CHAPTER 15 RETIREMENT ESTATE PLANNING CHAPTER 15 RETIREMENT

CHAPTER 15 RETIREMENT & ESTATE PLANNING

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • I. RETIREMENT PLANNING • A. PLANNING FOR RETIREMENT • 1. MISCONCEPTIONS ABOUT RETIREMENT • A. YOU HAVE PLENTY OF TIME TO START SAVING FOR RETIREMENT • B. SAVING A SMALL AMOUNT OF MONEY WON’T HELP • C. YOU WILL SPEND LESS MONEY IN RETIREMENT • D. YOU CAN DEPEND ON SOCIAL SECURITY AND A PENSION TO PAY YOUR BASIC LIVING EXPENSES • E. YOUR PENSION BENEFITS WILL KEEP PACE WITH INFLATION • F YOUR EMPLOYER’S HEALTH INSURANCE PLAN AND MEDICARE WILL COVER ALL YOUR EXPENSES

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • 2. TRUTH • A. STARTING EARLY IS HUGE, YOUR GREATEST ASSET TO BUILDING WEALTH IS TIME • A 5 YEAR DELAY CAN CUT YOUR RETIREMENT AMOUNT IN ½!!! • B. AT AN 11% ANNUAL RATE OF RETURN – TO SAVE $1, 000 BY AGE 70 • $127 A MONTH – STARTING AT AGE 25 • $2, 244 A MONTH – STARTING AT AGE 50 • C. THE AVERAGE PERSON SPENDS 110% OF THEIR PRE-RETIREMENT EXPENSES IN RETIREMENT • D. SOCIAL SECURITY WILL COVER ABOUT 1/6 TH TO 1/5 TH OF YOUR EXPENSES • A PENSION MIGHT COVER 40 -50% - IF YOU EVEN HAVE ONE!!!! • E. PENSIONS ARE SOMETIMES FIXED, OR HAVE SMALL INFLATION ANNUAL INCREASES • COULD LOSE ½ OF YOUR PURCHASING POWER IN 20 -25 YEARS (AT 3% INFLATION) • F. MOST EMPLOYERS NO LONGER PAY FOR RETIREE HEALTHCARE BENEFITS • MEDICARE DOES NOT COVER EVERYTHING

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • 3. SETTING LONG RANGE GOALS • WHAT DO YOU SEE YOURSELF DOING IN RETIREMENT? • ACTIVITIES/TRAVELING/ETC • YOUR PROJECT WILL HELP YOU LOOK AT THIS! • WHAT WILL IT TAKE FOR YOU TO REACH THESE GOALS? • HOW MUCH DO YOU NEED TO SAVE? • WHEN DO YOU WANT TO RETIRE? • WHAT LIFESTYLE WOULD YOU LIKE? • DO YOU STILL WANT TO WORK? • 4. CONDUCT A FINANCIAL ANALYSIS • WHAT ARE YOUR ASSETS AND LIABILITIES? • WHAT PLAN DO YOU HAVE TO INCREASE YOUR ASSETS, WHILE REDUCING YOUR LIABILITIES? • WHAT BENEFITS WILL YOU GET IN RETIREMENT? (MEDICARE/LIFE INSURANCE/PENSION/401(K)) • ARE YOUR INVESTMENTS ON THE RIGHT TRACK? ARE YOU TOO RISKY? TOO SAFE?

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • 5. REVIEW YOUR ASSETS • HOME – DON’T OVERPAY FOR A HOME, SO YOU CAN AFFORD TO SAVE FOR RETIREMENT • DOWN-SIZING IN RETIREMENT CAN HELP REDUCE PAYMENT • EVEN BETTER – NO PAYMENT!!! • LIFE INSURANCE? • OTHER INVESTMENTS? • B. RETIREMENT LIVING EXPENSES • WHAT DO PEOPLE SPEND THEIR MONEY ON IN RETIREMENT (ON AVERAGE)? • HOUSING – 32. 5% • TRANSPORTATION – 16. 3% • FOOD – 15. 4% • MEDICAL CARE – 11. 3% • CLOTHING – 6. 2% • WHICH OF THESE DO YOU HAVE THE MOST CONTROL OVER? WHICH COULD YOU GIVE UP?

