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What you need to know about re rement risks, spending and closing income gaps PLANNING WORKSHEETS Includes the Lincoln’s Case Study Introduc on to Managing Your Re rement Income P E R S 1 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Meet Linda and Dave Lincoln Linda and Dave Lincoln live in Oklahoma City, Oklahoma. Linda is 55 years old and Dave is 67 years old. They have three grown children (two sons and a daughter) and three grandchildren. Dave and Linda’s home equity loan will be fully paid-off within ten years. Linda has been a third grade teacher for 25 years. Linda plans to retire in two years at age 57. Her estimated initial monthly retirement benefi t will be $1,234. Linda will be eligible for Social Security at age 62. After retirement, Linda plans to work part-time in her school district to supplement her retirement. She is in excellent health. Dave was an industrial engineer for a mid-sized, privately-held company and has been retired for two years. He does regular freelance contract work on a part-time basis that generates $36,000 per year of income. His rollover IRA from his 401(k) plan is worth $180,000. Dave retired from Social Security at the full retirement age of 65 and has been receiving $1,800 per month in Social Security benefi ts. Dave’s father and two brothers all passed away before age 70 from heart disease. Current Expense Dave and Linda have set up 529 college savings accounts for each of their three grandchildren. They contribute $425 per month. They expect all contributions to employer-sponsored plans to cease upon Linda’s retirement but intend to contribute to fund the 529 plans for as long as possible. Dave, an avid hunter, spends approximately $400 per month for gear and licenses. Linda spends her free time quilting, costing approximately $325 per month. Year 1 of Retirement The Lincolns assume the cost of living/infl ation will grow by an average of 4% a year throughout retirement. Linda is working part-time in retirement. Dave has reduced his working hours to spend more time with Linda now that she is retired. Linda has invested in her SRP (supplemental retirement plan) throughout her career. She expects to have approximately $41,200 in her plan account at retirement. She does not plan to take a distribution from this account until she reaches age 70½. In Year 3, their youngest daughter, Holly, plans to get married. The proud parents of the bride plan to pay $10,000 for the wedding from their liquid, after-tax savings of $23,000. After the wedding, a much needed 21-day European vacation is planned and is expected to cost approximately $13,000. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 2 Stage 1: Year 5 of Retirement The infl ation rate has grown 4% each year, for a 22% compounded growth in liv-ing expenses for this period. Linda’s investments through her 403(b) investment account have steadily increased by 4% per year since she is invested primarily in the money market fund and a short-term bond fund. Dave’s Rollover IRA, how-ever was 60% in equities, and the value of the account over fi ve years has lost value due to the market being down and the withdrawals needed to meet living expenses. Linda’s pension has increased by an average of 2.9% compounded annual ben-efi t adjustment each year. Linda has an accident leaving her with a disabling injury, and she can no lon-ger work. This reduces the couple’s retirement income by $12,600 annually. Due to Linda’s accident there is an increase in out-of-pocket medical expenses (prescriptions for the rest of her life) in the amount of $165 per month in current dollars. Because of all this she chooses to begin her Social Security spousal benefi t at age 62. Dave’s RMDs began during this time. Dave hasn’t been feeling well and has stopped working altogether. Stage 2: Year 10 of Retirement The infl ationary rate continues to average 4% per year, for a compounded in-crease of 48% since Year 1. Linda’s pension has continued to increase by an average of 2.9% compounded annual benefi t adjustment each year, or a com-pounded increase of 33%. Dave suddenly passes away. Linda receives Dave’s Social Security as a wid-ow’s benefi t. Linda’s monthly expenses are reduced overall. Her mortgage is paid off but home repairs have increased on their older home, as well as property taxes. Stage 3: Year 15 of Retirement Linda wants to downsize her home, but her daughter and granddaughter who have been living with her for two years do not want her to for “old memories” sake. Linda’s RMDs begin. Step 1: Identify Your Defi nition of Retirement Success 3 Identifying retirement spending needs is not just about money What are you retiring to? In other words, are you ready for a month of Saturdays? Retirement Readiness Profi le Engagement (Psycho-Social) Wealth (Geo-fi nancial) Health (Bio-medical) © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 4 Emotional Stages of Retirement* Stage 1: Imagination 15-6 years before Stage 2: Anticipation 5 years before Stage 3: Liberation retirement day and one year to follow Stage 4: Reorientation 2-15 years after Stage 5: Reconciliation 16 or more years after *The 2005 New Retirement Mindscape by Ameriprise and Ken Dychwald/AgeWave © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Step 1: What is Your Personal Defi nition of Retirement Success? Health & Wellness Family Work Spiritual Volunteer Hobbies Travel/Entertainment 5 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Qualities of a Satisfying Retirement 1. Work reorientation – the degree to which you have emotionally distanced yourself from receiving your personal identity from work. 2. Attitude toward retirement – your perception of what your next life stage will be like once you transition beyond your current job. 3. Directedness – the degree to which you rely on your own sense of personal guidance for making plans and decisions for your retirement life, rather than relying on others to give you directions. 4. Health perception – your opinion of the current condition of your overall wellness. 5. Financial security – your opinion that you have done suffi cient planning to sustain adequate fi nancial security and maintain your desired lifestyle during your retirement/renewal years. 6. Current life satisfaction – the degree to which you believe you have achieved contentment and peace at this point in your life. 7. Projected life satisfaction – the degree to which you look forward to personal success, achievement, contentment and peace in the future years of the retirement/renewal phase of life. 8. Life meaning – the degree to which you have found a life direction for retirement which offers you a driving purpose and a deep sense of personal fulfi llment. 9. Leisure interests – the degree to which you have found personally satisfying endeavors outside of your work/career which rejuvenate your body, stimulate your mind, and/or enrich your spirit. 10. Adaptability – the degree of personal fl exibility you can exercise at any given time in any given situation. 11. Life stage satisfaction – the degree to which you live in the present and fi nd your current life fulfi lling, rather than living in the past. 12. Dependents – the degree to which you are free from a sense of burden or strain from caregiving responsibilities either for aging parents or relatives (including children). 13. Family & marital issues – the degree to which you derive satisfaction, intimacy, connectedness, love and a sense of well-being from your marriage and family life. 14. Perception of age – the degree to which you see your own maturation process as a time of emotional and psychological vitality and vibrancy, full of potential for dynamic and on going personal growth. 15. Replacement of work function – the degree to which you have planned to replace or project that you can replace, the fi ve functions of working: fi nancial security, socialization, time management, status, sense of utility. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 6 Step 2: Identify Your Retirement Resources and Income Gaps a) Monthly Income Need: Essential Expenses If in case you would prefer to further customize or more specifi cally defi ne your spending categories, circle additional items on the following tables. Enter their name and estimated amount on the spending plan form in the rows on page 10. Common Essential Expenses Categories Fixed Expenses • Alimony • Boat loans • Car (gas, parking, tires, insurance, etc.) • Child Support • Credit card debt • Day care • Education • Electricity • Gas (heating) • Medical insurance • Rent/mortgage • Land contract payments • Student loan(s) • Telephone • Union dues • Miscellaneous • Other Ways to cut or eliminate essential costs If your numbers aren’t adding up, consider using some of the following ways to dig up dollars from your fi xed expenses: • Examine insurance policies for potential lost savings, i.e., raise the deductible on your car from $250 to $500. • Refi nance debt to a lower cost loan such as a home equity loan. • Be conservative with the use of utilities. • Participate in retirement savings programs which then reduce taxes. • Cancel unnecessary insurance, i.e., children’s life insurance. • Avoid using credit cards - pay cash. • Sell big items that you don’t use much, i.e., boat, snowmobile, etc. Periodic Expenses • Income taxes • Disability insurance • Safety deposit box • Post offi ce box • Property taxes • Homeowner’s insurance • Renter’s insurance • Christmas • Seasonal dues • Water bill • Trash pickup • Miscellaneous • Other 7 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Step 2 (continued) b) Monthly Income Need: Discretionary Expenses If in case you would prefer to further customize or more specifi cally defi ne your spending categories, circle additional items on the following tables. Enter their name and estimated amount on the spending plan form in the rows on page 12. Common Discretionary Expenses Categories • Books • Charitable contributions • Children’s expenses • Clothing/cosmetics • Eating out • Dry cleaning • Education • Entertainment (movies, theater, concerts, etc.) • Gifts • Groceries • Haircuts/beauty salon • Health club • Hobby • Home equipment (small appliances, kitchen equipment and tools) • Home furnishings • Home repairs • Home supplies • Housecleaning • Investments • Laundry • Legal expenses • Magazines/newspaper • Medical expenses • Personal care • Personal growth (seminars, therapy, etc.) • Sports • Vacations • Miscellaneous Ways to cut or eliminate discretionary costs If your numbers aren’t adding up, consider using some of the following ways to dig up dollars by cutting variable costs: • Cut down on pleasure spending (buy one C.D. a month instead of four). • Eat at home more often; shop for groceries after a meal. • Buy in bulk and at discount stores. • Make a list before you shop and stick to it. • Do repairs and maintenance yourself. • Use coupons. • Buy generic goods. • Buy used furniture and autos. • Buy clothing, toys, etc. secondhand at garage sales, estate auctions and thrift shops. • Cut out spending on goods or services that hold no value to you. • Limit the number of evenings and/or lunches when you go out. