1. Pension and Retirement Plans
By: Caleb Wolf, Mitchell Rollefson, Samuel Kuehl, and Travis Heyer

2. Our Goal What are some different types of retirement plans?
Why is it important to start planning/saving early?
What plan fits what situation the best?

3. Brief History
1875
American Express Company established first private pension plan in the United States
1935
Social Security Act signed by President FDR
1950
25% of private sector workers covered
1970
45% of private sector workers covered
2006
20% covered by defined benefit plans
43% covered by defined contribution plans

4. Outlook on Wisconsin Retirement
Ninth largest public pension fund
$3 Billion Budget gap
Private Retirement Outlook
Companies “freezing” pension plans
Employee must plan/save for retirement

5. Companies with Pension Plans
Chesapeake Energy
6. Aflac
Devon Energy
7. USAA
Qualcomm
8. Colgate-Palmolive
Genetech
9. Mitre
Microsoft
10. Publix

6. Different Types
Social Security
403(b)
401(k)
IRAs
Roth IRAs

7. Social Security Largest government program in the world
How does Social Security work?
How to qualify?
10 years of work (40 credits)
When can benefits be received?
Age
When should benefits be taken?
Not if still working
Consider genes and health
Play the “couples game”

8. Social Security Analysis
$50,000/year
Can claim benefits June 2014
Collect $1027/month at age 62
$1442/month at 66 in 2018
$2000/month at 70 in 2022

10. Future of Social Security
Will we see the benefits of social security?
Come 2033,
Unable to pay benefits in full
Taxes should bring in 75% of the benefits
A raise in the full retirement age

11. 403(b) Plan Tax-Sheltered Annuity Who is Offered?
Public School, College, University workers
Church employees
Charitable entity workers

12. 403(b) Plan Contribution Limit $17,500/year Deposits and Growth
Tax Free
Withdrawals are taxed as income

13. 403(b) Plan Annuity Mutual Fund Money from Income Lower Risk
Securities
Stock Market
Employer Provided

14. 403(b) Plan Pros Cons Flexibility in Contributions Optional Loans
Investment options are limited
High administrative costs

15. What is a 401(k)? Most common kind of retirement plan
Promotes financial security in retirement
Employees choose to contribute a portion of their salary
Employer matches portion of what you contribute
Employer deposits money for the employee to your 401(k) plan manager
Mutual fund company
Brokerage firm
Insurance company
Deferred money is not taxed until distributed to employee

16. Contributions Pre-tax to your 401(k)
Amount deducted from paycheck, that is not counted as part of your taxable income
More money is invested up front in a pre-tax contribution
The maximum contribution limit in $17,500
Only taxed when withdrawn
Once in retirement
Early withdrawal
Can accumulate quickly
Better than after-tax but not always used by employer

17. Contributions After-tax to 401(k)’s
The money you invest in your 401(k) after taxes have been paid on it
Won’t accumulate as quick
Some of salary is going to government
Maximum contribution limit in $17,500
Not as beneficial as pre-tax
Better for employers to offer an after-tax contribute
They won’t have to match as much compared to pre-tax contribution

18. Contribution Example
Pre-tax Contribution
After-tax Contribution
As an employee you are planning to invest 10% of your salary in your 401(k)
Your salary is $80,000 per year
$80,000 * 10% = $8,000
Employer matches 4% of salary
$80,000 * 4% = $3,200
As an employee you are planning to invest 10% of your salary in your 401(k)
Your salary is $80,000 per year
$20,000 is taken out for taxes
($80, ,000) * 10% = $6,000
Employer matches 4% of salary
$60,000 * 4% = $2,400

19. Pros of a 401(k) Cons of a 401(k)
Company match, its free money
Flexibility in contributions to your 401k
If your cash flow frequently changes this is a good retirement option
Lower income taxes
Helps attract and keep good employees
Can not withdraw before age 59 ½ without being penalized
Penalty is monetary

20. How is the amount that my company will decided?
Fixed Percentage – company chooses the percentage they will contribute at the beginning of the year
Guaranteed Percentage – company contributes a pre- determined percentage of employee’s salary
Discretionary Percentage – Company contributes a percentage of employee’s salary based on the companies profits

21. Can I Withdraw From My Account if I am Still am Working?
Most plans allow you to withdraw money, but you have to replace the money you withdrew with interest
If money isn’t replaced there are penalties
Every company has different rules on this issue

22. What Happens to My 401(k) if I Leave or am Fired?
If your account balance is more than $5,000 you can leave your money in the same plan4
This scenario is the same whether you voluntarily leave or are fired.

23. IRA’s (Individual Retirement Accounts)
Employee Retirement Income Security Act (ERISA) created individual retirement accounts (IRAs) in 1974
Gave individuals not covered by retirement plans at work a tax- advantaged savings plan
Gave another option along with employer-sponsored retirement system
Preserves rollover assets at job change or retirement

24. IRA’s (Individual Retirement Account)
Traditional IRA’s- allows contributions to be tax-deductible. Contributors must make withdrawals starting at 70 ½ years of age
Roth IRA’s- allows the contributor to withdraw funds tax-free and there is no age at which you must start withdrawing
SEP (Simplified Employee Pension) IRA’s- assists small- business owners in providing plan for employees
SIMPLE (savings incentive match plans) IRA’s- allows self- employed people to have a matching plan similar to 401(k) plan
Education IRA’s- helps pay for higher education

25. Traditional and Roth IRA’s
Income to get started
Tax return is filing deadline
Can withdraw money at anytime
Wide variety of investments
Contribution Type
2014
Regular Limit
5,500
Catch-Up
6,500

26. Traditional IRA’s Tax-deferred Possible deductions
Taxes enforced on withdrawal
With certain exceptions
Must start withdrawing by 70.5

27. Roth IRA’s Taxed on Income No deductions Not taxed after retirement
Flexibility
Can always withdraw from contributions
Can withdraw under other circumstances
Money can stay in account as long as wanted

28. Examples of Retirement Plans
Laura has a retirement plan in progress. The savings in which she earns are growing tax-free and her contributions made are tax- deductible. Finally, she is working at a charitable organization. Which retirement plan is Laura using?
403(b)

29. Examples of Retirement Plans
Tom is working at a company that matches his contributions to his retirement plan up to a certain percentage. What retirement plan is Tom using?
401(k)

30. Examples of Retirement Plans
Sarah is a recent college graduate and is planning ahead for her retirement. She landed an entry level, full-time job position at a company that offers her opportunity for growth within the company. Which retirement option would be best suited for Sarah?
Roth IRA

31. Examples of Retirement Plans
John is looking at the different possibilities of retirement plans. He wants his yearly contributions to be tax-deductible from his income taxes. He also does not mind that during retirement, he will have to pay taxes on his withdrawals. Which of the four retirement plans we have discussed is best for John?
Traditional IRA

32. Questions?