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How To Retireon a nonprofit employee’s salaryPAUL MERRIMAN | THE MERRIMAN FINANCIAL EDUCATION FOUNDATION
Bainbridge Community Foundation recognizes that nonprofit organizations are vital to the quality of life here, and
employees are the backbone of a successful nonprofit. We want nonprofit employees to feel successful, appreciated, and that a career in the nonprofit sector can be a livable
endeavor. Financial planning is key to this.
The Merriman Financial Education Foundation believes “knowledge is power” and is dedicated to providing comprehensive financial education to investor, with information and tools to make informed decisions in
their own best interest and successfully implement their retirement savings program.
MY GOAL
Educate
Motivate
Encourage
Inspire
HERE WE GO
TOP REASONS TO SAVE FOR THE FUTURE
Who wants you to save for the future?
Who wants you to spend NOW?!
How much should I save?
AGEINCOME
SPOUSE/PARTNERRISK TOLERANCE
COMFORT
What do we know about those that are saving for retirement? Half of Americans are not saving for retirement
80 is the new retirement age
Americans do not trust stock market for the long term
Employees are not taking advantage of retirement plans
Most investors do not know how much they need to retire
40% of investors don’t think they’ll have enough to retire
Fewer women than men are involved in the retirement planning process
23% believe that the only path to financial freedom is to win the lottery
What do we know about those that are saving for retirement? According to one study, the median balance of workers’ retirement
accounts – including 401(k)s, IRAs, etc – is $63,000
AGE GROUP MEDIAN RETIRMENT SAVINGS20s $16,00030s $45,00040s $63,00050s $117,00060s 172,000
Transamerica Center for Retirement Studies
The Good News: Investing has never been simpler, more productive, or more predictable
“Genius is 1% inspiration and 99% perspiration”
– Thomas Edison
The Life Changing Impactof making an extra 0.5%
Assumptions: Invest $5,000 a year (invested monthly) for 40 years. Take 5% of the value (paid monthly) for distributions. 7% return on investments after
retirement.
Percent Return Value at 65 Total Distributions Estate Total
8% Return $1,464,283 $2,499,798 $3,947,406 $6,447,194
8.5% Return $1,694,691 $3,110,897 $5,172,415 $8,383,312
9% Return $1,965,180 $3,608,913 $6,000,459 $9,609,372
How to be a successful first time investor
Pay yourself first Make reducing your cost of living a priority Start small to get into the saving habit Automate the process Dollar cost average without fail Use low cost index funds If not interested in managing your portfolio, use target date funds Make sure your partner is in agreement with your saving and investing program Don’t ever take investment advice from someone who earns a commission Don’t market time or second guess the future Celebrate bear markets
Where Should You Invest Your Retirement Money?
Traditional IRA, Roth IRA, Simple IRA, 403(b)
If no match, IRA allows tax-free growth
If no match, IRA allows more investment choices
If match available, maximize free money and then use IRA
“To be a success, you only have to do a very few things right…”
“…as long as you don’t do too many things wrong.”
– Warren Buffett
The few “things” you have to do right (Good Choices)
Trust Wall Street vs. Main Street
vs. University Street
Stocks vs. Bonds
Fine Tuning Your Asset Allocation
100% Bonds 10/90 20/80 30/70 40/60 50/50 60/40 70/30 80/20 90/10 100%
Stocks
6.2% 6.8% 7.4% 8.0% 8.6% 9.1% 9.6% 10.1% 10.6% 11.0% 11.3%
-4.5% -5.4% -11.6% -17.5% -23.2% -28.5% -33.6% -38.3% -42.9% -47.1% -51.1%
0.8% 0.0% 0.3% -2.1% -4.4% -6.8% -9.2% -11.5% -13.8% -16.2% -18.5%
1.0 % 1.7% 1.9% 1.2% 0.4% -.5% -1.3% -2.2% -3.2% -4.1% -5.1%
Years1970-2015
Annualized Return
Worst 12 Months
Worst 36 Months Annualized
Worst 60 Months Annualized
One Company vs. Many Companies
One Industry vs. Many Industries
One Equity Asset Class vs. Many Asset Classes
One Country vs. Many Countries
You Pick Stocks vs. Mutual Fund
Load vs. No-Load Funds
High vs. Low Cost Mutual Funds (expense ratio)
High vs. Low Turnover (internal trading)
Invest When Comfortable vs. Dollar Cost Average
Add Bonds vs. All Stocks
Actively Managedvs. Passively Managed Funds
(Index Funds)
Why Index Funds?