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 8 Monthly Income Need: Essential Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Essential Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Housing (include property taxes) Utilities Health care (including Medical insurance) Household (furnishings, equipment and supplies) Transportation Food at home Insurance (life and other personal) Debts Income taxes (including tax on Social Security benefi ts) Total Essential Monthly $ $ $ $ $ Choose a compounded infl ation factor: 3% – 1.03 1.16 1.34 1.56 4% – 1.04 1.22 1.48 1.80 5% – 1.05 1.28 1.63 2.08 Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ – 1 1,168 1,215 225 234 250 260 200 208 525 350 300 312 125 125 250 250 950 720 3,993 4,067 9 393 Taxation of Social Security Benefi ts Linda and Dave’s © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Monthly Income Need: Essential Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Essential Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Years of retirement Housing (include property taxes) $ $ $ $ $ Utilities Health care (including Medical insurance) Household (furnishings, equipment and supplies) Transportation Food at home Insurance (life and other personal) Debts Income taxes (including tax on Social Security benefi ts) Total Essential Monthly $ $ $ $ $ Choose a compound infl ation factor: 3% – 1.03 1.16 1.34 1.56 4% – 1.04 1.22 1.48 1.80 5% – 1.05 1.28 1.63 2.08 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 10 Monthly Discretionary Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Discretionary Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Meals out Clothing Entertainment (recreation, books, etc.) Personal care (products and services) Professional services Charitable giving Gifts Total Discretionary Monthly Expenses $ $ $ $ $ Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ – 1 300 260 250 175 300 400 100 200 75 – 300 250 425 425 250 380 850 370 2,850 2,460 MONTHLY ESSENTIAL AND DISCRETIONARY EXPENSE TOTALS $ $ $ $ $ 6,843 6,527 ANNUAL EXPENSE TOTALS $ $ $ $ $ 82,116 78,322 529 Plans Hobbies Savings (403(b), other) 11 Linda and Dave’s © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Monthly Discretionary Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Discretionary Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Years of retirement $ $ $ $ $ Total Discretionary Monthly Expenses $ $ $ $ $ Meals out Clothing Entertainment (recreation, books, etc.) Personal care (products and services) Professional services Charitable giving Gifts MONTHLY ESSENTIAL AND DISCRETIONARY EXPENSE TOTALS $ $ $ $ $ ANNUAL EXPENSE TOTALS $ $ $ $ $ Age: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 12 Essential Income Gap (A) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Lifetime Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Pension (ex. OPERS) Social Security Fixed Annuities Variable Annuities Veterans Benefi ts Long-Term Bonds Rental Income Subtotal Monthly Lifetime Income $ $ $ $ $ Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ ��� 1 – 1,234 1,800 1,854 1,800 3,088 Less: Essential Monthly Expenses $ $ $ $ $ 3,993 4,067 Lifetime Income Gap (A) $ $ $ $ $ -2,193 -979 Linda Dave 13 Linda and Dave’s © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Essential Income Gap (A) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Discretionary Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Years of retirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Pension (ex. OPERS) Social Security Fixed Annuities Variable Annuities Veterans Benefi ts Long-Term Bonds Rental Income Subtotal Monthly Lifetime Income Less: Essential Monthly Expenses Lifetime Income Gap (A) Age: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 14 Discretionary Income Gap (B) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Linda and Dave’s Managed Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: __________ Age: Name: __________ Age: Years of retirement Employee Savings Plan Traditional IRA Roth IRA Brokerage Account Other Savings SRP Life Insurance Cash Value Home Equity SUBTOTAL Managed Resources Income $ $ $ $ $ Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ – 1 5,840 3,050 Dave Current Value Employment Income Employment Income Interest & Dividends Asset Total: $ Less: Discretionary expenses $ $ $ $ $ 2,850 2,460 Discretionary Income Gap (B) $ $ $ $ $ +2,990 +590 Total Gaps (A) and (B) $ $ $ $ $ +797 -389 Total Gap per Year $ $ $ $ $ +9,564 -4,668 221,200 Dave Linda 3,000 2,840 2,000 1,050 Linda 41,200 – – $ $ 180,000 15 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Discretionary Income Gap (B) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Managed Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: __________ Age: Name: __________ Age: Years of retirement Employee Savings Plan Traditional IRA Roth IRA Brokerage Account Other Savings SRP Life Insurance Cash Value Home Equity SUBTOTAL Managed Resources Income $ $ $ $ $ 5 10 15 $ $ $ $ $ Current Value Employment Income Employment Income Interest & Dividends Asset Total: $ Less: Discretionary expenses $ $ $ $ $ Discretionary Income Gap (B) $ $ $ $ $ Total Gaps (A) and (B) $ $ $ $ $ Total Gap per Year $ $ $ $ $ $ © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 16 4) Investing Risks a. stock market reluctance b. declining interest income c. negative point-in-time 3) Health and Long-term Care Risks a. expected and unexpected health and long-term care expenses b. loss of ability to live independently c. changing housing needs b. lack of available facilities or caregivers 2) Infl ation Risks: a. healthcare b. food 1) Longevity Risks: a. outliving resources b. death of spouse c. home value d. college e. other Step 3: Identify Which of the Following Risks are of Special Concern 17 Risk Self Spouse © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Step 4: Identify Options for Closing Gaps Between Your Income and Expenses Linda and Dave’s (Year 5 for Lincolns – see page 31) 221,200 17,650 12.5 1 3 2 4 18 A. Evaluate your income gaps. How long might your savings last if you retire today? Assuming your investment returns were exactly offset by infl ation and taxes throughout your retirement, how long might your savings last? Current value of retirement savings $______________(1) Forecasted annual essential income gap (A) plus annual discretionary gap (B) for year ________. $______________(1) Divide Line 1 by Line 2 for number of years your savings might last. Do you think you might need your savings for longer than this? _______________(3) years The lower the number of years your savings might last as of right now, the more options below you will need to use to close gap(s). B. Prioritize which method(s) to use to close your income gaps Priority Use to Fill: Essential Gap Discretionary Gap 1. Increase the returns on your savings 2. Delay drawing Social Security and pension 3. Add additional lifetime income 4. Save more 5. Spend less 6. Work part-time or full-time in retirement 7. Access home equity if needed 5 © 2005-2011, InFRE Retirement Resource Center. All rights reserved Step 4: Identify Options for Closing Gaps Between Your Income and Expenses 19 A. Evaluate your income gaps. How long might your savings last if you retire today? Assuming your investment returns were exactly offset by infl ation and taxes throughout your retirement, how long might your savings last? Current value of retirement savings $______________(1) Forecasted annual essential income gap (A) plus annual discretionary gap (B) for year ________. $______________(1) Divide Line 1 by Line 2 for number of years your savings might last. Do you think you might need your savings for longer than this? _______________(3) years The lower the number of years your savings might last as of right now, the more options below you will need to use to close gap(s). B. Prioritize which method(s) to use to close your income gaps Priority Use to Fill: Essential Gap Discretionary Gap 1. Increase the returns on your savings 2. Delay drawing Social Security and pension 3. Add additional lifetime income 4. Save more 5. Spend less 6. Work part-time or full-time in retirement 7. Access home equity if needed © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Step 5: Determine Your Retirement Income Plan 20 D. Having a guaranteed lifetime income is . . . 1. Not a high priority. I have more than enough resources for my needs. I’m more interested in growing my wealth for benefi ciaries 2. Somewhat important, along with creating a legacy. I want a certain level of regular income. But I want to leave something for family members and charities as well. 3. Essential. I want to know I have a regular “pay-check” no matter how long I live in retirement. A. I plan to use the money invested in my retirement accounts (401(k), 457, 403 (b)) . . . 1. Here and there, whenever I wish, I want the freedom to change my income from year to year, depending on my needs and plans. 2. To pay some of my daily living expenses but save some for extras. I need a certain amount of regular income from invested assets, but I want the freedom to splurge when I want to. 3. To pay the bulk of my daily living expenses regularly. This will be a primary source of ongoing income for me. B. With my wealth, I plan to . . . 1. Pass on as much as I can. I want to leave as much money and property as I can for my benefi ciaries and/or charities. 2. Spend what I want and pass on the remainder. I want a certain level of guaranteed income but the fl exibility to spend or pass on the rest. 3. Spend it all during my lifetime. I want to use my money for my needs and wants in my golden years. My family and friends are OK fi nancially. C. When it comes to managing my investments, I want . . . 1. To have total control of my money. I’ll be responsible for managing it throughout all of my retirement. 2. Someone to provide me with some help. I still want some say in how my money is invested, but also want to have help in managing my money. 3. A fi nancial company to guarantee me income for life. The company can worry about how to invest my money and make it last not me. Now add up your numbers! Uses the space provided to write down the number next to the statements you selected. Add up your numbers to get your total score. TOTAL A. _________________ B. _________________ C. _________________ D. _________________ _________________ Now that you know your score, look below to fi nd out which income distribution option on the following page might meet your needs. If your score is 4-6 You may want to consider Systematic/Partial Withdrawal options when converting resources into income. If your score is 7-9 You may want to consider combining Lifetime Income and Systematic/Partial Withdrawal options. If your score is 10-12 You may want to consider Lifetime Income options. Note: A more detailed analysis might suggest different strategies Read the statements and check the box next to the response that is most appropriate for you. