Pursuing the Retirement You Deserve Four Pillars of a Successful - - PowerPoint PPT Presentation

Pursuing the Retirement You Deserve

Four Pillars of a Successful Retirement

(that is, four really important factors)

• 1. Social Security
• 2. Income Strategy
• 3. Tax Planning
• 4. Legacy Planning

Three Risks

(also known as external factors over which you have little control)

• 1. Inflation (cost of living)
• 2. Health-care costs
• 3. Market unpredictability

Benefits are based on the age when you claim them.

⚫ Earliest age: 62* ⚫ Full retirement age: 66 to 67** ⚫ Latest age: 70

*Surviving spouses can claim survivor benefits at age 60. **Full retirement age varies depending on year of birth.

When Can You Claim Social Security Retirement Benefits?

Todd

Birth year: 1956 Full retirement age: 66 + 4 months

Monthly Annually Age 62 benefit (73.33%) $1,467 $17,604 Full retirement benefit (100%) $2,000 $24,000 Age 70 benefit (129.33%) $2,587 $31,044

Marian

Birth year: 1960 Full retirement age: 67

Monthly Annually Age 62 benefit (70%) $1,680 $20,160 Full retirement benefit (100%) $2,400 $28,800 Age 70 benefit (124%) $2,976 $35,712

These hypothetical examples are used for illustrative purposes only. Actual benefits and results will vary.

How Claiming Age Affects Monthly and Annual Benefits

Spousal Benefit

• You must be age 62 or older to qualify
• You must have been married for at least one year
• Your spouse must first file for Social Security

benefits

• If claimed at your full retirement age,

the spousal benefit would be one-half

• f your spouse’s primary insurance amount*

*The spousal benefit is permanently reduced if you claim it before reaching full retirement age.

Survivor Benefit

• Survivor benefit is based on the

earnings of the person who died

• Reduced survivor benefit at age 60
• Full survivor benefit if claimed at

full retirement age

• If you remarry before age 60,

you will forfeit survivor benefit (while you are married)*

*Unless remarriage has ended in divorce or annulment.

• 1. Taxes
• 2. Retirement earnings test
• 3. Windfall elimination provision
• 4. Government pension offset
• 5. Medicare premiums

Other Factors That Could Reduce Your Social Security Payments

2019 Medicare Costs

Part A monthly premium

(for those who pay a premium)*

$240 or $437

Part A deductible

$1,364 for each benefit period

Part B monthly premium

(for lower-income beneficiaries)

$135.50 (standard premium)

(those protected by hold-harmless provision may pay less)

Part B monthly premium

(for higher-income beneficiaries)**

$189.60 to $460.50

Part B annual deductible

$185

Note: Premiums and out-of-pocket costs for Medicare Part D vary by plan and individual situation. *Part A premium affects people who paid insufficient or no Medicare taxes while working. **Modified adjusted gross income above $85,000 (single filers) or $170,000 (joint filers).

Source: Centers for Medicare & Medicaid Services, 2018

Three Steps to Developing an Income Strategy

1 Size up current situation and sources of income 2

Refine your investment mix Choose a plan for tapping assets

3

Sample Asset Allocation Models

Aggressive investor Conservative investor

These hypothetical examples are used for illustrative purposes only.

Cash alternatives 20% Bonds 50% Stocks 30% Cash alternatives Bonds 20% Stocks 75% 5%

Income-Producing Mutual Funds and ETFs

• Low initial investment
• Professional management
• Diversification
• Flexibility

Mutual funds and ETFs are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, is available from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Tax-Exempt Investments

Generally most appropriate for investors in higher tax brackets

• Municipal bonds
• Treasury securities
• Tax-free money market funds

Typically offer lower yields than taxable investments

How do you know whether they’re right for you?

Municipal bonds are tax exempt at the federal level, and possibly the state level. Treasury securities are generally exempt from state taxes. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be

• btained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

How Long Would a Retirement Portfolio Last?

