Retirement Planning Presented by: Alvena T. Tierney Julie A. Emanuele

Three Phases of Retirement Projection Phase Accumulation Phase Distribution Phase Accumulation Phase

Projection Phase

Non-discretionary Spending  Basic charitable contributions  Education & wedding expenses for children  Medical and dental care  Automobiles  Utilities  Basic dues and subscriptions  Life, homeowners, liability and auto insurance  Housing and furnishings  Food and clothing  Taxes

Discretionary Spending  Entertainment  Major purchases  Large Gifts  Vacation and travel expenses  Cosmetic surgery  Household employees  Club and association dues  Vacation home maintenance and redecorating

Contingent Spending  Reduction in pension and Social Security income  Rapid inflation  Extended illness  Major investment loss  Death expenses

Reducing Spending  Conditions that cannot be controlled:  Inflation  Life expectancy  Conditions that can be controlled:  Moving to a lower cost of living area  “Trading down” your residence

Accumulation Phase

 Issues for Consideration  Planning to Increase Retirement Income  Retirement Sources  Additional Sources

Issues for Consideration  What 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?

Retirement Sources  Social Security  Retirement/Pension Plans  Annuities  Personal Savings and Investments  Employment after Retirement  Other Sources

Amount of Benefits  Based on a worker’s lifetime earnings  Reduction for early retirement (assuming retirement age is 67 years) AgeReduction in Benefits % % % % 666.7%  May also be reduced under “earnings test” for workers aged 67 and below

Other Information  Form SSA-7004: Request for Social Security Statement  SSA Hotline:  SSA Website:  SSA will annually mail benefit statements (three months before birthdate) to workers 25 and older

Planning to Increase Retirement Income  Maximize contributions to retirement plans/accounts  Maximize tax-deferred growth strategies  Reduce spending and increase savings rate  Change investment mix  Postpone retirement age

Overview

Defined Benefit Plans  Participant’s benefit defined by plan  Employer 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

Defined Benefit Plans  Participant does not have an account in his or her name under plan  Participant 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

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

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.

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)

Individual Retirement Accounts  Traditional Individual Retirement Accounts (Traditional IRAs)  Roth Individual Retirement Accounts

Contribution Limitations  Lesser of $5,000 or compensation included in gross income for the year  Six (6) percent excise tax on contributions in excess of contribution limitation  Up to $5,000 for non-working spouse if  Combined earned income equal to or greater than the contributed amount  Joint return is filed

Contribution Limitations  Increase in annual limitation:  $5,000 for 2011 and later (indexed for inflation in $500 increments  Catch-up provisions for taxpayers age 50 and older  $1,000 for 2011 and later

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)

Deduction Limitations  Non-participant spouse IRA contribution  Deductible if couple’s AGI is below $169,000  Partial deduction if couple’s AGI is between $169,000 and $179,000  No deduction if couple’s AGI is above $179,000

Deduction Limitations  Roth 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)

Distribution Phase

 Goals and Objectives  Distribution Option Considerations  Retirement Plan Distribution Options  Income Tax Consequences of Distributions  Minimum Required Distributions  Beneficiary Designation of Retirement Plans  Penalty Taxes

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; and C.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.

The “Uniform Lifetime Table” Table for Determining Applicable Divisor AgeApplicable Divisor AgeApplicable Divisor AgeApplicable Divisor AgeApplicable Divisor

Distribution Example  Bob 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,  $2,000,000/27.4=$72, RMD – can be taken in 2011 or 2012  $2,050,000/26.5=$77, RMD in 2012

Roth Conversions  Conversion 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

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 Alternatively, Tony could elect to include the entire $10,000 in his taxable income in 2010.

Putting It All Together Financial Security Projection Phase Accumulation Phase Distribution Phase Accumulation Phase