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Retirement Income Distribution Options Systematic/ Partial Withdrawal 4-6 Leave your retirement accounts invested and withdraw a fi xed dollar amount or a fi xed percentage on a regular basis (monthly, quarterly, semi-annually or annually). In addition to regular withdrawals, you can also withdraw any dollar amount whenever you wish. Your benefi ciary may choose to withdraw the remaining balance all at once or continue to receive payments until the account balance is depleted. You can change how much you withdraw each year, and you have the fl exibility to make “big” withdrawals for special needs. But since your income isn’t guaranteed for life, you could run out of money before you die. If you’re a “spender,” stay away from this option. Combining Lifetime/ Long-term income with Systematic/ Partial Withdrawal 7-9 Convert a portion of your retirement accounts to an immediate annuity, to provide the desired amount of lifetime/long-term income (such as to cover your essential living expenses). Leave the remaining retirement assets invested and withdraw any additional amounts when needed or on a regular schedule Your benefi ciary may choose to withdraw the remaining balance from the systematic/partial withdrawal accounts or continue to receive payments until the account balance is depleted. Depending on the Payout Option chosen (see next page), your benefi ciary may receive some income from your annuity. A certain amount of your income is guaranteed for life, while you retain control over the rest of your retirement account assets. You are choosing less certainty/more opportunity than total lifetime/long-term income but more certainty/less opportunity than systematic/partial withdrawal. Lifetime/ Long-term Income 10-12 Convert your retirement accounts to an immediate annuity by purchasing a fi xed or variable immediate annuity. The amount of your income is determined by the Payout Option you choose (described on the next page), your age, your benefi ciary’s age, and current interest rates or expected market returns. You can guarantee your benefi ciary(s) a certain amount of income for a certain time period or even for their lifetime. Alternatively, you can totally eliminate your benefi ciaries from receiving any income at all, if you so choose. Your income is guaranteed for life. If you are a “spender,” this option will help keep you from overspending. You give up control over how much and when you can take withdrawals. You also limit or eliminate the amount of money your can pass on to your benefi ciaries. With “fi xed” lifetime/long-term income, you’ll get a set dollar amount regularly; but infl ation will make this money worth less and less in the future. With “variable” lifetime/long-term income, you have a better chance of maintaining your standard of living over time; but your income will vary from period to period. 21 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. I want income for as long as my benefi ciary and I live. You’ve chosen a Joint & Survivor option. I know we will have guaranteed income as long as we live, even if one of us dies. But once we pass away, there will be nothing left for any other benefi ciaries. I also want to take Systematic/Partial Withdrawal payments. Yes No I want income for a certain number of years. You’ve chosen a Period Certain option. Instead of lifetime/long-term income, I know I’ll only receive payments for a set number of years. But if I die before I’ve received all my payments, my benefi ciaries are guaranteed to receive the rest. I also want to take Systematic/Partial Withdrawal payments. Yes No I want income for life with at least a certain number of payments. You’ve chosen a Life Annuity with Guaranteed Payments option. I know I’ll have income for as long as I live. If I die before receiving all of my payments, my benefi ciaries are guaranteed to receive the rest. I also want to take Systematic/Partial Withdrawal payments. Yes No a) Identify Your Appropriate Annuity Payout Option(s) 22 Step 5 (continued) To determine which annuity payout option might best meet your needs, read the description below and check the box next to the one that is most appropriate to you. I want the most income I can get for as long as I live. You’ve chosen a Single LIfe option. No one else depends on me fi nancially. When I die, whether it’s in 20 days or 20 years, nothing will be left for any benefi ciaries. I also want to take Systematic/Partial Withdrawal payments. Yes No I want to receive income for _____ number of years. Intended Benefi ciaries: Age: Spouse Name: Children or Others: Charities: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 23 Step 5 (continued) b) Taxable Capital Gains Planning and Opportunities Begin planning the most tax-effi cient way to create income in retirement. 1) First circle your marginal tax rate to be aware of your marginal tax bracket upper limit. You need to watch this carefully when withdrawing money from tax-deferred accounts so that you do not boost your income into the next higher marginal federal tax bracket and incur additional income taxes unnecessarily. 2011 Ordinary Income Tax Rate Single Taxable Income Joint Taxable Income Long-Term Capital Gain Rate 10% Up to $8,350 Up to $17,000 0%1 15% . . . $34,500 . . . $69,000 0% 25% . . . $83,600 . . . $139,350 15%2 28% . . . $174,400 . . . $212,300 15% 33% . . . $379,150 . . . $379,150 15% 35% . . . $379,151+ . . . $379.151+ 15% 0% rate expires 12/31/2012. 115% rate expires 12/31/2012. Long-term = more than one year. 2) Record the names of any taxable assets you have where you have a gain over what you paid. If in case additional withdrawals from your tax-deferred accounts might boost you into the next higher federal income tax bracket, you might be better off withdrawing money from your taxable assets instead to avoid paying unnecessary federal income taxes. Assets with Current Capital Gains Purch. Date Current Value Cost Basis Est. Gain © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 24 Step 5 (continued) c) Plan for First RMD or Risk 50% Penalty Use the following worksheet to keep track of when, where and how much you need to begin required minimum distributions from your tax-deferred accounts Line 1: Record the date you (and your spouse) will turn age 70½. Line 2: Record the names of any tax-deferred savings accounts you have that you will need to take minimum distributions from the year you turn 70½. Line 3: If you are younger than age 70½, write in 27.4 as the fi rst year’s RMD factor. Line 4: If you are currently older than 70½, please see the table on the next page for the factor to determine your required minimum distribution for the current year. B) Tax Deferred Plans Self 1. Required beginning date (RBD): 1. Required beginning date (RBD): Tax Deferred Plans Spouse 2. Retirement accounts that will require minimum distributions: 2. Retirement accounts that will require minimum distributions: 12/31/_____ balances 12/31/_____ balances a. a. b. b. $ $ $ $ c. $ c. $ TOTAL:$ TOTAL:$ 3. RMD factor from page 25. 3. RMD factor from page 25. $ $ 4. If you are 70½ or older required minimum distribution for this year (total dollars in (2) divided by RMD factor (3)) 4. If you are 70½ or older required minimum distribution for this year (total dollars in (2) divided by RMD factor (3)) © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Calculating Required Minimum Distributions The Uniform Lifetime Table determines the distribution period for lifetime distributions to a retiree for an individual account. This table is used by all to calculate RMDs during their lifetime. 25 10 86.2 63 33.9 11 85.2 64 33.0 12 84.2 65 32.0 13 83.2 66 31.1 14 82.2 67 30.2 15 81.2 68 29.2 16 80.2 69 28.3 17 79.2 70 27.4 18 78.2 71 26.5 19 77.3 72 25.6 20 76.3 73 24.7 21 75.3 74 23.8 22 74.3 75 22.9 23 73.3 76 22.0 24 72.3 77 21.2 25 71.3 78 20.3 26 70.3 79 19.5 27 69.3 80 18.7 28 68.3 81 17.9 29 67.3 82 17.1 30 66.3 83 16.3 31 65.3 84 15.5 32 64.3 85 14.8 33 63.3 86 14.1 34 62.3 87 13.4 35 61.4 88 12.7 36 60.4 89 12.0 37 59.4 90 11.4 38 58.4 91 10.8 39 57.4 92 10.2 40 56.4 93 9.6 41 55.4 94 9.1 42 54.4 95 8.6 43 53.4 96 8.1 44 52.4 97 7.6 45 51.5 98 7.1 46 50.5 99 6.7 47 49.5 100 6.3 48 48.5 101 5.9 49 47.5 102 5.5 50 46.5 103 5.2 51 45.5 104 4.9 52 44.6 105 4.5 53 43.6 106 4.2 54 42.6 107 3.9 55 41.6 108 3.7 56 40.7 109 3.4 57 39.7 110 3.1 58 38.7 111 2.9 59 37.8 112 2.6 60 36.8 113 2.4 61 35.8 114 2.1 62 34.9 115 1.9 Taxpayer’s Age Lifetime Expectancy Taxpayer’s Age Lifetime Expectancy © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 26 Step 5 (continued) d) Estimate of Taxation of Social Security Benefi ts Year 1 Year 5 *The worksheet is for estimate purposes only. Consult a tax advisor for actual determination of Social Security benefi ts taxation. ** Also includes head of household fi ling separately and living apart from spouse. 60,000 40,000 11,100 17,730 71,000 57,730 39,100 25,730 19,550 12,865 11,100 12,865 x .25 x .25 =$2,775/yr =$3,216/yr or $231/mo. or $268/mo. 6,000 6,000 27,100 13,730 23,035 11,671 29,035 17,671 18,870 33,497 X .25 X .25 =4,717/yr or $393/mo. =8,374/yr or $698/mo. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 1. Add your AGI and tax-exempt income. 2. Enter half your annual Social Security benefi ts (if married fi ling jointly, enter half of your combned benefi ts). 3. Enter total of lines 1 & 2 If the total of line 3 is less than $25,000 and you are unmarried**, or less than $32,000 and you are married fi ling jointly, none of your Social Security benefi ts are taxable. If you are married, fi ling separately and live with your spouse, go to line 8. 4. If the total of line 3 is greater than the fi gures above, subtract $25,000. If you are unmarried** and $32,000 if you are married fi ling jointly and enter amount. 5. Divide line 4 by one-half and enter amount. 6. Enter the smaller of line 2 or line 5. 7. Compare the fi gure on line 6 with $4,500 if you are unmarried** or $6,000 if you are married fi ling jointly and enter the smaller amount. 8. Take the fi gure on line 3 and subtract $34,000 if you are unmarried**, $44,000 if married fi ling jointly and nothing if you are married, fi ling separately and live with your spouse. Enter this amount. 9. Multiply line 8 by 0.85 and enter amount 10. Enter the sum of fi gures on lines 7 and 9. 