1. Planning for Your Retirement
Standard Retirement Planning
Planning for Your Retirement

2. Public Pension Plans Public pension plans are established by: States
Municipalities
Social Security is a public pension plan established by the United States government in 1935.

3. Social Security Social Security is:
Most common form of retirement benefit
Provided by the Federal Government
Supported with payroll taxes
One of the largest government programs in the world and the greatest single expense in the Federal budget
Currently, the average social security check is only about $1,000.

4. Social Security (Continued)
Benefits are based on the number of years you work and income earned.
Not designed to be a sole source of income, but supplemental income for people over age 65.
Develop savings and investment strategies for a financially secure retirement.

5. Social Security
Social Security is an important source of retirement income for many Americans.
The amount of Social Security retirement benefits you receive is based on your earnings over the years. Each year the Social Security Administration will send you:
A history of your earnings
An estimate of your future monthly benefits

6. Other Public Pension Plans
The federal government provides other special retirement plans for:
Federal government workers
Railroad employees
The Veterans Administration provides pensions for survivors of people who died while serving in the armed forces.
Also many state and local governments provide retirement plans for their employees.

7. Employer Pension Plans
Another possible source of retirement income is an employer pension plan.
Private employer pension plans vary. If the company you work for offers one, find out:
What benefits you will receive
When you will become eligible to receive those benefits

8. Defined-Contribution Plan
an individual retirement account for each employee
401(k) plan
a type of retirement savings plan funded by a portion of your salary that is deducted from your gross paycheck and placed in a special account
With a defined-contribution plan, the employer contributes a specific amount to the account annually.
Several types of defined-contribution plans are:
Money-purchase plans
Stock bonus plans
Profit-sharing plans
401(k) plans (Most Common Type)
403(b) plans

9. 401(k) Most common type of company retirement plan is a 401(k)
Two basic features:
Allows you and/or your employer to put money in an investment account each month.
Taxes are not due on the amount invested until you withdraw the money.

10. 401(k) - continued
Many young employees fail to see the benefit of participating in a company retirement plan.
Can be an expensive choice, particularly if the employer matches the money you place in the fund.

11. Vesting
vesting
the right of an employee to keep the company’s contributions from company-sponsored plans, even if the employee no longer works for that employer
One of the most important aspects of employer pension plans is vesting. Vesting occurs at different points in time, depending on company policy. After a certain number of years with a company, you become fully vested, or entitled to receive 100 percent of the company’s contributions to the plan on your behalf.

12. Defined-Benefit Plan
defined-benefit plan
a retirement plan that specifies the benefits an employee will receive at retirement age, based on total earnings and years on the job
A defined-benefit plan does not specify how much the employer must contribute each year. Instead, your employer’s contributions are based on how much money the fund will need for each participant in the plan who retires.

13. Personal Retirement Plans
Many people choose to set up personal retirement plans. Such plans are especially important to:
Self-employed people
Other workers who are not covered by employer pension plans
Among the most popular personal retirement plans are individual retirement accounts (IRAs) and Keogh accounts.

14. Individual Retirement Accounts
There are various types of IRAs, including:
Regular IRA
Roth IRA
Simplified Employee Pension (SEP) IRA
Spousal IRA
Rollover IRA
Education IRA
The biggest benefit of an IRA lies in its tax-deferred earnings growth.
individual retirement account (IRA)
a special account in which a person saves a portion of income for retirement

15. IRA Withdrawals
When you retire, you can withdraw the money from your IRA by:
Taking out all of the money at one time and letting the entire amount be taxed as income
Withdrawing the money from your IRA in installments and only being taxed on the amount that you withdraw

16. Keogh Plans
Keogh plans have various restrictions, including limits on the amount of annual tax-deductible contributions you can make. You should get professional tax advice before using this type of personal retirement plan.
Keogh plan
a retirement plan specially designed for self-employed people and their employees

17. Annuities
You can buy annuity insurance to supplement the income you will receive from other types of retirement plans.
You can choose to purchase an annuity that has:
Single payment
Installment payments
The payments you receive from an annuity are taxed as ordinary income.
Tend to generate less overall earnings than a 401k
Annuity benefits are guaranteed, while benefits from a 401(k) are not guaranteed.
annuity insurance
a contract purchased from an insurance company that guarantees a future fixed or variable payment to the purchaser for a certain number of years or for life

18. Types of Annuities Annuities may be either: Immediate Deferred
The rate of return on an annuity is usually tied to overall interest rates.

19. Costs of Annuities
There are various choices regarding the type of annuity and the annuity income it will generate.
You should discuss all of the possible options with an insurance agent, including:
Charges
Fees
Interest-rate guarantees
Be sure to check the financial health of the insurance company that offers the annuity.

20. Living on Retirement Income
When the time to retire arrives, you may need to make some adjustments to your budget or spending plan.
To do so, you will need to:
Make sure that you are getting all the income to which you are entitled.
Think about any assets or valuables you might be able to convert to cash or into other sources of income.
Re-examine the trade-off between spending and saving.

21. Working During Retirement
Retirees can use their skills and time instead of spending money. After retiring, some people decide to:
Work part-time
Take new full-time jobs
Keep active and pursue new careers
Work can provide a person with a greater sense of usefulness, involvement, and self-worth.

22. Using Your Nest Egg
When should you take money out of your “nest egg,” or savings, during retirement? The answer depends on:
Your financial circumstances
Your age
How much you want to leave to your heirs
Whatever your situation, you should try to conserve your retirement fund to make it last.
heirs
the people who will have the legal right to your assets when you die

23. Different Types of Investment Risk
Investing in a retirement account has both potential costs and benefits.
Cost – cannot spend the money now and risks associated with investing
Benefit – having more money in the future

24. Different Types of Investment Risk
Four specific kinds of risk to understand (continued):
Market risk – Your investment will be worth less tomorrow because of dropping prices/values.
Financial risk – The business you invest in goes bankrupt or fails to make a profit.
Inflation risk – The price you pay for goods and services will rise faster than the rate of return on your investment.
Fraud risk – Someone either deceived or tricked you into investing in something where you get nothing in return.

25. Handout 6.1.1 – Risky Business
How would you order the scenarios in this exercise if your choices were from most risky to least risky?

26. Longevity and Retirement
Standard Retirement Planning
Longevity and Retirement

27. Retirement Income Shortfalls
People tend to underestimate their life expectancy.
Life expectancy is the statistical measure of the average life span of a specified population.
© Oklahoma State Department of Education. All rights reserved.

28. Retirement Income Shortfalls
Three steps for increasing your
retirement savings:
1. Rethink your goals
Travel?
Cabin on the lake?
2. Postpone your retirement
To accumulate more money
To supplement your retirement
3. Increase contributions to your retirement account
Putting more money aside now increases possibility of having more money later

29. Your long-term goals are as important as your short-term goals.
Most people fail to plan early enough for retirement.
Work because you want to, not because you have to!
 Invest early and you can look forward to all of those years later in life.

30. You have a good chance of living well into your 90s.
Family history (heredity) accounts for about one-fourth of the factors affecting your life expectancy.
Seventy-five percent are based on your personal lifestyle choices.
 Living financially independent will depend on your investment choices.

31. Handout 6.2.1 – Analyzing Your Retirement Needs
Based on information included in the handout, what are some of the most significant factors that will affect your ability to meet your retirement needs?
How can you benefit by
thinking about your
retirement at a very young
age?