Planning for Retirement

By LaJahna White

Defining Your Retirement Needs

  • To enjoy retirement, one must plan and save money for it throughout work life.
  • SS and a company pension may be insufficient to cover the cost of living.
  • Inflation will decrease the purchasing power of your retirement savings.

Defining your retirement needs: How Much Income Do You Need?

  • Many financial advisors tell clients they will need between 60% and 80% of their before-retirement salary to live comfortably when they retire.
  • You can achieve a comfortable retirement only by limiting your current spending so that you can start saving now - at the early start of your work life.
  • There will be some time when you don't have much to set aside.
  • You may be paying for: a college ed., children, cares, houses, furniture, etc.
  • But save regularly as much as you can without severely limiting your current lifestyle.

Defining your retirement needs: Keep the House or Move?

  • After children are grown up, many parents chosen to sell their family home and find other smaller and easier to maintain.
  • Current tax law allows married couples to sell the house they lived in at least two years without paying taxes o the profits up to $500,000.00. Single people's limit is $250,000.00.
  • Equity in a house is the property's market value minus the amount of the mortgage mot yet paid.
  • Reverse mortgage: a loan against the equity in the borrower's home in which the lender make tax-free monthly payments to the borrower.
  • Heirs are people who receive property from someone who has died.

Defining Your retirement needs: What Type of Investment Strategy?

  • Monthly income is often retiree's main goal for investment.

Defining your retirement needs: How Much Insurance?

  • When retired, as your need for life insurance had diminished, you need for other insurance increases.
  • For retirees, the crucial need for insurance falls in the area of health (hopes that being ill doesn't wipe out a lifetime of savings and investing.)

Defining your retirement needs: How Do You Beat Inflation?

  • One reason the planning for retirement is so important because of the probable loss of buying power due to inflation.
  • Due to inflation, the cost of living goes up over time - price increase reduce buying power. For example:
  • If prices increase at 8% while your retirement income is increasing at only 3% or 4%, you'll have to cut or something from your budget, or dip into your principal. to maintain your living standard.
  • So budgeting must be continued through retirement. Part-time work is often the choice of seniors who need more income for inflation or simply enjoys working.

Estate Planning Tools


  • Estate: all that a person owns, less debts owed, at the time of the person's death.
  • Estate planning: preparing a plan for transferring property during one's lifetime and at one's death.
  • Goals: to minimize taxes on the estate, to make know how you want your possession distributed, and to provide for a smooth transfer of your possessions to your loved ones upon your death.
  • Tools: wills, power of attorney, trusts, and joint ownership of assets.

Estate Planning Tools: Wills

  • legal documents that tells how you want your estate to be distributed after your death.
  • In wills, you name an executor, a person to carry out the transfer of your estate when you die.
  • People who make wills are called testator.
  • Simple will: a short document that lists the people you want to inherit and what you want each to receive.
  • Simple wills take a short time to prepare and are fairly standard documents.
  • Holographic will: will written in a person's own handwriting.
  • People die without wills are said to be intestate - their property is distributed according to the laws of the state.
  • Property reverts to the state when a person dies without heirs.
  • Codicil: a person that can make a will and later make small changes with a document.
  • Codicils can list the modifications and then reaffirms the rest of the original will document.

Estate Planning Tools: Power of Attorney

  • Legal document authorizing some to act on your behalf.
  • EX: if you are not able to care for yourself, this document gives your appointed person to use the money from your savings to pay bills and hire someone to care for you.
  • May be limited or general in time or in scope.
  • Limited power of attorney may be good for 30 days or a year, or may pertain to a particular transaction.
  • General gives another person the right to act completely for you.
  • Must fully trust this person whom you will give this legal right.

Estate Planning Tools: Trusts

  • legal documents in which an individual (trustor) gives someone else (trustee) control of property, for ultimate distribution to another person (beneficiary).
  • A trust can exist during the lifetime of the trustor. This type of trust is called inter vivos (living trust).

Estate Planning Tools: Joint Ownership

  • two or more people own an undivided interest in the property.

Taxation of Estates

  • Federal and state government levy many types of taxes that are considered in planning your estate.
  • Major taxes:
  1. Estate taxes
  2. Inheritance taxes
  3. Gift taxes

Taxation of Estate: Federal Estate Taxes

  • A tax on property transferred from deceased people to their heirs.
  • It's paid from the assets of the estate, before anything can be distributed to heirs.
  • May have to sell property or investment in order to pay this tax.
  • Is deducted from the value of the estate.

Taxation of Estate: State Death Taxes

  • Inheritance tax: tax on an heir who receives property from a deceased person's estate.
  • Heirs pay these taxes on property received.
  • The amount of tax is based on the value of the property in the estate.

Taxation of Estate: Federal Gifts Taxes

  • Life estate: allows you to pass title to real property to a loved one but retain your right to live on the premises for as long as you live.
  • Gift tax: a tax on a gift of money or property, to be paid by the giver, not the receiver, of the gift.

Taxation of Estate: Federal/State Income Taxes

  • When someone dies, income must be paid on the income