Transcript Preparing for Retirement
Preparing for Retirement Are You Ready?
Date
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Where to Start?
» Where will I live?
» What will I do?
» How much money will I need?
» How much money do I have?
» What are my likely health-related issues?
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Budgeting
A budget: What does it do?
» Is a spending plan » Identifies where money goes » Can limit amounts spent on certain categories of expenses » Helps you reach financial goals 3
Budgeting
Why budget?
» Control » Organization » Opportunities » More Money 4
Expenses
Categories of Expenses
» Fixed » Variable 5
Expenses
Fixed Expenses
» Taxes » Mortgage or rent » Insurance » Automobiles 6
Expenses
Variable Expenses
» Food » Clothing » Furniture, appliances » Gas, oil » Entertainment » Medical care » Gifts » Vacation » Personal items 7
Income
Categories of Income
» Wages/salary » Income from self-employment » Pension, IRA distributions » Interest and dividends » Social Security 8
The Moment of Truth
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Assets
Assets include:
» Cash » Stocks, bonds, mutual funds » Annuities and retirement plans » Home » Car, truck, boat » Furnishings, antiques, jewelry, coins, etc.
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Liabilities
Liabilities include:
» Mortgage » Car and other loans » Credit card debt » Taxes due » Major unpaid bills » Other 11
Net Worth
Assets -Liabilities Net Worth
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Net Worth
Why calculate net worth?
» Applying for a loan » Preparing a will » Determining insurance needs » Progressing toward financial goals 13
Full Retirement Age
Year of Birth 1937 or earlier 1938 1939 1940 1941 1942 1943-1954 1955 1956 1957 1958 1959 1960 or later
Source: Social Security Administration, www.ssa.gov
Full Retirement Age 65 65 + 2 months 65 + 4 months 65 + 6 months 65 + 8 months 65 + 10 months 66 66 + 2 months 66 + 4 months 66 + 6 months 66 + 8 months 66 + 10 months 67
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Reduction Factors
Reduction Factors at Age 62 Year of Birth
1937 or earlier 1938 – 1942 1943 – 1954 1955 – 1959 1960 and later
Total Percent Reduction
20.0
20.83 – 24.17
25.0
25.83 – 29.17
30.0
Source: Social Security Administration, www.ssa.gov
, 2013 15
Benefit Increase Factors
The Value of Waiting
Year of Birth
1937 - 1938
Yearly Rate of Increase
6.5% 1939 – 1940 7.0% 1941 – 1942 7.5% 1943 or later 8.0% Source: Social Security Administration, www.ssa.gov
, 2013 16
Income Tax
Income Tax on Benefits
Total Income Portion Taxable
Individual < $25,000 $25,000 - $34,000 None 50% 85% > $34,000 Joint < $32,000 $32,000 - $44,000 > $44,000 None 50% 85% Source: Social Security Administration, www.ssa.gov
, 2013 17
Social Security Benefits
What to Bring to Apply for Social Security Benefits
» Your Social Security card or proof of your Social Security number » Information about the home where you live, such as the mortgage, lease, and landlord's name » Tax return or W-2 forms, payroll slips, insurance policies, and other information about your income and the things you own » Proof of U.S. citizenship or eligible non-citizen status » Your checkbook or other papers that show your bank, credit union or financial institution account number so you can have your payments deposited directly into your account 18
How Much Will You Need?
Your Current Income
Just how much will you need
$_________
in retirement?
x 0.70
= Amount needed each year in retirement
19 Source: Social Security Administration, www.ssa.gov
Don't Ignore Inflation
Retired life will cost more in the future than it does today Item
House Cost in Florida Recreational Vehicle (RV) 10-Day Caribbean Cruise Round of Golf at Your Local Club
Average Cost Today
$301,000 $115,000 $1,499 $75
Estimated Cost in 5 Years
$348,942 $133,317 $1,738 $87
Estimated Cost in 10 Years
$404,579 $154,550 $2,015 $101 20 Source: BestPlaces.net, Kmotion research 2013.
Life Expectancy
» The average 65-year-old male can expect to live to 84 years old » The average 65-year-old female can expect to live to 86 years old Source: http://socialsecurity.gov/planners/lifeexpectancy.htm
, 2013 21
Health Care Coverage
Medicare
» Eligibility: age 65 » Four Parts
Medicare
» Part A - Hospital Insurance » Part B - Medical Insurance » Part C - Medicare Advantage Plan » Part D - Prescription Drug Coverage 22
Retirement Timeline
» » »
At Age 50
The minimum age to begin making catch-up contributions, an extra amount that those over 50 can add to retirement plans and other accounts
At Age 59½
No more tax penalties on early withdrawals from retirement accounts, but leaving it in means more time where your money can potentially grow 1
At Age 62
The minimum age to receive Social Security benefits, but delaying means a bigger monthly benefit » » »
At Age 65
Eligible for Medicare
At Age 66
Eligible for full Social Security benefits if born between 1943 and 1954
At Age 70½
Recommended age to start taking minimum withdrawals from most retirement accounts by this age; otherwise, you may be charged heavy tax penalties in the future 23 1 The 10% early withdrawal penalty does not apply to certain 457 plan withdrawals. Withdrawals may be subject to ordinary income tax.
Useful Resources
1 » www.aarp.org
- Informational articles and interactive tools » www.ssa.gov
- Official Social Security website » www.medicare.gov
- Official Medicare website » www.irs.gov - Internal Revenue Service official site » www.psca.org
- Plan Sponsor Council of America (retirement planning and calculation tools) 1 Great West Financial® is not responsible for, nor does it endorse the content contained in, the additional websites provided. 24
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Questions?
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