0 business and personal finance unit 4 chapter 15 © 2007 glencoe/mcgraw-hill
TRANSCRIPT
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 1
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 2
Chapter 15Retirement and Estate Planning
What You’ll Learn Section 15.1
Explain the importance of retirement planning. Identify retirement living costs and housing needs.
Section 15.2 Describe the role of Social Security in planning for
retirement. Discuss the benefits offered by employer pension plans. Explain various personal retirement plans.
Section 15.3 Identify various types of wills. Discuss several types of trusts. Describe common characteristics of estates. Identify the types of taxes that affect estates.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 3
Will Power
Q: My parents do not have a lot of money, so is it really that important for them to write up a will?
A: Even if your parents do not have a lot of money, they should have a will. If they die without a will, their state of residence will step in and control how their estate is distributed. It costs somewhere between $200 and $350 to have an attorney draft a will. The peace of mind it will provide your parents will be worth the cost.
Go to finance07.glencoe.com to complete the Standard &
Poor’s Financial Focus activity.
2Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 4
When do you think you should begin planning for your retirement?
3Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill
Main IdeaEstimating your retirement living costs and housing needs will enable you to save or invest enough money to live comfortably during retirement.
Section 15.1 Retirement Planning
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 5
Section 15.1 Retirement Planning
Planning for RetirementIt is never too early to start planning for retirement.
Some of the many myths about retirement are: Saving a small amount of money will not
help. You will spend less money when you retire. You can depend on Social Security and a
company pension plan to pay your basic living expenses.
Your employer’s health insurance plan and Medicare will cover all your medical expenses.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 6
Section 15.1 Retirement Planning
Setting Long-Range GoalsAs you think about your retirement years, consider your long-range goals. Ask yourself:
Where do you want to live after you retire?
What type of lifestyle would you like to have?
Then analyze your current financial situation to determine what you need to do to reach your long-range goals.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 7
Section 15.1 Retirement Planning
Conducting a Financial AnalysisTo conduct a financial analysis, you will need to analyze your:
Assets Liabilities
If you subtract your liabilities from your assets, you get your net worth. Ideally, your net worth should increase each year.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 8
Section 15.1 Retirement Planning
Reviewing AssetsReview your assets on a regular basis. To stay on track with your goal, you may need to make adjustments in your:
Saving Spending Investments
As you review your assets, you will also need to consider the following factors:
Housing Life insurance
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 9
Section 15.1 Retirement Planning
Retirement Living ExpensesWhen planning for retirement, estimate how much money you will need to live comfortably during your retirement years.
During your retirement years, you may spend more money on:
Recreation Health insurance Medical care
Remember to take inflation into account.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 10
Section 15.1 Retirement Planning
Retirement HousingThe place where you live can have a significant impact on your financial needs. In the years before retirement, use vacations to explore areas and cities where you might want to settle.
Meet people who live in the area and learn about:
Activities Transportation Taxes
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 11
Section 15.1 Retirement Planning
Retirement Relocation PitfallsConsider the downsides of moving to a new location. These might include:
Getting stuck in a place you do not really like
Missing your children, grandchildren, friends, and relatives left behind
Making a financial mistake in moving
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 12
Section 15.1 Retirement Planning
Researching Locations
Here are some tips from specialists on how to research taxes and other costs before moving to a new area:
Contact the local chamber of commerce for details on area property taxes and the local economy.
Contact the state tax department to research income, sales, inheritance taxes, and exemptions for retirees.
Read the Sunday edition of the local newspaper of the town or city you are considering.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 13
Section 15.1 Retirement Planning
Types of HousingEven if you do not move to a new location, housing needs may change during retirement. Many retirees want a home that is:
Easy and inexpensive to maintain Close to public transportation, stores, and
recreation areas
Many elderly people move into assisted-living facilities during their retirement years.
assisted-living facility (ALF)
a residence complex that provides personal and medical services for the elderly
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 14
Besides Social Security, what other retirement plans might be available?
13Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill
Main IdeaVarious types of retirement plans are suited to different financial situations and personal needs.
