ $ $ $ $
Age:
© 2005-2011, InFRE Retirement Resource Center. All rights reserved. 12
Essential Income Gap (A)
Please fi ll in the following sources of retirement income you are
receiving in the current year and expect to receive in year 1 and
through the three stages of your retirement.
Lifetime Resources
Current
Monthly
Income Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: _____________________
Age:
Name: _____________________
Age:
Years of retirement
Pension (ex. OPERS)
Social Security
Fixed Annuities
Variable Annuities
Veterans Benefi ts
Long-Term Bonds
Rental Income
Subtotal Monthly
Lifetime Income
$ $ $ $ $
Linda
Dave
55
67
5 10 15
57
69
$ $ $ $ $
��� 1
– 1,234
1,800 1,854
1,800 3,088
Less: Essential Monthly
Expenses $ $ $ $ $ 3,993 4,067
Lifetime Income Gap (A) $ $ $ $ $ -2,193 -979
Linda
Dave
13
Linda and Dave’s
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Essential Income Gap (A)
Please fi ll in the following sources of retirement income you are
receiving in the current year and expect to receive in year 1 and
through the three stages of your retirement.
Discretionary Expenses
Current
Monthly
Expenses Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: _____________________
Age:
Name: _____________________
Years of retirement
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
Pension (ex. OPERS)
Social Security
Fixed Annuities
Variable Annuities
Veterans Benefi ts
Long-Term Bonds
Rental Income
Subtotal Monthly
Lifetime Income
Less: Essential Monthly
Expenses
Lifetime Income Gap (A)
Age:
© 2005-2011, InFRE Retirement Resource Center. All rights reserved. 14
Discretionary Income Gap (B)
Please fi ll in the following sources of retirement income you are
receiving in the current year and expect to receive in year 1 and
through the three stages of your retirement.
Linda and Dave’s
Managed Resources
Current
Monthly
Income Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: __________
Age:
Name: __________
Age:
Years of retirement
Employee Savings
Plan
Traditional IRA
Roth IRA
Brokerage Account
Other Savings
SRP
Life Insurance
Cash Value
Home Equity
SUBTOTAL Managed
Resources Income
$ $ $ $ $
Linda
Dave
55
67
5 10 15
57
69
$ $ $ $ $
– 1
5,840 3,050
Dave
Current
Value
Employment
Income
Employment
Income
Interest &
Dividends
Asset Total: $
Less: Discretionary expenses $ $ $ $ $ 2,850 2,460
Discretionary Income Gap (B) $ $ $ $ $ +2,990 +590
Total Gaps (A) and (B) $ $ $ $ $ +797 -389
Total Gap per Year $ $ $ $ $ +9,564 -4,668
221,200
Dave
Linda
3,000
2,840
2,000
1,050
Linda 41,200
–
–
$
$ 180,000
15 © 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Discretionary Income Gap (B)
Please fi ll in the following sources of retirement income you are
receiving in the current year and expect to receive in year 1 and
through the three stages of your retirement.
Managed Resources
Current
Monthly
Income Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: __________
Age:
Name: __________
Age:
Years of retirement
Employee Savings
Plan
Traditional IRA
Roth IRA
Brokerage Account
Other Savings
SRP
Life Insurance
Cash Value
Home Equity
SUBTOTAL Managed
Resources Income
$ $ $ $ $
5 10 15
$ $ $ $ $
Current
Value
Employment
Income
Employment
Income
Interest &
Dividends
Asset Total: $
Less: Discretionary expenses $ $ $ $ $
Discretionary Income Gap (B) $ $ $ $ $
Total Gaps (A) and (B) $ $ $ $ $
Total Gap per Year $ $ $ $ $
$
© 2005-2011, InFRE Retirement Resource Center. All rights reserved. 16
4) Investing Risks
a. stock market reluctance
b. declining interest income
c. negative point-in-time
3) Health and Long-term Care Risks
a. expected and unexpected health and long-term
care expenses
b. loss of ability to live independently
c. changing housing needs
b. lack of available facilities or caregivers
2) Infl ation Risks:
a. healthcare
b. food
1) Longevity Risks:
a. outliving resources
b. death of spouse
c. home value
d. college
e. other
Step 3: Identify Which of the Following Risks are of Special Concern
17
Risk Self Spouse
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Step 4: Identify Options for Closing Gaps
Between Your Income and Expenses
Linda and Dave’s
(Year 5 for Lincolns – see page 31)
