The Mathematics of Retirement Planning AMATYC Conference New Orleans, LA November 20, 2015.

The Mathematics of Retirement Planning

AMATYC Conference

New Orleans, LA

November 20, 2015

The Mathematics of Retirement - Three Legged

StoolPension

Social Security & Medicare

Personal Investments

Balancing to meet your

needs

What Are the Big Questions?

When can I start to draw Social Security and how much will I get ?

Will Medicare cover all my Health Insurance ?

What Pension decisions should I make ?

Will I have enough to live comfortably?

Wilson B. Gräb Forsyth Tech CC 2015 AMATYC 4

US Department of Labor – www.dol.gov/ebsa

Taking The Mystery Out of Retirement Planning

Chapter 1 Tracking Down Todays Money

Chapter 2 Tracking Down Future Money – At Retirement

Chapter 3 Tracking Down Future Expenses

Chapter 4 Comparing Income and Expenses

Chapter 5 Making Your Money Last

Chapter 6 Tracking Down Help for retirement


Social Security Benefits and Timing

Social Security – Retirement BenefitsSSA Publication No. 05-10035

When to Start Collecting (Age 62 or FRA or Age - 70 SSA Publication No. 05-10147)

How Your Benefit is Figured – SSA Publication No. 05-10070


Social Security Benefits and TimingAge to receive full Social Security

benefits Year of birth Full retirement age

1943-1954 66 1955 66 and 2 months1956 66 and 4 months1957 66 and 6 months1958 66 and 8 months1959 66 and 10 months

1960 and later 67 NOTE: People born on January 1 of any year

should refer to the previous year.


Social Security Benefits and Timing

Full Retirement Age (FRA) – SSA.Gov - Retirement Age Calculator


When to Start Collecting (Age 62 - 70)

Sample ChartMonthly Monthly

Age Amount Age Amount62 $750 66 $100063 $800 67 $108064 $866 68 $116065 $933 69 $124066 $1000 70 $1320


When to Start Collecting (Age 62 - 70)

Considerations1.Health situation2.Family Health History3.Financial Position4.Post Working Plans5.Spouse Plans6.Other Interests7.Charitable Work8.Professional Societies9.Economy


When to Start Collecting (Age 62 – 70) Age 62 vs FRA (66)

Let X = Years

X($750) = $1000(X – 4)

$750X = $1000X - $4000

-$250X = -$4000

X = 16 Years


When to Start Collecting (Age 62 – 70) Age 66 vs 70

Let X = Years

X($1000) = $1320(X – 4)

$1000X = $1320X - $5280

-$320X = -$5280

X = 16.5 Years


Full Retirement Age (FRA) SSA.Gov - Retirement Age Calculator

The Full Retirement Age Is IncreasingFull retirement age (also called "normal retirement age") had been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959.

The 1983 Social Security Amendments included a provision for raising the full retirement age beginning with people born in 1938 or later. The Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age.

Note: If you were born on January 1st of any year you should refer to the previous year.

http://www.ssa.gov/history/1983amend.html


Medicarewww.medicare .gov

Medicare does not start until age 65

Medicare is our country’s health insurance program for people age 65 or older. Certain people younger than age 65 can qualify for Medicare, too, including those who have disabilities and those who have permanent kidney failure. The program helps with the cost of health care, but it does not cover all medical expenses or the cost of most long-term care.


MedicarePARTS A, B, C, and D

Part A - Hospital

Part B - Medical Insurance

Part C - Medicare Advantage

Part D - Prescription Drug Coverage



Medicare Part A (Hospital Insurance)

Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.

Hospital care

Skilled nursing facility care - Nursing home care (as long as custodial care isn't the only care you need)

Hospice

Home health services

http://www.medicare.gov/what-medicare-covers/part-a/part-a-coverage-hospital-care.html

http://www.medicare.gov/what-medicare-covers/part-a/part-a-coverage-skilled-nursing-facilities.html

http://www.medicare.gov/what-medicare-covers/part-a/part-a-coverage-nursing-home-care.html

http://www.medicare.gov/what-medicare-covers/part-a/what-part-a-covers.html#1305

http://www.medicare.gov/what-medicare-covers/part-a/part-a-coverage-hospice.html

http://www.medicare.gov/coverage/home-health-services.html



Medicare Part B (Medical Insurance)

Part B covers certain doctors' services, outpatient care, medical supplies, and preventive services.



Part B covers 2 types of services

Medically necessary services: Services or supplies that are needed to diagnose or treat your medical condition and that meet accepted standards of medical practice.

Preventative Services:Health care to prevent illness (like the flu) or detect it at an early stage, when treatment is most likely to work best.You pay nothing for most preventive services if you get the services from a health care provider who accepts assignment.



Part B covers things like:

Clinical Research

Ambulance Services

Durable Medical Equipment

Mental health InpatientOut PatientPartial Hospitalization

Getting Second Opinion Before SurgeryLimited Outpatient Prescription Drugs



Part CA Medicare Advantage Plan is a type of Medicare health plan offered by a private company that contracts with Medicare to provide you with all your Part A and Part B benefits.

Medicare Advantage Plans include:

HMO - Health Maintenance Organizations,

PPO - Preferred Provider Organizations,

PFS - Private Fee-for-Service Plans,

SNP - Special Needs Plans, and

MMSA - Medicare Medical Savings Account Plans.



Part C – Cont’d

If you're enrolled in a Medicare Advantage Plan, Medicare services are covered through the plan and aren't paid for under Original Medicare.

Most Medicare Advantage Plans offer prescription drug coverage.



