If you are ready for or seriously considering retirement now, there are some important decisions to make. Choices that you make today may have consequences for decades to come thus it is well worth the time and effort needed to put in place a well thought out retirement plan. The REST provides you with educational content, a powerful analytics tool that allows you to compare alternative retirement income strategies (if age 55 or older), and some tips on how to put a retirement plan in place.
To start the education process please click on the education link below. If you prefer, you can go directly to the analyzer or implementation pages. It is not necessary to proceed in any order though many users find it useful to go through the education, analyzer, and implementation sections in order.
The REST has been created by Mark Shemtob, a consulting actuary and independent Certified Financial Planner. Mark is not affiliated with any insurance company or financial institution. The Implementation section provides an option to contact us with questions regarding using the REST.
The REST Analyzer has primary been designed for those that are near or recently retired (using their retirement savings or exploring Social Security options), However there is valuable information in the Education and Implementation sections of the REST for all individuals.
Please note that the REST does not analyze your living expenses
Below are links to 15 short education modules.It is recommended that you go through them in order as this will make the use of the Analyzer more helpful.However, in the future you can always refresh your memory on a specific topic by returning to this Education Home Page and selecting the specific topic.Please click the play button to begin.Once you have completed a module you can select a sub topic from the tabs to review again, or select the NEXT tab at the bottom right to move to the next module.
The REST is an educational and strategy modeling tool.
It is not intended to provide investment or financial planning advice.
There are alternative approaches to modeling or generating retirement income not considered by the REST.
The REST analytics is designed for an individual only,
so if you are married, have a partner or other dependent beneficiary
you should consider some of the suggestions previously addressed before implementing your retirement plan.
So now what?
Of course, that is up to you.
But here are some ideas.
Implement a strategy you have modeled using the REST.The topics listed above will provide some guidance.
Keep working.This might not be possible for all individuals.However, if using the REST indicates that you might not be able to generate enough retirement income to meet your needs or desires,you might want to consider putting in some more time on the job.
Use the knowledge that you have acquired and find a financial adviser to help you put your retirement plan in place.
Keep learning about retirement decision making and options.But be careful that the sources you rely on are unbiased and not advocating for actions that might not be in your best interest.
Most retirees prefer to receive their monthly income directly through their bank account.
Monthly direct deposit from Social Security is the standard approach.
One can have benefits started by applying through his or her local Social Security office. You will need to provide banking and tax withholding information.
Fixed Income Annuity:
Fixed income annuities are almost always paid monthly and can be sent directly to your bank account.
You will have to provide the insurance company or insurance broker both banking and tax withholding information.
Employer pension plans:
If you elect an annuity option the plan can accommodate a direct deposit option to your bank account.
Once again banking and tax withholding information will be required.
Some but not all 401k Plans can accommodate a monthly payout request either to you or your bank.
If the plan does, one will need to supply the amount of the monthly payment (coming from each investment), banking information and tax withholding instructions.
If the 401k plan does not offer this option, you might consider rolling your 401k account into an Individual Retirement Account (IRA).
Before selecting an IRA custodian make sure that the fees are reasonable and that appropriate investment choices are available.
Information will need to be supplied regarding your bank, tax withholding, amount of withdrawals and from which investment.
Payments from an IRA or employer retirement plans are generally fully taxable.
Consider increasing your total income each year based on your modeling.
If you delay Social Security, the amount you will need to withdraw from your investment account will be higher in the earlier years
If you have temporary income, the amount you will need to withdraw from your investment account will be lower in earlier years
GUARANTEED FIXED INCOME ANNUITY
These products provide a guaranteed lifetime income that eliminates investment and longevity risk on the savings used to purchase the annuity.
However, they are generally permanent once purchased and don’t protect against inflation risk.
They can be purchased directly from insurance companies (through their Agents) or through an insurance broker who can obtain proposals from multiple insurance companies.
Online annuity buying platforms are also available.
It is difficult to predict how much one’s expenses will increase in future years.
However, for many individuals they will increase.
This is especially true of non-discretionary expenses that we do not have control over.
For this reason, the REST provides for including an annual increase in your monthly income level.
The default is the cost of living adjustment that the Social Security Administration uses in its long-term calculations.
However, you can modify it in Application 2.
Some retirees feel that as they age their expenses will decrease since they may not be as active in later years of retirement.
This may be true however some expenses will increase especially those related to health care.
DECIDING ON A SUCCESS PERCENTAGE IN YOUR PLANNING
Many retirees ask the question what is the right success percentage for me to try and achieve?