11. Multiply your annual Social Security Benefi ts (combined benefi ts if married fi ling jointly) by 0.85 and enter amount. If the fi gure on line 3 is less than $34,000 and you are unmarried** or less than $44,000 and you are married fi ling jointly, the fi gure on line 6 is the Social Security benefi ts subject to taxation and stop here. Otherwise, go on to line 7. The smaller of the fi gures on lines 10 and 11 is the amount of your Social Security benefi ts subject to taxation. 27 d) Estimate of Taxation of Social Security Benefi ts Year 1 Year 5 *The worksheet is for estimate purposes only. Consult a tax advisor for actual determination of Social Security benefi ts taxation. ** Also includes head of household fi ling separately and living apart from spouse. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 1. Add your AGI and tax-exempt income. 2. Enter half your annual Social Security benefi ts (if married fi ling jointly, enter half of your combned benefi ts). 3. Enter total of lines 1 & 2 If the total of line 3 is less than $25,000 and you are unmarried**, or less than $32,000 and you are married fi ling jointly, none of your Social Security benefi ts are taxable. If you are married, fi ling separately and live with your spouse, go to line 8. 4. If the total of line 3 is greater than the fi gures above, subtract $25,000. If you are unmarried** and $32,000 if you are married fi ling jointly and enter amount. 5. Divide line 4 by one-half and enter amount. 6. Enter the smaller of line 2 or line 5. 7. Compare the fi gure on line 6 with $4,500 if you are unmarried** or $6,000 if you are married fi ling jointly and enter the smaller amount. 8. Take the fi gure on line 3 and subtract $34,000 if you are unmarried**, $44,000 if married fi ling jointly and nothing if you are married, fi ling separately and live with your spouse. Enter this amount. 9. Multiply line 8 by 0.85 and enter amount 10. Enter the sum of fi gures on lines 7 and 9. 11. Multiply your annual Social Security Benefi ts (combined benefi ts if married fi ling jointly) by 0.85 and enter amount. If the fi gure on line 3 is less than $34,000 and you are unmarried** or less than $44,000 and you are married fi ling jointly, the fi gure on line 6 is the Social Security benefi ts subject to taxation and stop here. Otherwise, go on to line 7. The smaller of the fi gures on lines 10 and 11 is the amount of your Social Security benefi ts subject to taxation. Monthly Income Need: Essential Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Linda and Dave’s Forecasted Essential Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Housing (include property taxes) Utilities Health care (including Medical insurance) Household (furnishings, equipment and supplies) Transportation Food at home Insurance (life and other personal) Debts Income taxes Total Essential Monthly $ $ $ $ $ Choose a compounded infl ation factor: 3% – 1.03 1.16 1.34 1.56 4% – 1.04 1.22 1.48 1.80 5% – 1.05 1.28 1.63 2.08 Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ – 1 1,168 1,215 225 234 250 260 200 208 525 350 300 312 125 125 250 250 950 720 3,993 4,067 62 74 67 – 72 – 5 10 15 1,236 800 285 346 405 561 250 308 277 280 396 371 125 50 250 100 606 662 900 421 684 375 342 453 50 100 807 4,531 4,046 4,824 Taxation of Social Security Benefi ts (50% taxable @ 25% marginal rate) 28 393 698 568 692 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Monthly Discretionary Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Linda and Dave’s Forecasted Discretionary Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Meals out Clothing Entertainment (recreation, books, etc.) Personal care (products and services) Professional services Charitable giving Gifts Total Discretionary Monthly Expenses $ $ $ $ $ $ $ $ $ $ MONTHLY ESSENTIAL AND DISCRETIONARY EXPENSE TOTALS $ $ $ $ $ ANNUAL EXPENSE TOTALS $ $ $ $ $ 529 Plans Hobbies Savings (403(b), other) 300 260 250 175 300 400 100 200 75 – 300 250 425 425 250 380 320 300 150 100 365 444 243 198 – – 150 150 300 300 400 200 360 125 540 180 – 150 0 200 850 370 0 0 0 2,850 2,460 1,928 1,642 1,555 6,843 6,527 6,459 5,688 6,379 82,116 78,322 77,507 68,260 76,553 Linda Dave 55 67 5 10 15 57 69 – 1 62 74 67 – 72 – 5 10 15 29 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Essential Income Gap (A) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Lifetime Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Pension (ex. OPERS) Social Security Fixed Annuities Variable Annuities Veterans Benefi ts Long-Term Bonds Rental Income Subtotal Monthly Lifetime Income $ $ $ $ $ $ $ $ $ $ Less: Essential Monthly Expenses $ $ $ $ $ Lifetime Income Gap (A) $ $ $ $ $ Linda Dave – 1,234 1,800 1,854 1,383 1,596 2,087 0 1,841 0 Loss: Taxation of Social Security Benefi t 1,800 3,088 4,565 4,015 4,645 3,993 4,067 4,531 4,046 4,824 -2,193 -979 +34 -31 -179 Linda and Dave’s Forecasted Linda Dave 55 67 5 10 15 57 69 – 1 62 74 67 – 72 – 5 10 15 Social Security Linda – – 1,095 2,419 2,804 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 30 Discretionary Income Gap (B) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Linda and Dave’s Forecasted Managed Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: __________ Age: Name: __________ Age: Years of retirement Employee Savings Plan Traditional IRA Roth IRA Brokerage Account Other Savings SRP Life Insurance Cash Value Home Equity SUBTOTAL Managed Resources Income $ $ $ $ $ $ $ $ $ $ 5,840 3,050 Dave Current Value Employment Income Employment Income Interest & Dividends Asset Total: $ Less: Discretionary expenses $ $ $ $ $ 2,850 2,460 Discretionary Income Gap (B) $ $ $ $ $ +2,990 +590 Total Gaps (A) and (B) $ +797 $ -389 $ $ $ Total Gap per Year $ +9,564 $-4,668 $ $ $ 221,200 Dave Linda 3,000 2,840 2,000 1,050 Linda 41,200 – – $ 180,000 $ 423 (RMD) 423 1,928 -1,505 -1,471 -17,652 0 1,642 -1,642 -1,673 -20,076 586 1,555 -969 -1,148 -13,776 Linda Dave 55 67 5 10 15 57 69 – 1 62 74 67 – 72 – 5 10 15 586 $180,000 ÷ 25.6 (RMD factor for age 72) divided by 12 months 31 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 32 Notes: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 33 Notes: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 34 Helpful Free Resources Retirement Plan Information 1. OPERS, Retirement program info, www.opers.ok.gov, 405-858-6737, (800-733-9008 outside local calling area) 2. SoonerSave, SoonerSave info, www.soonersave.com, 405-858-6737 (800-733-9008 outside local calling area) 3. Social Security Administration, Retirement benefi t info, www.ssa.gov, 800-772-1213 4. Department of Labor, Retirement plan info, www.dol.gov/dol/topic/retirement/index.htm, 866-487-2365 Money Resources Health Resources Happiness Resources 1. AARP, Staying engaged in retirement, www.aarp.org 2. HelpGuide.org, Aging well & housing info, www.helpguide.org 3. Civic Ventures, Work after a primary career, www.civicventures.org, 415-430-0141 4. National Older Worker Career Center, Employment opportunities, www.nowcc.org 5. Experience Works, Training for older workers, www.experienceworks.org, 866-976-5939 6. Senior Corps, Volunteer opportunities for seniors, www.seniorcorps.gov, 800-424-8867 1. Federal Government Financial Literacy and Education Commission (FLEC), Financial planning info, www.mymoney.gov, 1-888-mymoney 2. Department of Labor, Retirement planning info, www.dol.gov/ebsa/publications/nearretirement.html 3. AARP, Financial and retirement planning info, www.aarp.org 4. Financial Planning Association, Financial and retirement planning info, www.fpaforfi nancialplanning.org 5. InFRE Retirement Resource Center, Retirement income and fi nancial planning info,www.retirement-income-management. com/consumers.shtml 6. American Savings Education Council, Retirement saving info, www.choosetosave.org 7. Securities & Exchange Commission, Investing info, www.investor.gov, 888-732-6585 8. National Endowment for Financial Education, Money management info, www.myretirementpaycheck.org 9. Financial Industry Regulatory Authority, Investing and advisor validation info, www.fi nra.org, 800-289-9999 10. Women’s Institute for a Secure Retirement, Retirement info for women, www.wiserwomen.org, 202-393-5452 11. American Federation of State, County and Municipal Employees, Guide to retirement, www.afscme.org/ publications/1276.cfm, 202-429-1000 12. Federal Trade Commission, Consumer protection info, www.ftc.gov, 877-382-4357 13. American Bar Association, Estate planning info, www.abanet.org, 800-285-2221 14. IRS, Tax info, www.irs.gov, 800-829-1040 1. AARP, Healthy living tips for older Americans, www.aarp.org 2. U.S. Department of Agriculture, Dietary guidelines, www.mypyramid.gov 3. Centers for Disease Control, Healthy living info, www.cdc.gov, 800-232-4636 4. SmallStep, Health and well-being info, www.smallstep.gov 5. Alliance for Aging Research, Healthy aging info, www.agingresearch.org, 202-293-2856 6. National Institute on Aging, Aging research, www.nia.nih.gov, 800-222-2225 7 . Active Aging Partnership, Physical activity info, www.agingblueprint.org 8. National Council on Aging, Improving lives of older Americans, www.ncoa.org, 202-479-1200 9. Administration on Aging, Aging services info, www.aoa.gov, 202-619-0724 10. Medicare, Medicare info, www.medicare.gov, 800-633-4227 11. NIH Senior Health, Health and wellness info, www.nihseniorhealth.gov 35 What You Need to Know About Managing Your Retirement Income Making retirement decisions in the new retirement environment Bright Ideas Action Plan Ideas and thoughts I want to capture and act upon after this program © 2005-2011, InFRE Retirement Resource Center. All rights reserved. This publication, printed by Mercury Press, Inc., is issued by the Oklahoma Public Employees Retirement System as authorized by the Executive Director. One thousand five hundred copies have been prepared at a cost of $2,284.25. An electronic copy has been deposited with the Publishing Clearinghouse of the Oklahoma Department of Libraries. Printed October, 2011
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Okla State Agency |
Public Employees Retirement System, Oklahoma (OPERS) |
Okla Agency Code | '515' |
Title | Introduction to managing your retirement income : what you need to know about retirement risks, spending and closing income gaps : planning worksheets, includes the Lincoln's case study. |
Authors |
Oklahoma Public Employees Retirement System. InFRE Retirement Resource Center. |
Publisher | Oklahoma Public Employees Retirement System |
Publication Date | 2011-10 |
Publication type | Guide |
Subject |
Retirement income--Planning. Retirees--Finance, Personal. |
Purpose | Planning worksheets for course; In today’s retirement environment of longer life expectancies, rising health care costs, and fluctuating investment values, how you answer this question depends on how well you’ve prepared for retirement. Before you retire you need to assess if you’ve saved enough and understand the risks you’ll face so you can make informed decisions about when to take Social Security and distributions from your pension, 457, 403(b), and what to consider before investing your retirement assets.; This workshop is designed for employees ages 50-70. Spouses are strongly encouraged to participate as well.; This course comes complete with worksheets and examples. |