Low cost to buy and sell
Low cost to manage
Most diversified
Most control of holdings
Lower taxes
Should be in the top 10 & over 20 years
Recommended by the most respected people in the industry (Warren Buffett, John Bogle, Charles Schwab and virtually all academics)
How To Know When To Take Less Risk?
120-Your Age
Stock Portion
100-Your Age
Stock Portion
Target Date Funds
1 2 3
Target Date Funds:The almost perfect solution
One investment decision for life
All the advantages of no load mutual funds to pick the best stocks
All the advantages of having a professional advisor to pick the best balance of stocks and bonds
Vanguard info on Target Date Funds: https://investor.vanguard.com/mutual-funds/target-
retirement/#/?WT.srch=1&cmpgn=PS:RE
Schwab info on Target Date Funds: http://www.schwab.com/public/schwab/investing/accounts_products/
investment/mutual_funds/mutual_fund_portfolio/target_funds
What’s wrong with target date funds?
Too much in stocks
Too little in stocks
Too little in value stocks
Too little in small cap stocks
Long Term Return of Large Cap and Small Cap Companies
LARGE CAP BLEND SMALL CAP VALUE88 Year CRR 9.7% 13.4%Best 1 Year Return 54.0% 125.2%Worst 1 Year Return -43.3% -54.7%
Summary of 1 Year Period Results (1928-2015)
LARGE CAP BLEND SMALL CAP VALUE88 Year CRR 10.9% 16.1%Best 15 Year Return 18.9% 26.4%Worst 15 Year Return 0.6% -1.6%
Summary of 15 Year Period Results (1928-2015)
CRR: Compound Rate of Return
* Results do not include taxes or
management fees
Long Term Return of Large Cap and Small Cap Companies
LARGE CAP BLEND SMALL CAP VALUE88 Year CRR 10.9% 16.2%Best 40 Year Return 12.5% 19.0%Worst 40 Year Return 8.9% 11.8%
Summary of 40 Year Period Results (1928-2015)
LARGE CAP BLEND SMALL CAP VALUE88 Year CRR 10.9% 16.1%Best 15 Year Return 18.9% 26.4%Worst 15 Year Return 0.6% -1.6%
Summary of 15 Year Period Results (1928-2015)
CRR: Compound Rate of Return
* Results do not include taxes or
management fees
Impact of Adding Small Cap to Target Date Fund
Add Small-Cap Value 0 25% 40%Pre-retirement Growth Rate 8% 9.5% 10.2%Value in 40 years $1.3M $1.93M $2.31M1st Year Payout $51,811 $77,213 $92,454Total of 25 Annual Payouts $1.71M $2.99M $3.58MValue After 65 Years $2.43M $3.94M $4.5MTotal Initial Investments $200,000 $200,000 $200,000Lifetime Return $4.14M $6.93M $8.08M
Recap: How to be a successful first time investor
Pay yourself first Make reducing your cost of living a priority Start small to get into the saving habit Automate the process Dollar cost average without fail Use low cost index funds If not interested in managing your portfolio, use target date funds Make sure your partner is in agreement with your saving and investing program Don’t ever take investment advice from someone who earns a commission Don’t market time or second guess the future Celebrate bear markets
Meet Joe & Diane
Saved one salary
Owned used cars
Bought modest homes
Went camping for family vacations
Planned for and retired at 48
Worked for a few hours part time in the early years of retirement
Never took great risk but always took some risk
Never took more than 4% to live on plus Social Security
Still don’t eat in expensive restaurants
Vacation by trading their house over 100 times; traded their modest home for a NYC condo on Central Park that rents for $23,000/mo
Sources of Ways to Save More Money
Articles on Money Saving Tips http://www.thesimpledollar.com/little-steps-100-great-tips-for-saving-money-
for-those-just-getting-started/ http://www.goodfinancialcents.com/ways-to-save-money/ http://www.doughroller.net/smart-spending/51-painless-money-saving-tips/
Books on money saving tips available through Amazon Matthew Paulson: Simple Savings: 274 Money-Saving Tips That Will Help You
Save $1,000 or More Every Month Tom Meitner: How to Save Money on Almost Anything: 50+ Proven Time
Tested Tips Ron Tomby: 701 Money Saving Tips
What do Successful Investors Have in Common?
They have a plan. Suggested resource: Personal Finance for Dummies 2016 Edition
They identify the risks they are taking and do something about it
They ignore noise, predictions, and panic. Suggested resource: Dalbar Study
They know they are their own worst enemies. Suggested resource: Your Money & Your Brain by Jason Zweig
NOVEMBER 3rd 6:30-8:30PM
Getting The Most Out of Your 401K
BIMA Auditorium
Questions?