221,200
17,650
12.5
1
3
2
4
18
A. Evaluate your income gaps. How long might your savings last if you retire today?
Assuming your investment returns were exactly offset by infl ation and taxes throughout your
retirement, how long might your savings last?
Current value of retirement savings $______________(1)
Forecasted annual essential income gap (A) plus
annual discretionary gap (B) for year ________. $______________(1)
Divide Line 1 by Line 2 for number of years your
savings might last. Do you think you might need your
savings for longer than this? _______________(3) years
The lower the number of years your savings might last as of right now, the more options below
you will need to use to close gap(s).
B. Prioritize which method(s) to use to close your income gaps
Priority Use to Fill:
Essential
Gap
Discretionary
Gap
1. Increase the returns on your savings
2. Delay drawing Social Security and pension
3. Add additional lifetime income
4. Save more
5. Spend less
6. Work part-time or full-time in retirement
7. Access home equity if needed
5
© 2005-2011, InFRE Retirement Resource Center. All rights reserved
Step 4: Identify Options for Closing Gaps
Between Your Income and Expenses
19
A. Evaluate your income gaps. How long might your savings last if you retire today?
Assuming your investment returns were exactly offset by infl ation and taxes throughout your
retirement, how long might your savings last?
Current value of retirement savings $______________(1)
Forecasted annual essential income gap (A) plus
annual discretionary gap (B) for year ________. $______________(1)
Divide Line 1 by Line 2 for number of years your
savings might last. Do you think you might need your
savings for longer than this? _______________(3) years
The lower the number of years your savings might last as of right now, the more options below
you will need to use to close gap(s).
B. Prioritize which method(s) to use to close your income gaps
Priority Use to Fill:
Essential
Gap
Discretionary
Gap
1. Increase the returns on your savings
2. Delay drawing Social Security and pension
3. Add additional lifetime income
4. Save more
5. Spend less
6. Work part-time or full-time in retirement
7. Access home equity if needed
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Step 5: Determine Your Retirement
Income Plan
20
D. Having a guaranteed lifetime income is . . .
1. Not a high priority. I have more than enough
resources for my needs. I’m more interested
in growing my wealth for benefi ciaries
2. Somewhat important, along with creating a
legacy. I want a certain level of regular income.
But I want to leave something for family
members and charities as well.
3. Essential. I want to know I have a regular “pay-check”
no matter how long I live in retirement.
A. I plan to use the money invested in my
retirement accounts (401(k), 457, 403 (b)) . . .
1. Here and there, whenever I wish, I want the
freedom to change my income from year to year,
depending on my needs and plans.
2. To pay some of my daily living expenses but
save some for extras. I need a certain amount
of regular income from invested assets, but I
want the freedom to splurge when I want to.
3. To pay the bulk of my daily living expenses
regularly. This will be a primary source of
ongoing income for me.
B. With my wealth, I plan to . . .
1. Pass on as much as I can. I want to leave as
much money and property as I can for my
benefi ciaries and/or charities.
2. Spend what I want and pass on the remainder.
I want a certain level of guaranteed income but
the fl exibility to spend or pass on the rest.
3. Spend it all during my lifetime. I want to use my
money for my needs and wants in my golden
years. My family and friends are OK fi nancially.
C. When it comes to managing my
investments, I want . . .
1. To have total control of my money. I’ll be
responsible for managing it throughout all of
my retirement.
2. Someone to provide me with some help. I still
want some say in how my money is invested, but
also want to have help in managing my money.