OkDocs Class# | E3600.5 I61m 2011 |
Digital Format | PDF, Adobe Reader required |
ODL electronic copy | Downloaded from agency website: http://www.opers.ok.gov/Websites/opers/Images/Video/RIM/RIM-061411-Workbook.pdf |
Rights and Permissions | This Oklahoma state government publication is provided for educational purposes under U.S. copyright law. Other usage requires permission of copyright holders. |
Language | English |
Full text | What you need to know about re rement risks, spending and closing income gaps PLANNING WORKSHEETS Includes the Lincoln’s Case Study Introduc on to Managing Your Re rement Income P E R S 1 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Meet Linda and Dave Lincoln Linda and Dave Lincoln live in Oklahoma City, Oklahoma. Linda is 55 years old and Dave is 67 years old. They have three grown children (two sons and a daughter) and three grandchildren. Dave and Linda’s home equity loan will be fully paid-off within ten years. Linda has been a third grade teacher for 25 years. Linda plans to retire in two years at age 57. Her estimated initial monthly retirement benefi t will be $1,234. Linda will be eligible for Social Security at age 62. After retirement, Linda plans to work part-time in her school district to supplement her retirement. She is in excellent health. Dave was an industrial engineer for a mid-sized, privately-held company and has been retired for two years. He does regular freelance contract work on a part-time basis that generates $36,000 per year of income. His rollover IRA from his 401(k) plan is worth $180,000. Dave retired from Social Security at the full retirement age of 65 and has been receiving $1,800 per month in Social Security benefi ts. Dave’s father and two brothers all passed away before age 70 from heart disease. Current Expense Dave and Linda have set up 529 college savings accounts for each of their three grandchildren. They contribute $425 per month. They expect all contributions to employer-sponsored plans to cease upon Linda’s retirement but intend to contribute to fund the 529 plans for as long as possible. Dave, an avid hunter, spends approximately $400 per month for gear and licenses. Linda spends her free time quilting, costing approximately $325 per month. Year 1 of Retirement The Lincolns assume the cost of living/infl ation will grow by an average of 4% a year throughout retirement. Linda is working part-time in retirement. Dave has reduced his working hours to spend more time with Linda now that she is retired. Linda has invested in her SRP (supplemental retirement plan) throughout her career. She expects to have approximately $41,200 in her plan account at retirement. She does not plan to take a distribution from this account until she reaches age 70½. In Year 3, their youngest daughter, Holly, plans to get married. The proud parents of the bride plan to pay $10,000 for the wedding from their liquid, after-tax savings of $23,000. After the wedding, a much needed 21-day European vacation is planned and is expected to cost approximately $13,000. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 2 Stage 1: Year 5 of Retirement The infl ation rate has grown 4% each year, for a 22% compounded growth in liv-ing expenses for this period. Linda’s investments through her 403(b) investment account have steadily increased by 4% per year since she is invested primarily in the money market fund and a short-term bond fund. Dave’s Rollover IRA, how-ever was 60% in equities, and the value of the account over fi ve years has lost value due to the market being down and the withdrawals needed to meet living expenses. Linda’s pension has increased by an average of 2.9% compounded annual ben-efi t adjustment each year. Linda has an accident leaving her with a disabling injury, and she can no lon-ger work. This reduces the couple’s retirement income by $12,600 annually. Due to Linda’s accident there is an increase in out-of-pocket medical expenses (prescriptions for the rest of her life) in the amount of $165 per month in current dollars. Because of all this she chooses to begin her Social Security spousal benefi t at age 62. Dave’s RMDs began during this time. Dave hasn’t been feeling well and has stopped working altogether. Stage 2: Year 10 of Retirement The infl ationary rate continues to average 4% per year, for a compounded in-crease of 48% since Year 1. Linda’s pension has continued to increase by an average of 2.9% compounded annual benefi t adjustment each year, or a com-pounded increase of 33%. Dave suddenly passes away. Linda receives Dave’s Social Security as a wid-ow’s benefi t. Linda’s monthly expenses are reduced overall. Her mortgage is paid off but home repairs have increased on their older home, as well as property taxes. Stage 3: Year 15 of Retirement Linda wants to downsize her home, but her daughter and granddaughter who have been living with her for two years do not want her to for “old memories” sake. Linda’s RMDs begin. Step 1: Identify Your Defi nition of Retirement Success 3 Identifying retirement spending needs is not just about money What are you retiring to? In other words, are you ready for a month of Saturdays? Retirement Readiness Profi le Engagement (Psycho-Social) Wealth (Geo-fi nancial) Health (Bio-medical) © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 4 Emotional Stages of Retirement* Stage 1: Imagination 15-6 years before Stage 2: Anticipation 5 years before Stage 3: Liberation retirement day and one year to follow Stage 4: Reorientation 2-15 years after Stage 5: Reconciliation 16 or more years after *The 2005 New Retirement Mindscape by Ameriprise and Ken Dychwald/AgeWave © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Step 1: What is Your Personal Defi nition of Retirement Success? Health & Wellness Family Work Spiritual Volunteer Hobbies Travel/Entertainment 5 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Qualities of a Satisfying Retirement 1. Work reorientation – the degree to which you have emotionally distanced yourself from receiving your personal identity from work. 2. Attitude toward retirement – your perception of what your next life stage will be like once you transition beyond your current job. 3. Directedness – the degree to which you rely on your own sense of personal guidance for making plans and decisions for your retirement life, rather than relying on others to give you directions. 4. Health perception – your opinion of the current condition of your overall wellness. 5. Financial security – your opinion that you have done suffi cient planning to sustain adequate fi nancial security and maintain your desired lifestyle during your retirement/renewal years. 6. Current life satisfaction – the degree to which you believe you have achieved contentment and peace at this point in your life. 7. Projected life satisfaction – the degree to which you look forward to personal success, achievement, contentment and peace in the future years of the retirement/renewal phase of life. 8. Life meaning – the degree to which you have found a life direction for retirement which offers you a driving purpose and a deep sense of personal fulfi llment. 9. Leisure interests – the degree to which you have found personally satisfying endeavors outside of your work/career which rejuvenate your body, stimulate your mind, and/or enrich your spirit. 10. Adaptability – the degree of personal fl exibility you can exercise at any given time in any given situation. 11. Life stage satisfaction – the degree to which you live in the present and fi nd your current life fulfi lling, rather than living in the past. 12. Dependents – the degree to which you are free from a sense of burden or strain from caregiving responsibilities either for aging parents or relatives (including children). 13. Family & marital issues – the degree to which you derive satisfaction, intimacy, connectedness, love and a sense of well-being from your marriage and family life. 14. Perception of age – the degree to which you see your own maturation process as a time of emotional and psychological vitality and vibrancy, full of potential for dynamic and on going personal growth. 15. Replacement of work function – the degree to which you have planned to replace or project that you can replace, the fi ve functions of working: fi nancial security, socialization, time management, status, sense of utility. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 6 Step 2: Identify Your Retirement Resources and Income Gaps a) Monthly Income Need: Essential Expenses If in case you would prefer to further customize or more specifi cally defi ne your spending categories, circle additional items on the following tables. Enter their name and estimated amount on the spending plan form in the rows on page 10. Common Essential Expenses Categories Fixed Expenses • Alimony • Boat loans • Car (gas, parking, tires, insurance, etc.) • Child Support • Credit card debt • Day care • Education • Electricity • Gas (heating) • Medical insurance • Rent/mortgage • Land contract payments • Student loan(s) • Telephone • Union dues • Miscellaneous • Other Ways to cut or eliminate essential costs If your numbers aren’t adding up, consider using some of the following ways to dig up dollars from your fi xed expenses: • Examine insurance policies for potential lost savings, i.e., raise the deductible on your car from $250 to $500. • Refi nance debt to a lower cost loan such as a home equity loan. • Be conservative with the use of utilities. • Participate in retirement savings programs which then reduce taxes. • Cancel unnecessary insurance, i.e., children’s life insurance. • Avoid using credit cards - pay cash. • Sell big items that you don’t use much, i.e., boat, snowmobile, etc. Periodic Expenses • Income taxes • Disability insurance • Safety deposit box • Post offi ce box • Property taxes • Homeowner’s insurance • Renter’s insurance • Christmas • Seasonal dues • Water bill • Trash pickup • Miscellaneous • Other 7 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Step 2 (continued) b) Monthly Income Need: Discretionary Expenses If in case you would prefer to further customize or more specifi cally defi ne your spending categories, circle additional items on the following tables. Enter their name and estimated amount on the spending plan form in the rows on page 12. Common Discretionary Expenses Categories • Books • Charitable contributions • Children’s expenses • Clothing/cosmetics • Eating out • Dry cleaning • Education • Entertainment (movies, theater, concerts, etc.) • Gifts • Groceries • Haircuts/beauty salon • Health club • Hobby • Home equipment (small appliances, kitchen equipment and tools) • Home furnishings • Home repairs • Home supplies • Housecleaning • Investments • Laundry • Legal expenses • Magazines/newspaper • Medical expenses • Personal care • Personal growth (seminars, therapy, etc.) • Sports • Vacations • Miscellaneous Ways to cut or eliminate discretionary costs If your numbers aren’t adding up, consider using some of the following ways to dig up dollars by cutting variable costs: • Cut down on pleasure spending (buy one C.D. a month instead of four). • Eat at home more often; shop for groceries after a meal. • Buy in bulk and at discount stores. • Make a list before you shop and stick to it. • Do repairs and maintenance yourself. • Use coupons. • Buy generic goods. • Buy used furniture and autos. • Buy clothing, toys, etc. secondhand at garage sales, estate auctions and thrift shops. • Cut out spending on goods or services that hold no value to you. • Limit the number of evenings and/or lunches when you go out. