Life Cycle
Lifecycle– Predictable – Unpredictable
Relationship between lifecycle and expenses and income
Relationship of life cycle to retirement
1/1-7
Retirement and the Life Cycle
While working– Early-, mid-, late-career
End of formal career/full-time work– Early-, mid-, late-retirement
Transition between stages
1/7-8
Challenges to Retirement Education Initiatives/
Diverse audience at various stages—all at the same time!– Age– Gender– Educational level– Earning power– Culture
1/9-15
Challenges—Generation X
“Always a tomorrow” Postpone current consumption in return for a
secure retirement Strategy: – Develop and use good savings habits– Living beneath one’s income– Treasure of time– Biggest enemy to success: procrastination
1/10-11
Challenges: Mid-Generation
Biggest issue: competing goals
Strategy:– Saving even small amounts– Concretize goals– Acknowledgement of multiple financial demands
• Importance of setting multiple financial goals
1/12-15
Planning for the Unexpected
Unexpected events prior to retirement impact planning for retirement
Caveat: loans from qualified plans
Insurance protects against many of the unexpected events– Elder care– Disability– Natural disaster
1/16-20
Planning for the Unexpected
Financial challenges of divorce– Value of distributed assets– Cash flow/income of parties after a divorce– Issues with defined benefit plan
Use of a QDRO (Qualified Domestic Relations Order)
1/17
Planning for the Unexpected
Termination of employment– Vesting of retirement assets– Disposition of company-sponsored
retirement plans– Insurances
• COBRA• Continuation as a personal policy
1/21-23
Life Cycle Comparison Chart
Compare and contrast across categories and life cycles
Note specific financial tasks at each stage
Identify key challenges at each stage
1/24-37
Retirement—Myth and Fact
Myth of the leisure retirement– Economic life hypothesis– Three phases of the life cycle
Retirement signified by shift of living from earnings to savings
Expanding definition of the retirement– Interdisciplinary– Trans life cycles
2/4-9
Financial Planning/Retirement Planning
Relationship offinancial planning--retirement planning--retirement counseling--
Distinctions among the three
2/10-11
Retirement Readiness
Diverse meanings of “readiness”
Traditional: retirement income adequacy
What is relationship of money
to retirement readiness?
Link to gerontology
2/12
Retirement Readiness = Well-Being
Cross disciplines Strengths-based approach Beyond “survival” to maximizing well-being in
retirement– Geo-financial– Bio-medical– Psycho-social
Best practice approach Why use an approach based on an integrative
model?2/13-18
Career Stage Retirement Readiness
Usefulness of retirement information
Application of knowledge
Difference between “wanting” to retire and being “prepared” to retire involves non-financial criteria
2/19
Worksheets and Checklists
Identify various distinctions among each type– Geographical readiness– Financial readiness– Biological readiness– Medical readiness– Psychological readiness– Social readiness
Complete each worksheet for yourself 2/20-31
Effective Communication
Understand the generational zeitgeist– “Silent generation”
• Born before 1946
– “Baby boomers” • Early – born between 1946-1955• Late – born between 1956-1964
Identify personal style of communication– Yours– Client’s
3/4-5
Zeitgeist of the Generation
Financial help Leisure Housing Duty/obligation Role of leisure Work hard, get ahead
Individualistic Anti-institution Work thru retirement Personal meaning Role of leisure Financial savvy
Silent Generation Baby Boomers
3/5-10
Zeitgeist of the Generation
Disappointment in mythof getting ahead/hard work
Widowhood Label of “aging” Problems associated with
longevity
Institutional mistrust Skepticism of institutions Need to control More savvy about
investments
3/5-10
Silent Generation Baby Boomers
Effective Communication
Generational traits combine with personal traits
Impacts both listening and speaking
3/11-12
Effective Communication
Build trust and receptivity with clients Two-way nature of communication– Understand your own style– Understand the style of the other
Ability to adapt your communication style to the listening style of the other
3/11
Effective Communication
Communication strengths are the flip side of communication weaknesses– Staying “on task” vs. Addressing spontaneous
issues as they arise– Warm, welcoming vs. Responding to a problem
3/12-17
Effective Communication
Assessing the style of the other person and matching your style to their pattern
Determine the pace of the other person– Speak, listen, respond
Be aware of the other person’s priorities– Balance between relationship-oriented and task-
oriented Be willing to adjust your communication style
—not vice versa!