3. A fi nancial company to guarantee me income
for life. The company can worry about how to
invest my money and make it last not me.
Now add up your numbers!
Uses the space provided to write down the
number next to the statements you selected.
Add up your
numbers to
get your total
score.
TOTAL
A. _________________
B. _________________
C. _________________
D. _________________
_________________
Now that you know your score, look below to
fi nd out which income distribution option on
the following page might meet your needs.
If your score is 4-6 You may want to consider
Systematic/Partial Withdrawal options when
converting resources into income.
If your score is 7-9 You may want to consider
combining Lifetime Income and Systematic/Partial
Withdrawal options.
If your score is 10-12 You may want to consider
Lifetime Income options.
Note: A more detailed analysis might suggest different strategies
Read the statements and check the box next to the response
that is most appropriate for you.
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Retirement Income Distribution Options
Systematic/
Partial
Withdrawal
4-6 Leave your retirement
accounts invested
and withdraw a fi xed
dollar amount or a fi xed
percentage on a regular
basis (monthly, quarterly,
semi-annually or annually).
In addition to regular
withdrawals, you can also
withdraw any dollar amount
whenever you wish.
Your benefi ciary may
choose to withdraw the
remaining balance all at
once or continue to receive
payments until the account
balance is depleted.
You can change how much
you withdraw each year,
and you have the fl exibility
to make “big” withdrawals
for special needs. But
since your income isn’t
guaranteed for life, you
could run out of money
before you die. If you’re a
“spender,” stay away from
this option.
Combining
Lifetime/
Long-term
income with
Systematic/
Partial
Withdrawal
7-9 Convert a portion of your
retirement accounts to
an immediate annuity, to
provide the desired amount
of lifetime/long-term income
(such as to cover your
essential living expenses).
Leave the remaining
retirement assets invested
and withdraw any additional
amounts when needed or
on a regular schedule
Your benefi ciary may
choose to withdraw the
remaining balance from
the systematic/partial
withdrawal accounts
or continue to receive
payments until the account
balance is depleted.
Depending on the Payout
Option chosen (see next
page), your benefi ciary
may receive some income
from your annuity.
A certain amount of your
income is guaranteed
for life, while you retain
control over the rest of your
retirement account assets.
You are choosing less
certainty/more opportunity
than total lifetime/long-term
income but more
certainty/less opportunity
than systematic/partial
withdrawal.
Lifetime/
Long-term
Income
10-12 Convert your retirement
accounts to an immediate
annuity by purchasing a
fi xed or variable immediate
annuity. The amount of
your income is determined
by the Payout Option you
choose (described on the
next page), your age, your
benefi ciary’s age, and
current interest rates or
expected market returns.
You can guarantee your
benefi ciary(s) a certain
amount of income for a
certain time period or
even for their lifetime.
Alternatively, you can totally
eliminate your benefi ciaries
from receiving any income
at all, if you so choose.
Your income is guaranteed
for life. If you are a
“spender,” this option
will help keep you from
overspending. You give
up control over how much
and when you can take
withdrawals. You also limit
or eliminate the amount of
money your can pass on
to your benefi ciaries. With
“fi xed” lifetime/long-term
income, you’ll get a set
dollar amount regularly;
but infl ation will make this
money worth less and
less in the future. With
“variable” lifetime/long-term
income, you have a better
chance of maintaining your
standard of living over time;
but your income will vary
from period to period.
21 © 2005-2011, InFRE Retirement Resource Center. All rights reserved.
I want income for as long as my benefi ciary
and I live.
You’ve chosen a Joint & Survivor option.
I know we will have guaranteed income as
long as we live, even if one of us dies. But
once we pass away, there will be nothing
left for any other benefi ciaries.
I also want to take Systematic/Partial Withdrawal
payments.
Yes No
I want income for a certain number of years. You’ve chosen a Period Certain option.