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 8 Monthly Income Need: Essential Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Essential Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Housing (include property taxes) Utilities Health care (including Medical insurance) Household (furnishings, equipment and supplies) Transportation Food at home Insurance (life and other personal) Debts Income taxes (including tax on Social Security benefi ts) Total Essential Monthly $ $ $ $ $ Choose a compounded infl ation factor: 3% – 1.03 1.16 1.34 1.56 4% – 1.04 1.22 1.48 1.80 5% – 1.05 1.28 1.63 2.08 Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ – 1 1,168 1,215 225 234 250 260 200 208 525 350 300 312 125 125 250 250 950 720 3,993 4,067 9 393 Taxation of Social Security Benefi ts Linda and Dave’s © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Monthly Income Need: Essential Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Essential Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Years of retirement Housing (include property taxes) $ $ $ $ $ Utilities Health care (including Medical insurance) Household (furnishings, equipment and supplies) Transportation Food at home Insurance (life and other personal) Debts Income taxes (including tax on Social Security benefi ts) Total Essential Monthly $ $ $ $ $ Choose a compound infl ation factor: 3% – 1.03 1.16 1.34 1.56 4% – 1.04 1.22 1.48 1.80 5% – 1.05 1.28 1.63 2.08 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 10 Monthly Discretionary Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Discretionary Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Meals out Clothing Entertainment (recreation, books, etc.) Personal care (products and services) Professional services Charitable giving Gifts Total Discretionary Monthly Expenses $ $ $ $ $ Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ – 1 300 260 250 175 300 400 100 200 75 – 300 250 425 425 250 380 850 370 2,850 2,460 MONTHLY ESSENTIAL AND DISCRETIONARY EXPENSE TOTALS $ $ $ $ $ 6,843 6,527 ANNUAL EXPENSE TOTALS $ $ $ $ $ 82,116 78,322 529 Plans Hobbies Savings (403(b), other) 11 Linda and Dave’s © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Monthly Discretionary Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Discretionary Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Years of retirement $ $ $ $ $ Total Discretionary Monthly Expenses $ $ $ $ $ Meals out Clothing Entertainment (recreation, books, etc.) Personal care (products and services) Professional services Charitable giving Gifts MONTHLY ESSENTIAL AND DISCRETIONARY EXPENSE TOTALS $ $ $ $ $ ANNUAL EXPENSE TOTALS $ $ $ $ $ Age: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 12 Essential Income Gap (A) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Lifetime Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Pension (ex. OPERS) Social Security Fixed Annuities Variable Annuities Veterans Benefi ts Long-Term Bonds Rental Income Subtotal Monthly Lifetime Income $ $ $ $ $ Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ ��� 1 – 1,234 1,800 1,854 1,800 3,088 Less: Essential Monthly Expenses $ $ $ $ $ 3,993 4,067 Lifetime Income Gap (A) $ $ $ $ $ -2,193 -979 Linda Dave 13 Linda and Dave’s © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Essential Income Gap (A) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Discretionary Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Years of retirement $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Pension (ex. OPERS) Social Security Fixed Annuities Variable Annuities Veterans Benefi ts Long-Term Bonds Rental Income Subtotal Monthly Lifetime Income Less: Essential Monthly Expenses Lifetime Income Gap (A) Age: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 14 Discretionary Income Gap (B) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Linda and Dave’s Managed Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: __________ Age: Name: __________ Age: Years of retirement Employee Savings Plan Traditional IRA Roth IRA Brokerage Account Other Savings SRP Life Insurance Cash Value Home Equity SUBTOTAL Managed Resources Income $ $ $ $ $ Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ – 1 5,840 3,050 Dave Current Value Employment Income Employment Income Interest & Dividends Asset Total: $ Less: Discretionary expenses $ $ $ $ $ 2,850 2,460 Discretionary Income Gap (B) $ $ $ $ $ +2,990 +590 Total Gaps (A) and (B) $ $ $ $ $ +797 -389 Total Gap per Year $ $ $ $ $ +9,564 -4,668 221,200 Dave Linda 3,000 2,840 2,000 1,050 Linda 41,200 – – $ $ 180,000 15 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Discretionary Income Gap (B) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Managed Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: __________ Age: Name: __________ Age: Years of retirement Employee Savings Plan Traditional IRA Roth IRA Brokerage Account Other Savings SRP Life Insurance Cash Value Home Equity SUBTOTAL Managed Resources Income $ $ $ $ $ 5 10 15 $ $ $ $ $ Current Value Employment Income Employment Income Interest & Dividends Asset Total: $ Less: Discretionary expenses $ $ $ $ $ Discretionary Income Gap (B) $ $ $ $ $ Total Gaps (A) and (B) $ $ $ $ $ Total Gap per Year $ $ $ $ $ $ © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 16 4) Investing Risks a. stock market reluctance b. declining interest income c. negative point-in-time 3) Health and Long-term Care Risks a. expected and unexpected health and long-term care expenses b. loss of ability to live independently c. changing housing needs b. lack of available facilities or caregivers 2) Infl ation Risks: a. healthcare b. food 1) Longevity Risks: a. outliving resources b. death of spouse c. home value d. college e. other Step 3: Identify Which of the Following Risks are of Special Concern 17 Risk Self Spouse © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Step 4: Identify Options for Closing Gaps Between Your Income and Expenses Linda and Dave’s (Year 5 for Lincolns – see page 31) 221,200 17,650 12.5 1 3 2 4 18 A. Evaluate your income gaps. How long might your savings last if you retire today? Assuming your investment returns were exactly offset by infl ation and taxes throughout your retirement, how long might your savings last? Current value of retirement savings $______________(1) Forecasted annual essential income gap (A) plus annual discretionary gap (B) for year ________. $______________(1) Divide Line 1 by Line 2 for number of years your savings might last. Do you think you might need your savings for longer than this? _______________(3) years The lower the number of years your savings might last as of right now, the more options below you will need to use to close gap(s). B. Prioritize which method(s) to use to close your income gaps Priority Use to Fill: Essential Gap Discretionary Gap 1. Increase the returns on your savings 2. Delay drawing Social Security and pension 3. Add additional lifetime income 4. Save more 5. Spend less 6. Work part-time or full-time in retirement 7. Access home equity if needed 5 © 2005-2011, InFRE Retirement Resource Center. All rights reserved Step 4: Identify Options for Closing Gaps Between Your Income and Expenses 19 A. Evaluate your income gaps. How long might your savings last if you retire today? Assuming your investment returns were exactly offset by infl ation and taxes throughout your retirement, how long might your savings last? Current value of retirement savings $______________(1) Forecasted annual essential income gap (A) plus annual discretionary gap (B) for year ________. $______________(1) Divide Line 1 by Line 2 for number of years your savings might last. Do you think you might need your savings for longer than this? _______________(3) years The lower the number of years your savings might last as of right now, the more options below you will need to use to close gap(s). B. Prioritize which method(s) to use to close your income gaps Priority Use to Fill: Essential Gap Discretionary Gap 1. Increase the returns on your savings 2. Delay drawing Social Security and pension 3. Add additional lifetime income 4. Save more 5. Spend less 6. Work part-time or full-time in retirement 7. Access home equity if needed © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Step 5: Determine Your Retirement Income Plan 20 D. Having a guaranteed lifetime income is . . . 1. Not a high priority. I have more than enough resources for my needs. I’m more interested in growing my wealth for benefi ciaries 2. Somewhat important, along with creating a legacy. I want a certain level of regular income. But I want to leave something for family members and charities as well. 3. Essential. I want to know I have a regular “pay-check” no matter how long I live in retirement. A. I plan to use the money invested in my retirement accounts (401(k), 457, 403 (b)) . . . 1. Here and there, whenever I wish, I want the freedom to change my income from year to year, depending on my needs and plans. 2. To pay some of my daily living expenses but save some for extras. I need a certain amount of regular income from invested assets, but I want the freedom to splurge when I want to. 3. To pay the bulk of my daily living expenses regularly. This will be a primary source of ongoing income for me. B. With my wealth, I plan to . . . 1. Pass on as much as I can. I want to leave as much money and property as I can for my benefi ciaries and/or charities. 2. Spend what I want and pass on the remainder. I want a certain level of guaranteed income but the fl exibility to spend or pass on the rest. 3. Spend it all during my lifetime. I want to use my money for my needs and wants in my golden years. My family and friends are OK fi nancially. C. When it comes to managing my investments, I want . . . 1. To have total control of my money. I’ll be responsible for managing it throughout all of my retirement. 2. Someone to provide me with some help. I still want some say in how my money is invested, but also want to have help in managing my money. 