3/17-22
Money Personalities
Various ways of dealing with money—spending, saving, planning
Awareness of the personality types may provide direction for planning and communication
4/3-4
Role of Behavioral Finance
Attempt to understand the investor and financial markets from a psychological perspective– How clients think about their money– How they behave with their money– How to deal with irrational investor behavior
Use of behavioral investor types– Help professionals make rapid, insightful
judgments about clients
4/4-17
Retirement Mindset
Permeates an individual’s life and career and evidenced by the choices made during that life
Retirement stages– Based on proximity to actual date of retirement– Changing priorities– Background vs. Foreground
4/18-19
Communication Paper Trail
Updated and detailed record keeping of client/counselor interactions
Clarify when education-related duties create a fiduciary responsibilities
4/19-20
Communication Paper Trail
Documentation is part of professional self-care– Time; date of interaction– Who was present– Reason for interaction– Topics discussed– Recommendations– Responsibilities for implementation– Exchange of written information
4/20
Safe Harbors
Information that is generallyregarded as NOT creatingfiduciary responsibility – Plan information– General financial and investment information– Asset allocation models– Interactive investment materials
4/20, 22
ERISA 404(c) and You
What must a fiduciary do to be protected by 404(c)?– Exercise prudence in selecting and monitoring
advisors and educators• Same prudence as exercised with any other plan
function• Must act solely on behalf of plan participants and
beneficiaries• Determine whether education, advice, counseling
4/21
ERISA 404(c) and You
Can a fiduciary offer investment advice and still be protected from liability?– 404(c) does not require that investment advice be
provided– Question: How do employees make competent decisions without advice?– Difference between education and advice?– Guidance found in the Department of Labor
Interpretive Bulletin 96-1
4/21
404(c) and Safe Harbors
“Education” not “Advice”
No liability if certain rules are met– Safe harbors protect counselors and employers
and provide scope of “education” activities• General plan information• General financial concepts• Asset allocation information• Interactive investment materials
4/22-23
Nature of “Advice”
Advice is specific to individuals
Telling someone what they should do with their investments
4/23
Ongoing Discussion
Some individual rulings given for companies who provide investments to plans can also provide advice for those investments
Exception rather than the rule
Important to stay current– Older view: Providing education was a liability– Recent view: Not to provide education is a liability
4/23-25
Caveat for Counselors
Counselor/employee relationship different from planner/client– Complete facts may not be available– One-side representation (employee)– Insufficient time to gather adequate information
4/23-25
Regulations Proposed in 2008 for 401(k) Plans and IRAs
Certified unbiased computer model may be used
Information delivered via an adviser compensated on a “level fee” basis with fees disclosed
4/23-25
Budgeting—First Step
Nitty gritty topic and not glamorous
Transform the perception – Means to an end not an end in itself
Way to achieve financial goals– Requires that goals be set
5/1
Tools for Planning
Budget– Plan for cash in/cash out
Personal balance sheet– Where client is presently
Cash flow statement– Where client has been in the past
5/4-8
Balance Sheet—Snapshot in Time
What you own (minus) what you owe
Categories of assets and liabilities
Increase in net worth– When income exceeds expenditures– When value of assets increase
5/5-7
Cash Flow Statement
“Where does the money go?”
Specific to a period of time
Net gain/loss = amount remainingafter expenses are subtractedfrom income
5/8-11
Tools for Planning
Too much spending
Too little saving
State of investments
Amount of income from investments
Provide data for financial ratios5/9-11
Creating a Budget
Personal– Spending categories must fit personal spending
patterns Utilize existing formats Important to categorize “Savings” Understand “opportunity cost” when allocating
spending/saving Good record keeping helps to make good decisions about future spending Use subordinate budgets Is the budget working?