Two $500,000 tax-deferred accounts $50,000 inflation-adjusted annual withdrawals 3% annual inflation rate

Start Year 5 Year 10 Year 15

This hypothetical example is used for illustrative purposes only and does not reflect the performance

• f any specific investment. It compares two $500,000 portfolios: one earning 4% annually, the other

earning 8% annually. The principal values and yields of securities will fluctuate with changes in market conditions so that investments, when sold, may be worth more or less than their original

• cost. Taxes, fees, and other expenses were not considered.

8% return 4% return

Portfolio and Retirement Plans: What to Spend First?

• Not an easy decision
• Considerations:
• Tax consequences
• Opportunity costs
• Emotional implications
• Taxable, tax-deferred,

and tax-free accounts

Should You Consider a Roth IRA?

• Funded with after-tax contributions or

converted assets

• Qualified distributions are tax-free
• Contributions (but not earnings) can be

withdrawn at any time

• Can contribute past age 70½ if you have

earned income (from wages)

• Distributions are NOT required during

your lifetime

Types of Fixed Annuities

Deferred Immediate

Social Security Tax Planning Income Strategy Legacy Planning

Marginal vs. Effective Tax Rates

• Marginal tax rate =

rate on next dollar of taxable income

• Effective tax rate =

total tax ÷ taxable income

• Single filer with

$45,000 taxable income:

22% income tax bracket $5,758.50 in taxes 12.8% effective tax rate

Single filers

If taxable income is: Your tax is: Not over $9,700 10% of taxable income Over $9,700 to $39,475 $970.00 + 12% of the excess over $9,700 Over $39,475 to $84,200 $4,543.00 + 22% of the excess over $39,475 Over $84,200 to $160,725 $14,382.50 + 24% of the excess over $84,200 Over $160,725 to $204,100 $32,748.50 + 32% of the excess over $160,725 Over $204,100 to $510,300 $46,628.50 + 35% of the excess over $204,100 Over $510,300 $153,798.50 + 37% of the excess over $510,300

Married filing jointly and surviving spouses

If taxable income is: Your tax is: Not over $19,400 10% of taxable income Over $19,400 to $78,950 $1,940 + 12% of the excess over $19,400 Over $78,950 to $168,400 $9,086 + 22% of the excess over $78,950 Over $168,400 to $321,450 $28,765 + 24% of the excess over $168,400 Over $321,450 to $408,200 $65,497 + 32% of the excess over $321,450 Over $408,200 to $612,350 $93,257 + 35% of the excess over $408,200 Over $612,350 $164,709.50 + 37% of the excess over $612,350

2019 Tax Year

Other Changes Worth Noting

• The Affordable Care Act individual responsibility

payment is repealed starting in 2019

• Federal estate and gift tax exclusion amount

doubled to $11.18 million in 2018; it reaches $11.4 million in 2019*

• Alimony is not deductible by paying spouse

(and not included in recipient’s income) for divorces implemented after December 31, 2018

• Moving expense deduction for a job-related move

has been suspended through 2025, except for members of the Armed Services on active duty

*The estate and gift tax exclusion amount is indexed annually for inflation. In 2026, it is scheduled to revert to its 2017 inflation-adjusted level.

Important Estate Documents

• Power of attorney
• Durable power of attorney
• Medical durable power of attorney
• Living will
• Will
• Trust records

Basic Estate Tax Concepts

• Unlimited marital deduction
• Federal estate tax exclusion
• Portability of exclusion between spouses
• Annual gift tax exclusion
• Step-up in basis vs. carryover basis rules

Federal Estate Tax Exclusion

Year Exclusion Amount Top Tax Rate 2007–08 $2,000,000 45% 2009 $3,500,000 45% 2010 $0 or $5,000,000 0% or 35% 2011 $5,000,000 35% 2012 $5,120,000 35% 2013 $5,250,000 40% 2014 $5,340,000 40% 2015 $5,430,000 40% 2016 $5,450,000 40% 2017 $5,490,000 40% 2018 $11,180,000 40% 2019 $11,400,000 40%

Providing for Your Heirs

• Draft appropriate legal documents
• Prepare a letter of instruction
• Choose a personal representative

(executor)