If the monthly income goal that you are trying to achieve is the amount that is needed to satisfy your ongoing fixed expenses
you should be shooting for an overall success percentage of at least 75%.
However, it should be at or near 100% at those ages for which you have at least a 50% chance of survival.
Application 2 provides a graphical representation by age of the income you can expect to achieve
as a percent of your income goal as well as the probability of survival to that age.
However, if you are analyzing a monthly income that exceeds your ongoing expenses,
then a lower success percentage can be tolerated provided you accept the fact that there is an increased chance that the higher income goal will not be achieved.
Other circumstances could impact your success goal target.
For example, if one has a home with no or a very low mortgage,
long term care insurance,
assistance available from family,
ability to generate income from part time employment,
income being generated from your spouse or partner or no strong legacy goal,
a lower success goal might be appropriate,
provided you have not considered those income sources in the analysis.
HELP UNDERSTANDING THE RESULTS:
The graph illustrates at each future age information regarding the expected monthly income and retirement savings balance.
The green line represents the percent of income you can expect to receive compared to the income goal.
The brown line represents the percent of retirement savings you can expect to have remaining compared to your initial retirement savings.
The longer the green line is straight before dipping the longer you can expect to achieve your income goal.
A level or increasing brown line indicates a strategy with a preference for preserving your retirement savings balance.
At the bottom of the graph the expected income and retirement savings balance is scored from 1 to 10 with 10 being the best.
These scores are based on the outcomes at each age weighted by the likelihood of death at that age.
Thus, the ages nearest your life expectancy will have the greatest weighting.
Retirees heavily focused on securing lifetime income, as opposed to legacy desires or liquidity needs, should seek a monthly income level and strategy that provides an income score of 9 or 10.
The percentages noted on the graph beneath “Age” represent the probability of survival to that age.
You can determine your life expectancy by finding the age at which this probability goes from over 50% to under 50%.
The results are based on estimates and are best used in comparing strategy alternatives than in predicting outcomes.
REST METHODS AND ASSUMPTIONS
The REST is an educational tool and should not be considered as investment or retirement planning advice.
Calculations are based upon approximations and assumptions regarding the future.
The assumption regarding estimated increases in Social Security benefits and inflation are based on those used by the Social Security Administration.
Assumptions regarding Life Expectancy are derived from mortality tables created by the Society of Actuaries applicable to retirees.
Assumptions regarding future performance of two major investment classes
(US large cap stocks and total US bond portfolio)
are based on the capital market assumptions of a leading global investment management firm.
Note that the outcomes provided may not be realized.
The REST generally relies on modeling that considers thousands of computer simulations.
Each simulation will vary the expected age at death as well as the expected annual investment return.
The expected annual net of expenses Stock rate of return assumed is 6.95% (with an annual volatility of 15.6%) and the expected annual net of expenses Bond rate of return assumed is 2.95% (with an annual volatility of 4.4%).
Because of the use of volatility, the returns projected in any given year will vary; more so with the stock investments.
This approach allows for consideration of a wide variety of outcomes.
The annual rate of inflation is assumed to be 2.6%.
USING THE REST IF YOU ARE MARRIED OR HAVE A LIFE PARTNER
The Rest has been designed to analyze income strategies based on a single life.
However, for many individuals, retirement planning requires consideration of a couple.
Here are some ideas to help you using the Rest analyzer when you are married or have a partner.
Each should individually run the Rest based upon their own retirement savings, Social Security, and other income if applicable.
If there are savings or other income that are jointly held they should be split between the 2 individuals allocating them in such a way so that totals
(including each individual’s own savings and income) for each partner are as close to equal as possible.
Of course, it may not be possible to achieve this in all cases.
The monthly income goal for each of you should be analyzed.
To the extent that the goal would be insufficient to support one of the individuals upon the death of the other individual it is crucial for the strategy selected to take that into consideration.
Thus, the following suggestions should be considered in the strategy chosen by an individual whose spouse or partner would have insufficient retirement income on his or her own.
The spouse with the larger Social Security benefit should consider delaying commencement to age 70.
There are several on line programs that are designed to help married couples determine optimum Social Security claiming strategies.
Annuity purchases should consider an option that provides a continuing benefit after your death.
If a pension is available consider selecting a benefit form that provides a survivorship benefit.
Use a strategy that preserves a larger percent of retirement savings. This is
covered in the Application 2 of the Rest.