Instead of lifetime/long-term income, I know
I’ll only receive payments for a set number
of years. But if I die before I’ve received
all my payments, my benefi ciaries are
guaranteed to receive the rest.
I also want to take Systematic/Partial Withdrawal
payments.
Yes No
I want income for life with at least a certain
number of payments.
You’ve chosen a Life Annuity with Guaranteed
Payments option.
I know I’ll have income for as long as I live.
If I die before receiving all of my payments,
my benefi ciaries are guaranteed to receive
the rest.
I also want to take Systematic/Partial Withdrawal
payments.
Yes No
a) Identify Your Appropriate Annuity Payout Option(s)
22
Step 5 (continued)
To determine which annuity payout option might best meet your needs, read the description below and
check the box next to the one that is most appropriate to you.
I want the most income I can get for as long
as I live.
You’ve chosen a Single LIfe option.
No one else depends on me fi nancially.
When I die, whether it’s in 20 days or
20 years, nothing will be left for any
benefi ciaries.
I also want to take Systematic/Partial Withdrawal
payments.
Yes No
I want to receive income for _____ number of years.
Intended Benefi ciaries: Age:
Spouse Name:
Children or Others:
Charities:
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
23
Step 5 (continued)
b) Taxable Capital Gains Planning and Opportunities
Begin planning the most tax-effi cient way to create income in retirement.
1) First circle your marginal tax rate to be aware of your marginal tax bracket
upper limit. You need to watch this carefully when withdrawing money from tax-deferred
accounts so that you do not boost your income into the next higher
marginal federal tax bracket and incur additional income taxes unnecessarily.
2011 Ordinary Income
Tax Rate
Single Taxable
Income
Joint Taxable
Income
Long-Term Capital
Gain Rate
10% Up to $8,350 Up to $17,000 0%1
15% . . . $34,500 . . . $69,000 0%
25% . . . $83,600 . . . $139,350 15%2
28% . . . $174,400 . . . $212,300 15%
33% . . . $379,150 . . . $379,150 15%
35% . . . $379,151+ . . . $379.151+ 15%
0% rate expires 12/31/2012. 115% rate expires 12/31/2012. Long-term = more than one year.
2) Record the names of any taxable assets you have where you have a gain
over what you paid. If in case additional withdrawals from your tax-deferred
accounts might boost you into the next higher federal income tax bracket, you
might be better off withdrawing money from your taxable assets instead to avoid
paying unnecessary federal income taxes.
Assets with Current Capital Gains Purch. Date Current Value Cost Basis Est. Gain
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
24
Step 5 (continued)
c) Plan for First RMD or Risk 50% Penalty
Use the following worksheet to keep track of when, where and how much you need
to begin required minimum distributions from your tax-deferred accounts
Line 1: Record the date you (and your spouse) will turn age 70½.
Line 2: Record the names of any tax-deferred savings accounts you have
that you will need to take minimum distributions from the year you
turn 70½.
Line 3: If you are younger than age 70½, write in 27.4 as the fi rst year’s RMD
factor.
Line 4: If you are currently older than 70½, please see the table on the next
page for the factor to determine your required minimum distribution
for the current year.
B) Tax Deferred Plans Self
1. Required beginning date (RBD): 1. Required beginning date (RBD):
Tax Deferred Plans Spouse
2. Retirement accounts that will
require minimum distributions:
2. Retirement accounts that will
require minimum distributions:
12/31/_____
balances
12/31/_____
balances
a. a.
b. b.
$ $
$ $
c. $ c. $
TOTAL:$ TOTAL:$
3. RMD factor from page 25. 3. RMD factor from page 25.
$ $
4. If you are 70½ or older required
minimum distribution for this year
(total dollars in (2) divided by RMD
factor (3))
4. If you are 70½ or older required
minimum distribution for this year
(total dollars in (2) divided by RMD
factor (3))
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Calculating Required Minimum Distributions
The Uniform Lifetime Table determines the distribution period for lifetime distributions
to a retiree for an individual account. This table is used by all to calculate RMDs
during their lifetime.
