Planning For the FutureFinancial Literacy

Copper Hills High School

INSURANCE

Health Insurance Provides protection against financial losses resulting

form injury, illness, and disability Provides coverage for

Medical expenses, emergency and routine Hospital expenditures Surgeries Dental Vision Prescriptions

Check you parent’s or guardian’s plan to see how long you can be covered

HMO Health Managed Organization Limits the number of doctors, hospitals, and

clinics you can use Usually pays a larger portion of the bills

Cobra Insurance Allows you to purchase insurance from your

former employer for a period of time. You must pay the entire premium amount

Future of Health Insurance Congress is currently working on changing

health insurance. The new legislation :

Requires all employers to provide health insurance

Eliminates Pre-Existing Clauses by 2014 Allow individuals to stay on parents’ plan until

they turn 26 Requiring states to offer health insurance

Life Insurance A contract specifying a sum to be paid to a

beneficiary upon the insured’s death Term Life Insurance

You are only insured for a period of time. Usually cheaper premiums that are only paid for

the period of insured time Whole Life Insurance

Pay premiums until death or age 100 Insured until you die

Disability Insurance Replaces a portion of one’s income if they

become unable to work due to illness or injury

Must be purchased through your employer

RETIREMENT

Government Funded Options

Social Security A government plan where approximately 42% of

your average earnings is paid to retired individuals, disabled individuals, or survivors

To become eligible, you must pay into the system Benefits are determined by

Number of years of service Your average level of earnings An adjustment for inflation

Disability Benefits Disability benefits are given to those who

experience a physical or mental impairment that is expected to result in Death A job situation where they can not earn more than

$500 a month.

Survivor Benefits Provided if the breadwinner of the family dies Includes a small lump-sum payment to help

with funeral costs. Can include monthly payment if:

Spouse is over 60 Spouse is caring for children under 16 Children are under 18 they can get a monthly

payment until they turn 18

Private Retirement Funding OptionsSaving Enough to Live on In the Future

Employer Funded Pensions Employees receive a promised payout at retirement Noncontributory Plan

Employees do no have to pay anything into the plan Contributory Plan

Employees help fund part of the plan Must work at a company for a specified number of

years to get the benefit Rare to find now

Profit Sharing Plans A pension plan in which the company’s

contributions vary from year to year depending on the firm’s performance

The employee’s salary determines how much they will receive

401(k) Plan A tax-deferred retirement plan where both the

employer and the employee put in a portion of their salary into an investment account

The money is invested in mutual funds Incur a penalty if you access the funds before

you retire Money is not taxed until you withdrawal it

Keogh Plan Self-employment retirement plan Offered through financial institutions Can be contributory or non-contributory

Individual Retirement Arrangements (IRAs) A retirement account to which an individual can

contribute up to $4000 in 2007, $5000 in 2008 and increased by $500 each year after

Usually invested in mutual funds You are penalized if you take money out before age

59 ½ You must start taking money by at 70 ½ Contributions are not taxed Withdrawals are taxed

Roth IRA Similar to a traditional IRA Contributions are taxed Withdrawals are tax free as long as you have

had the Roth IRA for at least 5 years

The Payout Options

Single Life Annuity Receive a set monthly payment for your

entire life Payments stop when you die

Annuity for Life or a “Certain Period of Time” Receive a set monthly payment for a fixed

amount of time Even if you die, the payments will still keep

coming for that amount of time

Joint and Survivor Annuity Receive payment until either you or your

spouse dies The payment amount is reduced by as much

as 50%

Lump Sum Payment Receive all retirement benefits in one single

payment If you are not careful, you could run out of

money before you die The rule of thumb is not to spend more than

4% of your nest egg per year for your savings to last through retirement.

Estate PlanningWhat happens to your wealth after you die

Steps to the Process Determine the value of your estate Choose your heirs and decide what they will

receive Determine the cash needs of the estate

Taxes, Funeral Expenses, Medical Expenses, etc. Create a plan

Wills Legal documents describing

How you want your property to be transferred Your beneficiaries The executor Guardian for your children

Joint Ownership When assets are owned jointly, they’re

transferred to the surviving owner(s) without going through probate Probate is the process of validating the will

through the court system

Trusts A legal entity in which some of your property

is held for the benefit of another person Reduce the amount of estate taxes you will

owe Ensure that your wishes are granted