Chapter 14 - Retirement and estate planning. In this chapter, you will learn to: Analyze your current assets and liabilities for retirement and estimate your retirement living costs, determine your planned retirement income and develop a balanced budget based on your retirement income, analyze the personal and legal aspects of estate planning, distinguish among various types of wills and trusts. | 14 Retirement and Estate Planning A variety of tax-sheltered opportunities are available for building retirement assets. Tax Sheltering – tax laws allow certain income to remain exempt from income taxes or permit an adjustment, reduction, deferral, or elimination of income tax liability. Retirement – time in life when most of one’s income changes from earned income to employer-based benefits, private savings, and perhaps income from Social Security and part-time employment. 14- Misconceptions About Retirement Planning You have plenty of time to start saving for retirement Saving just a little bit won’t help You’ll spend less money when you retire My retirement will only last 15 years You can depend on Social Security and a company pension to pay your basic living expenses Your pension benefits will increase to keep pace with inflation Your employer’s health insurance plan and Medicare will cover all your medical expenses when you retire Objective 1 Analyze Your Current Assets and Liabilities for Retirement and Estimate Your Retirement Living Costs 14- The Importance of Starting Early Take advantage of the time value of money Start at age 25: Invest $127 a month At 11% APR For 40 years Start at age 50: Invest $ 2,244 per month At 11% APR For 15 years N = 480 months I/Y = = 11%/12 PMT = -127 PV = 0 FV CPT = $1,092,216 N = 180 = 15 yrs x 12 I/Y = PMT CPT = - $2,244 PV = 0 FV = $1,020,362 14- Conducting a Financial Analysis Assets - Liabilities = Net Worth Ideally net worth should increase each year Housing If owned, probably your biggest single asset If large equity, a reverse mortgage could provide additional retirement income Sell your home, buy a less expensive one, and invest the difference Life Insurance May reduce coverage as you near retirement and children are self-sufficient Increase income by lowering premiums Other Investments After retirement, consider changing your objective from growth to income 14- Estimating | 14 Retirement and Estate Planning A variety of tax-sheltered opportunities are available for building retirement assets. Tax Sheltering – tax laws allow certain income to remain exempt from income taxes or permit an adjustment, reduction, deferral, or elimination of income tax liability. Retirement – time in life when most of one’s income changes from earned income to employer-based benefits, private savings, and perhaps income from Social Security and part-time employment. 14- Misconceptions About Retirement Planning You have plenty of time to start saving for retirement Saving just a little bit won’t help You’ll spend less money when you retire My retirement will only last 15 years You can depend on Social Security and a company pension to pay your basic living expenses Your pension benefits will increase to keep pace with inflation Your employer’s health insurance plan and Medicare will cover all your medical expenses when you retire Objective 1 Analyze Your .