Section 15.2 Planning Retirement Income
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 15
Section 15.2 Planning Retirement Income
Public Pension PlansPublic pension plans are established by:
States Municipalities
Social Security is a public pension plan established by the United States government in 1935.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 16
Section 15.2 Planning Retirement Income
Social SecuritySocial Security is an important source of retirement income for many Americans.
The amount of Social Security retirement benefits you receive is based on your earnings over the years. Each year the Social Security Administration will send you:
A history of your earnings An estimate of your future monthly
benefits
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 17
Section 15.2 Planning Retirement Income
Other Public Pension PlansThe federal government provides other special retirement plans for:
Federal government workers Railroad employees
The Veterans Administration provides pensions for survivors of people who died while serving in the armed forces.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 18
Section 15.2 Planning Retirement Income
Employer Pension PlansAnother possible source of retirement income is an employer pension plan.
Private employer pension plans vary. If the company you work for offers one, find out:
What benefits you will receive When you will become eligible to receive
those benefits
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 19
Section 15.2 Planning Retirement Income
Defined-Contribution PlanWith a defined-contribution plan, the employer contributes a specific amount to the account annually.
Several types of defined-contribution plans are: Money-purchase plans Stock bonus plans Profit-sharing plans 401(k) plans 403(b) plans
defined-contribution plan
an individual retirement account for each employee
401(k) plan
a type of retirement savings plan funded by a portion of your salary that is deducted from your gross paycheck and placed in a special account
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 20
Section 15.2 Planning Retirement Income
Vesting
One of the most important aspects of employer pension plans is vesting. Vesting occurs at different points in time, depending on company policy.
After a certain number of years with a company, you become fully vested, or entitled to receive 100 percent of the company’s contributions to the plan on your behalf.
vesting
the right of an employee to keep the company’s contributions from company-sponsored plans, even if the employee no longer works for that employer
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 21
Section 15.2 Planning Retirement Income
Defined-Benefit PlanA defined-benefit plan does not specify how much the employer must contribute each year.
Instead, your employer’s contributions are based on how much money the fund will need for each participant in the plan who retires.
defined-benefit plan
a retirement plan that specifies the benefits an employee will receive at retirement age, based on total earnings and years on the job
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 22
Section 15.2 Planning Retirement Income
Moving to Another PlanSome pension plans allow “portability,” which means that you can carry earned benefits from one pension plan to another when you change jobs.
Workers are also protected by the Employee Retirement Income Security Act of 1974 (ERISA), which sets minimum standards for pension plans.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 23
Section 15.2 Planning Retirement Income
Personal Retirement PlansMany people choose to set up personal retirement plans. Such plans are especially important to:
Self-employed people Other workers who are not covered by
employer pension plans
Among the most popular personal retirement plans are individual retirement accounts (IRAs) and Keogh accounts.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 24
Section 15.2 Planning Retirement Income
Individual Retirement AccountsThere are various types of IRAs, including:
Regular IRA Roth IRA Simplified Employee Pension (SEP) IRA Spousal IRA Rollover IRA Education IRA
The biggest benefit of an IRA lies in its tax-deferred earnings growth.
individual retirement account (IRA)
a special account in which a person saves a portion of income for retirement
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 25
Section 15.2 Planning Retirement Income
IRA Withdrawals
When you retire, you can withdraw the money from your IRA by:
Taking out all of the money at one time and letting the entire amount be taxed as income
Withdrawing the money from your IRA in installments and only being taxed on the amount that you withdraw
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 26
Section 15.2 Planning Retirement Income
Keogh PlansKeogh plans have various restrictions, including limits on the amount of annual tax-deductible contributions you can make.
You should get professional tax advice before using this type of personal retirement plan.
Keogh plan
a retirement plan specially designed for self-employed people and their employees
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 27
Section 15.2 Planning Retirement Income
Limits on Retirement PlansWhen you retire, you must begin to receive “minimum lifetime distributions,” withdrawals from the funds you have accumulated through your plan.
