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THE HOME STRETCH Seven Things You Need to Do in the Decade Before You Retire
Seven Things You Need to Do in the Decade Before You Retire 1. Determine When the Time is Right 2. Take Aim at Your Retirement Target 3. Maximize Your Nest Egg 4. Get a Portfolio Checkup 5. Create a Social Security Strategy 6. Build a Retirement Income Stream 7. Look Beyond the Money 2
DETERMINE WHEN THE TIME IS RIGHT
The Godfather of Retirement AGE 1890 2019 90 80 LIFE EXPECTANCY RETIREMENT AGE 70 LIFE EXPECTANCY 60 50 40 RETIREMENT AGE LIFE EXPECTANCY 30 20 10 OTTO VON BISMARCK 0 Sources: US Census Bureau, US Life Tables 1890, 1901, 1910, and 1901 -1910. Life expectancy for 1890 based on state of Massachusetts life tables. Social Security Administration. United Nations, Department of Economic and Social Affairs, Population Division (2019). World Population Prospects: The 2019 Revision. 4
At What Age Do You Think You’ll Retire? 61 Cost of healthcare (Medicare doesn’t start until 65) Nest egg not big enough Expenses higher than anticipated 55 56 57 58 59 60 61 62 63 64 65 Poor health Unemployment Met goal early Source: Morningstar Investment Management, LLC. July 2018 research report: “The Retirement Mirage: Why Investors Should Focus Less on Timing and More on Saving. “ by David Blanchett, Ph. D. , CFA, CFP®. 5
Nearly Half of People Retire in Their Early 60 s Percentage of Americans Retiring by Age Group 46 61– 65 % 6% 14 % 6% <50 3% 50– 54 55– 60 3% 61 14 15 % % 66– 69 15 % 9% 70– 74 Source: LIMRA Secure Retirement Institute analysis of US Census Bureau’s Current Population Survey, March 2017 Supplement. 9% 5% 75– 79 5% 2% 2% 80> 6
Couples Should Plan for Age Differences Women may live 5 years or more on their own 24 22 65 63 83 81 Sources: US Census Bureau, Current Population Survey, Annual Social and Economic Supplements. Social Security Administration, 2019 OASDI Trustees Report, Period Life Expectancy 7
Important Ages for Retirement 65 ± 3 months 1 Sign up for Medicare 50 55 60 IRA/401(k) Catch-Up Contributions Begin Eligible for Early Distributions from Current Qualified Employer Plan Widow Social Security Eligibility 59½ 62 Full retirement age for qualified plans Early Social Security Benefits Eligibility 66 -67 70 Social Security Full Retirement Age Maximum Social Security Benefits 1. Initial Medicare enrollment eligibility is a 7 -month period that includes the month you turn 65 and the 3 full months before and after. 72 Required Minimum Distributions (RMDs) Begin
TAKE AIM AT YOUR RETIREMENT TARGET
Income Needs Are Different in Retirement Costs That May Go Up Costs That Go Away Costs That May Go Down Rule of Thumb #1 70%– 90% Mortgage Social Security taxes Healthcare pre-retirement income Save enough to generate 70– 90% Transportation Travel Retirement of your pre-retirement income. Utilities Clothing Home maintenance Food 10
How Much You Should Have Saved at Various Ages Multiples of Your Current Salary To Save by Age SALARY Rule of Thumb #2 $100, 000 SAVINGS $600, 000– Save a multiple of your salary 10– 12 X $800, 000 based on your age. 8– 10 X 6– 8 X 5– 6 X 1 X 30 4– 5 X 3– 4 X 2– 3 X 35 40 45 55 50 60 65 Years AGE 11
What You Need in Order to Withdraw 4% Over 20 Years DESIRED ANNUAL INCOME RETIREMENT SAVINGS REQUIRED with a 1. 5% return with a 5% return Rule of Thumb #3 $25, 000 $545, 000 $391, 000 Save enough to generate a 4% $50, 000 $1, 091, 000 $782, 000 withdrawal rate. $100, 000 $2, 181, 000 $1, 564, 000 This is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Desired annual income is increased by 2. 5% each year to account for inflation and is distributed in monthly installments. Assumes constant rates of return and depletion of savings by the end of the 20 th year. 12
MAXIMIZE YOUR NEST EGG
Take Advantage of Work-Sponsored Plans Maximum annual contribution AGE 50 Plan type Historical Society Volunteer INCOME 401(k) 403(b) 457 $19, 500 SIMPLE 401(k) SIMPLE IRA $13, 500 SEP IRA $57, 000 50 $150, 000 Employer match $4, 500 Employer Plan $19, 500 Source: US Internal Revenue Service. Must have earned income at least equal to the contribution amount. An individual’s annual compensation must be $285, 000 or less to be eligible for 401(k)/403(b) and SEP IRA plan contributions. 14
Participate in Catch-up Contributions at Age 50 Maximum annual contribution AGE 50 Plan type Historical Society Volunteer INCOME 401(k) 403(b) 457 $6, 500 SIMPLE 401(k) SIMPLE IRA $3, 000 50 $150, 000 SEP IRA Catch-up $6, 500 Employer match $4, 500 Employer Plan $19, 500 — Source: US Internal Revenue Service. An individual must be 50 by the end of the calendar year to be eligible for the age 50 and over catch-up provision. 15