25
10 86.2 63 33.9
11 85.2 64 33.0
12 84.2 65 32.0
13 83.2 66 31.1
14 82.2 67 30.2
15 81.2 68 29.2
16 80.2 69 28.3
17 79.2 70 27.4
18 78.2 71 26.5
19 77.3 72 25.6
20 76.3 73 24.7
21 75.3 74 23.8
22 74.3 75 22.9
23 73.3 76 22.0
24 72.3 77 21.2
25 71.3 78 20.3
26 70.3 79 19.5
27 69.3 80 18.7
28 68.3 81 17.9
29 67.3 82 17.1
30 66.3 83 16.3
31 65.3 84 15.5
32 64.3 85 14.8
33 63.3 86 14.1
34 62.3 87 13.4
35 61.4 88 12.7
36 60.4 89 12.0
37 59.4 90 11.4
38 58.4 91 10.8
39 57.4 92 10.2
40 56.4 93 9.6
41 55.4 94 9.1
42 54.4 95 8.6
43 53.4 96 8.1
44 52.4 97 7.6
45 51.5 98 7.1
46 50.5 99 6.7
47 49.5 100 6.3
48 48.5 101 5.9
49 47.5 102 5.5
50 46.5 103 5.2
51 45.5 104 4.9
52 44.6 105 4.5
53 43.6 106 4.2
54 42.6 107 3.9
55 41.6 108 3.7
56 40.7 109 3.4
57 39.7 110 3.1
58 38.7 111 2.9
59 37.8 112 2.6
60 36.8 113 2.4
61 35.8 114 2.1
62 34.9 115 1.9
Taxpayer’s Age Lifetime Expectancy Taxpayer’s Age Lifetime Expectancy
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
26
Step 5 (continued)
d) Estimate of Taxation of Social Security Benefi ts Year 1 Year 5
*The worksheet is for estimate purposes only. Consult a tax advisor for actual determination of Social Security benefi ts taxation.
** Also includes head of household fi ling separately and living apart from spouse.
60,000 40,000
11,100 17,730
71,000 57,730
39,100 25,730
19,550 12,865
11,100 12,865
x .25 x .25
=$2,775/yr =$3,216/yr
or $231/mo. or $268/mo.
6,000 6,000
27,100 13,730
23,035 11,671
29,035 17,671
18,870 33,497
X .25 X .25
=4,717/yr
or $393/mo.
=8,374/yr
or $698/mo.
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
1. Add your AGI and tax-exempt income.
2. Enter half your annual Social Security benefi ts (if married fi ling jointly,
enter half of your combned benefi ts).
3. Enter total of lines 1 & 2
If the total of line 3 is less than $25,000 and you are unmarried**, or
less than $32,000 and you are married fi ling jointly, none of your
Social Security benefi ts are taxable. If you are married, fi ling
separately and live with your spouse, go to line 8.
4. If the total of line 3 is greater than the fi gures above, subtract $25,000.
If you are unmarried** and $32,000 if you are married fi ling jointly and
enter amount.
5. Divide line 4 by one-half and enter amount.
6. Enter the smaller of line 2 or line 5.
7. Compare the fi gure on line 6 with $4,500 if you are unmarried** or
$6,000 if you are married fi ling jointly and enter the smaller amount.
8. Take the fi gure on line 3 and subtract $34,000 if you are unmarried**,
$44,000 if married fi ling jointly and nothing if you are married, fi ling
separately and live with your spouse. Enter this amount.
9. Multiply line 8 by 0.85 and enter amount
10. Enter the sum of fi gures on lines 7 and 9.
11. Multiply your annual Social Security Benefi ts (combined benefi ts if
married fi ling jointly) by 0.85 and enter amount.
If the fi gure on line 3 is less than $34,000 and you are unmarried**
or less than $44,000 and you are married fi ling jointly, the fi gure on
line 6 is the Social Security benefi ts subject to taxation and stop here.
