Business and Personal Finance Unit 4 Chapter 15

Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 0

Section 15. 1 Retirement Planning for Retirement It is never too early to start planning for retirement. Some of the many myths about retirement are: § Saving a small amount of money will not help. § You will spend less money when you retire. § You can depend on Social Security and a company pension plan to pay your basic living expenses. § Your employer’s health insurance plan and Medicare will cover all your medical expenses. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 1

Section 15. 1 Retirement Planning Setting Long-Range Goals As you think about your retirement years, consider your long-range goals. Ask yourself: § Where do you want to live after you retire? § What type of lifestyle would you like to have? Then analyze your current financial situation to determine what you need to do to reach your long-range goals. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 2

Section 15. 1 Retirement Planning Conducting a Financial Analysis To conduct a financial analysis, you will need to analyze your: § Assets § Liabilities If you subtract your liabilities from your assets, you get your net worth. Ideally, your net worth should increase each year. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 3

Section 15. 1 Retirement Planning Reviewing Assets Review your assets on a regular basis. To stay on track with your goal, you may need to make adjustments in your: § Saving § Spending § Investments As you review your assets, you will also need to consider the following factors: § Housing § Life insurance Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 4

Section 15. 1 Retirement Planning Retirement Living Expenses When planning for retirement, estimate how much money you will need to live comfortably during your retirement years. During your retirement years, you may spend more money on: § Recreation § Health insurance § Medical care Remember to take inflation into account. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 5

Section 15. 1 Retirement Planning Retirement Housing The place where you live can have a significant impact on your financial needs. In the years before retirement, use vacations to explore areas and cities where you might want to settle. Meet people who live in the area and learn about: § Activities § Transportation § Taxes Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 6

Section 15. 1 Retirement Planning Retirement Relocation Pitfalls Consider the downsides of moving to a new location. These might include: § Getting stuck in a place you do not really like § Missing your children, grandchildren, friends, and relatives left behind § Making a financial mistake in moving Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 7

Section 15. 1 Retirement Planning Researching Locations Here are some tips from specialists on how to research taxes and other costs before moving to a new area: § Contact the local chamber of commerce for details on area property taxes and the local economy. § Contact the state tax department to research income, sales, inheritance taxes, and exemptions for retirees. § Read the Sunday edition of the local newspaper of the town or city you are considering. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 8

Section 15. 1 Retirement Planning assisted-living facility (ALF) a residence complex that provides personal and medical services for the elderly Types of Housing Even if you do not move to a new location, housing needs may change during retirement. Many retirees want a home that is: § Easy and inexpensive to maintain § Close to public transportation, stores, and recreation areas Many elderly people move into assisted-living facilities during their retirement years. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 9

Section 15. 2 Planning Retirement Income Main Idea Besides Social Security, what other retirement plans might be available? Various types of retirement plans are suited to different financial situations and personal needs. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 10 13

Section 15. 2 Planning Retirement Income 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 11

Section 15. 2 Planning Retirement Income 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 Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 12

Section 15. 2 Planning Retirement Income 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 13

Section 15. 2 Planning Retirement Income 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 Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 14

Section 15. 2 Planning Retirement Income definedcontribution 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 Defined-Contribution Plan 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 § 403(b) plans Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 15

Section 15. 2 Planning Retirement Income vesting the right of an employee to keep the company’s contributions from companysponsored plans, even if the employee no longer works for that employer Vesting 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 16

Section 15. 2 Planning Retirement Income 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 Defined-Benefit Plan 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 17

Section 15. 2 Planning Retirement Income Moving to Another Plan Some pension plans allow “portability, ” which means that you can carry earned benefits from one pension plan to another when you change jobs. Workers are also protected by the Employee Retirement Income Security Act of 1974 (ERISA), which sets minimum standards for pension plans. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 18

Section 15. 2 Planning Retirement Income 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 19

Section 15. 2 Planning Retirement Income individual retirement account (IRA) a special account in which a person saves a portion of income for retirement 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 taxdeferred earnings growth. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 20

Section 15. 2 Planning Retirement Income 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 Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 21

Section 15. 2 Planning Retirement Income Keogh plan a retirement plan specially designed for self-employed people and their employees 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 22