You May be Eligible to Add Personal Retirement Savings Single Married income limit AGE 50 Plan type Historical Society Volunteer INCOME Traditional IRA 50 $150, 000 Roth IRA $75, 000 $124, 000 $139, 000 $206, 000 Maximum contribution $6, 000 Catch-up $1, 000 Roth IRA $6, 000 Catch-up $6, 500 Employer match $4, 500 Employer Plan $19, 500 Catch-up contribution $1, 000 for age 50+ Source: US Internal Revenue Service. Must have earned income at least equal to the contribution amount. If you are married and only your spouse is covered by a retirement plan at work, then the Traditional IRA income limit increases to $206, 000. If neither you nor your spouse is covered by a retirement plan at work, then there is no Traditional IRA income limit. An individual must be 50 by the end of the calendar year to be eligible for the age 50 and over catch-up provision. 16
Add a Spousal IRA for a Non-Working Spouse Married income limit AGE 50 Plan type Historical Society Volunteer INCOME Traditional Spousal IRA $124, 000 Roth Spousal IRA $206, 000 50 $150, 000 Catch-up $1, 000 Spousal IRA $6, 000 Maximum contribution $6, 000 Catch-up $1, 000 Catch-up contribution $1, 000 for age 50+ Roth IRA $6, 000 Catch-up $6, 500 Employer match $4, 500 Employer Plan $19, 500 Source: US Internal Revenue Service. Must have earned income at least equal to the contribution amount. If you are covered by a retirement plan at work but your spouse isn’t, then the Traditional Spousal IRA income limit increases to $206, 000. If neither you nor your spouse is covered by a retirement plan at work, then there is no Traditional Spousal IRA income limit. Your spouse must be 50 by the end of the calendar year to be eligible for the age 50 and over catch-up provision. 17
How Tax-Advantaged Retirement Savings Can Add Up Hypothetical Growth of Retirement Savings With a 6% Return AGE Stay-athome Mom INCOME 52 50 $150, 000 $1, 063, 965 Catch-up $1, 000 $44, 500 Spousal IRA Catch-up $1, 000 YEARS $6, 000 Roth IRA 1 2 3 4 5 15 $6, 000 Catch-up $6, 000 Employer match $4, 500 6 7 8 Employer Plan YEARS 9 10 @ 11 $19, 000 12 6% RETURN 13 14 15 This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Assumes an annual investment of $44, 500 made in 12 equal, end of the month, installments. 18
GET A PORTFOLIO CHECKUP
How Today’s Jobs Complicate Retirement Planning Average worker switches jobs 12 times 71% of jobs offer 401(k) or similar plans 60% of plans have automatic enrollment Sources: Bureau of Labor Statistics, 2017: Number of Jobs, Labor Market Experience, and Earnings Growth Among Americans at 50: Results from a Longitudinal Survey. US Census Bureau, 2017: Which Employers Sponsor Defined Contribution Retirement Plans? Defined Contribution Institutional Investment Association, 2017: DCIAA Fourth Biennial Plan Sponsor Survey: Auto Features Continue to Grow in Popularity. 20
Perception vs. Reality of Your Asset Allocation Bonds 40% Previous job 1 Bonds Stocks 10% 60% Current Previous retirement plan job 2 allocation Stocks 90% Overall retirement plan allocation This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. 21
What if You Have Too Much Invested in Stocks? $1, 200, 000 $1, 100, 000 $1, 000, 000 Your assumption 8% return $900, 000 $1, 167, 5 95 95 12 12 Months Your goal 3 3 Years 10 10 Months $871, 103 50/50 stocks and bonds $800, 000 and bonds You are here $700, 000 $600, 000 $500, 000 3 12/99 2 112/01 12/00 Years to Retirement $584, 3 42 100% stocks Retirem 12/02 ent 12/03 12/04 12/05 12/06 This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not. Inc. guarantee results. Source: © 2020 Morningstar, Assumes future $900, 000 investment on 12/31/99 and monthly contributions of $833. 100% stocks portfolio represented by the S&P 500 Index. Blended 50/50 stocks and bonds portfolio represented by equal allocations to the S&P 500 Index and the Bloomberg Barclays US Aggregate Bond Index, rebalanced annually. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 22
