11a Retirement Planning

SMART Goals

• specific

• measurable

• achievable

• reasonable

• timely

eg. I want to retire at age 60 with $3mil in my retirement account

Retirement Life Expectancy (RLE)

• time period beginning at retirement and extending until death

• need proper planning in case individual lives longer than he prepared for

Savings amount Issue

if an individual doesn’t start saving at an early age, then they must save a greater amount of their gross to compensate for the missed years of contributions

WLE (work life expectancy)

period of time a person is expected to be in the work force

includes all working years

RWLE (remaining work life expectancy)

is the work period that remains at a given point in time before retirement

ex: currently 40 and plan to retire at 65

Sources of Retirement Income

• social security

• continued work

• sale/lease of assets

• personal savings

  • IRA’s, investment properties

• corporate retirement plans

  • defined benefit, defined contribution, 401(k), 403(b), 457, SEP, SIMPLE

Social Security

Retirement Income

• earliest benefits at 62

• latest benefits at 70

• claim larger of your benefit or half of yours spouses full retirement age benefit (FRA depends on when you were born)

LT disability income

• 6 month elimination period

• any occupation

Survivor benefits

• $255b lump sum

• spouse & children payments (age based)

is NOT a retirement plan

• is a supplemental plan

• intended to provide 40% of your pre-retirement income

  • lower for high income ppl

Continued Work

• bc you WANT to

  • retirement accounts are sufficient

  • extra $, benefits

  • interact w ppl

• bc you HAVE to

  • aka “not retiring”

  • SSA wont pay the bills

  • didn’t invest for retirement

Sales/lease of assets

• sales

  • may lead to taxable event

    • capital gains

  • emotional ties to assets

• Other “streams” of income

  • rental properties

  • leasing/selling your business

Personal Savings

• brokerage accounts/trust accounts/ checking & savings accounts

• IRA

• Roth IRA

What is Earned Income?

• W-2

  • income from earnings

• Schedule C net income

• Partnership income (K-1)

• Alimony

  • only if taxable

Pre tax vs After tax

Pre-tax

• taxed later

After-tax

• taxed now

Traditional vs. Roth Contributions

• Traditional

  • must have earned income

  • no income limit

  • contribution limit $7k (<50), $8k (50+)

  • often pre-tax (deductible if income allows)

• Roth

  • must have earned income

  • income limits apply for contribution

  • contribution limit $7k (<50), $8k (50+)

  • after-tax (not deductible)

Traditional vs. Roth Taxation

• Traditional

  • grows tax-deferred → taxed after

  • taxable as ordinary income

  • before 59.5 → income tax + 10% penalty

• Roth

  • grows tax-free

  • tax-free if qualified

  • contributions can be withdrawn anytime tax & penalty free

Traditional vs. Roth Withdrawal Rules

• Traditional

  • after 59.5 taxed as ordinary income

  • RDMs starting at age 73

  • penalty exceptions

    • death, disability, 1st home (10k), medical exp. greater than 10% of AGI, qualified education expenses

• Roth

  • after 59.5 and account open >5 years

  • no RDM’s

  • penalty exceptions

    • death, disability, 1st home (10k), medical exp. greater than 10% of AGI, qualified education expenses

RMD’s (required minimum distributions)

first RMD is Aprill 1st after you turn 73

after that contributions taken on Dec 31st

Traditional vs Roth Better for whom

• Traditional

  • Better for higher income clients with lower income later

• Roth

  • Better for lower income clients with higher income in future

  • Better for clients who need more flexibility in access to their funds

• you can have Traditional & Roth

• you can make contributions to both in the same year

  • max combined → $6.5k

Traditional and Roth

• open at

  • banks & credit unions

  • financial planners, insurance agents using their custodian

  • online (e-Trade)

• owner determines how to invest funds

• 100% vested in all funds

• 100% portable

  • can move IRA to another institution without losing benefits