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • C. RETIREMENT HOUSING • YOUR CHOICE OF HOUSING IS USUALLY YOUR GREATEST EXPENSE • BE CAREFUL WHEN CHOOSING • 1. YOU COULD BE AWAY FROM FAMILY • 2. YOUR HOUSING COULD BE UNAFFORDABLE IN THE LONG RUN • 3. COULD BE STUCK IN A HOME WHEN YOUR WANTS/NEEDS/DESIRES CHANGE • 4. COULD BE IN A HIGH-TAX LOCATION, REDUCING HOW MUCH YOU LEAVE TO YOUR HEIRS • DEPENDING ON YOUR NEEDS YOU COULD • LIVE IN A TRADITIONAL HOUSE/APARTMENT/WHATEVER • AN ASSISTED LIVING FACILITY • PROVIDES PERSONAL & MEDICAL SERVICES ON-SITE • USUALLY USED WHEN SOMEBODY CAN NO LONGER TAKE CARE OF THEMSELVES ON THEIR OWN • CAN RANGE FROM MINIMAL SERVICES TO FULL-SERVICE • CAN BE VERY EXPENSIVE!

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • II. PLANNING RETIREMENT INCOME • A. PUBLIC PENSION PLANS • 1. SOCIAL SECURITY • COVERS 97% OF ALL WORKERS • NOT DESIGNED TO COVER ALL OF YOUR EXPENSES – NEVER WAS • CURRENTLY THE SYSTEM CAN ONLY SUSTAIN PAYING ABOUT 80% OF BENEFITS • WHO IS ELIGIBLE? • MUST WORK 40 “QUARTERS” TO QUALIFY • MUST BE OLDER THAN 62 YEARS OLD, OR PERMANENTLY DISABLED AND UNABLE TO WORK • DEPENDENT ELIGIBILITY • SPOUSE 62 OR OLDER • CHILDREN UNDER 18 YEARS OLD • UNMARRIED DISABLED DEPENDENTS • WIDOWS AND WIDOWERS UNDER 62 YEARS OLD

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • WHEN DO YOU COLLECT? • AGE 62 IS THE MINIMUM • FULL RETIREMENT IS AT 67 YEARS OLD • MUST START TAKING BY 70 YEARS OLD • YOUR BENEFITS WILL INCREASE BY ABOUT 7% YEARLY, FOR EACH YEAR YOU WAIT AFTER 62 (UP TO 70) • 2. OTHER PUBLIC PLANS • SOME GOVERNMENT EMPLOYEES HAVE A SPECIAL PENSION/RETIREMENT PLAN • ANY MEMBER OF THE MILITARY HAS THEIR VETERANS AND/OR SURVIVORS PENSION PLANS

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • B. PRIVATE (EMPLOYER) PENSION PLANS • 1. DEFINED-CONTRIBUTION PLANS • EMPLOYER OR EMPLOYEE CONTRIBUTES AN AMOUNT TO THE PLAN • THERE IS NO DEFINED PAYOUT – DEPENDS ON THE VALUE OF THE ACCOUNT • TYPES • MONEY PURCHASE PLAN – EMPLOYER SETS ASIDE A SPECIFIC AMOUNT • STOCK BONUS PLAN – MONEY IS USED TO BUY COMPANY STOCK AND HELD FOR YOU • PROFIT-SHARING PLAN – CONTRIBUTION DEPENDS ON COMPANY’S PROFITS • 401(K)/403(B) – SALARY REDUCTION PLAN – EMPLOYEE VOLUNTARILY PUTS IN MONEY, MAY BE MATCHED BY THE EMPLOYER • VESTING • THE TIME IT TAKES FOR EMPLOYER CONTRIBUTIONS TO BE FULLY YOURS AS THE EMPLOYEE

