1. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Planning for Retirement #14

2. Role of Retirement Planning At what age do you want to retire? How much money will you need? Set Your Goals

3. 3 Biggest Pitfalls in Retirement Planning Starting too late Putting away too little Investing too conservatively Compounding magnifies these pitfalls

4. Determine future retirement needs Estimate retirement income Funding the shortfall Estimating Income Needs

7. Social Security Benefits provided by payroll taxes employee and employer pay Amount of benefits may not be sufficient at retirement See it as an insurance system not a retirement plan

8. Normal retirement age is now 67 –If born in 1960 or later You must have been paying in for at least 40 quarters, or 10 years Early retirement results in a lower percentage of total benefits Later retirement results in an increased benefit SS Retirement Benefits

9. Old-age benefits (traditional SS retirement benefits) Survivor's benefits for spouses who are age 60 or older or who have a dependent child Survivor's benefits for dependent children SS Retirement Benefits

10. Selected Monthly SS Retirement Benefits

11. Pension Plans and Retirement Programs Employer-sponsored retirement programs Self-directed retirement program

12. Participation requirements Vesting Retirement age Contributions –Contributory –Non-contributory Qualifying Employer-Sponsored Programs

13. Defined Contribution company guarantees contribution, but not a return on it or a retirement benefit Defined Benefit company guarantees retirement benefit regardless of pension fund performance Employer-Sponsored Programs

14. Profit-sharing plans — employees benefit from company's earnings Thrift and savings plans — employer contributes to employee's fund –Employee contributions not deductible Salary reduction plans — employee contributes part of salary; contributions tax deductible; employer may also contribute Supplemental Plans

15. Evaluating Employer-Sponsored Pension Plans Eligibility requirements Defined benefits or contributions Vesting procedures Contributory or noncontributory Retirement age Voluntary supplemental programs Supplemental Plans

16. Keogh Plans — for professionals or small business owners and employees SEP Plans — for professionals or small business owners with few or no employees; simple to administer IRAs — for any working American; other self-directed plans may allow greater contributions Self-Directed Retirement Programs

17. Traditional Tax-Deductible IRA — for those with no employer-sponsored plan or with income below a certain level Non-Deductible (after-tax) IRA — for those with an employer-sponsored plan and income over a certain level Roth IRA — contributions not deductible; for those with incomes below a much higher level, regardless of employer-sponsored plans. Types of IRAs

18. Individual makes own investment decisions Fund with income-producing assets outside retirement account –Growth-oriented securities are more risky –Cannot write off losses from sale of securities in IRA or Keogh Self-Directed Accounts and Their Investment Vehicles

19. Annuities Tax-sheltered investment vehicles administered by life insurance companies Make contributions now in return for a series of payments later Contributions not tax deductible

20. Annuities Before Retirement: Accumulation Period annuitant purchases annuity by paying premiums into the account During Retirement: Distribution Period insurance company makes payments to annuitant. Portion not returned to annuitant prior to death goes to beneficiaries

21. Single Premium vs. Installments one lump-sum payment or a series of payments to purchase annuity Fixed vs. Variable investment grows at low guaranteed fixed rate or possibly a higher variable rate with no guarantee of return Classification of Annuities

22. Types of Annuity Contracts

23. Life annuity with no refund — payments made for life of annuitant; nothing to beneficiaries Guaranteed minimum annuity — at least a total minimum amount will be paid out; beneficiaries receive any remainder Annuity certain — payments made for a set number of years and cease, regardless of annuitant’s life span Deposition of Proceeds

24. Fixed versus Variable Annuity Fixed-rate annuity insurance company agrees to pay guaranteed rate of interest Variable annuity monthly income from policy varies based on insurer’s actual investment experience