The Mathematics of Retirement Planning Social Security Pensions Personal Investments Medicare.

The Mathematics of Retirement Planning

Social Security

Pensions

Personal Investments

Medicare

Wilson B. Gräb Forsyth Tech CC 2015 NCMATYC 2

Social Security

Social Security Benefits and Timing

Medicare

How much will I get and when should I start taking it?


Social Security Benefits and Timing

When to Start Collecting (Age 62 – FRA - 70 SSA Publication No. 05-10147)

Full Retirement Age (FRA) SSA.Gov - Retirement Age Calculator

How Your Benefit is Figured – SSA Publication No. 05-10070


Full Retirement Age (FRA) SSA.Gov - Retirement Age Calculator

The Full Retirement Age Is IncreasingFull retirement age (also called "normal retirement age") had been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959. The 1983 Social Security Amendments included a provision for raising the full retirement age beginning with people born in 1938 or later. The Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age.

Note: If you were born on January 1st of any year you should refer to the previous year.

http://www.ssa.gov/history/1983amend.html


When to Start Collecting (Age 62 - 70)

Sample ChartMonthly Monthly

Age Amount Age Amount62 $ 750 66 $100063 $ 800 67 $108064 $ 866 68 $116065 $ 933 69 $124066 $1000 70 $1320


When to Start Collecting (Age 62 – 70) Age 62 vs FRA (66)

Let X = Years

X($750) = $1000(X – 4)

$750X = $1000X - $4000

-$250X = -$4000

X = 16 Years


When to Start Collecting (Age 62 – 70) Age 66 vs 70

Let X = Years

X($1000) = $1320(X – 4)

$1000X = $1320X - $5280

-$320X = -$5280

X = 16.5 Years


Medicare

Alphabet Soup

When can I get it?

What is the cost?

What does it cover?

Copays, Primary Care Recommendation, Allowable Expense, Fraud


Medicarewww.medicare .gov

Medicare does not start until age 65

Medicare is our country’s health insurance program for people age 65 or older. Certain people younger than age 65 can qualify for Medicare, too, including those who have disabilities and those who have permanent kidney failure. The program helps with the cost of health care, but it does not cover all medical expenses or the cost of most long-term care.


MedicarePARTS A, B, C, and D

Part A - Hospital

Part B - Medical Insurance

Part C - Medicare Advantage

Part D - Prescription Drug Coverage



Part AMedicare Part A (Hospital Insurance)Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.

Hospital careSkilled nursing facility careNursing home care (as long as custodial care isn't the only care you need)HospiceHome health services

http://www.medicare.gov/what-medicare-covers/part-a/part-a-coverage-hospital-care.html



http://www.medicare.gov/what-medicare-covers/part-a/part-a-coverage-skilled-nursing-facilities.html

http://www.medicare.gov/what-medicare-covers/part-a/part-a-coverage-nursing-home-care.html

http://www.medicare.gov/what-medicare-covers/part-a/what-part-a-covers.html#1305

http://www.medicare.gov/what-medicare-covers/part-a/part-a-coverage-hospice.html

http://www.medicare.gov/coverage/home-health-services.html



Part BMedicare Part B (Medical Insurance)Part B covers certain doctors' services, outpatient care, medical supplies, and preventive services.

Part B covers 2 types of servicesMedically necessary services: Services or supplies that are needed to diagnose or treat your medical condition and that meet accepted standards of medical practice.Preventive services: Health care to prevent illness (like the flu) or detect it at an early stage, when treatment is most likely to work best.You pay nothing for most preventive services if you get the services from a health care provider who accepts assignment.


https://www.medicare.gov/coverage/preventive-and-screening-services.html

https://www.medicare.gov/what-medicare-covers/part-b/what-medicare-part-b-covers.html#1286



Part B Cont.Part B covers things like:Clinical research Ambulance servicesDurable medical equipment (DME)Mental health