Section 15. 2 Planning Retirement Income Limits on Retirement Plans When you retire, you must begin to receive “minimum lifetime distributions, ” withdrawals from the funds you have accumulated through your plan. The amount of the distributions is based on your life expectancy at the time the distributions begin. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 23

Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 24

Section 15. 2 Planning Retirement Income 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 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 25

GOLDEN TIME With continuing revisions in the Social Security system, many people are thinking ahead and making arrangements for supplemental income in their golden years. What advantage does an annuity offer? Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 26

Section 15. 2 Planning Retirement Income Types of Annuities may be either: § Immediate § Deferred The rate of return on an annuity is usually tied to overall interest rates. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 27

Section 15. 2 Planning Retirement Income 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 28

Time to Save Saving money in a savings or retirement account is the simplest way to build assets for retirement. Starting to save while you are young may even allow early retirement. However, if you have 30 or 40 years until retirement, every year without saving can subtract from one to five years off retirement. At what age will you want to retire? Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 29 32

Section 15. 2 Planning Retirement Income 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 30

Section 15. 2 Planning Retirement Income 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 31

Section 15. 2 Planning Retirement Income heirs the people who will have the legal right to your assets when you die 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. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 32

Section 15. 3 Estate Planning and Taxes Main Idea What is your definition of a will? Different types of wills and trusts protect your financial interests and those of your family. Applying strategies for paying estate taxes can help limit expenses for your heirs. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 33 36

Section 15. 3 Estate Planning and Taxes estate all property and assets owned by an individual or group The Importance of Estate Planning During your working years, your financial goal is to build your estate by acquiring and accumulating money for your current and future needs. As you grow older, you will start to think about what will happen to your hard-earned wealth after you die. That is when estate planning becomes important. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 34

Section 15. 3 Estate Planning and Taxes estate planning the process of creating a detailed plan for managing personal assets to make the most of them while you are alive and to ensure that they are distributed wisely after your death beneficiary (estate) a person who is named to receive a portion of someone’s estate What Is Estate Planning? Estate planning is an essential part of retirement planning and financial planning. Its two stages are: § Building your estate through savings, investments, and insurance § Making sure that your estate will be distributed as you wish at the time of your death Your beneficiary (estate) is a person you name to receive all or part of your estate. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 35

Section 15. 3 Estate Planning and Taxes will a legal declaration of a person’s wishes regarding disposal of his or her estate after death Legal Documents An estate plan involves various legal documents, such as a will, which your heirs will need to receive the money and other assets to which they are entitled. You should collect and organize various important papers, including: § Birth certificates for you, your spouse, and your children § Marriage certificates and divorce papers § Social Security documents § Safe-deposit box records § Automobile registrations Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 36

Section 15. 3 Estate Planning and Taxes intestate the status of not having a valid will Wills One of the most important documents that every adult should have is a written will. If you die intestate, your legal state of residence will control the distribution of your estate without regard for your wishes. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 37

Section 15. 3 Estate Planning and Taxes trust an arrangement in which a designated person known as a trustee manages assets for the benefit of someone else Types of Wills The four basic types of wills are the: § Simple will § Traditional marital share will § Exemption trust will § Stated dollar amount will All types of wills usually designate a beneficiary. An estate can also be held in trust for a family. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 38

Section 15. 3 Estate Planning and Taxes probate the legal procedure of proving that a will is valid or invalid Wills and Probate The type of will that is best for your particular needs depends on many factors, including: § The size of your estate § Inflation § Your age § Your objectives No matter what type of will you choose, it is best to avoid probate. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 39

Section 15. 3 Estate Planning and Taxes Formats of Wills may be either: § Holographic (handwritten) § Formal A statutory will is prepared on a preprinted form, which is available from: § Lawyers § Office-supply stores § Some stationery stores Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 40

Section 15. 3 Estate Planning and Taxes executor a person who is willing and able to perform the tasks involved in carrying out a will Writing Your Will Some guidelines for writing a will include: § Work closely with your spouse or partner to prepare your will. § Write your will to conform to your current wishes. § Do not choose a beneficiary as a witness. § Consider using percentages instead of dollar amounts. § Select an executor who is willing to do the needed tasks. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 41

