1. Retirement and Estate Planning
Chapter 15
Financial Planning

2. Retirement Planning
Section 15.1

3. Retirement 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

4. Conducting a Financial Analysis
Assets
Cash, property, personal possessions, investments
Liabilities
Debts you owe
Net worth
Ideally it should grow each year

5. Reviewing Assets Housing Life Insurance Other Investments
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

6. Retirement 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

7. Inflation Over Time 4% inflation increase

8. Retirement 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

9. Types 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

10. Planning Retirement Income
Section 15.2

11. Social Security Public pension plan
Package of protection that provides benefits to retirees, survivors, and disabled workers
Not designed to provide 100% of retirement income

12. Social 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

13. Social Security Dependent Eligibility Retirement Benefits
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

14. Employer Pension Plans
Defined Contribution Plan
Money-purchase plans
Stock bonus plans
Profit sharing plans
401(k) plans
403(b) plans
Vesting

15. Personal Retirement Plans
Regular IRA
Roth IRA
Simplified Employee Pension Plan
For small business or self-employed
Spousal IRA
Rollover IRA
Education IRA

16. Living on Retirement Income
Make sure to research all programs or benefits that you might qualify for
Take advantage of special dicounts

17. Wills Simple Will Trust Will Halographic 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

18. Intestate 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

19. Power 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

20. Federal 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

21. Trusts
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

22. State 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

23. Federal 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

24. Federal/State Income Taxes
Taxes must be paid on the income of the decedent for the partial year they were living
Taxes must be paid before the estate is distributed to heirs