The Problem With Jumping Out of the Market $1, 200, 000 $1, 100, 000 Your goal $1, 000 $900, 000 50/50 stocks and bonds $800, 000 You are here $700, 000 $713, 368 100% T-Bills $600, 000 $500, 000 3 12/07 Retirem 12/11 2 1 12/08 12/09 12/10 Years to Retirement 12/12 12/13 12/14 12/15 12/16 12/17 12/18 12/19 This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Treasuries if held to maturity, a fixed rate ofinvestment return and principal value; their interest payments and principal are guaranteed. Source: © 2020 Morningstar, Inc. offer Assumes $900, 000 onfixed 12/31/07 and monthly contributions of $833. Blended 50/50 stocks and bonds portfolio represented by equal allocations to the S&P 500 Index and the Bloomberg Barclays US Aggregate Bond Index, rebalanced annually. Treasury Bills represented by the FTSE 3 M Treasury Bill Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 23
Update Your Beneficiaries LIVING TRUST New spouse Young children Trust 24
CREATE A SOCIAL SECURITY STRATEGY
The Outlook for Social Security 2021 Benefits promised exceed revenues Benefits promised 3. 21% Payroll tax increase 2035 Surplus runs out Surplus 79% of benefits Revenues 1980 1990 2000 2010 2020 2030 2040 2050 2060 This chart is a conceptual illustration of Social Security revenues, benefits promised and surplus. Source: Social Security Administration, 2020, The 2020 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. The figures shown are for the combined Old-Age and Survivors Insurance and Federal Disability Insurance trust funds. 26
What’s Your Full Retirement Age (FRA)? YEAR OF BIRTH FULL RETIREMENT AGE <1953 Completed 1954 66 1955 66 and 2 months 1956 66 and 4 months 1957 66 and 6 months 1958 66 and 8 months 1959 66 and 10 months 1960> 67 Source: Social Security Administration 27
Getting Paid to Wait With Social Security Retirement Benefit Amounts By Age Average monthly benefit Maximum monthly benefit $2, 158 $2, 302 $1, 342 $1, 431 62 63 $2, 494 $1, 551 64 $2, 684 $1, 669 65 $2, 877 $1, 789 66 $3, 107 $1, 932 67 $3, 337 $2, 075 68 $3, 567 $2, 218 69 $3, 790 $2, 361 70 AGE Source: Social Security Administration. Calculated for an individual born in 1954 and retiring at an FRA of 66 in 2020. Benefits for other ages assume Social Security is taken early or delayed and are adjusted up or down accordingly. Maximum monthly benefit assumes 35 years of income exceeding the Social Security tax cap, which in 2020 is $137, 700. Average monthly benefit assumes 35 years of income matching the national average wage index series, which in 2018, the most recent year available, was $52, 146. 28
Income Replaced by Social Security Pre-retirement Income Replaced by Social Security 100% 75% 50% 45% 33% 27% 25% 0% $10, 00 0 $50, 00 0 $100, 0 00 $150, 0 00 23% $200, 0 00 Source: Social Security Administration. Benefits calculated for different income levels using the Social Security Administration’s Primary Insurance Amount formula for an individual at full retirement age in 2020. 29
BUILD A RETIREMENT INCOME STREAM
Living Off Income-Generating Investments Average Monthly Income From a $500, 000 Investment As of September 30, 2020 $2, 554 $83 $108 0. 14% 0. 20% 0. 26% Money Market Savings Accounts One-Year CDs Global Bonds $58 $288 0. 69% 10 -Year US Treasury Bonds 2. 05% 6. 13% US Corporate Bonds High Yield Bonds Past performance does not guarantee future results. This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Treasuries if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. Money market CDsmarket are insured the Federal Deposit Insurance Corporation for up©to 2020 the current maximum limit bonds, of $250, 000. CDs offer a and fixedhigh rateyield of return. Sources: Federal accounts Reserve forand money savingsby accounts, one-year CDs and 10 -year US Treasury bonds. Morningstar, Inc. Global US corporate bonds, bonds represented by the FTSE World Government Bond Index, Bloomberg Barclays Corporate Investment Grade Index and ICE Bof. A US High Yield Constrained Index, respectively. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 31
What are Systematic Withdrawals? Month Withdrawal Share price Shares sold $5 Retirement savings $500, 000 Share balance 100, 000 January $1, 500 $6 -250 99, 750 February $1, 500 $4 -375 99, 375 March $1, 500 $5 -300 99, 075 April $1, 500 $5 -300 98, 775 May $1, 500 $4 -375 98, 400 June $1, 500 $6 -250 98, 150 This table is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. An investor participating in a systematic withdrawal plan should review, every year, the results being obtained and the value of remaining shares. Based on this annual review, the individual can increase or decrease the amount of the monthly withdrawals if that seems appropriate. The results of such a program vary substantially depending on the investment performance during the period the program is in effect. The rate or amount chosen for withdrawal determines the value remaining at the end of the period. In a period of declining market values, continued withdrawals could eventually exhaust the principal. 32