Section 15. 3 Estate Planning and Taxes guardian the person who accepts the responsibility of caring for the children of the deceased and managing an estate for the children until they reach a certain age Selecting a Guardian If you have children, your will should name a guardian to care for them in the event that: § You and your spouse die at the same time. § The children cannot care for themselves. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 42

Section 15. 3 Estate Planning and Taxes codicil a document that explains, adds, or deletes provisions in an existing will Altering or Rewriting Your Will Some reasons to review and change your will are: § You have moved to a new state that has different laws. § You have sold property that is mentioned in the will. § You have married, divorced, or remarried. § Potential heirs have died or new ones have been born. If you want to make only a few minor changes, adding a codicil may be the best choice. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 43

Section 15. 3 Estate Planning and Taxes living will a legal document in which you state if you want to be kept alive by artificial means if you become terminally ill and are unable to make such a decision A Living Will At some point in your life, you may become physically or mentally disabled and unable to act on your own behalf. If that happens, a living will can help ensure that you will be cared for according to your wishes. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 44

Section 15. 3 Estate Planning and Taxes power of attorney a legal document that authorizes someone to act on your behalf Power of Attorney If you become seriously ill or injured, you will probably need someone to take care of your: § Needs § Personal affairs This can be done through a power of attorney. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 45

Section 15. 3 Estate Planning and Taxes Letter of Last Instruction A letter of last instruction is legally binding and allows you to: § Express preferences for funeral arrangements § Include names of the people who are to be informed of the death § Let people know the locations of your bank accounts, safe-deposit box, and other important items Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 46

Section 15. 3 Estate Planning and Taxes Trusts Some of the common reasons for setting up a trust are to: § Reduce or provide for payment of estate taxes § Avoid probate and transfer your assets immediately to your beneficiaries § Free yourself from managing your assets while you receive a regular income from the trust § Ensure that your property serves a desired purpose after your death Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 47

Section 15. 3 Estate Planning and Taxes Types of Trusts There are many types of trusts, including: § Credit-shelter trusts § Disclaimer trusts § Living trusts § Testamentary trusts An estate attorney can advise you about the right type of trust for your needs. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 48

Section 15. 3 Estate Planning and Taxes Your Estate An important step in estate planning is taking inventory of your assets. Do not forget to include: § Jointly owned property § Life insurance policies § Employee retirement benefits § Money owed to you by others § All of your personal possessions Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 49

Section 15. 3 Estate Planning and Taxes Joint Ownership There are three types of joint ownership, each of which has different tax and estate planning consequences. These types allow: § Spouses to own property as “joint tenants with the right of survivorship” § Spouses to own property as “tenants in common” § Married couples to own property under the form of “tenancy by the entirety” Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 50

Section 15. 3 Estate Planning and Taxes Life Insurance and Employee Benefits If you have life insurance, the benefits of that insurance will be counted among the assets in your estate. Death benefits from qualified employer pension plans or Keogh plans are usually excluded from an estate. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 51

Section 15. 3 Estate Planning and Taxes Lifetime Gifts and Trusts You may give part of your estate as a gift or set up a trust for your spouse or child. If you keep any control or use of the gift or trust, it: § Remains part of your estate § Is subject to taxes Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 52

Section 15. 3 Estate Planning and Taxes and Estate Planning Federal and state governments impose various types of taxes that you must consider in estate planning. The four major types of taxes are: § Estate taxes § Estate and trust federal income taxes § Inheritance taxes § Gift taxes Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 53

Section 15. 3 Estate Planning and Taxes Estate Taxes An estate tax is a federal tax collected on the value of a person’s property at the time of his or her death. The tax is based on the fair market value of the deceased person’s assets, such as: § Investments § Property § Bank accounts Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 54

Section 15. 3 Estate Planning and Taxes Estate and Trust Federal Income Taxes In addition to the federal income tax return, owners of estates and certain trusts must file federal income tax returns with the IRS. Taxable income for estates and trusts is figured in the same manner as taxable income for individuals. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 55

Section 15. 3 Estate Planning and Taxes Inheritance Taxes Your heirs might have to pay a tax for the right to acquire the property that they have inherited. Only state governments impose inheritance taxes. State laws differ regarding: § Exemption § Rates of taxation Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 56

