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Retirement Planning

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Retirement Planning. Presented by: Alvena T. Tierney Julie A. Emanuele. Three Phases of Retirement. Projection Phase. Accumulation Phase. Accumulation Phase. Distribution Phase. Projection Phase. Basic charitable contributions Education & wedding expenses for children - PowerPoint PPT Presentation
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Retirement Planning Presented by: Alvena T. Tierney Julie A. Emanuele
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Page 1: Retirement Planning

Retirement Planning

Presented by:Alvena T. TierneyJulie A. Emanuele

Page 2: Retirement Planning

Three Phases of Retirement

Projection Phase

Accumulation Phase

Distribution Phase

Accumulation Phase

Page 3: Retirement Planning

Projection Phase

Page 4: Retirement Planning

Non-discretionary SpendingBasic charitable

contributionsEducation &

wedding expenses for children

Medical and dental care

AutomobilesUtilities

Basic dues and subscriptions

Life, homeowners, liability and auto insurance

Housing and furnishings

Food and clothingTaxes

Page 5: Retirement Planning

Discretionary SpendingEntertainmentMajor purchasesLarge GiftsVacation and travel

expensesCosmetic surgeryHousehold

employeesClub and

association duesVacation home

maintenance and redecorating

Page 6: Retirement Planning

Contingent SpendingReduction in pension and Social Security

incomeRapid inflationExtended illnessMajor investment lossDeath expenses

Page 7: Retirement Planning

Reducing SpendingConditions that cannot be controlled:

InflationLife expectancy

Conditions that can be controlled:Moving to a lower cost of living area“Trading down” your residence

Page 8: Retirement Planning

Accumulation Phase

Page 9: Retirement Planning

Accumulation Phase Issues for ConsiderationPlanning to Increase Retirement IncomeRetirement SourcesAdditional Sources

Page 10: Retirement Planning

Issues for ConsiderationWhat are your projected sources of

retirement income?How much cash flow will your current

sources of retirement income generate?What is the best way to save or invest for

retirement?How does the rate of return on

investments affect how much you will need to save?

Page 11: Retirement Planning

Retirement SourcesSocial SecurityRetirement/Pension PlansAnnuitiesPersonal Savings and InvestmentsEmployment after RetirementOther Sources

Page 12: Retirement Planning

Amount of Benefits Based on a worker’s lifetime earnings Reduction for early retirement (assuming retirement

age is 67 years)Age Reduction in Benefits 62 30.0% 63 25.0% 64 20.0% 65 13.3% 66 6.7%

May also be reduced under “earnings test” for workers aged 67 and below

Page 13: Retirement Planning

Other InformationForm SSA-7004: Request for Social

Security StatementSSA Hotline: 1-800-772-1213SSA Website: www.ssa.govSSA will annually mail benefit statements

(three months before birthdate) to workers 25 and older

Page 14: Retirement Planning

Planning to Increase Retirement IncomeMaximize contributions to retirement

plans/accountsMaximize tax-deferred growth strategiesReduce spending and increase savings

rateChange investment mixPostpone retirement age

Page 15: Retirement Planning

Overview

Page 16: Retirement Planning

Defined Benefit PlansParticipant’s benefit defined by planEmployer makes contribution to plan

sufficient to pay participant’s defined benefit

Actuary determines amount of contribution to plan by employer

Benefits payable only on death, disability, separation from service or attainment of normal retirement age

Page 17: Retirement Planning

Defined Benefit PlansParticipant does not have an account in

his or her name under planParticipant has claim against trust in the

amount of his or her vested accrued benefit

Employer bears risk of loss and benefit of gain

Participant’s benefit generally guaranteed by Pension Benefit Guarantee Corporation

Page 18: Retirement Planning

401(k) Plans Defined contribution plan established by an

employer Employee may elect to make a pre-tax or post-tax

contribution of up to $16,500 of 2011 wages or salary

If employee over age 50, additional “catch-up” contributions of up to $5,500

Employee’s taxable income is reduced by pre-tax contribution to plan

If employee elects to participate in a Roth 401(k), contributions are made post-tax

Page 19: Retirement Planning

401(k) Plans Increased dollar limit on annual

contributions:$16,500 in 2011$16,500 in 2012 (plus indexed for inflation in

$500 increments thereafter)

Note:It is important to increase your pre-tax contribution percentage each year, if necessary, to take advantage of these new contribution limits.

