1. What Must You Know to Determine Retirement Savings Needs? 6 key questions

2. 1. When will you retire?  Health Status 24% of individuals age 45-54 report one or more health limitations 37% of individuals age 55-64 report one or more health limitations  Timing of Spouse’s Retirement implies that women may want to retire earlier than men (since women typically marry older men)  Availability of Retirement Income

4. Source: SSA  For every 100 Americans, at the age of 65: 36 people will be dead 54 people will be dead broke  SS main/only source of income 5 people will still be working 4 people will be well to do 1 person will be wealthy  Net worth = > $5 million

5. Social Security  1935 – retirement program with mandatory participation (currently over 90% of all workers covered)  Eligibility: individual works and earns $1090 (2009) for 1 credit for a minimum of 40 credits (with a maximum of 4 credits earned per year) This applies to workers born after 1929  Goal is to provide a minimum level of support for retired individuals age 62 and over. more support for lower-income workers than higher income workers

6. Full Retirement Benefits Year of BirthFull Retirement Age 1937 or earlier65 193865 & 2 months 193965 & 4 194065 & 6 194165 & 8 194265 & 10 1943-195466 195566 & 2 195666 & 4 195766 & 6 195866 & 8 195966 & 10 1960 and later67

7. Why is the retirement age increasing?  In 1935, avg life expectancy was about 60  Retirement age is increasing to keep pace with the increases in longevity and to reflect the improvements in health of older people  (Source = SS website)

8. Social Security  benefit is indexed to inflation  benefit has a dependent’s component if spouse is non- working (or worked at relatively low wages or very intermittently)  taxation depends on whether your adjusted gross income (including 50% of Social Security) is between $32,000 and $44,000 if married or between $25,000 and $34,000 if single  Divorced spouses If married > 10 yrs, benefit is prorated to the # of yrs married vs. total working yrs, as long as no remarriage occurs

9. Social Security, cont.  Average SS benefits 2009 (after 5.8% COLA from 2008) = All retired workers = $1,153/month Couple, both w/ benefits = $1,876 Maximum retirement benefit = $2,323 Widowed mother & 2 kids = $2,399 Aged Widow(er) alone = $1,112 Disabled worker, spouse & 1+ kids = $1,793 All disabled workers = $1,064

10. Private Pension Plans  Defined Benefit (DB) plans – traditional pensions – employer provided pension plans where benefits received are typically a function of number of years of employment with the firm age at retirement average salary  (sometimes average for highest “x” years)  typically little choice as to how this benefit is taken. Typically payments are not inflation indexed. Benefits are taxed as you receive them

11.  Defined Contribution (DC) plans – 401(k)s or Roth IRAs or Roth 401(k)s – pension plans where the employee (and sometimes the employer) make regular contributions to the retirement plan. Typically, the benefit received is a function of employee/employer contributions age at retirement number of years employed with the firm (for vesting requirements)  typically great choice as to how this benefit is taken Lump sum distribution Withdrawals on an as needed basis Annuity – purchased investment from an insurance agent (usually) taxation considerations vary depending on how contributions were taxed (Roth IRA vs. 401K)

12. 401(k)s or 403(b)s or etc.  Pre-tax contributions Contributions may be matched by employer if you are “vested” Typically qualify for the matching money after 3 or 6 years  Taxes paid at time of withdrawal, according to the taxation structure in existence then  No penalties if Over 59.5 years of age  If you do not have a qualified withdrawal, can access your money By taking a loan (reasons may be restricted by employer)  Must be repaid with interest  The loan must be repaid immediately if you change jobs  If you default, you pay all taxes due + 10% penalty If you do not take a loan, just a withdrawal,  You must pay all taxes due + 10% penalty

13.  Can be rolled over to an IRA or a Roth IRA or another 401(k) if you switch jobs  Your money is invested in a range of options provided by the plan, typically mutual funds and/or company stock You choose how much goes where in the preset options  Contribution limits $16,500 in 2009 (of your own money) if < 50 $22,000 if > 50  This limit does not include matching funds  Maximum contribution = $49,000  Minimum distribution laws After 70.5 years of age, you must withdraw an annual sum (determined by the IRS) unless you are not retired and are still working at the company that administers your 401(k)

14. Roth IRA – see fairmark.com/rothira  After-tax contributions  Earnings are tax-free on qualified withdrawals after account has been open 5 years After 59.5 years of age For down payment on first house ($10,000 limit) for yourself, spouse, children, or grandchildren For higher education expenses for yourself, spouse, children, or grandchildren If you become disabled If your spouse dies or becomes disabled  If you do not have qualified withdrawals, 10% penalty  May withdraw contributions at any time with no penalties or taxes

15.  Can contribute after age 70.5  Contribution limits $5,000 in 2009 per person per year if < 50 $6,000 if > 50  Income limits $105,000 per year if single (phased out – $120,000) $166,000 per year if married filing jointly (phased out – $176K) $0 per year if married filing separately Must have taxable wage income (or be married to a person with taxable wage income) to contribute  IOW, your Roth money cannot come from investment or pension income  Your money is invested WHEREVER you choose to invest it e.g. stocks, mutual funds, etc.  No minimum distribution laws Can pass the entire account to your heirs tax-free

16. Roth 401(k)  Started 1/1/06  Combines the Roth concept with after-tax investments and tax-free earnings with your 401(k) plan  Only available if your employer chooses to make it available  Contribution limit in 2009 $16,500 if <50 $22,000 if >50 Max. cont. in BOTH types of 401(k)s  Employer match is still pre-tax Grows in a separate account and will be taxed at withdrawal  If you change jobs, your portion can be rolled over to a Roth IRA  Subject to minimum distribution laws

17. 2. What is your expected length of retirement (i.e., life expectancy)? Table 1: Life Expectancy for Social Security Year Cohort Turned 65 Percentage of Population Surviving from Age 21 to Age 65 Average Remaining Life Expectancy for Those Surviving to Age 65 MaleFemaleMaleFemale 1940 1950 1960 1970 1980 1990 53.9 56.2 60.1 63.7 67.8 72.3 60.6 65.5 71.3 76.9 80.9 83.6 12.7 13.1 13.2 13.8 14.6 15.3 14.7 16.2 17.4 18.6 19.1 19.6