Otherwise, go on to line 7.
The smaller of the fi gures on lines 10 and 11 is the amount of your
Social Security benefi ts subject to taxation.
27
d) Estimate of Taxation of Social Security Benefi ts Year 1 Year 5
*The worksheet is for estimate purposes only. Consult a tax advisor for actual determination of Social Security benefi ts taxation.
** Also includes head of household fi ling separately and living apart from spouse.
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
1. Add your AGI and tax-exempt income.
2. Enter half your annual Social Security benefi ts (if married fi ling jointly,
enter half of your combned benefi ts).
3. Enter total of lines 1 & 2
If the total of line 3 is less than $25,000 and you are unmarried**, or
less than $32,000 and you are married fi ling jointly, none of your
Social Security benefi ts are taxable. If you are married, fi ling
separately and live with your spouse, go to line 8.
4. If the total of line 3 is greater than the fi gures above, subtract $25,000.
If you are unmarried** and $32,000 if you are married fi ling jointly and
enter amount.
5. Divide line 4 by one-half and enter amount.
6. Enter the smaller of line 2 or line 5.
7. Compare the fi gure on line 6 with $4,500 if you are unmarried** or
$6,000 if you are married fi ling jointly and enter the smaller amount.
8. Take the fi gure on line 3 and subtract $34,000 if you are unmarried**,
$44,000 if married fi ling jointly and nothing if you are married, fi ling
separately and live with your spouse. Enter this amount.
9. Multiply line 8 by 0.85 and enter amount
10. Enter the sum of fi gures on lines 7 and 9.
11. Multiply your annual Social Security Benefi ts (combined benefi ts if
married fi ling jointly) by 0.85 and enter amount.
If the fi gure on line 3 is less than $34,000 and you are unmarried**
or less than $44,000 and you are married fi ling jointly, the fi gure on
line 6 is the Social Security benefi ts subject to taxation and stop here.
Otherwise, go on to line 7.
The smaller of the fi gures on lines 10 and 11 is the amount of your
Social Security benefi ts subject to taxation.
Monthly Income Need: Essential Expenses
Please fi ll in the amount of expenses you have now and expect to
have in Year 1 and through the three stages of your retirement. Refer
to pages 7-8 for examples of names of expense categories to use.
Linda and Dave’s Forecasted
Essential Expenses
Current
Monthly
Expenses Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: _____________________
Age:
Name: _____________________
Age:
Years of retirement
Housing (include property taxes)
Utilities
Health care (including
Medical insurance)
Household (furnishings,
equipment and supplies)
Transportation
Food at home
Insurance (life and other
personal)
Debts
Income taxes
Total Essential Monthly $ $ $ $ $
Choose a
compounded
infl ation factor:
3% – 1.03 1.16 1.34 1.56
4% – 1.04 1.22 1.48 1.80
5% – 1.05 1.28 1.63 2.08
Linda
Dave
55
67
5 10 15
57
69
$ $ $ $ $
– 1
1,168 1,215
225 234
250 260
200 208
525 350
300 312
125 125
250 250
950 720
3,993 4,067
62
74
67
–
72
–
5 10 15
1,236 800
285 346
405 561
250 308
277 280
396 371
125 50
250 100
606 662
900
421
684
375
342
453
50
100
807
4,531 4,046 4,824
Taxation of Social Security
Benefi ts (50% taxable @ 25%
marginal rate)
28
393 698 568 692
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Monthly Discretionary Expenses
Please fi ll in the amount of expenses you have now and expect to
have in Year 1 and through the three stages of your retirement. Refer
to pages 7-8 for examples of names of expense categories to use.
Linda and Dave’s Forecasted
Discretionary Expenses
Current
Monthly
Expenses Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: _____________________
Age:
Name: _____________________
Age:
Years of retirement
Meals out
Clothing
Entertainment (recreation,
books, etc.)