Page 20: Retirement Planning

401(k) Plans“Catch-up” for taxpayers age 50 and older

Contribution limited to lesser of the “applicable dollar amount” or compensation reduced by other elective contributions for the year

Applicable dollar amount$5,500 in 2011$5,500 in 2012 (plus indexed for inflation in $500

increments)

Page 21: Retirement Planning

Individual Retirement AccountsTraditional Individual Retirement Accounts

(Traditional IRAs)Roth Individual Retirement Accounts

Page 22: Retirement Planning

Contribution LimitationsLesser of $5,000 or compensation

included in gross income for the yearSix (6) percent excise tax on contributions

in excess of contribution limitationUp to $5,000 for non-working spouse if

Combined earned income equal to or greater than the contributed amount

Joint return is filed

Page 23: Retirement Planning

Contribution Limitations Increase in annual limitation:

$5,000 for 2011 and later (indexed for inflation in $500

incrementsCatch-up provisions for taxpayers age 50

and older$1,000 for 2011 and later

Page 24: Retirement Planning

Deduction Limitations Fully deductible if you do not participate in an

employer plan In 2011, if you participate in an employer plan

Full deduction if adjusted gross income (AGI) is less than $56,000 ($90,000 if married filing jointly)

Partial deduction if AGI is between $56,000 and $66,000 ($90,000 and $110,000 if married filing jointly)

No deduction if AGI is above $66,000 ($110,000 if married filing jointly)

Page 25: Retirement Planning

Deduction LimitationsNon-participant spouse IRA contribution

Deductible if couple’s AGI is below $169,000Partial deduction if couple’s AGI is between

$169,000 and $179,000No deduction if couple’s AGI is above $179,000

Page 26: Retirement Planning

Deduction LimitationsRoth Contribution Modified AGI limits

Full deduction if modified adjusted gross income (MAGI) is less than $107,000 ($169,000 if married filing jointly)

Partial deduction if MAGI is between $107,000 and $122,000 ($169,000 and $179,000 if married filing jointly)

No deduction if MAGI is above $122,000 ($179,000 if married filing jointly)

Page 27: Retirement Planning

Distribution Phase

Page 28: Retirement Planning

Distribution PhaseGoals and ObjectivesDistribution Option ConsiderationsRetirement Plan Distribution Options Income Tax Consequences of DistributionsMinimum Required DistributionsBeneficiary Designation of Retirement

PlansPenalty Taxes

Page 29: Retirement Planning

Distribution Phase Under the final Minimum Distribution Regulations, the “Uniform

Lifetime Table” must be used by all taxpayers to compute their lifetime annual required minimum distributions for 2003 and later years (for exceptions see below). For each “Distribution Year” (i.e., a year for which a distribution is required) determine:A. The account balance as of the preceding calendar year end;B. The participant’s age on his or her birthday in the Distribution year; andC. The “applicable divisor” for that age from the table. “A” divided by “C”

equals the minimum required distribution for the Distribution Year. In the age 70 ½ Distribution Year, do NOT reduce the “A” number by the amount of any required distribution for the age 70 ½ year that had not been taken out by the end of that year; this adjustment has been eliminated.

This table does not apply to beneficiaries of a deceased IRA owner; or if the sole beneficiary of the IRA is the participant’s spouse who is more than 10 years younger than the participant.

Page 30: Retirement Planning

The “Uniform Lifetime Table”Table for Determining Applicable Divisor

Age Applicable Divisor

Age ApplicableDivisor

Age ApplicableDivisor

Age ApplicableDivisor

70 27.4 82 17.1 94 9.1 106 4.271 26.5 83 16.3 95 8.6 107 3.972 25.6 84 15.5 96 8.1 108 3.773 24.7 85 14.8 97 7.6 103 3.474 23.8 86 14.1 98 7.1 110 3.175 22.9 87 13.4 99 6.7 111 2.976 22.0 88 12.7 100 6.3 112 2.677 21.2 89 12.0 101 5.9 113 2.478 20.3 90 11.4 102 5.5 114 2.179 19.5 91 10.8 103 5.2 115+ 1.980 18.7 92 10.2 104 4.981 17.9 93 9.6 105 4.5

Page 31: Retirement Planning

Distribution ExampleBob has a 2 traditional IRAs valued at

$1,500,000 and $500,000 on 12/31/10 and $1,540,000 and $510,000 on 12/31/11. He was born on February 1, 1941.

$2,000,000/27.4=$72,992.70 RMD – can be taken in 2011 or 2012

$2,050,000/26.5=$77,358.49 RMD in 2012

Page 32: Retirement Planning

Roth ConversionsConversion from traditional to Roth

creates taxable income

Conversions may be re-characterized up until extended due date of return for year of conversion

Consult you tax and investment advisors

Page 33: Retirement Planning

Roth Conversions Example In 2010, Tony converted his traditional IRA to

a Roth IRA. The IRA was made up only of deductible contributions and earnings at the time of the conversion and valued at $10,000. Tony would complete Form 8606 and include $5,000 in his taxable income in 2011 and $5,000 in his taxable income in 2012. Alternatively, Tony could elect to include the entire $10,000 in his taxable income in 2010.

Page 34: Retirement Planning

Putting It All Together

Financial Security

Projection Phase

Accumulation Phase

Distribution Phase

Accumulation Phase


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