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • 2. DEFINED BENEFIT PLAN • SPECIFIES WHAT AN EMPLOYEE WILL RECEIVE UPON RETIREMENT • CAN BE BASED ON ANY NUMBER OF METRICS – SALARY, POSITION, YEARS OF SERVICE • FOR EXAMPLE – CURRENT TEACHER PENSION • TAKE A TEACHERS YEARS OF SERVICE X AVERAGE SALARY FOR 3 YEARS X 1. 5% = PENSION AMOUNT PER YEAR • C. PERSONAL RETIREMENT PLANS • 1. INDIVIDUAL RETIREMENT ACCOUNT (IRA) • REGULAR IRA – CAN CONTRIBUTE UP TO $5, 500 A YEAR, TAX DEFERRED (DEPENDING ON INCOME) • ROTH IRA – CAN CONTRIBUTE UP TO $5, 500 A YEAR, IN AFTER TAX DOLLARS, WILL GROW TAX FREE • CAN CONTINUE TO CONTRIBUTE AFTER 70. 5 YEARS OF AGE • SEP-IRA – DEFINED CONTRIBUTION PLAN DESIGNED FOR BUSINESS OWNERS AND SELFEMPLOYED • SPOUSAL IRA – CAN MAKE CONTRIBUTIONS ON BEHALF OF A NON-WAGE EARNING SPOUSE

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • ROLLOVER IRA – MOVING MONEY FROM ONE IRA TO ANOTHER (AVOIDS TAX PENALTIES) • EDUCATION IRA – IRA TO BE USED FOR EDUCATIONAL EXPENSES (529 PLAN) • WHEN YOU WITHDRAW MONEY, YOU PAY TAXES ON IT (OTHER THAN ROTH ACCOUNTS), SO HOW YOU WITHDRAW MATTERS • 2. LIMITS ON RETIREMENT PLANS • MOST REQUIRE YOU TO TAKE “MINIMUM LIFETIME DISTRIBUTIONS” BY 70 YEARS OF AGE • CAN WITHDRAW WITHOUT PENALTY STARTING AT 59. 5 YEARS OF AGE • 3. ANNUITIES • A CONTRACT (WITH AN INSURANCE COMPANY) TO PAY A SET OR VARIABLE AMOUNT OF MONEY TO THE PURCHASER • CAN BUY IN LUMP SUM OR IN PAYMENTS

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • ROLLOVER IRA – MOVING MONEY FROM ONE IRA TO ANOTHER (AVOIDS TAX PENALTIES) • EDUCATION IRA – IRA TO BE USED FOR EDUCATIONAL EXPENSES (529 PLAN) • WHEN YOU WITHDRAW MONEY, YOU PAY TAXES ON IT (OTHER THAN ROTH ACCOUNTS), SO HOW YOU WITHDRAW MATTERS • 2. LIMITS ON RETIREMENT PLANS • MOST REQUIRE YOU TO TAKE “MINIMUM LIFETIME DISTRIBUTIONS” BY 70 YEARS OF AGE • CAN WITHDRAW WITHOUT PENALTY STARTING AT 59. 5 YEARS OF AGE • 3. ANNUITIES • A CONTRACT (WITH AN INSURANCE COMPANY) TO PAY A SET OR VARIABLE AMOUNT OF MONEY TO THE PURCHASER • CAN BUY IN LUMP SUM OR IN PAYMENTS

