Chapter 36 Retirement and Wills - PowerPoint Presentation

Slide1

Chapter 36

Retirement and WillsSlide2

36.1 Retirement Income

Public Pension Plans

The federal government administers:

social security, railroad pensions, military pensions, and civil service pensions.Slide3

Social Security

Provides

income to people when their regular incomes due to

retirement, disability, or death of someone who had provided them income.

While working at a job that makes you eligible for benefits, you receive

work credits

-

units that stand for a specific amount of money earned during a calendar quarter

Workers can earn up to

four credits in one year

Example 1Slide4

With certain exceptions, workers need

40 work credits to be eligible for social security benefits.

This is equal to

10 years of contributions to the fund

These years do NOT need to be

consecutive

The actual amount paid in benefits depends on your average earnings over a

period of years.

The more you earn, the more benefits you receive

up to a certain limit.Slide5

Age Requirements for Social Security Benefits

People Born in:

Receive Full Benefits at Age:

1938

65 and 2 months

1939

65 and 4 months

1940

65 and 6 months

1941

65 and 8 months

1942

65 and 10 months

1943-54

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 or later

67Slide6

Workers are entitled to disability benefits under the social security law if they have a physical or mental condition that prevents them from doing substantial, gainful work and if the condition has lasted or is expected to last for at least

12 months.

Conditions expected to result in death are also eligible to receive

disability benefits.Slide7

Employer Retirement Plans

Pension plan

-

retirement plan funded at least in part by an employer

Noncontributory pension plan

-

funded entirely by the employer

401 (k) plan

- employees agree to

forgo a bonus or take a salary reduction to invest in a retirement plan

Employers sometimes

match the amount contributed by the employeeSlide8

403 (b)

- similar plan offered to

employees of nonprofit organizations

No taxes taken

until the money is withdrawn

Cannot withdraw without penalty before age

59 ½

Lower income workers are entitled to

tax credits when they save for retirementSlide9

Defined-Benefit Plans

Most common

employer pension plan

Employees receive a definite, predetermined amount of money upon

retirement or disability

The fixed amount is based on the employee’s

years of service

The amount of the monthly benefit is an amount of money fixed in advance for

each year of service

Example 2Slide10

Payments

may

also be calculated based on a

percentage of wages over the years.

The employer must contribute necessary amounts to ensure that benefits will be paid at

retirement.Slide11

Defined-Contribution Plans

An employer pays a certain amount into a pension fund every

month or year for each employee

The amount contributed is usually a fixed percentage of the employee’s

wages or salarySlide12

Employee Retirement Income Security Act

ERISA

- employers must place employees’ pension contributions into a pension trust,

independent of the employer

Employee’s contributions vest

immediately

Vesting

- act of giving a worker

a guaranteed right to receive a future pensionSlide13

Portability

-

ability to transfer pension benefits from one job to another

Workers may transfer benefits from:

one company’s pension plan to the plan of

another company

from one company’s pension plan to an

IRA

from an IRA plan to a

company planSlide14

Personal Retirement Plans

Self-employed persons and employees who are not covered by a company pension plan have the same retirement needs as others.Slide15

Individual Retirement Accounts

IRA

-

an individual’s own personal pension plan

It is a system of providing for retirement by saving part of your earnings

every year.

The earlier you start saving, the more you will have when you

retire

.Slide16

Various Types of IRAs

Type of IRA

Features

Regular / Traditional

Tax deferred interest and earnings

$5,000 annual limit – indexed for inflation

Limited eligibility for tax-deductible contributions

Contributions do not reduce current taxes

Roth

Tax deferred interest and earnings

$5,000 annual limit on individual contributions– indexed for inflation

Withdraws are tax-free in specific cases

Contributions do not reduce current taxes

Coverdale Education Savings Account

Tax-deferred interest and earning

10% early withdrawal penalty is waved when money is used for higher edu.

