Retirement Planning for the Young Professional Dr.

Transcript:Retirement Planning for the Young Professional Dr.:
Retirement Planning for the Young Professional Dr. Alex “Uncle Al” White CALS, Dairy Science moneyguy@vt.edu Retirement planning overview Tax benefits of qualified retirement accounts Basic retirement planning calculations Types of VT plans Retirement plans for other income Understanding your investment options Questions Today’s Topics Social Security ~ 40% of pre-retirement income Maximum benefit < ~$45,000/year Will it be there at all for you? Inflation $50,000/yr today = $160,000/yr in 40 years (3%) Funding your retirement lifestyle 45-yr old, $50k eq. for 30 years = ~$1.5 million 4% real rate of return, BOP 20-yr old, $50k eq, for 30 years = ~$3.4 million A Few “Eye-Openers” To reach $1 million at age 65: 20-yr old needs to invest ~$9/day 40-yr old needs to invest ~$40/day 7% APY, no taxes, no inflation, BOP Does not include VRS benefits With 3% annual inflation: 20-yr old needs to invest ~$35/day 40-yr old needs to invest ~$85/day The earlier you start, the easier it is! More Eye-Openers These numbers assume that you have NO other sources of income during retirement With VRS benefits, it’s a lot prettier sight! With other retirement savings, it’s prettier IRAs, 403(b), 457, etc. With other assets, it’s even prettier Rental properties, annuities, equity, financial assets, etc. Uncle Al, you must be crazy! Goal: $3 million in 40 years Or $160,000/year equivalent Assumptions: Starting salary $60,000 Annual increase in salary 2% Average annual earnings 7% APY ORP (plan 2) grows to $2.0 million VRS (plan 2) provides $85,000/year Roughly $1.5 million See What I Mean? VRS Hybrid 4% DB+ 5% DC contribution = ~$2.0 million eq. In addition: 403(b) & state matching funds 5% of salary into 403(b) + match = $860,000 10% = $1.6 million IRAs, other retirement, etc. See What I Really Mean? Determining: When you want to retire What you want to do in your retirement years Your retirement lifestyle What will it cost? How you will fund that lifestyle VT, non-VT retirement plans, IRAs Social Security (yeah, riiiiight…) Personal savings, investments Continued work Rental or sale of property Retirement Planning Age 59 ½ is minimum age for most retirement plans* Social Security: Normal Retirement Age: 65+ (67 for most of you) Earliest Retirement Age: 62 Medicare: Age 65* When to Retire? Main Expense Categories: Retirement Lifestyle Main Expense Categories: Housing - Rent/Mortgage, utilities, repairs Food Medical Insurances – health, life, house, car, LTC Taxes – property, income,