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • TYPES • IMMEDIATE – PROVIDE INCOME PAYMENTS AT ONCE • USUALLY A LUMP SUM PURCHASE • DEFERRED ANNUITY – BUY NOW – RECEIVE BENEFITS LATER • MIGHT BE A GREAT OPTION IF YOU RECEIVE A WINDFALL EARLY IN LIFE • ANNUITY COST IS BASED ON INSURANCE ACTUARY TABLES • MALES WILL GET MORE THAN FEMALES FOR THE SAME AMOUNT (THE LIVE LESS TIME) • A COUPLE WILL RECEIVE THE LEAST (ODDS ARE ONE WILL LIVE LONGER) • D. LIVING ON RETIREMENT INCOME • GET THE MOST OUT OF YOUR MONEY • GET EVERYTHING THAT IS ENTITLED TO YOU – KEEP TRACK OF IT ALL • WORK DURING RETIREMENT • USE YOUR NEST EGG – IT’S NICE TO LEAVE SOMETHING TO YOUR HEIRS, BUT YOU WORKED HARD FOR THE MONEY, USE IT!!!

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • III. ESTATE PLANNING AND TAXES • A. ESTATE PLANNING • WHAT IS ESTATE PLANNING? • THE PROCESS OF CREATING A DETAILED PLAN FOR MANAGING YOUR PERSONAL ASSETS • YOUR ESTATE IS ALL OF YOUR PROPERTY AND ASSETS THAT YOU OWN • THERE ARE TWO STAGES TO ESTATE PLANNING • BUILDING WEALTH THROUGH SAVINGS, INVESTING, AND INSURANCE • MAKING SURE THAT YOUR ESTATE WILL BE DISTRIBUTED ACCORDING TO YOUR WISHES UPON YOUR DEATH • SHOULD TAKE INTO ACCOUNT THE NEEDS OF YOUR SPOUSE AND CHILDREN, IF YOU HAVE THEM • PEOPLE WHO RECEIVE MONEY ARE CALLED BENEFICIARIES • A WELL PLANNED ESTATE CAN HELP ALLEVIATE THE STRESS THAT YOUR SURVIVORS MAY BE FEELING IN TAKING CARE OF THINGS AFTER YOU DIE

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • B. LEGAL DOCUMENTS • WHAT HELPS MAKE YOUR ESTATE EASIER TO MANAGE • BIRTH CERTIFICATES FOR THE ENTIRE FAMILY • MARRIAGE AND DIVORCE PAPERS • LEGAL NAME CHANGES • MILITARY/VETERAN’S DOCUMENTATION • SOCIAL SECURITY DOCUMENT • INSURANCE POLICIES • BANK ACCOUNT INFORMATION • SAFE DEPOSIT BOX INFORMATION • AUTOMOTIVE/HOME/RV TITLES/REGISTRATIONS • STOCK/BOND CERTIFICATES • PASSWORDS TO ONLINE ACCOUNTS

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • WILLS • A LEGAL DECLARATION OF A PERSON’S WISHES UPON THEIR DEATH • IF YOU DIE WITHOUT AN ACTIVE WILL, YOU ARE SAID TO DIE INTESTATE, THEN IT’S UP TO THE COURT TO DECIDE • TO CRAFT A WILL, CONTACT A LAWYER, WILL COST BETWEEN $100 -$500 (DEPENDING ON COMPLEXITY) • TYPES OF WILLS • SIMPLE WILL – EVERYTHING TO SPOUSE • TRADITIONAL MARITAL-SHARE WILL – ½ TO SURVIVING SPOUSE – ½ TO CHILDREN (IF OLD ENOUGH) • EXEMPTION WILL TRUST - % GOES TO SPOUSE – REST TO A TRUST, THAT CAN GROW TAX FREE • USED FOR ULTRA-WEALTHY TO AVOID INHERITANCE TAX • STATED DOLLAR AMOUNT – SPECIFIC AMOUNTS TO SPECIFIC PEOPLE • PROBATE • THE PROCESS OF DETERMINING THE LEGALITY OF A WILL • WANT TO AVOID IF POSSIBLE – LENGTHY AND EXPENSIVE (MAY HAVE NOTHING LEFT)