5/11-18
Wise Use of Credit
Encumber future income to pay for current consumption
Annual Percentage Rate (APR) – Most, but not all, fees included in APR
Distinguish between carry-forward balances and convenience purchases
Caveat emptor– Teaser rates– Cash advances
5/19-20
Credit and Your Clients
Basics of planning: Credit and budget
Note APRs being paid by clients
Match source of credit to use of funds
Installment credit manages debt
Asset-to-debt ratio should increase as client approaches retirement
5/20-22
Credit and Your Clients
Look for the danger signals of too much debt– Borrowing from retirement plans– Reducing amounts contributed to
retirement plans Create a debt reduction plan– Pay off highest APR– Pay off smallest debt and move to next highest,
etc. Utilize Consumer Credit Counseling
5/23-25
Risk and Loss
Uncertainty– Not the same as the commonly
understood definition of odds, chance, probability
“If” it will occur and the magnitude of loss
6/1
Insurance and Risk
Speculative risk
Pure risk
Risk management– Identify exposure to risk and potential loss\– Evaluate potential loss that might occur– Decide upon the best way to handle risk/loss– Implement the risk management program
6/3-4
Risk Management
Avoid
Retain
Control
Transfer
Reduce– Through insurance and the law of large numbers
6/4
Focus on Risk Management
Especially relevant for retirement planning– Premature death– Health-related – Unable to work and
earn a living– Property and casualty
6/1
Life Insurance
Protects against financial loss due to death of the insured
Need for insurance greater when savings are low
Private insurance companies and Social Security
Utilize the “Needs Approach” to determine the appropriate amount of life insurance
Cash value vs. Term insurance
6/5-10
Health Care Insurance
Indemnity plan
Managed care plan– Preferred Provider (PPO)– Health Maintenance Organization (HMO) – Variations on HMO
• Point-of-service (POS)
• Individual Practice Association (IPA)
Medical care supplement (Medigap)6/11-12
Government Health Care Insurance
Medicare– Federal program for hospital, surgical, medical
care for individuals over age 65
Medicaid– Federally funded and state/county administered
program to provide health care to the indigent
6/12
General Health Care Provisions
Limit payment for covered expenses– Item – Episode – Time period– Maximum lifetime benefits
Deductibles($)– Co-payment
Coinsurance(%) Pre-existing conditions
6/13
COBRA
Consolidated Omnibus Reconciliation Bill of 1985
Continuation of coverage after loss of employment
Unemployed person pays 102% of premium Usually available for 18 months– Convert to individual plan– Purchase own coverage– Coverage under another employer
6/14
Long Term Care Insurance
Provides reimbursement for care received in nursing home or at home
Key features– Type of care– Per day indemnification benefit– Age when policy is purchased– Benefit period– Waiting period before benefiters begin– Inflation protection
6/14-15
Disability Income
Replace income lost due to illness or accident
Available through Social Security – Eligible workers and dependents– Disability to last 12 full months or until death– 5-month waiting period for benefits– Social Security definition of disability
Available through private insurers Premium related to various factors
6/16-17
Older Americans
Increasingly larger percentage of general population
More prosperous
Healthier
Increasing cost of health care7-1-3
Concerns of the New Agers
Where to live
Maintaining health– Cognitive health– Fall reduction– Wellness programs
Death and dying
7/5-17
Taxes—Even in Retirement
Unique opportunities to plan tax minimization– Withdrawals from qualified plans and IRAs
Important to understand the general rules and process regarding taxation– Taxes due as income accrues– Possibility of quarterly estimates
Progressive tax system8/1-3
Arriving at Taxable Income
Income—taxable and exclusions– Interest earned on sate/local bonds– For some, Social Security benefits– Life insurance proceeds– For some, disability insurance benefits– Capital gain exclusion on the sale of a house if
certain requirements are satisfied
8/4-5
Arriving at Taxable Income
Adjustments to income – “above the line” deductions– Alimony– Qualified moving expenses– 50% of self-employment tax– Portion of health insurance premium paid by self-
employed
Results in Adjusted Gross Income (AGI)
8/5
Arriving at Taxable Income Income tax deductions reduce total amount of taxable
income– Schedule A – Itemized deductions
• Medical• Taxes• Interest• Charitable contributions• Theft/casualty loss/certain business expenses
OR– Standard deduction
• Higher for taxpayers over age 65 and the blind• Standard deduction different for each filing status
– Married/filing jointly– Single– Head of household– Married, filing separately 8/6-7
Arriving at Taxable Income
Personal exemptions– Reduce taxable income by a specific amount
per taxpayer, spouse, dependent– Amount is indexed and subject to annual
changes
8/7
Arriving at Taxable Income
Tax bracket
Declare a filing status
Progressive tax system– As income increases, higher percentage of
income is taxed
8/8-9
Arriving at Taxable Income
Tax credit reduces the actual tax owed– Refundable tax credit
• Earned Income Credit
– Non-refundable credit• Adoption expenses• Child and dependent care expenses to caregivers can