The amount of the distributions is based on your life expectancy at the time the distributions begin.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 28
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 29
Section 15.2 Planning Retirement Income
AnnuitiesYou can buy annuity insurance to supplement the income you will receive from other types of retirement plans.
You can choose to purchase an annuity that has:
Single payment Installment payments
The payments you receive from an annuity are taxed as ordinary income.
annuity insurance
a contract purchased from an insurance company that guarantees a future fixed or variable payment to the purchaser for a certain number of years or for life
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 30
GOLDEN TIME With continuing revisions in the Social Security system, many people are thinking ahead and making arrangements for supplemental income in their golden years. What advantage does an annuity offer?
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 31
Section 15.2 Planning Retirement Income
Types of AnnuitiesAnnuities may be either:
Immediate Deferred
The rate of return on an annuity is usually tied to overall interest rates.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 32
Section 15.2 Planning Retirement Income
Costs of AnnuitiesThere are various choices regarding the type of annuity and the annuity income it will generate.
You should discuss all of the possible options with an insurance agent, including:
Charges Fees Interest-rate guarantees
Be sure to check the financial health of the insurance company that offers the annuity.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 3332
Time to SaveSaving money in a savings or retirement account is the simplest way to build assets for retirement. Starting to save while you are young may even allow early retirement. However, if you have 30 or 40 years until retirement, every year without saving can subtract from one to five years off retirement.At what age will you want to retire?
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 34
Section 15.2 Planning Retirement Income
Living on Retirement IncomeWhen the time to retire arrives, you may need to make some adjustments to your budget or spending plan.
To do so, you will need to: Make sure that you are getting all the
income to which you are entitled. Think about any assets or valuables you
might be able to convert to cash or into other sources of income.
Re-examine the trade-off between spending and saving.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 35
Section 15.2 Planning Retirement Income
Working During RetirementRetirees can use their skills and time instead of spending money. After retiring, some people decide to:
Work part-time Take new full-time jobs Keep active and pursue new careers
Work can provide a person with a greater sense of usefulness, involvement, and self-worth.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 36
Section 15.2 Planning Retirement Income
Using Your Nest EggWhen should you take money out of your “nest egg,” or savings, during retirement? The answer depends on:
Your financial circumstances Your age How much you want to leave to your
heirs
Whatever your situation, you should try to conserve your retirement fund to make it last.
heirs
the people who will have the legal right to your assets when you die
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 37
What is your definition of a will?
36Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill
Main IdeaDifferent types of wills and trusts protect your financial interests and those of your family. Applying strategies for paying estate taxes can help limit expenses for your heirs.
Section 15.3 Estate Planning and Taxes
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 38
Section 15.3 Estate Planning and Taxes
The Importance of Estate PlanningDuring your working years, your financial goal is to build your estate by acquiring and accumulating money for your current and future needs.
As you grow older, you will start to think about what will happen to your hard-earned wealth after you die. That is when estate planning becomes important.
estate
all property and assets owned by an individual or group
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 39
Section 15.3 Estate Planning and Taxes
What Is Estate Planning?Estate planning is an essential part of retirement planning and financial planning. Its two stages are:
Building your estate through savings, investments, and insurance
Making sure that your estate will be distributed as you wish at the time of your death
Your beneficiary (estate) is a person you name to receive all or part of your estate.
estate planning
the process of creating a detailed plan for managing personal assets to make the most of them while you are alive and to ensure that they are distributed wisely after your death
beneficiary (estate)
a person who is named to receive a portion of someone’s estate
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 40
Section 15.3 Estate Planning and Taxes
Legal DocumentsAn estate plan involves various legal documents, such as a will, which your heirs will need to receive the money and other assets to which they are entitled.You should collect and organize various important papers, including:
Birth certificates for you, your spouse, and your children
Marriage certificates and divorce papers Social Security documents Safe-deposit box records Automobile registrations
will
a legal declaration of a person’s wishes regarding disposal of his or her estate after death
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 41
Section 15.3 Estate Planning and Taxes
WillsOne of the most important documents that every adult should have is a written will.