3. A fi nancial company to guarantee me income for life. The company can worry about how to invest my money and make it last not me. Now add up your numbers! Uses the space provided to write down the number next to the statements you selected. Add up your numbers to get your total score. TOTAL A. _________________ B. _________________ C. _________________ D. _________________ _________________ Now that you know your score, look below to fi nd out which income distribution option on the following page might meet your needs. If your score is 4-6 You may want to consider Systematic/Partial Withdrawal options when converting resources into income. If your score is 7-9 You may want to consider combining Lifetime Income and Systematic/Partial Withdrawal options. If your score is 10-12 You may want to consider Lifetime Income options. Note: A more detailed analysis might suggest different strategies Read the statements and check the box next to the response that is most appropriate for you. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Retirement Income Distribution Options Systematic/ Partial Withdrawal 4-6 Leave your retirement accounts invested and withdraw a fi xed dollar amount or a fi xed percentage on a regular basis (monthly, quarterly, semi-annually or annually). In addition to regular withdrawals, you can also withdraw any dollar amount whenever you wish. Your benefi ciary may choose to withdraw the remaining balance all at once or continue to receive payments until the account balance is depleted. You can change how much you withdraw each year, and you have the fl exibility to make “big” withdrawals for special needs. But since your income isn’t guaranteed for life, you could run out of money before you die. If you’re a “spender,” stay away from this option. Combining Lifetime/ Long-term income with Systematic/ Partial Withdrawal 7-9 Convert a portion of your retirement accounts to an immediate annuity, to provide the desired amount of lifetime/long-term income (such as to cover your essential living expenses). Leave the remaining retirement assets invested and withdraw any additional amounts when needed or on a regular schedule Your benefi ciary may choose to withdraw the remaining balance from the systematic/partial withdrawal accounts or continue to receive payments until the account balance is depleted. Depending on the Payout Option chosen (see next page), your benefi ciary may receive some income from your annuity. A certain amount of your income is guaranteed for life, while you retain control over the rest of your retirement account assets. You are choosing less certainty/more opportunity than total lifetime/long-term income but more certainty/less opportunity than systematic/partial withdrawal. Lifetime/ Long-term Income 10-12 Convert your retirement accounts to an immediate annuity by purchasing a fi xed or variable immediate annuity. The amount of your income is determined by the Payout Option you choose (described on the next page), your age, your benefi ciary’s age, and current interest rates or expected market returns. You can guarantee your benefi ciary(s) a certain amount of income for a certain time period or even for their lifetime. Alternatively, you can totally eliminate your benefi ciaries from receiving any income at all, if you so choose. Your income is guaranteed for life. If you are a “spender,” this option will help keep you from overspending. You give up control over how much and when you can take withdrawals. You also limit or eliminate the amount of money your can pass on to your benefi ciaries. With “fi xed” lifetime/long-term income, you’ll get a set dollar amount regularly; but infl ation will make this money worth less and less in the future. With “variable” lifetime/long-term income, you have a better chance of maintaining your standard of living over time; but your income will vary from period to period. 21 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. I want income for as long as my benefi ciary and I live. You’ve chosen a Joint & Survivor option. I know we will have guaranteed income as long as we live, even if one of us dies. But once we pass away, there will be nothing left for any other benefi ciaries. I also want to take Systematic/Partial Withdrawal payments. Yes No I want income for a certain number of years. You’ve chosen a Period Certain option. Instead of lifetime/long-term income, I know I’ll only receive payments for a set number of years. But if I die before I’ve received all my payments, my benefi ciaries are guaranteed to receive the rest. I also want to take Systematic/Partial Withdrawal payments. Yes No I want income for life with at least a certain number of payments. You’ve chosen a Life Annuity with Guaranteed Payments option. I know I’ll have income for as long as I live. If I die before receiving all of my payments, my benefi ciaries are guaranteed to receive the rest. I also want to take Systematic/Partial Withdrawal payments. Yes No a) Identify Your Appropriate Annuity Payout Option(s) 22 Step 5 (continued) To determine which annuity payout option might best meet your needs, read the description below and check the box next to the one that is most appropriate to you. I want the most income I can get for as long as I live. You’ve chosen a Single LIfe option. No one else depends on me fi nancially. When I die, whether it’s in 20 days or 20 years, nothing will be left for any benefi ciaries. I also want to take Systematic/Partial Withdrawal payments. Yes No I want to receive income for _____ number of years. Intended Benefi ciaries: Age: Spouse Name: Children or Others: Charities: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 23 Step 5 (continued) b) Taxable Capital Gains Planning and Opportunities Begin planning the most tax-effi cient way to create income in retirement. 1) First circle your marginal tax rate to be aware of your marginal tax bracket upper limit. You need to watch this carefully when withdrawing money from tax-deferred accounts so that you do not boost your income into the next higher marginal federal tax bracket and incur additional income taxes unnecessarily. 2011 Ordinary Income Tax Rate Single Taxable Income Joint Taxable Income Long-Term Capital Gain Rate 10% Up to $8,350 Up to $17,000 0%1 15% . . . $34,500 . . . $69,000 0% 25% . . . $83,600 . . . $139,350 15%2 28% . . . $174,400 . . . $212,300 15% 33% . . . $379,150 . . . $379,150 15% 35% . . . $379,151+ . . . $379.151+ 15% 0% rate expires 12/31/2012. 115% rate expires 12/31/2012. Long-term = more than one year. 2) Record the names of any taxable assets you have where you have a gain over what you paid. If in case additional withdrawals from your tax-deferred accounts might boost you into the next higher federal income tax bracket, you might be better off withdrawing money from your taxable assets instead to avoid paying unnecessary federal income taxes. Assets with Current Capital Gains Purch. Date Current Value Cost Basis Est. Gain © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 24 Step 5 (continued) c) Plan for First RMD or Risk 50% Penalty Use the following worksheet to keep track of when, where and how much you need to begin required minimum distributions from your tax-deferred accounts Line 1: Record the date you (and your spouse) will turn age 70½. Line 2: Record the names of any tax-deferred savings accounts you have that you will need to take minimum distributions from the year you turn 70½. Line 3: If you are younger than age 70½, write in 27.4 as the fi rst year’s RMD factor. Line 4: If you are currently older than 70½, please see the table on the next page for the factor to determine your required minimum distribution for the current year. B) Tax Deferred Plans Self 1. Required beginning date (RBD): 1. Required beginning date (RBD): Tax Deferred Plans Spouse 2. Retirement accounts that will require minimum distributions: 2. Retirement accounts that will require minimum distributions: 12/31/_____ balances 12/31/_____ balances a. a. b. b. $ $ $ $ c. $ c. $ TOTAL:$ TOTAL:$ 3. RMD factor from page 25. 3. RMD factor from page 25. $ $ 4. If you are 70½ or older required minimum distribution for this year (total dollars in (2) divided by RMD factor (3)) 4. If you are 70½ or older required minimum distribution for this year (total dollars in (2) divided by RMD factor (3)) © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Calculating Required Minimum Distributions The Uniform Lifetime Table determines the distribution period for lifetime distributions to a retiree for an individual account. This table is used by all to calculate RMDs during their lifetime. 25 10 86.2 63 33.9 11 85.2 64 33.0 12 84.2 65 32.0 13 83.2 66 31.1 14 82.2 67 30.2 15 81.2 68 29.2 16 80.2 69 28.3 17 79.2 70 27.4 18 78.2 71 26.5 19 77.3 72 25.6 20 76.3 73 24.7 21 75.3 74 23.8 22 74.3 75 22.9 23 73.3 76 22.0 24 72.3 77 21.2 25 71.3 78 20.3 26 70.3 79 19.5 27 69.3 80 18.7 28 68.3 81 17.9 29 67.3 82 17.1 30 66.3 83 16.3 31 65.3 84 15.5 32 64.3 85 14.8 33 63.3 86 14.1 34 62.3 87 13.4 35 61.4 88 12.7 36 60.4 89 12.0 37 59.4 90 11.4 38 58.4 91 10.8 39 57.4 92 10.2 40 56.4 93 9.6 41 55.4 94 9.1 42 54.4 95 8.6 43 53.4 96 8.1 44 52.4 97 7.6 45 51.5 98 7.1 46 50.5 99 6.7 47 49.5 100 6.3 48 48.5 101 5.9 49 47.5 102 5.5 50 46.5 103 5.2 51 45.5 104 4.9 52 44.6 105 4.5 53 43.6 106 4.2 54 42.6 107 3.9 55 41.6 108 3.7 56 40.7 109 3.4 57 39.7 110 3.1 58 38.7 111 2.9 59 37.8 112 2.6 60 36.8 113 2.4 61 35.8 114 2.1 62 34.9 115 1.9 Taxpayer’s Age Lifetime Expectancy Taxpayer’s Age Lifetime Expectancy © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 26 Step 5 (continued) d) Estimate of Taxation of Social Security Benefi ts Year 1 Year 5 *The worksheet is for estimate purposes only. Consult a tax advisor for actual determination of Social Security benefi ts taxation. ** Also includes head of household fi ling separately and living apart from spouse. 60,000 40,000 11,100 17,730 71,000 57,730 39,100 25,730 19,550 12,865 11,100 12,865 x .25 x .25 =$2,775/yr =$3,216/yr or $231/mo. or $268/mo. 6,000 6,000 27,100 13,730 23,035 11,671 29,035 17,671 18,870 33,497 X .25 X .25 =4,717/yr or $393/mo. =8,374/yr or $698/mo. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 1. Add your AGI and tax-exempt income. 2. Enter half your annual Social Security benefi ts (if married fi ling jointly, enter half of your combned benefi ts). 3. Enter total of lines 1 & 2 If the total of line 3 is less than $25,000 and you are unmarried**, or less than $32,000 and you are married fi ling jointly, none of your Social Security benefi ts are taxable. If you are married, fi ling separately and live with your spouse, go to line 8. 4. If the total of line 3 is greater than the fi gures above, subtract $25,000. If you are unmarried** and $32,000 if you are married fi ling jointly and enter amount. 5. Divide line 4 by one-half and enter amount. 6. Enter the smaller of line 2 or line 5. 7. Compare the fi gure on line 6 with $4,500 if you are unmarried** or $6,000 if you are married fi ling jointly and enter the smaller amount. 