Paying For Total Retirement Income Security

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Paying For Total Retirement Income Security

• David Godfrey
• Access to Justice Foundation
• Legal HelpLine for Older Kentuckians
• 800-200-3633
• Mid-America Pension Project
• 866-735-7737

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Most people dont plan to fail. They fail to
plan.
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Objectives

• Overview of
• Social Security
• Social Security Disability
• Supplemental Security Income
• Defined Contribution Plans
• Defined Benefit Plans
• How to mess up your retirement
• Debt is the enemy

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Social Security Retirement Benefits

• Retirement age
• 10 or more years in covered employment
• Covered Employment is earnings that have been
  subject to Social Security Tax
• Earning at least a minimum per ¼ constitutes a
  quarter year of coverage
• Benefit based on highest 35 years of earnings

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Retirement at normal retirement age
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Full Retirement By Year Of Birth
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Should I Retire Early?
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Should I retire early?

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General Rule

• Women are better off waiting to full retirement
  age
• Men are better off taking early retirement
• Health and life expectancy need to be considered
• Medicare does not start until age 65
• COBRA coverage generally covers 18 months

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Working after Retirement

• Can draw Social Security Retirement and work
• After normal or full retirement age there are no
  limits
• For early retirement (2008)

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Income Tax on Social Security Benefits

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Windfall Elimination

• Receives a pension from government entity for
  earnings that were not subject to Social Security
  Tax
• Complex three step formula http//www.ssa.gov/pub
  s/10045.html

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Government Pension Offset

• Spouse, widow, or widower of a person receiving a
  Pension from government entity for earnings not
  subject to Social Security
• Social Security reduced by 2/3 of the amount of
  the government pension

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Social Security Contacts

• www.SSA.gov
• 1-800-772-1213
• Call ahead for an appointment
• Appointments can be made using the nationwide
  toll free number

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Social Security Disability Insurance Benefits
(SSDI)

• Social Security pays benefits to people who
  cannot work because they have a medical condition
  that is expected to last at least one year or
  result in death.
• Must meet recent work test
• And
• Duration of work test

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(No Transcript)
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Duration of work can be from any time in the
applicants life
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What SSA Needs to Know

• What your medical condition is
• When your medical condition began
• How your medical condition limits your
  activities
• What the medical tests have shown and
• What treatment you have received.

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How disability is determined

• Are you working? (900 a month)
• Is your medical condition severe?
• Is your medical condition on the List of
  Impairments?
• Can you do the work you did before?
• Can you do any other type of work?

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Supplemental Security Income (SSI)

• SSI makes monthly payments to people who have low
  income and few resources and are
• Age 65 or older
• Blind or
• Disabled
• Income below the benefits level
• 637 20 of other income 65 earned income
• Income of other household members counts
• Definition of household members is an issue

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SSI Asset Limits

• 2,000 single 3,000 for a couple
• The home you live in and the land it is on
• Furniture, clothing, personal items, some jewelry
  
• Life insurance policies with a face value of
  1,500 or less
• Your car (usually)
• Burial plots for you and members of your
  immediate family and
• Up to 1,500 in burial funds for you and up to
  1,500 in burial funds for your spouse

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SSI and Other Benefits

• A beneficiary can draw Social Security Retirement
  or SSDI and SSI at the same time
• SSI supplements the income up to the income
  standard
• In most cases, an SSI beneficiary also receives
  Medicaid

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Pension Basics

• 70 of all workers in the USA are covered under
  some sort of a pension plan

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Two basic flavors

• Defined Contribution (DC)
• And
• Defined Benefit (DB)

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Whats the difference?

• Defined Benefit
• Based on a formula determined by the plan
• Pays a set amount for life
• Insured by federal government
• Pooled assets
• Defined Contribution
• Employer and/or employee contribute to a special
  account
• Individual accounts
• Contributions earn interest until distributed
• Tax deferred

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More on Defined Benefit Plans

• Formula usually considers
• Years of service
• Income
• Age at retirement
• Survivor benefits?
• Participant must be vested and retirement age
• Offered by government and private employers
• Private plans regulated by ERISA (after 1974)

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More on Defined Contribution Plans

• Employer may or may not make contributions
• Amount contributed is limited by law
• Several types 401(k) and 403(b), IRA, SEP
• Regulated by ERISA (after 1974)
• Employee is always 100 vested in her/his
  personal contribution
• IRS issues

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How do I know?

• A statement is issued once/year, explaining
• Type of plan
• Current cash value (if any)
• Vesting status
• Estimated retirement benefits

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Am I Vested?

• Pre-ERISA Look to the Plan
• Post-ERISA Various vesting schedules
• If you leave before vesting, you forfeit
  employers contribution to your pension.

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When do I get my money? (Distribution)

• When you reach retirement age if vested
• Retirement age is defined by the plan (DB), but
  must be by age 65
• If you take the money early, watch out for taxes
  and penalties

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Distribution Issues for DC Plans

• Distribution begins between age 59½ and 70½
• 10 penalty for early withdrawal
• But early distribution sometimes possible in
  case of hardship
• Minimum distribution required at 70 ½
  Catastrophic penalty for failing to take

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How do I get my money?

• Withdrawals at will, or
• Lump sum, or
• Convert to annuity at retirement, or
• Combine with another plan

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What about my spouse?

• Retirement Equity Act (REA) of 1984
• Amended ERISA effective 1/1/1985 (possibly later
  for union plans)
• Plans must offer joint survivor annuity
  (JSA) pays for life of plan participant AND life
  of spouse
• Spouse must consent to waiver
• Monthly benefit reduced on average, by 30-40

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What about my ex-spouse?

• Pension is considered marital property, subject
  to distribution at divorce
• Qualified Domestic Relations Order (QDRO)
  required QDRO must
• Name the plan
• Name the alternate payee
• Specify amount

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I thought I would have more income for my
retirement!

• Most people fail to figure out what they will
  receive until after they have committed to
  retirement
• Social Security integration
• Pension offsets
• Windfall Reduction Provision
• Government Pension Offset

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10 ways to mess up your retirement

• 1) Count on Social Security
• 2) Not starting to save early
• 3) Dipping into retirement savings for something
  besides retirement (borrowing counts as
  spending.)
• 4) Quitting work to soon
• 5) Buying your dream house

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Mess up your retirement

• 6) Draining your 401K in five years
• 7) Trying to buy a happy family
• 8) Have children late in life
• 9) Loaning money to family
• 10) Debt

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Debt is the enemy!

• Before you retire you need
• A budget you can live with
• Home paid for
• Cars paid for
• Credit cards paid in full each month
• Student loans paid for
• Child support and alimony paid for

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Budget basics

• Income
• Social Security
• Pensions
• Savings
• Defined Contribution plans
• can be turned into a stream of income

• Taxes
• Insurance
• Health Care
• Food
• Clothing
• Utilities
• Cars tax, insurance, gas, repairs, replacement
• Entertainment travel
• Gifts

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Thank You!

• David Godfrey
• Access to Justice Foundation
• Legal HelpLine for Older Kentuckians
• 800-200-3633
• Mid-America Pension Project
• 1-866-735-7737