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Basic Retirement Financial Planning- Part 1 - ACS RIA

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

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: cookj2@ria.army.mil

see RIA email public folder ERC INFO

www. riamwr. com / acsnew. htmwww. riamwr. com / acsnew. htm

• Part 1: Plan Your Use of Available Time

• Part 2: Retirement Requirements Planning

• Part 3: Retirement Capabilities Planning

• Part 4: Retirement Decision Time-gates

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

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).

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

Plannin

Stein, M. (1998). Prosperous Retirement. Boulder, CO: EMSTCO Press. p. 19.

Mental PhysicalHealth Health

Social Spiritual

Exercise Diet

Personal Intellectual

Finances

Prosperous

Retirement

Like pieces of a puzzle …

Let’s start assembling

the pieces of your money

puzzle

The 3 Components of theTime Value of Money

APR Money%

The Rule of 72 and its three uses

How to estimate Doubling Periods!

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

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

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

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

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

72 / 1.5% CPI = 48 years

72 / 4% CPI = 18 years

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

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

It’s never too late to start!

How many years -Doubling Periods - until your:

– 65th birthday– 80th birthday– 90th birthday

APR Money%

PowerSave Software

Forecast!

• Compounding over Time

• Impact of inflation

Personal Financial

Management

Software

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

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!”

Building Your Time Line

Paper or MS Excel (.xls) work sheet

Lay out your

Person(s)

Retirement options & time frames

Handout P. 5

Life Expectancy ?

Building Your Time Line

Paper or MS Excel (.xls) work sheet

Lay out your

Person(s)

Retirement options & time frames

Plan Your Use of

Available Time

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

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

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

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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