Retirement Planning

Presented by:Alvena T. TierneyJulie 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

AutomobilesUtilities

Basic dues and subscriptions

Life, homeowners, liability and auto insurance

Housing and furnishings

Food and clothingTaxes

Discretionary Spending

EntertainmentMajor purchasesLarge GiftsVacation and travel

expensesCosmetic surgeryHousehold

employeesClub and

association duesVacation home

maintenance and redecorating

Contingent Spending

Reduction in pension and Social Security income

Rapid inflationExtended illnessMajor investment lossDeath expenses

Reducing Spending

Conditions that cannot be controlled:InflationLife expectancy

Conditions that can be controlled:Moving to a lower cost of living area“Trading down” your residence

Accumulation Phase

Accumulation Phase

Issues for ConsiderationPlanning to Increase Retirement IncomeRetirement SourcesAdditional 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 SecurityRetirement/Pension PlansAnnuitiesPersonal Savings and InvestmentsEmployment after RetirementOther Sources

Amount of Benefits Based on a worker’s lifetime earnings Reduction for early retirement (assuming retirement

age is 67 years)Age Reduction in Benefits

62 30.0%

63 25.0%

64 20.0%

65 13.3%

66 6.7% 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: 1-800-772-1213SSA Website: www.ssa.govSSA 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 strategiesReduce spending and increase savings

rateChange investment mixPostpone retirement age

Overview

Defined Benefit Plans

Participant’s benefit defined by planEmployer 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 olderContribution 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 ifCombined earned income equal to or greater

than the contributed amountJoint 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 contributionDeductible if couple’s AGI is below $169,000Partial deduction if couple’s AGI is between

$169,000 and $179,000No deduction if couple’s AGI is above $179,000

Deduction Limitations

Roth Contribution Modified AGI limitsFull 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

Distribution Phase

Goals and ObjectivesDistribution Option ConsiderationsRetirement Plan Distribution Options Income Tax Consequences of DistributionsMinimum Required DistributionsBeneficiary Designation of Retirement

PlansPenalty 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;

andC. 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

Age Applicable Divisor

Age ApplicableDivisor

Age ApplicableDivisor

Age ApplicableDivisor

70 27.4 82 17.1 94 9.1 106 4.2

71 26.5 83 16.3 95 8.6 107 3.9

72 25.6 84 15.5 96 8.1 108 3.7

73 24.7 85 14.8 97 7.6 103 3.4

74 23.8 86 14.1 98 7.1 110 3.1

75 22.9 87 13.4 99 6.7 111 2.9

76 22.0 88 12.7 100 6.3 112 2.6

77 21.2 89 12.0 101 5.9 113 2.4

78 20.3 90 11.4 102 5.5 114 2.1

79 19.5 91 10.8 103 5.2 115+ 1.9

80 18.7 92 10.2 104 4.9

81 17.9 93 9.6 105 4.5

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, 1941.

$2,000,000/27.4=$72,992.70 RMD – can be taken in 2011 or 2012

$2,050,000/26.5=$77,358.49 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 2012. 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