8. Take the fi gure on line 3 and subtract $34,000 if you are unmarried**, $44,000 if married fi ling jointly and nothing if you are married, fi ling separately and live with your spouse. Enter this amount. 9. Multiply line 8 by 0.85 and enter amount 10. Enter the sum of fi gures on lines 7 and 9. 11. Multiply your annual Social Security Benefi ts (combined benefi ts if married fi ling jointly) by 0.85 and enter amount. If the fi gure on line 3 is less than $34,000 and you are unmarried** or less than $44,000 and you are married fi ling jointly, the fi gure on line 6 is the Social Security benefi ts subject to taxation and stop here. Otherwise, go on to line 7. The smaller of the fi gures on lines 10 and 11 is the amount of your Social Security benefi ts subject to taxation. 27 d) Estimate of Taxation of Social Security Benefi ts Year 1 Year 5 *The worksheet is for estimate purposes only. Consult a tax advisor for actual determination of Social Security benefi ts taxation. ** Also includes head of household fi ling separately and living apart from spouse. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 1. Add your AGI and tax-exempt income. 2. Enter half your annual Social Security benefi ts (if married fi ling jointly, enter half of your combned benefi ts). 3. Enter total of lines 1 & 2 If the total of line 3 is less than $25,000 and you are unmarried**, or less than $32,000 and you are married fi ling jointly, none of your Social Security benefi ts are taxable. If you are married, fi ling separately and live with your spouse, go to line 8. 4. If the total of line 3 is greater than the fi gures above, subtract $25,000. If you are unmarried** and $32,000 if you are married fi ling jointly and enter amount. 5. Divide line 4 by one-half and enter amount. 6. Enter the smaller of line 2 or line 5. 7. Compare the fi gure on line 6 with $4,500 if you are unmarried** or $6,000 if you are married fi ling jointly and enter the smaller amount. 8. Take the fi gure on line 3 and subtract $34,000 if you are unmarried**, $44,000 if married fi ling jointly and nothing if you are married, fi ling separately and live with your spouse. Enter this amount. 9. Multiply line 8 by 0.85 and enter amount 10. Enter the sum of fi gures on lines 7 and 9. 11. Multiply your annual Social Security Benefi ts (combined benefi ts if married fi ling jointly) by 0.85 and enter amount. If the fi gure on line 3 is less than $34,000 and you are unmarried** or less than $44,000 and you are married fi ling jointly, the fi gure on line 6 is the Social Security benefi ts subject to taxation and stop here. Otherwise, go on to line 7. The smaller of the fi gures on lines 10 and 11 is the amount of your Social Security benefi ts subject to taxation. Monthly Income Need: Essential Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Linda and Dave’s Forecasted Essential Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Housing (include property taxes) Utilities Health care (including Medical insurance) Household (furnishings, equipment and supplies) Transportation Food at home Insurance (life and other personal) Debts Income taxes Total Essential Monthly $ $ $ $ $ Choose a compounded infl ation factor: 3% – 1.03 1.16 1.34 1.56 4% – 1.04 1.22 1.48 1.80 5% – 1.05 1.28 1.63 2.08 Linda Dave 55 67 5 10 15 57 69 $ $ $ $ $ – 1 1,168 1,215 225 234 250 260 200 208 525 350 300 312 125 125 250 250 950 720 3,993 4,067 62 74 67 – 72 – 5 10 15 1,236 800 285 346 405 561 250 308 277 280 396 371 125 50 250 100 606 662 900 421 684 375 342 453 50 100 807 4,531 4,046 4,824 Taxation of Social Security Benefi ts (50% taxable @ 25% marginal rate) 28 393 698 568 692 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Monthly Discretionary Expenses Please fi ll in the amount of expenses you have now and expect to have in Year 1 and through the three stages of your retirement. Refer to pages 7-8 for examples of names of expense categories to use. Linda and Dave’s Forecasted Discretionary Expenses Current Monthly Expenses Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Meals out Clothing Entertainment (recreation, books, etc.) Personal care (products and services) Professional services Charitable giving Gifts Total Discretionary Monthly Expenses $ $ $ $ $ $ $ $ $ $ MONTHLY ESSENTIAL AND DISCRETIONARY EXPENSE TOTALS $ $ $ $ $ ANNUAL EXPENSE TOTALS $ $ $ $ $ 529 Plans Hobbies Savings (403(b), other) 300 260 250 175 300 400 100 200 75 – 300 250 425 425 250 380 320 300 150 100 365 444 243 198 – – 150 150 300 300 400 200 360 125 540 180 – 150 0 200 850 370 0 0 0 2,850 2,460 1,928 1,642 1,555 6,843 6,527 6,459 5,688 6,379 82,116 78,322 77,507 68,260 76,553 Linda Dave 55 67 5 10 15 57 69 – 1 62 74 67 – 72 – 5 10 15 29 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. Essential Income Gap (A) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Lifetime Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: _____________________ Age: Name: _____________________ Age: Years of retirement Pension (ex. OPERS) Social Security Fixed Annuities Variable Annuities Veterans Benefi ts Long-Term Bonds Rental Income Subtotal Monthly Lifetime Income $ $ $ $ $ $ $ $ $ $ Less: Essential Monthly Expenses $ $ $ $ $ Lifetime Income Gap (A) $ $ $ $ $ Linda Dave – 1,234 1,800 1,854 1,383 1,596 2,087 0 1,841 0 Loss: Taxation of Social Security Benefi t 1,800 3,088 4,565 4,015 4,645 3,993 4,067 4,531 4,046 4,824 -2,193 -979 +34 -31 -179 Linda and Dave’s Forecasted Linda Dave 55 67 5 10 15 57 69 – 1 62 74 67 – 72 – 5 10 15 Social Security Linda – – 1,095 2,419 2,804 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 30 Discretionary Income Gap (B) Please fi ll in the following sources of retirement income you are receiving in the current year and expect to receive in year 1 and through the three stages of your retirement. Linda and Dave’s Forecasted Managed Resources Current Monthly Income Year 1 Stage 1 Year ____ Stage 2 Year ____ Stage 3 Year ____ Name: __________ Age: Name: __________ Age: Years of retirement Employee Savings Plan Traditional IRA Roth IRA Brokerage Account Other Savings SRP Life Insurance Cash Value Home Equity SUBTOTAL Managed Resources Income $ $ $ $ $ $ $ $ $ $ 5,840 3,050 Dave Current Value Employment Income Employment Income Interest & Dividends Asset Total: $ Less: Discretionary expenses $ $ $ $ $ 2,850 2,460 Discretionary Income Gap (B) $ $ $ $ $ +2,990 +590 Total Gaps (A) and (B) $ +797 $ -389 $ $ $ Total Gap per Year $ +9,564 $-4,668 $ $ $ 221,200 Dave Linda 3,000 2,840 2,000 1,050 Linda 41,200 – – $ 180,000 $ 423 (RMD) 423 1,928 -1,505 -1,471 -17,652 0 1,642 -1,642 -1,673 -20,076 586 1,555 -969 -1,148 -13,776 Linda Dave 55 67 5 10 15 57 69 – 1 62 74 67 – 72 – 5 10 15 586 $180,000 ÷ 25.6 (RMD factor for age 72) divided by 12 months 31 © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 32 Notes: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 33 Notes: © 2005-2011, InFRE Retirement Resource Center. All rights reserved. © 2005-2011, InFRE Retirement Resource Center. All rights reserved. 34 Helpful Free Resources Retirement Plan Information 1. OPERS, Retirement program info, www.opers.ok.gov, 405-858-6737, (800-733-9008 outside local calling area) 2. SoonerSave, SoonerSave info, www.soonersave.com, 405-858-6737 (800-733-9008 outside local calling area) 3. Social Security Administration, Retirement benefi t info, www.ssa.gov, 800-772-1213 4. Department of Labor, Retirement plan info, www.dol.gov/dol/topic/retirement/index.htm, 866-487-2365 Money Resources Health Resources Happiness Resources 1. AARP, Staying engaged in retirement, www.aarp.org 2. HelpGuide.org, Aging well & housing info, www.helpguide.org 3. Civic Ventures, Work after a primary career, www.civicventures.org, 415-430-0141 4. National Older Worker Career Center, Employment opportunities, www.nowcc.org 5. Experience Works, Training for older workers, www.experienceworks.org, 866-976-5939 6. Senior Corps, Volunteer opportunities for seniors, www.seniorcorps.gov, 800-424-8867 1. Federal Government Financial Literacy and Education Commission (FLEC), Financial planning info, www.mymoney.gov, 1-888-mymoney 2. Department of Labor, Retirement planning info, www.dol.gov/ebsa/publications/nearretirement.html 3. AARP, Financial and retirement planning info, www.aarp.org 4. Financial Planning Association, Financial and retirement planning info, www.fpaforfi nancialplanning.org 5. InFRE Retirement Resource Center, Retirement income and fi nancial planning info,www.retirement-income-management. com/consumers.shtml 6. American Savings Education Council, Retirement saving info, www.choosetosave.org 7. Securities & Exchange Commission, Investing info, www.investor.gov, 888-732-6585 8. National Endowment for Financial Education, Money management info, www.myretirementpaycheck.org 9. Financial Industry Regulatory Authority, Investing and advisor validation info, www.fi nra.org, 800-289-9999 10. Women’s Institute for a Secure Retirement, Retirement info for women, www.wiserwomen.org, 202-393-5452 11. American Federation of State, County and Municipal Employees, Guide to retirement, www.afscme.org/ publications/1276.cfm, 202-429-1000 12. Federal Trade Commission, Consumer protection info, www.ftc.gov, 877-382-4357 13. American Bar Association, Estate planning info, www.abanet.org, 800-285-2221 14. IRS, Tax info, www.irs.gov, 800-829-1040 1. AARP, Healthy living tips for older Americans, www.aarp.org 2. U.S. Department of Agriculture, Dietary guidelines, www.mypyramid.gov 3. Centers for Disease Control, Healthy living info, www.cdc.gov, 800-232-4636 4. SmallStep, Health and well-being info, www.smallstep.gov 5. Alliance for Aging Research, Healthy aging info, www.agingresearch.org, 202-293-2856 6. National Institute on Aging, Aging research, www.nia.nih.gov, 800-222-2225 7 . Active Aging Partnership, Physical activity info, www.agingblueprint.org 8. National Council on Aging, Improving lives of older Americans, www.ncoa.org, 202-479-1200 9. Administration on Aging, Aging services info, www.aoa.gov, 202-619-0724 10. Medicare, Medicare info, www.medicare.gov, 800-633-4227 11. NIH Senior Health, Health and wellness info, www.nihseniorhealth.gov 35 What You Need to Know About Managing Your Retirement Income Making retirement decisions in the new retirement environment Bright Ideas Action Plan Ideas and thoughts I want to capture and act upon after this program © 2005-2011, InFRE Retirement Resource Center. All rights reserved. This publication, printed by Mercury Press, Inc., is issued by the Oklahoma Public Employees Retirement System as authorized by the Executive Director. One thousand five hundred copies have been prepared at a cost of $2,284.25. An electronic copy has been deposited with the Publishing Clearinghouse of the Oklahoma Department of Libraries. Printed October, 2011 |
Date created | 2011-10-25 |
Date modified | 2013-05-13 |
OCLC number | 759939423 |
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