Personal care (products and
services)
Professional services
Charitable giving
Gifts
Total Discretionary
Monthly Expenses
$ $ $ $ $
$ $ $ $ $
MONTHLY ESSENTIAL
AND DISCRETIONARY
EXPENSE TOTALS
$ $ $ $ $
ANNUAL
EXPENSE TOTALS
$ $ $ $ $
529 Plans
Hobbies
Savings (403(b), other)
300 260
250 175
300 400
100 200
75 –
300 250
425 425
250 380
320 300
150 100
365 444
243 198
– –
150 150
300 300
400 200
360
125
540
180
–
150
0
200
850 370 0 0 0
2,850 2,460 1,928 1,642 1,555
6,843 6,527 6,459 5,688 6,379
82,116 78,322 77,507 68,260 76,553
Linda
Dave
55
67
5 10 15
57
69
– 1
62
74
67
–
72
–
5 10 15
29 © 2005-2011, InFRE Retirement Resource Center. All rights reserved.
Essential Income Gap (A)
Please fi ll in the following sources of retirement income you are
receiving in the current year and expect to receive in year 1 and
through the three stages of your retirement.
Lifetime Resources
Current
Monthly
Income Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: _____________________
Age:
Name: _____________________
Age:
Years of retirement
Pension (ex. OPERS)
Social Security
Fixed Annuities
Variable Annuities
Veterans Benefi ts
Long-Term Bonds
Rental Income
Subtotal Monthly
Lifetime Income
$ $ $ $ $
$ $ $ $ $
Less: Essential Monthly
Expenses $ $ $ $ $
Lifetime Income Gap (A) $ $ $ $ $
Linda
Dave
– 1,234
1,800 1,854
1,383 1,596
2,087 0
1,841
0
Loss: Taxation of Social
Security Benefi t
1,800 3,088 4,565 4,015 4,645
3,993 4,067 4,531 4,046 4,824
-2,193 -979 +34 -31 -179
Linda and Dave’s Forecasted
Linda
Dave
55
67
5 10 15
57
69
– 1
62
74
67
–
72
–
5 10 15
Social Security Linda – – 1,095 2,419 2,804
© 2005-2011, InFRE Retirement Resource Center. All rights reserved. 30
Discretionary Income Gap (B)
Please fi ll in the following sources of retirement income you are
receiving in the current year and expect to receive in year 1 and
through the three stages of your retirement.
Linda and Dave’s Forecasted
Managed Resources
Current
Monthly
Income Year 1
Stage 1
Year ____
Stage 2
Year ____
Stage 3
Year ____
Name: __________
Age:
Name: __________
Age:
Years of retirement
Employee Savings
Plan
Traditional IRA
Roth IRA
Brokerage Account
Other Savings
SRP
Life Insurance
Cash Value
Home Equity
SUBTOTAL Managed Resources
Income
$ $ $ $ $
$ $ $ $ $
5,840 3,050
Dave
Current
Value
Employment
Income
Employment
Income
Interest &
Dividends
Asset Total: $
Less: Discretionary expenses $ $ $ $ $ 2,850 2,460
Discretionary Income Gap (B) $ $ $ $ $ +2,990 +590
Total Gaps (A) and (B) $ +797 $ -389 $ $ $
Total Gap per Year $ +9,564 $-4,668 $ $ $
221,200
Dave
Linda
3,000
2,840
2,000
1,050
Linda 41,200
–
–
$
180,000 $ 423 (RMD)
423
1,928
-1,505
-1,471
-17,652
0
1,642
-1,642
-1,673
-20,076
586
1,555
-969
-1,148
-13,776
Linda
Dave
55
67
5 10 15
57
69
– 1
62
74
67
–
72
–
5 10 15
586
$180,000 ÷ 25.6
(RMD factor for age
72) divided by 12
months
31 © 2005-2011, InFRE Retirement Resource Center. All rights reserved.