Section 15. 3 Estate Planning and Taxes Gift Taxes One way to reduce the tax liability of your estate is to reduce the size of the estate while you are alive by giving away portions of it as gifts. Both the federal and state governments impose a gift tax, a tax collected on money or property valued at more than $11, 000 given by one person to another in a single year. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 57

Section 15. 3 Estate Planning and Taxes Paying the Tax Finding enough cash to pay taxes, debts, and other costs without causing financial hardship can be very difficult. You can handle this problem by: § Obtaining life insurance § Saving enough cash ahead of time to pay taxes and expenses when they are due Your heirs might be able to: § Sell assets to pay taxes § Borrow money Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 58

Section 15. 3 Estate Planning and Taxes Planning for the Future Estate planning is essential to: § Ensure that your assets are distributed in the way you choose § Make sure that your loved ones are not left with difficult or costly problems Planning and saving for your own retirement will help ensure that your needs are met in your later years. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 59

Chapter 15 Retirement and Estate Planning Key Term Review § § § assisted-living facility (ALF) defined-contribution plan 401(k) plan vesting defined-benefit plan individual retirement account (IRA) Keogh plan annuity (insurance) heirs estate planning § § § § § beneficiary (estate) will intestate trust probate executor guardian codicil living will power of attorney Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 60

Chapter 15 Retirement and Estate Planning Reviewing Key Concepts 1. Identify three ways expenses decrease at retirement. When you retire, you may spend less money on: § Transportation § Clothing § Federal income taxes Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 61

Chapter 15 Retirement and Estate Planning Reviewing Key Concepts 2. Describe alternative living and housing arrangements for retirement. Many retirees want a home that is easy and inexpensive to maintain, such as: § A smaller house § A condominium § An apartment Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 62

Chapter 15 Retirement and Estate Planning Reviewing Key Concepts 3. Identify two reasons Social Security should not be a primary source of retirement funds. Social Security was not designed to provide 100 percent of retirement income. In addition, current and future revisions to the program may Reduce retirement benefits in years to come. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 63

Chapter 15 Retirement and Estate Planning Reviewing Key Concepts 4. Define employer-sponsored defined-contribution plans and defined-benefit plans. A defined-contribution plan is an individual retirement account for each employee. A defined-benefit plan is a retirement plan that specifies the benefits an employee will receive at retirement age, based on total earnings and years on the job. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 64

Chapter 15 Retirement and Estate Planning Reviewing Key Concepts 5. Explain the advantages of the Roth IRA over a regular IRA. Unlike a regular IRA, a Roth IRA allows you to continue to make annual contributions to your IRA even after age 70½. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 65

Chapter 15 Retirement and Estate Planning Reviewing Key Concepts 6. Explain why creating a living will is an important part of estate planning. At some point in your life, you may become physically or mentally disabled and unable to act on your own behalf. If that happens, a living will can help ensure that you will be cared for according to your wishes. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 66

Chapter 15 Retirement and Estate Planning Reviewing Key Concepts 7. Describe the major advantages of trusts. Some of the common reasons for setting up a trust are to: § Reduce or provide for payment of estate taxes § Avoid probate and transfer your assets immediately to your beneficiaries § Free yourself from managing your assets while you receive a regular income from the trust § Ensure that your property serves a desired purpose after your death Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 67

Chapter 15 Retirement and Estate Planning Reviewing Key Concepts 8. Explain what it means to be an executor of an estate. An executor is a person who is willing and able to perform the tasks involved in carrying out a will. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 68

Chapter 15 Retirement and Estate Planning Reviewing Key Concepts 9. List some estate planning methods to reduce inheritance taxes. One way to reduce the tax liability of your estate is to reduce the size of the estate while you are alive by giving away portions of it as gifts. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 69

Newsclip: Higher Rates Social Security reform has been highly debated in the news for years. Many politicians aim to change the system. Log On Go to finance 07. glencoe. com and open Chapter 15. Learn more about retirement saving options. Write a list of ways to help save seniors from financial hardships. Also write a list of ways to help younger people prepare for retirement. Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/Mc. Graw-Hill 70