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • FORMAT OF WILLS • HOLOGRAPHIC – HAND WRITTEN (NOT LEGAL EVERYWHERE) • FORMAL – FILLED OUT WITH AN ATTORNEY AND WITNESS (BEST!) • STATUTORY – PRE-PRINTED FORM – RULES CAN CHANGE, BE CAREFUL! • WRITING YOUR WILL • WORK WITH SPOUSE AND FAMILY • WITNESS SHOULD NOT BE A BENEFICIARY • KEEP IT SAFE • TO ALTER SLIGHTLY – ADD A CODICIL • SELECT AND EXECUTOR, WHO IS A PERSON WHO WILL CARRY OUT THE WILL – TRUST THIS PERSON! • SELECT A GUARDIAN IF YOU HAVE YOUNG CHILDREN • SOMEBODY WHO HAS SHARED BELIEFS ON HOW TO RAISE CHILDREN – DISCUSS WITH THEM!

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • LIVING WILL • LEGAL DOCUMENT STATING IF YOU WANT TO REMAIN ALIVE BY ARTIFICIAL MEANS • USED IF YOU ARE UNABLE TO MAKE THE DECISION FOR YOURSELF • POWER OF ATTORNEY • ALLOWS SOMEBODY TO ACT UPON YOUR BEHALF IF YOU BECOME INJURED, ILL, OR DISABLED • LETTER OF LAST INSTRUCTION • PROVIDES GUIDANCE FOR FUNERAL ARRANGEMENTS, WHERE DOCUMENTS ARE KEPT, PASSWORDS, ACCOUNT INFORMATION, ETC • NOT LEGALLY BINDING

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • C. TRUSTS • WHY? • REDUCE OR PROVIDE PAYMENT OF TAXES • AVOID PROBATE • FREE YOURSELF FROM MANAGING YOUR ESTATE IN RETIREMENT, WHILE STILL RECEIVING INCOME • PROVIDE INCOME FOR A SPOUSE OR CHILDREN • TYPES • REVOCABLE – YOU CAN END OR CHANGE TERMS AT ANY TIME • IRREVOCABLE – CANNOT BE CHANGED OR ENDED • CREDIT-SHELTER – ALLOWS FOR THE AVOIDANCE OF TAXES UPON DEATH (WITH SPOUSE) NOT NEEDED IF SINGLE • DISCLAIMER TRUST – ALLOWS SPOUSE TO DENY SOME PAYMENT TO AVOID TAXES • LIVING TRUST – TRANSFER SOME ASSETS TO A TRUSTEE • PRIVATE – A WILL IS PUBLIC, TRUSTS ARE PRIVATE • TESTAMENTARY TRUST – BECOMES EFFECTIVE UPON YOUR DEATH

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • D. YOUR ESTATE • JOINT OWNERSHIP • JOINT TENANTS WITH SURVIVORSHIP • PASSES DIRECTLY TO SPOUSE – NO ESTATE TAX • TENANTS IN COMMON • EACH OWNS A SHARE INCLUDED IN ESTATE – DOES NOT GO DIRECTLY TO SPOUSE • TENANCY BY THE ENTIRETY • BOTH OWN, OTHER GETS AUTOMATICALLY UPON DEATH • NEITHER CAN SELL WITHOUT THE OTHER’S CONSENT

CHAPTER 15 – RETIREMENT & ESTATE PLANNING • E. TAXES • ESTATE TAXES – FEDERAL • $11, 180, 000 IN 2018 (DOUBLE FOR A COUPLE) • INHERITANCE TAXES – STATE • VARIES FROM STATE TO STATE • GIFT TAXES • $13, 000 A YEAR PER INDIVIDUAL • COUNTS AGAINST YOUR $11 MILLION EXEMPTION • GIFTS FOR EDUCATION ARE EXEMPT • HOW ARE THEY PAID? • ESTATE PLANNING, LIFE INSURANCE, RETIREMENT ACCOUNT, SELLING ASSETS