P LANNING FOR Y OUR R ETIREMENT Textbook Chp 7.2 pg 237

I NVESTING FOR R ETIREMENT Retirement planning is key element of financial security Some retirees need income for up to 30 years Starting a retirement investment plan early is the most effective way to provide enough money on which to live after retiring continued

I NVESTING FOR R ETIREMENT Social security should not be your sole source of retirement income

E MPLOYER -S PONSORED R ETIREMENT P LANS Employee Retirement Income Security Act (ERISA) set standards for pension and retirement plans to guarantee that workers receive entitled benefits Vesting requirements are an important part of this act

401 K An employer-sponsored retirement plan Funded with employees’ before-tax salary contributions; portion often matched by employer contributions of cash, stock, profit sharing, or deferred-compensation Most are PORTABLE- you can take it with you if you leave the job. ROLLOVER- process of moving your savings from one qualified account to another. continued

401 K Advantages: Most plans offer different investment options, including stocks, bonds, or mutual funds Employers match contributions Tax-deferred growth of savings Automatic payroll deductions continued

401 K Disadvantage: Investors may lack knowledge, which can cause them to make poor choices

403B Retirement plans available to employees of NON PROFIT organizations such as public schools, colleges, hospitals, and public libraries. Same Advantages/Disadvantages of the 401K except you CANNOT pick your own Stocks.

P ERSONAL R ETIREMENT P LANS You can start a personal retirement plan at most financial institutions Usually consists of investments in stocks, bonds, and mutual funds

IRA S Individual Retirement Account (IRA) is a personal retirement account with tax benefits Traditional: contributions and earnings are not taxed until funds are withdrawn at retirement Roth: contributions are taxed NOW, but withdrawals are usually not. Do not have to pay any tax at retirement

S ELF -E MPLOYED P LANS Simplified Employee Pension (SEP) plan or Keogh plan Tax-deductible contributions Contributions limited to percentage of earned income Earnings grow tax deferred until money withdrawn at retirement

A NNUITIES An annuity with an insurance company provides income for a set period of time, and sometimes death benefits Investors pay into an annuity over many years or in one large payment Principal and interest accumulate tax free until money is either withdrawn or paid out

E STATE P LANNING Estate planning is part of an overall financial plan Active management of assets with directives for managing and distributing them when the owner dies Assets include property, savings, investments, and insurance benefits

G OALS OF AN E STATE P LAN Let people decide how they want their assets managed after their death Provide for dependents Minimize tax liabilities Name an executor to oversee the management of a deceased person’s affairs Prepare a will continued

G OALS OF AN E STATE P LAN Assign a power of attorney— a document giving someone the power to act on the financial and legal matters of another person Often refers to the DOCUMENT but also the PERSON who carries out the POA document.

W ILLS A will guarantees disposal of an estate according to the wishes of the deceased person and makes settling an estate simpler for beneficiaries Beneficiaries may be family members, friends, a favorite charity, a college, or other organization

W HAT W ILLS S HOULD I NCLUDE Name beneficiaries, people or groups who will receive assets Name an executor Name a guardian to care for young children Name a guardian or trustee to manage assets on behalf of beneficiaries continued

W HAT W ILLS S HOULD I NCLUDE Wills must be signed before witnesses If will is changed, either a new will is drawn up or a codicil is added Cost of wills vary People with complex estates should consult experts continued

W HAT W ILLS S HOULD I NCLUDE Dying without a will is called dying intestate Property is divided according to state laws

T HE L IVING W ILL living will -a “health-care directive” The purpose is to make known what medical treatments you do or do not wish to receive in case of a terminal injury or illness

T RUSTS A trust agreement may be needed if an estate is complex or needs special arrangements for its settlement Grantor—person who creates a trust and transfers assets to the trust; names a trustee and beneficiaries Requires a lawyer familiar with estate planning continued

T RUSTS Living trust: Set up during your lifetime Can provide for the management of your assets before your death Provides for the distribution of assets as directed after your death Testamentary trust: Becomes effective upon death

P URPOSES OF T RUSTS People set up trusts to provide for minor children and dependents with disabilities continued

P URPOSES OF T RUSTS Provide income and asset management for beneficiaries Devise a plan to manage financial affairs if grantor becomes incapacitated Minimize estate and gift taxes Protect privacy and avoid probate court continued

P URPOSES OF T RUSTS Probate requirements: Proof that a person’s will is valid Inventory and identification of deceased person’s assets and property Property appraisals Settlement of debts and taxes Distribution of property according to terms of the will