Pursuing the Retirement You Deserve
Four Pillars of a Successful Retirement (that is, four really important factors) 1. Social Security 2. Income Strategy 3. Tax Planning 4. Legacy Planning
Three Risks (also known as external factors over which you have little control) 1. Inflation (cost of living) 2. Health-care costs 3. Market unpredictability
When Can You Claim Social Security Retirement Benefits? Benefits are based on the age when you claim them. ⚫ Earliest age: 62 * ⚫ Full retirement age: 66 to 67 ** ⚫ Latest age: 70 *Surviving spouses can claim survivor benefits at age 60. **Full retirement age varies depending on year of birth.
How Claiming Age Affects Monthly and Annual Benefits Todd Birth year: 1956 Full retirement age: 66 + 4 months Monthly Annually Age 62 benefit (73.33%) $1,467 $17,604 Full retirement benefit (100%) $2,000 $24,000 Age 70 benefit (129.33%) $2,587 $31,044 Marian Birth year: 1960 Full retirement age: 67 Monthly Annually Age 62 benefit (70%) $1,680 $20,160 Full retirement benefit (100%) $2,400 $28,800 Age 70 benefit (124%) $2,976 $35,712 These hypothetical examples are used for illustrative purposes only. Actual benefits and results will vary.
Spousal Benefit ● You must be age 62 or older to qualify ● You must have been married for at least one year ● Your spouse must first file for Social Security benefits ● If claimed at your full retirement age, the spousal benefit would be one-half of your spouse’s primary insurance amount* *The spousal benefit is permanently reduced if you claim it before reaching full retirement age.
Survivor Benefit ● Survivor benefit is based on the earnings of the person who died ● Reduced survivor benefit at age 60 ● Full survivor benefit if claimed at full retirement age ● If you remarry before age 60, you will forfeit survivor benefit (while you are married)* *Unless remarriage has ended in divorce or annulment.
Other Factors That Could Reduce Your Social Security Payments 1. Taxes 2 . Retirement earnings test 3. Windfall elimination provision 4. Government pension offset 5. Medicare premiums
2019 Medicare Costs Part A monthly premium $240 or $437 (for those who pay a premium)* $1,364 for each benefit period Part A deductible $135.50 (standard premium) Part B monthly premium (those protected by hold-harmless provision may pay less) (for lower-income beneficiaries) Part B monthly premium $189.60 to $460.50 (for higher-income beneficiaries)** $185 Part B annual deductible Note: Premiums and out-of-pocket costs for Medicare Part D vary by plan and individual situation. *Part A premium affects people who paid insufficient or no Medicare taxes while working. **Modified adjusted gross income above $85,000 (single filers) or $170,000 (joint filers). Source: Centers for Medicare & Medicaid Services, 2018
Three Steps to Developing an Income Strategy 1 2 3 Size up current Choose a plan for Refine your situation and investment mix tapping assets sources of income
Sample Asset Allocation Models Aggressive investor Conservative investor Cash alternatives 20% Bonds 20% Bonds Stocks 50% 5% Cash 30% alternatives Stocks 75% These hypothetical examples are used for illustrative purposes only.
Income-Producing Mutual Funds and ETFs • Low initial investment • Professional management • Diversification • Flexibility Mutual funds and ETFs are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, is available from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
Tax-Exempt Investments Generally most appropriate for investors in higher tax brackets • Municipal bonds • Treasury securities • Tax-free money market funds Typically offer lower yields than taxable investments How do you know whether they’re right for you? Municipal bonds are tax exempt at the federal level, and possibly the state level. Treasury securities are generally exempt from state taxes. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
How Long Would a Retirement Portfolio Last? Two $500,000 tax-deferred accounts $50,000 inflation-adjusted 4% return annual withdrawals 3% annual inflation rate 8% return Start Year 5 Year 10 Year 15 This hypothetical example is used for illustrative purposes only and does not reflect the performance of any specific investment. It compares two $500,000 portfolios: one earning 4% annually, the other earning 8% annually. The principal values and yields of securities will fluctuate with changes in market conditions so that investments, when sold, may be worth more or less than their original cost. Taxes, fees, and other expenses were not considered.
Portfolio and Retirement Plans: What to Spend First? • Not an easy decision • Considerations: • Tax consequences • Opportunity costs • Emotional implications • Taxable, tax-deferred, and tax-free accounts
Should You Consider a Roth IRA? • Funded with after-tax contributions or converted assets • Qualified distributions are tax-free • Contributions (but not earnings) can be withdrawn at any time • Can contribute past age 70½ if you have earned income (from wages) • Distributions are NOT required during your lifetime
Types of Fixed Annuities Immediate Deferred
Income Strategy Tax Planning Legacy Planning Social Security
Marginal vs. Effective Tax Rates 2019 Tax Year • Marginal tax rate = Single filers rate on next dollar of If taxable income is: Your tax is: Not over $9,700 10% of taxable income taxable income Over $9,700 to $39,475 $970.00 + 12% of the excess over $9,700 Over $39,475 to $84,200 $4,543.00 + 22% of the excess over $39,475 • Effective tax rate = Over $84,200 to $160,725 $14,382.50 + 24% of the excess over $84,200 Over $160,725 to $204,100 $32,748.50 + 32% of the excess over $160,725 total tax ÷ taxable income Over $204,100 to $510,300 $46,628.50 + 35% of the excess over $204,100 Over $510,300 $153,798.50 + 37% of the excess over $510,300 • Single filer with Married filing jointly and surviving spouses $45,000 taxable income: If taxable income is: Your tax is: Not over $19,400 10% of taxable income 22% income tax bracket Over $19,400 to $78,950 $1,940 + 12% of the excess over $19,400 Over $78,950 to $168,400 $9,086 + 22% of the excess over $78,950 $5,758.50 in taxes Over $168,400 to $321,450 $28,765 + 24% of the excess over $168,400 Over $321,450 to $408,200 $65,497 + 32% of the excess over $321,450 12.8% effective tax rate Over $408,200 to $612,350 $93,257 + 35% of the excess over $408,200 Over $612,350 $164,709.50 + 37% of the excess over $612,350
Other Changes Worth Noting • The Affordable Care Act individual responsibility payment is repealed starting in 2019 • Federal estate and gift tax exclusion amount doubled to $11.18 million in 2018; it reaches $11.4 million in 2019* • Alimony is not deductible by paying spouse (and not included in recipient’s income) for divorces implemented after December 31, 2018 • Moving expense deduction for a job-related move has been suspended through 2025, except for members of the Armed Services on active duty *The estate and gift tax exclusion amount is indexed annually for inflation. In 2026, it is scheduled to revert to its 2017 inflation-adjusted level.
Important Estate Documents • Power of attorney • Durable power of attorney • Medical durable power of attorney • Living will • Will • Trust records
Basic Estate Tax Concepts • Unlimited marital deduction • Federal estate tax exclusion • Portability of exclusion between spouses • Annual gift tax exclusion • Step-up in basis vs. carryover basis rules
Federal Estate Tax Exclusion Year Exclusion Amount Top Tax Rate 2007 – 08 $2,000,000 45% 2009 $3,500,000 45% 2010 $0 or $5,000,000 0% or 35% 2011 $5,000,000 35% 2012 $5,120,000 35% 2013 $5,250,000 40% 2014 $5,340,000 40% 2015 $5,430,000 40% 2016 $5,450,000 40% 2017 $5,490,000 40% 2018 $11,180,000 40% 2019 $11,400,000 40%
Providing for Your Heirs • Draft appropriate legal documents • Prepare a letter of instruction • Choose a personal representative (executor)
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