If you die intestate, your legal state of residence will control the distribution of your estate without regard for your wishes.
intestate
the status of not having a valid will
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 42
Section 15.3 Estate Planning and Taxes
Types of WillsThe four basic types of wills are the:
Simple will Traditional marital share will Exemption trust will Stated dollar amount will
All types of wills usually designate a beneficiary. An estate can also be held in trust for a family.
trust
an arrangement in which a designated person known as a trustee manages assets for the benefit of someone else
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 43
Section 15.3 Estate Planning and Taxes
Wills and ProbateThe type of will that is best for your particular needs depends on many factors, including:
The size of your estate Inflation Your age Your objectives
No matter what type of will you choose, it is best to avoid probate.
probate
the legal procedure of proving that a will is valid or invalid
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 44
Section 15.3 Estate Planning and Taxes
Formats of WillsWills may be either:
Holographic (handwritten) Formal
A statutory will is prepared on a preprinted form, which is available from:
Lawyers Office-supply stores Some stationery stores
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 45
Section 15.3 Estate Planning and Taxes
Writing Your WillSome guidelines for writing a will include:
Work closely with your spouse or partner to prepare your will.
Write your will to conform to your current wishes.
Do not choose a beneficiary as a witness. Consider using percentages instead of
dollar amounts. Select an executor who is willing to do
the needed tasks.
executor
a person who is willing and able to perform the tasks involved in carrying out a will
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 46
Section 15.3 Estate Planning and Taxes
Selecting a Guardian
If you have children, your will should name a guardian to care for them in the event that:
You and your spouse die at the same time.
The children cannot care for themselves.
guardian
the person who accepts the responsibility of caring for the children of the deceased and managing an estate for the children until they reach a certain age
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 47
Section 15.3 Estate Planning and Taxes
Altering or Rewriting Your Will
Some reasons to review and change your will are:
You have moved to a new state that has different laws.
You have sold property that is mentioned in the will.
You have married, divorced, or remarried. Potential heirs have died or new ones
have been born.
If you want to make only a few minor changes, adding a codicil may be the best choice.
codicil
a document that explains, adds, or deletes provisions in an existing will
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 48
Section 15.3 Estate Planning and Taxes
A Living WillAt some point in your life, you may become physically or mentally disabled and unable to act on your own behalf.
If that happens, a living will can help ensure that you will be cared for according to your wishes.
living will
a legal document in which you state if you want to be kept alive by artificial means if you become terminally ill and are unable to make such a decision
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 49
Section 15.3 Estate Planning and Taxes
Power of AttorneyIf you become seriously ill or injured, you will probably need someone to take care of your:
Needs Personal affairs
This can be done through a power of attorney.
power of attorney
a legal document that authorizes someone to act on your behalf
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 50
Section 15.3 Estate Planning and Taxes
Letter of Last InstructionA letter of last instruction is legally binding and allows you to:
Express preferences for funeral arrangements
Include names of the people who are to be informed of the death
Let people know the locations of your bank accounts, safe-deposit box, and other important items
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 51
Section 15.3 Estate Planning and Taxes
TrustsSome of the common reasons for setting up a trust are to:
Reduce or provide for payment of estate taxes
Avoid probate and transfer your assets immediately to your beneficiaries
Free yourself from managing your assets while you receive a regular income from the trust
Ensure that your property serves a desired purpose after your death
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 52
Section 15.3 Estate Planning and Taxes
Types of TrustsThere are many types of trusts, including:
Credit-shelter trusts Disclaimer trusts Living trusts Testamentary trusts
An estate attorney can advise you about the right type of trust for your needs.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 53
Section 15.3 Estate Planning and Taxes
Your EstateAn important step in estate planning is taking inventory of your assets. Do not forget to include:
Jointly owned property Life insurance policies Employee retirement benefits Money owed to you by others All of your personal possessions
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 54
Section 15.3 Estate Planning and Taxes
Joint OwnershipThere are three types of joint ownership, each of which has different tax and estate planning consequences.
