Retirement Planning

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Retirement Planning
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Pitfalls in Retirement Planning

• Starting too late.
• Putting away too little.
• Investing too conservatively (especially when you
  are younger).

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Steps in Retirement Planning

• Set Your Goals
• At what age do you want to retire?
• How much annual income do you need/want in
  retirement?

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Estimate Your Needs

• Determine household expenditures.
• Estimate income.
• Consider the effects of inflation.
• Decide how you will provide for the difference
  between income and needs.

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Principal Sources of Retirement Income

• Social Security
• Pension plans
• Income-producing assets
• Wages

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Government still provides the largest portion--rig
ht now.
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Social Security

• Benefits are provided by taxes you and your
  employer pay.
• Amount of benefits may be insufficient by the
  time you retire.
• Think of it as an insurance system rather than a
  retirement plan.

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Why SS may be in trouble

• The number of people retiring is increasing.
• The number of people who work and to pay the
  taxes for retirement benefits is decreasing .
• Eventually more people will be taking out than
  paying in.

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When can you collect SS?

• Retirement age is being pushed back--you will
  probably have to be 67.
• You must have been paying in for 40 quarters or
  10 years.
• If you retire early (age 62), you receive a lower
  percentage of your total benefits.
• If you retire later (age 70), you receive an
  increased benefit.

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What are the benefits?

• Old-age benefits (traditional SS retirement
  benefits).
• Survivor's benefits for spouses who are age 60 or
  greater.
• Survivor's benefits for dependent children.

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• Reductions in SS benefits
• If you have elected to receive SS benefits but
  continue to work

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• For those age 62-65, SS benefits benefits are
  reduced 1 for every 2 of earnings over the
  9,120 annual threshold.
• For those age 65-70, SS benefits benefits are
  reduced 1 for every 3 of earnings over the
  14,500 annual threshold.

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• Are SS benefits subject to taxes?
• Yes, if your annual income exceeds 25,000 if
  single (32,000 for married filing jointly).

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Pension PlansandRetirement Programs

• Employer-sponsored retirement programs
• Self-directed retirement programs

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• Features of Employer-Sponsored Plans
• Participation requirementsare you eligible?
• Contributionsam I required to contribute or not?
• Vestinghow long before I can take the money with
  me if I leave?
• Retirement agewhen can I retire?
• Fundingis it funded or not?
• Qualifyingdoes it qualify for tax deductibility?

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• Defined Benefit vs.
• Defined Contribution Plans
• Defined contribution company guarantees a
  contribution, but not a return on the
  contribution.
• Defined benefit company guarantees the benefit
  in retirement despite good or bad performance of
  the pension fund.

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• Supplemental Plans
• Profit-sharing plansemployees benefit from
  company's earnings.
• Thrift and savings plansemployer contributes to
  employee's fund.
• Salary reduction plansemployee contributes part
  of salary employer may also contribute as in a
  401(k).

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• Self-Directed Retirement Plans
• Keogh Plansfor self-employed or small business
  owners and employees.
• SEP Plansfor self-employed or small business
  owners with few or no employees simple to
  administer.
• IRAsanyone can open one maximum 2000
  contribution per year other plans allow more.

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• Types of IRAs
• Traditional Tax-Deductible IRAfor those with no
  employer-sponsored plan or with incomes below a
  certain level.
• Traditional Non-Deductible IRAfor those with an
  employer-sponsored plan and incomes over a
  certain level.
• Roth IRAcontributions not deductible for those
  with incomes below a much higher level regardless
  of employer-sponsored plans.

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For all IRAs

• Maximum total yearly contribution to all IRAs
  combined is 2000 or your earned income
  (whichever is less).
• Non-working spouse can also contribute up to
  2000.
• An IRA is not an investment it is the container
  and can hold a variety of types of investments.

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For Qualified Retirement Plans in General

• Contributions are allowed to grow tax free.
• If contributions were initially tax deductible,
  money withdrawn at retirement is taxed as current
  income.
• In general, you must be 59 1/2 to start taking
  distributions.
• Early withdrawals subject to 10 penalty plus
  income taxes.

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Annuities

• Tax-sheltered investment vehicles administered by
  life insurance companies
• An agreement to make contributions now in return
  for a series of payments later

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Before Retirement

• Accumulation Periodannuitant purchases annuity
  by paying premiums into the account.
• During Retirement
• Distribution Periodinsurance company makes
  payments to annuitant. Portion not returned to
  annuitant prior to death goes to beneficiaries.

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• Classification of Annuities
• Single Premium vs. Installmentsone large
  lump-sum payment or a series of payments to
  purchase the annuity.
• Immediate vs. Deferredbegin receiving payments
  immediately or wait to receive payments after
  purchasing annuity.
• Fixed vs. Variableinvestment grows at a low
  guaranteed fixed rate or at a presumably higher
  variable market-based rate with no guarantee of
  return.

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• Common Disbursement Options
• Life annuity with no refundpayments made for
  life nothing to beneficiaries.
• Guaranteed minimum annuityat least a total
  minimum amount will be paid out beneficiaries
  receive any remainder.
• Annuity certainpayments made for a set number of
  years and cease.
• Temporary life annuitypayments made for a set
  number of years but only for as long as annuitant
  lives.

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Remember

• Annuities are life insurance products which
  usually mean higher fees.
• Annuities are only as good as the companies which
  issue them.
• Retirement accounts are already tax sheltered.
• Withdrawals made before age 59 1/2 are subject to
  10 penalty and income taxes.

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• Annuities can be an attractive means for higher
  income individuals who have fully funded their
  retirement accounts to tax shelter even more
  money.