{ Chapter 36 Retirement and Wills Ch Retirement Income

 Social Security  Provides income to people when their regular income stops because of  Retirement  Disability  Death  While working and contributing into the system you earn work credits that stand for a specific amount of money earned  If you were born after 1960, your SS retirement age is 67  A person must contribute to SS for minimum 10 years Public Pension Plans

 Pension plan – is a retirement plan that is funded at least in part by the employer  Noncontributory pension plan – financed entirely by the employer  Most are contributory financed by employees  401(k) plan and 403(b) plan – funds are not taxed until money is withdrawn  Money cannot be withdrawn without penalty before age of 59 ½ Employment Retirement Plans

 Defined-Benefit Plans  Most common type of plan  Employees receive a definite, predetermined amount of money upon retirement  Fixed amount is based on year’s of service  Ex. 20 yrs of service X $30 per month for each yr = $600 per month during retirement  Define-Contribution Plans  Employer pays a certain amount into a pension fund each month for each employee  Usually a fixed percentage of employees salary Employment Retirement Plans

 ERISA places many controls on the management of pension funds and gives rights to workers  Under the act, employers must place employees contributions in a pension trust  Vesting of retirement benefits is the act of giving a worker a guaranteed right to receive a future pension  Portability is the ability to transfer pension benefits from one job to another Employee Retirement Income Security Act

 Individual Retirement Accounts  Traditional IRA – amounts up to $5000 per year  Roth IRA – contributions are tax free when drawn  Education IRA – can be established for a child for college education  Simplified Employee Pension Plan – funded by an employer  Keogh Plan – for self-employed people and their employees Personal Retirement Plans

Question  Regina worked as a programmer for IBM from age 22 until 29 and paid into the social security system. At age 30, she inherited money from her family, decided to live off the interest from her inheritance, and quit her job. Is Regina eligible for social security benefits when she retires?  ANSWER:  No. In general, the fund requires 10 years of contribution. Regina only contributed for 7 years.

 When thinking about retirement, be sure to plan for the long term. Many of us will live much longer than the “average” retiree, and, generally, women tend to live longer than men.  More than one in seven will live to age 95.  Social Security benefits, which last as long as you live, provide valuable protection against outliving savings and other sources of retirement income. Retirement may be longer than you think Retirement may be longer than you think