Financial Planning for Retirement: Prepare for a Secure Future

1. Financial Smarts For Teachers

2. Sponsors

3. Retirement

4. Retirement • You’ll need to consider • Your expected life span • Your activity level • Your defined benefit • Second career possibilities • Inflation • Long-term care

5. Life Expectancy • Men = 75 years • Women = 80 years • Likely you’ll live longer, however

6. Decisions • Lifestyle • Financial situation • Anticipated changes in financial situation • Ways to control your financial future

7. Lifestyle Changes • Residence • Food • Health care • Hobbies and recreation • Transportation

8. Lifestyle Changes • Clothing • Personal care • Entertainment • Travel

9. Retirement Planning • Cash flow = income less expenses • Net worth = assets less liabilities • Is this enough? • Do you have other benefits

10. Average Expenses Average Expenditure of Someone 65 or Older $32, 866 U.S. Bureau of Labor Statistics, 2005

11. Transportation 15.8% Food & beverage 13.37% Housing33.6% Personal Care 1.4% Health care 12.8% Miscellaneous 4.13% Entertainment 4.8% Donations 5.7% Insurance 5.4% Average Expenses Clothing 3%

12. Retirement Income • Employer provided benefits (CalSTRS) • Social Security benefits (California teachers do not pay Social Security) • Tax-deferred individual retirement plans • Personal savings and investments • Employment earnings during retirement • Military retirement

13. CalSTRS • Defined Benefits Program • Member contributions (important only if taking a refund) • Defined Benefit Supplement Program • Cash Balance Benefits Program (part-time educators only) • Disability Benefits Program

14. CalSTRS • Financial Education Program • Voluntary Investment Program • Home Loan Program • Long-term care coverage(available through CalPERS) • Purchase of additional service credits www.calstrs.ca.gov

15. CalSTRS

16. Social Security • 40 credits needed for full benefits • Can earn up to four credits per year • One credit equals $1,000 • Partial benefits at age 62 • Full benefits • Age 66 (b. 1943 – 54) • Age 66 plus (b. 1955 – 59) • Age 67 (b. 1960 or after) • Can delay benefits until age 70

17. Covered/Non-covered • Covered • Pay full 7.65% tax • Non-covered • Do not pay 7.65% tax • May pay 1.45% Medicare tax

18. Benefits • Averaged over best 35 years • Adjusted for inflation (COLA)

19. Windfall Elimination • Effective Jan. 1, 1986 • Applies to most receiving a pension based on non-covered employment

20. Example Average Income = $800/weekly Covered Employment Regular Formula 90% of first $680 = $612 32% of next $3,420 ($120) = 38 15% of remainder = 0 $650 Non-covered Employment (Teacher) Windfall Elimination Provision 40% of first $680 = $272 32% of first $3,420 ($120) = 38 15% of remainder = 0 $310

21. Retirement Planning • Qualified plan • Non-qualified plan • Defined benefit plan • Defined contribution plan

22. Tax-deferred Plans • Traditional IRA • Roth IRA • 403b • 401(k) Personal Savings Plan

23. Traditional IRAs • $4,000/year • Tax deferred • Additional $1,000 if over 50 • Deductible • Married (reduced if AGI $83,000 – $103,000)* • Single (reduced if AGI $52,000 – $62,000)* *If covered by work retirement plan.

24. Roth IRAs • Tax free if • Held more than 5 years • Older than 59½ • In 2007, can contribute up to $4,000 (add $1,000 if over 50) if AGI is • Less than $156,000 (married, filing jointly) • Less than $99,000 (single, head-of-household)

25. Are You Ready? Will you have enough to retire and continue your current lifestyle? Start Now! If Not