InpatientOutpatientPartial hospitalization

Getting a second opinion before surgeryLimited outpatient prescription drugs


https://www.medicare.gov/coverage/clinical-research-studies.html

https://www.medicare.gov/coverage/ambulance-services.html

https://www.medicare.gov/what-medicare-covers/part-b/durable-medical-equipment.html

https://www.medicare.gov/coverage/inpatient-mental-health-care.html

https://www.medicare.gov/coverage/outpatient-mental-health-care.html

https://www.medicare.gov/coverage/partial-hospitalization-mental-health-care.html

https://www.medicare.gov/what-medicare-covers/part-b/second-opinions-before-surgery.html

https://www.medicare.gov/coverage/prescription-drugs-outpatient.html

https://www.medicare.gov/coverage/prescription-drugs-outpatient.html



Part C

A Medicare Advantage Plan is a type of Medicare health plan offered by a private company that contracts with Medicare to provide you with all your Part A and Part B benefits. Medicare Advantage Plans include Health Maintenance Organizations, Preferred Provider Organizations, Private Fee-for-Service Plans, Special Needs Plans, and Medicare Medical Savings Account Plans. If you're enrolled in a Medicare Advantage Plan, Medicare services are covered through the plan and aren't paid for under Original Medicare. Most Medicare Advantage Plans offer prescription drug coverage.




Part DMedicare Prescription Drug Plan (Part D)Part D adds prescription drug coverage to Original Medicare, some Medicare Cost Plans, some Medicare Private-Fee-for-Service Plans, and Medicare Medical Savings Account Plans. These plans are offered by insurance companies and other private companies approved by Medicare. Medicare Advantage Plans may also offer prescription drug coverage that follows the same rules as Medicare Prescription Drug Plans.




Part DWhat drug plans coverEach Medicare Prescription Drug Plan has its own list of covered drugs (called a formulary). Many Medicare drug plans place drugs into different "tiers" on their formularies. Drugs in each tier have a different cost.A drug in a lower tier will generally cost you less than a drug in a higher tier. In some cases, if your drug is on a higher tier and your prescriber thinks you need that drug instead of a similar drug on a lower tier, you or your prescriber can ask your plan for an exception to get a lower copayment.A Medicare drug plan can make some changes to its formulary during the year within guidelines set by Medicare. If the change involves a drug you’re currently taking, your plan must do one of these:Provide written notice to you at least 60 days prior to the date the change becomes effective.At the time you request a refill, provide written notice of the change and a 60-day supply of the drug under the same plan rules as before the change.NoteStarting in December 2015, for your prescriptions to be covered by your Medicare drug plan, Medicare will make sure your prescribers are enrolled in Medicare or have an “opt-out” affidavit on file with Medicare. Contact your plan or your prescribers for more information.


https://www.medicare.gov/claims-and-appeals/file-an-appeal/prescription-plan/prescription-drug-coverage-appeals.html


Pensions

Defined Benefit Plan

Cash Balance Plan


Pensions

Defined Benefit Plan - typically Years of Service X Percentage X Salary Base. You receive a set amount each month typically from an annuity purchased by the company or the company self Funds. The NC State Plan is self funded and is a defined benefit planPlans not easily portable


PensionsCash Balance Plan- typically a company will put a percentage of your salary into an account (401K) as a match or just a gift.At retirement the amount in the fund must be managed by you. This is a fixed amount and when exhausted, there is no more.Highly portable to a new company.Limits liability of a company to current expense


NC State Pension Options

Maximum Allowance Basic benefit calculated under Retirement Formula

Option 2: 100% Joint and Survivor – Both receive reduced benefits for life

Option 3: 50% Joint and Survivor – you receive reduced benefits for life. At death your survivor receives ½ of your payments for life



Option 4: Social Security Leveling – If retiring prior to age 62 – you receive larger monthly benefits until you reach age 62At age 62, your monthly benefits would be reduced to less that what you would otherwise be entitled to receiveYour SS and TSERS should be approximately the same amount as the inflated payment you receive before age 62Actual amount from TSERS Is based on estimate you provide from SSA before retirement



Computation of Benefits

Annual Benefit = 1.82% X Average Final Compensation X Years and Months of Service

Average Final Compensation = average salary during your four highest paid years in a row.



