Post on 25-Dec-2015
Retirement and Estate Retirement and Estate PlanningPlanning
Chapter 15Chapter 15
Financial PlanningFinancial Planning
Retirement MythsRetirement Myths• You have plenty of time to start saving• Saving a small amount won’t help• You will spend less when you retire• Your retirement will last about 15 years• You can depend on Social Security and a
pension to pay basic living expenses• Your pension benefits will keep pace with inflation• Your employer’s health insurance plan and
Medicare will cover all your medical expenses
Conducting a Financial AnalysisConducting a Financial Analysis
• Assets– Cash, property, personal possessions,
investments
• Liabilities– Debts you owe
• Net worth– Ideally it should grow each year
Reviewing AssetsReviewing Assets• Housing
– Size and cost may deter from future retirement fund
• Life Insurance– Adjust life insurance as children become self-
sufficient and will have more money for retirement
• Other Investments– Use money from investments for living
Retirement Living ExpensesRetirement Living Expenses
• Consider your lifestyle
• Consider how spending patterns change– Retired may spend more on medical,
recreation– Retire may spend less on transportation and
clothing
• Consider inflation – 3% increase causes prices to double every 24 years
Retirement Relocation PitfallsRetirement Relocation Pitfalls
• Moving– Stuck somewhere you don’t like, miss family,
financial burden
• Research location– Check property taxes, state tax, income
taxes, and local economy– Read newspaper, check energy costs, visit in
different seasons, talk to locals– Rent in area if possible before buying
Types of HousingTypes of Housing
• Smaller house, condominiums, apartment
• Access to public transportation, stores, and recreation important
• If you stay in home will it be accessible when you are old – door knobs, wheelchairs, walkers
• Assisted living option
Social SecuritySocial Security
• Public pension plan
• Package of protection that provides benefits to retirees, survivors, and disabled workers
• Not designed to provide 100% of retirement income
Social SecuritySocial Security
• Retirement benefits based on what you’ve earned over the years
• How much you get each month depends on when you retire
• Must earn certain number of credits to get retirement benefits
Social SecuritySocial Security
• Dependent Eligibility– 62 or older, unmarried children under 18 (19
in school), unmarried children with disabilities, widows and widowers
• Retirement Benefits– Age varies based on birth date
Employer Pension PlansEmployer Pension Plans
• Defined Contribution Plan– Money-purchase plans– Stock bonus plans– Profit sharing plans– 401(k) plans– 403(b) plans– Vesting
Personal Retirement PlansPersonal Retirement Plans
• Regular IRA
• Roth IRA
• Simplified Employee Pension Plan– For small business or self-employed
• Spousal IRA
• Rollover IRA
• Education IRA
Living on Retirement IncomeLiving on Retirement Income
• Make sure to research all programs or benefits that you might qualify for
• Take advantage of special dicounts
WillsWills
• Simple Will– 1 to 2 page document that list spouse and children – Cost less than $150
• Trust Will – Long and complex– For those who cannot take possession of assets
• Halographic Will– One written in one’s own handwriting– Handwritten is easier to contest
IntestateIntestate
• If dies without a will– Married All to spouse– Never married All parents– Married, one child ½ to spouse, ½ to
child– Married, two children ½ to spouse, ¼ to each
child
Power of AttorneyPower of Attorney
• Legal document authorizing someone to act on your behalf
• Good for ill and incapacitated
• Must fully trust the person because they can make whatever decisions you could of made
Federal Estate TaxesFederal Estate Taxes
• Estate must be worth more than $600,000 to be subject to this tax
• Tax is paid from assets of estate, before anything is distributed to the heirs
• Property left to surviving spouse is tax free as well as property left to qualified charitable organizations
TrustsTrusts• Legal document giving a person or institution
(trustee) custody of someone else’s property or money (trustor), for ultimate distribution to another (beneficiary)
• Inter vivos or living trust – transfer property/instruction to another while you are alive
• Testamentary trust – it comes upon the death of the trustor – good for inexperienced beneficiaries or avoid high taxes
State Inheritance TaxesState Inheritance Taxes
• Taxes paid by those who receive part of an estate
• Tax depends on value of property and the relationship of the heir to the deceased
Federal Gift TaxesFederal Gift Taxes
• Gift giving is used to avoid estate land inheritance taxes
• Create a life estate – pass title of real property yet retain right to live on premises
• Any gift over $10,000 will be taxed at the same rate as estate tax