$2,000 annual limit on contributions

Contributions do not reduce current taxes

Simplified Employee Pension Plan (SEP)

Pay yourself first payroll reduction contributions

Pre-tax contributions

Tax-deferred interest and earningsSlide17

Keogh Plans

Keogh plan

-

retirement plan for self-employed people and their employees

Contributions to the plan are

tax deductible

Tax-deferred until the money is

withdrawn

Savings can build until age

70 ½ at which time the retiree must begin to withdrawalSlide18

Assignment

Page

778

#

1-4

Critical

Thinking ActivitySlide19

36.2 Estate Planning

Making a Will

Will

-

document

signed during your lifetime that provides for the

distribution of your property upon death

Testate

-

a person who dies with a with a will

Male –

testator

Female –

testatrixSlide20

Bequest

- gift of

personal

property that is made by will

Devise

- a gift of

real

property that is made by will

Beneficiaries

-

those who receive property by willSlide21

Who May Make a Will

Any person who is of sound

mind

and

has reached adulthood may make a will.

You reach eighteen on the

day before your 18

th

birthday

To be of sound mind, you must have sufficient mental capacity to do the following:

Understand the nature and extent of your

property

Know who would be the natural persons to inherit your property even though you may leave your property to

anyone you choose

Know that you are making a

will

Be free from delusions that might influence the dispensation of your

propertySlide22

Formal Requirements of a Will

To be valid, a will must confirm exactly to the law of the

state where it is made.

A will that is made legally in one state will be recognized as

valid in every state.

With the exceptions of oral wills of personal property by soldiers and mariners

, a will must be in writing.

It must be signed and witnessed by the number of witnesses required by state law –

usually two

In many states a

holographic will

- written entirely in the handwriting of the testator is valid without witnessesSlide23

Revoking or Changing a Will

In some states, a will may be revoked by

burning, tearing, canceling, or obliterating

the will with the intent to:

revoke it

execute a new one

marrying after the will was created

A divorce usually revokes gifts made under will to a

former spouse.Slide24

Codicil

-

formal document used to supplement or change an existing will

Must be signed and witnessed just like a will to be

validSlide25

Family Protection

State laws contain provisions designed to protect surviving family members when a

spouse dies.

Family allowance

-

money taken from the decedent’s estate to meet the family’s needs while the estate is being settled

Homestead exemption

-

puts the family home beyond the reach of creditors up to a certain limit

Exempt property

-

certain

-

property of the decedent that passes to the surviving spouse or children and is beyond the reach of creditorsSlide26

Protection of Spouses

Forced share

-a surviving spouse who doesn’t like the provisions of a deceased spouse’s

will

may choose to take a different portion of the

estate set by state statuteSlide27

Protection of Children

Children who can prove that they were

mistakenly left out of a parent’s will

are protected by the laws of most states

Example 3

Adopted children are treated, in most states, as though they are the

naturally born children of their adopted parents.

They inherit from their adopted parents rather from their

biological parents.Slide28

Dying Without a Will

Intestate

-

a person who dies without a will

The deceased person’s personal property is distributed according to the laws of the intestate succession of the

state in which the deceased was domiciled (lived)

In contrast, real property is passed according to the law where the

property is located

Many problems can be avoided by ensuring a will is in place before deathSlide29

Typical Distribution of Intestate Property

If you are survived by:

Your estate is distributed:

Spouse and child(

ren

)

One half to spouse, one half to children

Spouse, no children, but next of kin (including parents, siblings, niece, nephew, aunt, uncle, cousin, etc.)

Where the estate is less than $200,000, all to spouse.

If the estate is larger than $200,000, the first $200,000, plus one half of everything in excess of $300,000 to spouse. The remainder to next of kin in this order: parent(s), siblings, nieces and nephews, grandparents, uncles and aunts, and cousins.

Spouse, no child, no next of kin

All to spouse

No spouse, one or more children

All to children

No spouse, no child, but next of kin

All to next of kin, in the order listed in #2

No spouse, no child, no next of kin

All “escheats” to the state, that is, all turned over to the state because there are no heirs or beneficiaries.Slide30

Settling an Estate

Probated

- estate must be

settled under the supervision of the probate court

The first job of the probate court is to establish the

validity of the will

If no one opposes the probating of the will this can be a

simple matter

Sometimes, however, heirs how are left out of a will may

contest itSlide31

Executor

-

male representative to carry out the terms of the will

Executrix

-

female version of the executor

If there is no will or the named executor/executrix fail to perform, someone must

petition the court to settle the

estate

That person, when appointed, is called the

administrator or

administratrix

They are responsible for gathering

estate assets, paying debts and taxes, and distributing the remainder of the assets according to the terms of the will or state

lawSlide32

Assignment

Page 785 #1-6