Part D Medicare Prescription Drug PlanPart D adds prescription drug coverage to Original Medicare, some Medicare Cost Plans, some Medicare Private-Fee-for-Service Plans, and Medicare Medical Savings Account Plans. These plans are offered by insurance companies and other private companies approved by Medicare. Medicare Advantage Plans may also offer prescription drug coverage that follows the same rules as Medicare Prescription Drug Plans.



Part D

What drug plans coverEach Medicare Prescription Drug Plan has its own list of covered drugs (called a formulary). Many Medicare drug plans place drugs into different "tiers" on their formularies. Drugs in each tier have a different cost.


Pension Options

Usually a monthly amount with several option. Some plans will offer a Lump Sum Settlement

Maximum Allowance You get it all, survivor gets $0

Option A: 100% Joint and Survivor – Both receive reduced benefits for life

Option B 50% Joint and Survivor – you receive reduced benefits for life. At depth your survivor receives ½ of your payments for life


NC State Pension Options

Option C: Social Security Leveling – If retiring prior to age 62 – you receive larger monthly benefits until you reach age 62At age 62, your monthly benefits would be reduced to less that what you would otherwise be entitled to receiveYour SS and TSERS should be approximately the same amount as the inflated payment you receive before age 62Actual amount from TSERS I based on estimate you provide from SSA before retirement



Computation of Benefits

Annual Benefit = 1.82% X Average Final Compensation X Years and Months of Service

Average Final Compensation = average salary during your four highest paid years in a row.



Options:Payment Option To Retiree To Retire Beneficiary

Maximum Allowance $1000 monthly $0.00

Option A $889.70 Monthly $889.70 Monthly

Option B $941.60 Monthly $470.80 Monthly

Option C $1402.84 up to $0.00age 62 $767.84 thereafter


NC State Pension OptionsOption D Modified Joint and Survivor Combination Maximum

Allowance and Option 2

Receive reduced monthly payments for life

After you die, your monthly survivor beneficiary receives the same amount monthly for life

If your beneficiary dies before you do, your monthly payments are increased to the amount payable under the maximum allowance


NC State Pension OptionsOption E Modified Joint and Survivor Combination Maximum

Allowance and Option 3

Receive reduced monthly payments for life

After you die, ½ of your payment continues to your monthly survivor beneficiary for life

If your beneficiary dies before you do, your monthly payments are increased to the amount payable under the maximum allowance




Option D $882.60 Monthly; if Beneficiary dies $882.60before Retiree, Retiree receives $1000 monthly thereafter




Option E $937.70 Monthly; if beneficiary dies $468.85 before Retiree, Retiree receive $1000monthly thereafter


Personal Savings Plan AnalysisTraditional Vs Roth

Working Career

Traditional RothYears Worked 30 30.Salary Earned $2,024,721 $2,024,721

Amount to Fund W/ Growth $250,721 $250,721

Taxes Paid $475,809 $519,000


Personal Savings Plan AnalysisTraditional Vs Roth

Retirement – 20 Years

Traditional RothSocial Security $20,000 $20,000Pension $47,376 $47,376IRA Withdrawals $5000 $5000Taxes Paid Over 20 Years $358,458 $336,880IRA Net After 20Years $395,668 $333,458Taxes Due IRA @ Death $245,587 $0Total Taxes Paid $1,079,855 $852,458 Tax Savings $227,396


Summary

Plan Early and Stay The Course

Know your current Expenses - Medical

What do you want to do in Retirement

Plan for your estate and a part of the process – Last Will and Testament, Guardianship of Minor Children, Disposition of Body, Health Care Power of Attorney, Living Will, durable Financial Power of Attorney, Listing of Non-Retirement Assets


Personal Savings vs PensionYears Salary 6% Contribution

Interest Rate

Compounded Amount

Compounded Amount

Stock Mutual Fund

Annually12%

5% Annually Monthly Annually30 $ 37,467.11 $ 2,248.03 5% $ 9,715.84 $ 10,043.61 $ 67,350.70 29 $ 37,841.78 $ 2,270.51 5% $ 9,345.71 $ 9,650.31 $ 60,735.90 28 $ 38,220.20 $ 2,293.21 5% $ 8,989.69 $ 9,272.42 $ 54,770.76 27 $ 38,602.40 $ 2,316.14 5% $ 8,647.22 $ 8,909.33 $ 49,391.49 26 $ 38,988.42 $ 2,339.31 5% $ 8,317.80 $ 8,560.45 $ 44,540.54 25 $ 39,378.31 $ 2,362.70 5% $ 8,000.94 $ 8,225.24 $ 40,166.02 24 $ 39,772.09 $ 2,386.33 5% $ 7,696.14 $ 7,903.15 $ 36,221.15

5 $ 48,049.02 $ 2,882.94 5% $ 3,679.44 $ 3,699.85 $ 5,080.73 4 $ 48,529.51 $ 2,911.77 5% $ 3,539.28 $ 3,554.97 $ 4,581.73 3 $ 49,014.80 $ 2,940.89 5% $ 3,404.45 $ 3,415.76 $ 4,131.74 2 $ 49,504.95 $ 2,970.30 5% $ 3,274.75 $ 3,282.00 $ 3,725.94 1 $ 50,000.00 $ 3,000.00 5% $ 3,150.00 $ 3,153.49 $ 3,360.00

$ 78,197.36 $ 175,503.32 $ 179,108.28 $ 654,901.64

Pension Average Basis $ 49,262.32 $ 65,490.16

Annual Pension $ 22,168.04

Payback 3.53

The Mathematics of Retirement Planning AMATYC Conference New Orleans, LA November 20, 2015.

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Transcript of The Mathematics of Retirement Planning AMATYC Conference New Orleans, LA November 20, 2015.