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Retirement and Retirement and Estate Planning Estate Planning Chapter 15 Chapter 15 Financial Planning Financial Planning

Retirement and Estate Planning Chapter 15 Financial Planning

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Retirement and Estate Retirement and Estate PlanningPlanning

Chapter 15Chapter 15

Financial PlanningFinancial Planning

Retirement PlanningRetirement Planning

Section 15.1Section 15.1

Retirement MythsRetirement 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

Conducting a Financial AnalysisConducting a Financial Analysis

• Assets– Cash, property, personal possessions,

investments

• Liabilities– Debts you owe

• Net worth– Ideally it should grow each year

Reviewing AssetsReviewing Assets• Housing

– 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

Retirement Living ExpensesRetirement 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

Inflation Over TimeInflation Over Time4% inflation increase4% inflation increase

Retirement Relocation PitfallsRetirement 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

Types of HousingTypes 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

Planning Retirement Planning Retirement IncomeIncomeSection 15.2Section 15.2

Social SecuritySocial Security

• Public pension plan

• Package of protection that provides benefits to retirees, survivors, and disabled workers

• Not designed to provide 100% of retirement income

Social SecuritySocial 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

Social SecuritySocial Security

• Dependent Eligibility– 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

Employer Pension PlansEmployer Pension Plans

• Defined Contribution Plan– Money-purchase plans– Stock bonus plans– Profit sharing plans– 401(k) plans– 403(b) plans– Vesting

Personal Retirement PlansPersonal Retirement Plans

• Regular IRA

• Roth IRA

• Simplified Employee Pension Plan– For small business or self-employed

• Spousal IRA

• Rollover IRA

• Education IRA

Living on Retirement IncomeLiving on Retirement Income

• Make sure to research all programs or benefits that you might qualify for

• Take advantage of special dicounts

WillsWills

• Simple 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

IntestateIntestate

• 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

Power of AttorneyPower 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

Federal Estate TaxesFederal 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

TrustsTrusts• 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

State Inheritance TaxesState 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

Federal Gift TaxesFederal 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

Federal/State Income TaxesFederal/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