RETIREMENT PLANNING
I. Why Retirement Planning?
A. The Importance of Starting Early
Earlier examples of time value of money calculations
B. The Basics of Retirement Planning
Tax free building of retirement assets
Must beat inflation (or at very least, don’t lose to inflation)
C. Conducting a Financial Analysis
1. Housing
2. Life insurance
3. Retirement Savings
II. Retirement Living Expenses (70-80% of pre-retirement expenses)
· Clothing expenses
· Housing expenses
· Federal income taxes
· Insurance
· Medical expenses
· Expenses for leisure activities
· Gifts and contributions
III. Planning Your Retirement Income
A. Social Security (subject to change before you retire)
B. Employer Pension Plans
1. Defined-contribution plan
a. Profit-sharing plans
Vesting – how long you have been with company
b. Salary reduction or 401(k) plans.
Tax Advantages – income not taxable.
Employer Matching -*Free Money*, watch vesting.
2. Defined-Benefit Plan (specifies your retirement benefit).
Based on age, years of experience, income.
Examples: State Employees, Teachers, Ford Motors
C. Personal Retirement Plans
1. Individual retirement accounts (IRAs)
a. Regular (Traditional or Classic) IRA
Tax deduction in year of contribution.
Money builds tax free until retirement.
Taxable when you draw out the money. (pay taxes when you retire).
b. Roth IRA
No tax deduction in year of contribution. (pay taxes now).
Money builds tax free until retirement.
NOT taxable when you draw out the money.
c. Spousal IRA
d. Rollover IRA – can rollover any company plan assets when you leave the company. Non-taxable transaction.
IV. Final Points on Retirement Savings
A. Tax advantages of using IRA’s and 401k vs. taxable savings accounts
B. Investing for retirement – diversify. Risk level dependent on age and financial situation.
V. Saving for your child’s education:
A. Coverdell Savings Accounts
http://www.savingforcollege.com/
B.
Section 529 Savings Plan (
Tax Advantages and some Matching by
Who to contact?