32
Notes:
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
33
Notes:
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
© 2005-2011, InFRE Retirement Resource Center. All rights reserved. 34
Helpful Free Resources
Retirement Plan Information
1. OPERS, Retirement program info, www.opers.ok.gov, 405-858-6737, (800-733-9008 outside local calling area)
2. SoonerSave, SoonerSave info, www.soonersave.com, 405-858-6737 (800-733-9008 outside local calling
area)
3. Social Security Administration, Retirement benefi t info, www.ssa.gov, 800-772-1213
4. Department of Labor, Retirement plan info, www.dol.gov/dol/topic/retirement/index.htm, 866-487-2365
Money Resources
Health Resources
Happiness Resources
1. AARP, Staying engaged in retirement, www.aarp.org
2. HelpGuide.org, Aging well & housing info, www.helpguide.org
3. Civic Ventures, Work after a primary career, www.civicventures.org, 415-430-0141
4. National Older Worker Career Center, Employment opportunities, www.nowcc.org
5. Experience Works, Training for older workers, www.experienceworks.org, 866-976-5939
6. Senior Corps, Volunteer opportunities for seniors, www.seniorcorps.gov, 800-424-8867
1. Federal Government Financial Literacy and Education Commission (FLEC), Financial planning info,
www.mymoney.gov, 1-888-mymoney
2. Department of Labor, Retirement planning info, www.dol.gov/ebsa/publications/nearretirement.html
3. AARP, Financial and retirement planning info, www.aarp.org
4. Financial Planning Association, Financial and retirement planning info, www.fpaforfi nancialplanning.org
5. InFRE Retirement Resource Center, Retirement income and fi nancial planning info,www.retirement-income-management.
com/consumers.shtml
6. American Savings Education Council, Retirement saving info, www.choosetosave.org
7. Securities & Exchange Commission, Investing info, www.investor.gov, 888-732-6585
8. National Endowment for Financial Education, Money management info, www.myretirementpaycheck.org
9. Financial Industry Regulatory Authority, Investing and advisor validation info, www.fi nra.org, 800-289-9999
10. Women’s Institute for a Secure Retirement, Retirement info for women, www.wiserwomen.org,
202-393-5452
11. American Federation of State, County and Municipal Employees, Guide to retirement, www.afscme.org/
publications/1276.cfm, 202-429-1000
12. Federal Trade Commission, Consumer protection info, www.ftc.gov, 877-382-4357
13. American Bar Association, Estate planning info, www.abanet.org, 800-285-2221
14. IRS, Tax info, www.irs.gov, 800-829-1040
1. AARP, Healthy living tips for older Americans, www.aarp.org
2. U.S. Department of Agriculture, Dietary guidelines, www.mypyramid.gov
3. Centers for Disease Control, Healthy living info, www.cdc.gov, 800-232-4636
4. SmallStep, Health and well-being info, www.smallstep.gov
5. Alliance for Aging Research, Healthy aging info, www.agingresearch.org, 202-293-2856
6. National Institute on Aging, Aging research, www.nia.nih.gov, 800-222-2225
7 . Active Aging Partnership, Physical activity info, www.agingblueprint.org
8. National Council on Aging, Improving lives of older Americans, www.ncoa.org, 202-479-1200
9. Administration on Aging, Aging services info, www.aoa.gov, 202-619-0724
10. Medicare, Medicare info, www.medicare.gov, 800-633-4227
11. NIH Senior Health, Health and wellness info, www.nihseniorhealth.gov
35
What You Need to Know About
Managing Your Retirement Income
Making retirement decisions in the new
retirement environment
Bright Ideas Action Plan
Ideas and thoughts I want to capture and act upon
after this program
© 2005-2011, InFRE Retirement Resource Center. All rights reserved.
This publication, printed by Mercury Press, Inc., is issued by the Oklahoma Public Employees Retirement
System as authorized by the Executive Director. One thousand five hundred copies have been prepared
at a cost of $2,284.25. An electronic copy has been deposited with the Publishing Clearinghouse of the
Oklahoma Department of Libraries.
Printed October, 2011