work or attend school• Saver’s Credit
8/10-11
Additional Taxes
Self-employment Excise taxes on early withdrawals from IRAs
and qualified plans– 10% penalty on early withdrawals (plus regular
taxation!) Alternative Minimum Tax (AMT)– Used by taxpayers whose net tax liability is too low
State and local taxes
8/11-13
Reduce Taxes
Reducing taxable income– Participating in company benefit plans– Shift or gift income– Converting ordinary income into capital gains– Timing of taxable events
Direct tax reduction– Child tax credit
• In addition to personal exemption• Not the Child and Dependent Care Credit
– Saver's credit
8/14-17
Tax Planning in Retirement
Taxable defined benefit pension income
Withdrawals from IRAs and qualified plans– Required distributions at age 70 ½
Use of Roth IRAs
Possible taxation of Social Security benefits
8/17
Early Distribution Penalty
Prior to age 59 ½ for qualified plans and IRAs– Special exceptions exist for both types– IRAs
• Purchase of a residence• Higher education expenses
8/18-19
Required Minimum Distributions
Minimum amount be distributed beginning at age 70 ½ All qualified plans, 403(b) and 457 plans
– Must begin by April 1 of the year following the later of• The year the participant turns 70 ½ OR• The year the participant retires
Regular IRA owners must begin no later than April 1 of the year the owner turns age 70 ½
50% excise tax (penalty) imposed on money that should have been withdrawn, if not withdrawn
8/20-22
Purpose of an Estate Plan
Assets distributed to heirs
Reduces/minimizes estate taxes
Streamlines process of estate administration
9/1
Titling of Accounts
Indicates how the asset is owned– Sole ownership– Joint tenants with rights of survivorship (JTWROS)– Joint tenants/tenants in common
Assets may avoid probate– JTWROS– Beneficiary– Trust
9/4-5
Probate
Guided by a will
May minimize length of probate and shorten time to distribute assets
Does not result in reduced estate and gift taxes
9/6-8
Estate Planning Documents
Will– Roadmap through probate
Trusts– Inter vivos trust (living trust)– Testamentary trust (at death)– Revocable vs. Irrevocable– Multiple purposes
• Save time and costs• Control assets• Minimize taxes
9/8-10
Advance Directives
Power of attorney (POA)– Narrow in scope; temporary– Maker must be competent when POA is exercised
Durable power of attorney (DPOA)– Act when the maker is incapacitated
Living will– Used at final illness or when death is imminent
Health care power of attorney– Identify a health care surrogate to make medical decisions
9/10-12
Gifts and Estate Planning
Unified Federal Gift and Estate Tax– After 2002 exemption amounts varied for gifts made during life
and at death Gift is a completed transfer made during life Gifts in any amount can be given to anybody—with
some “strings”– Gifts over the annual gift tax exclusion require a gift tax return
except between spouses• Gift splitting for married couple
– Recipient of gift received the cost basis Gift tax returns considered when estate tax is
computed
9/12
Transfers at Death
Federal Gift and Estate Tax– Tax assessed on gifts (made during lifetime) and at
death – Exemption amount allowed to be gifted during life or
passed on at death• No tax due on the exempted amount• Tax computed on amount over the exemption
Exemption for estate purposes has increased to $3.5 million
Exemption for lifetime gifts remains at $1 million
9/13-14
Estate Tax Calculation Gross estate– Valuation date/Alternative valuation date– Gifts over the annual gift exclusion brought back
into computation Deductions Taxable estate Subtract estate credit – Estate tax credit translates into an estate tax
credit Net tax liability– Filed within nine months after the date of death
9/14-18
Retirement Plan Assets
Best practice is to name a beneficiary so assets pass directly without going through the estate
If no beneficiary named, assets will pass through the estate and be divided as directed in the will
9/18
Strategies
Proper distribution of an estate based on individual’s wishes Dilemma for retirement planning– Balance of assets and income– Balance of estate tax liability and assets to heirs
Special attention to distribution issues for surviving beneficiaries of qualified plans and IRAs
Be sure beneficiary designations are current
9/19-22
Ethics
Choices made when confrontedwith moral decisions
Not absolute standards Law is a minimum standard of behavior Motivation for ethical behavior– External– Internal
10/1-5
Core Ethical Values
Follow a set of ethical standards Adopt the golden rule Develop a “no harm” perspective Develop a “do good” perspective Be trustworthy Develop a willingness to be supervised Learn from past decisions and mistakes
10/6-8
Role of the Employer
Herd mentality
Ethical standards as part ofthe company’s vision
Ethics officer or committee
Ethics training10/8
External Regulatory Agencies
Use of designations and titles with the term “Senior,” “Elder,” “Retirement,” “Retiree”
FINRA and NASAA involvement to create a more uniform national regulatory environment
Formal accreditation of designations
10/9-11
InFRE Professional Code of Ethics
Comply with the letter and spirit of all state and federal laws.
Act always in the best interest of plan participants.
Never disclose confidential information.
Be truthful in all communications.10/11-13