Options:Payment Option To Retiree To Retire Beneficiary

Maximum Allowance $1000 monthly $0.00

Option 2 $889.70 Monthly $889.70 Monthly

Option 3 $941.60 Monthly $470.80 Monthly

Option 4 $1402.84 up to $0.00age 62 $767.84 thereafter


NC State Pension OptionsOption 6 – 2 Modified Joint and Survivor Combination Maximum

Allowance and Option 2

Receive reduced monthly payments for life

After you die, your monthly survivor beneficiary receives the same amount monthly for life

If your beneficiary dies before you do, your monthly payments are increased to the amount payable under the maximum allowance


NC State Pension OptionsOption 6 – 3 Modified Joint and Survivor Combination Maximum

Allowance and Option 3

Receive reduced monthly payments for life

After you die, ½ of your payment continues to your monthly survivor beneficiary for life

If your beneficiary dies before you do, your monthly payments are increased to the amount payable under the maximum allowance




Option 6 – 2 $882.60 Monthly; if Beneficiary dies $882.60before Retiree, Retiree receives $1000 monthly thereafter




Option 6-3 $937.70 Monthly; if beneficiary dies $468.85 before Retiree, Retiree receive $1000monthly thereafter


Personal Savings vs PensionYears Salary 6% Contribution

Interest Rate

Compounded Amount

Compounded Amount

Stock Mutual Fund

Annually12%

5% Annually Monthly Annually30 $ 37,467.11 $ 2,248.03 5% $ 9,715.84 $ 10,043.61 $ 67,350.70 29 $ 37,841.78 $ 2,270.51 5% $ 9,345.71 $ 9,650.31 $ 60,735.90 28 $ 38,220.20 $ 2,293.21 5% $ 8,989.69 $ 9,272.42 $ 54,770.76 27 $ 38,602.40 $ 2,316.14 5% $ 8,647.22 $ 8,909.33 $ 49,391.49 26 $ 38,988.42 $ 2,339.31 5% $ 8,317.80 $ 8,560.45 $ 44,540.54 25 $ 39,378.31 $ 2,362.70 5% $ 8,000.94 $ 8,225.24 $ 40,166.02 24 $ 39,772.09 $ 2,386.33 5% $ 7,696.14 $ 7,903.15 $ 36,221.15

5 $ 48,049.02 $ 2,882.94 5% $ 3,679.44 $ 3,699.85 $ 5,080.73 4 $ 48,529.51 $ 2,911.77 5% $ 3,539.28 $ 3,554.97 $ 4,581.73 3 $ 49,014.80 $ 2,940.89 5% $ 3,404.45 $ 3,415.76 $ 4,131.74 2 $ 49,504.95 $ 2,970.30 5% $ 3,274.75 $ 3,282.00 $ 3,725.94 1 $ 50,000.00 $ 3,000.00 5% $ 3,150.00 $ 3,153.49 $ 3,360.00

$ 78,197.36 $ 175,503.32 $ 179,108.28 $ 654,901.64

Pension Average Basis $ 49,262.32 $ 65,490.16

Annual Pension $ 22,168.04

Payback 3.53


Personal Investments

Bonds Stocks Mutual Funds

Rental Properties Antiques Art - Varies

Franchise(s) Landscaping Consulting


Summary

Determine your needs in retirement and relating factors

Identify an collect relative cost information

Resolve potential conflicts with adjustments

Plan what you will do in retirement

Enjoy retirement – You earned it


Questions

Thank You !!!!

The Mathematics of Retirement Planning Social Security Pensions Personal Investments Medicare.

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