Turning Retirement Savings into Retirement Income. Producing Products Systematic Withdrawal Plan No distribution of original savings Income may fluctuate Consistent income May distribute original savings 33
LOOK BEYOND THE MONEY
The Human Happiness Curve Level of Happiness 15 25 35 45 55 65 75 85 95 Age Sources: The Economist, 2010: The U-Bend of Life: Why, Beyond Middle Age, People Get Happier as They Get Older. Proceedings of the National Academy of Sciences (PNAS), 2010: A Snapshot of the Age Distribution of Psychological Well-Being in the United States. Journal of Consumer Research, 2014: Happiness from Ordinary and Extraordinary Experiences. 35
Happiness Factors in Retirement HEALTH FRIENDSHIPS FAMILY Sources: 2018 Academic Research Colloquium for Financial Planning and Related Disciplines: Spending, Relationship Quality, and Life Satisfaction in Retirement. Psychology Today, 2017: To Age Well You Need Friends. University of California, San Francisco, 2012: Loneliness Linked to Serious Health Problems and Death Among Elderly. Cigna, 2018: US Loneliness Index Report, 2018: Most Americans are Considered Lonely. 36
What is Your Ikigai? 37
What is Your Ikigai? What you LOVE What you are GOOD AT ikigai What the world NEEDS What you can be PAID FOR 38
Create Your Retirement Living Plan Contributing to a cause Traveling Visiting family and friends Starting a business Pursuing hobbies Going to school 39
Things Accomplished by People Age 65+ 73 65 82 76 80 Peter Roget Colonel Sanders Madonna Buder Grandma Moses Yuichiro Miura Invented thesaurus Started KFC Triathlete Started painting Climbed Mount Everest 40
is wonderful if you have two “ Retirement essentials — much to live on and much to live for. ” – Unknown
Seven Things You Need to Do in the Decade Before You Retire 1. Determine When the Time is Right 2. Take Aim at Your Retirement Target 3. Maximize Your Nest Egg 4. Get a Portfolio Checkup 5. Create a Social Security Strategy 6. Build a Retirement Income Stream 7. Look Beyond the Money 42
Work with a financial professional 43
This communication is general in nature, and should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel and provided for educational and informational purposes only. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. How and when to claim Social Security benefits is a personal decision, and can depend on a number of factors— such as your financial and individual situation, health, family longevity, and tax and social security laws which can be complex and subject to frequent change. Always consult a qualified professional or your own independent financial professional for personalized advice and investment recommendations tailored to your specific goals, individual situation, and risk tolerance. Franklin Templeton does not provide legal or tax advice. Federal and state laws and regulations are complex and subject to change, which can materially impact your results. Franklin Templeton Distributors, Inc. (FTDI) cannot guarantee that such information is accurate, complete or timely; and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. All financial decisions, strategies, and investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in the fund adjust to a rise in interest rates, the fund’s share price may decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. Fluctuations in the financial markets and other factors may cause declines in one’s account. Diversification and asset allocation strategies do not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation will meet one’s investment goal, provide one with a given level of income, or provide sufficient funds to meet future retirement needs. Investors are strongly advised to consult with appropriate financial, legal or tax professionals about one’s specific circumstances and individual goals. Important data provider notices and terms available at www. franklintempletondatasources. com. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial professional, call us at (800) DIAL BEN/342 -5236 or visit franklintempleton. com. Please carefully read the prospectus before you invest or send money. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA 94403 -1906 franklintempleton. com © 2020 Franklin Templeton. All rights reserved. HS PPT 11/20
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