These types allow: Spouses to own property as “joint tenants
with the right of survivorship” Spouses to own property as “tenants in
common” Married couples to own property under
the form of “tenancy by the entirety”
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 55
Section 15.3 Estate Planning and Taxes
Life Insurance and Employee BenefitsIf you have life insurance, the benefits of that insurance will be counted among the assets in your estate.
Death benefits from qualified employer pension plans or Keogh plans are usually excluded from an estate.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 56
Section 15.3 Estate Planning and Taxes
Lifetime Gifts and TrustsYou may give part of your estate as a gift or set up a trust for your spouse or child.
If you keep any control or use of the gift or trust, it:
Remains part of your estate Is subject to taxes
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 57
Section 15.3 Estate Planning and Taxes
Taxes and Estate PlanningFederal and state governments impose various types of taxes that you must consider in estate planning.
The four major types of taxes are: Estate taxes Estate and trust federal income taxes Inheritance taxes Gift taxes
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 58
Section 15.3 Estate Planning and Taxes
Estate TaxesAn estate tax is a federal tax collected on the value of a person’s property at the time of his or her death.
The tax is based on the fair market value of the deceased person’s assets, such as:
Investments Property Bank accounts
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 59
Section 15.3 Estate Planning and Taxes
Estate and Trust Federal Income TaxesIn addition to the federal income tax return, owners of estates and certain trusts must file federal income tax returns with the IRS.
Taxable income for estates and trusts is figured in the same manner as taxable income for individuals.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 60
Section 15.3 Estate Planning and Taxes
Inheritance TaxesYour heirs might have to pay a tax for the right to acquire the property that they have inherited.
Only state governments impose inheritance taxes. State laws differ regarding:
Exemption Rates of taxation
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 61
Section 15.3 Estate Planning and Taxes
Gift TaxesOne way to reduce the tax liability of your estate is to reduce the size of the estate while you are alive by giving away portions of it as gifts.
Both the federal and state governments impose a gift tax, a tax collected on money or property valued at more than $11,000 given by one person to another in a single year.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 62
Section 15.3 Estate Planning and Taxes
Paying the TaxFinding enough cash to pay taxes, debts, and other costs without causing financial hardship can be very difficult.
You can handle this problem by: Obtaining life insurance Saving enough cash ahead of time to pay
taxes and expenses when they are due
Your heirs might be able to: Sell assets to pay taxes Borrow money
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 63
Section 15.3 Estate Planning and Taxes
Planning for the FutureEstate planning is essential to:
Ensure that your assets are distributed in the way you choose
Make sure that your loved ones are not left with difficult or costly problems
Planning and saving for your own retirement will help ensure that your needs are met in your later years.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 64
Chapter 15Retirement and Estate Planning
Key Term Review assisted-living facility (ALF) defined-contribution plan 401(k) plan vesting defined-benefit plan individual retirement account (IRA) Keogh plan annuity (insurance) heirs estate estate planning
beneficiary (estate) will intestate trust probate executor guardian codicil living will power of attorney
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 65
Chapter 15Retirement and Estate Planning
Reviewing Key Concepts1. Identify three ways expenses decrease at retirement.
When you retire, you may spend less money on: Transportation Clothing Federal income taxes
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 66
Chapter 15Retirement and Estate Planning
Reviewing Key Concepts2. Describe alternative living and housing arrangements for
retirement.
Many retirees want a home that is easy and inexpensive to
maintain, such as: A smaller house A condominium An apartment
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 67
Chapter 15Retirement and Estate Planning
Reviewing Key Concepts3. Identify two reasons Social Security should not be a primary
source of retirement funds.
Social Security was not designed to provide 100 percent of
retirement income.
In addition, current and future revisions to the program may
Reduce retirement benefits in years to come.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 68
Chapter 15Retirement and Estate Planning
Reviewing Key Concepts4. Define employer-sponsored defined-contribution plans and
defined-benefit plans.
A defined-contribution plan is an individual retirement account for
each employee.
A defined-benefit plan is a retirement plan that specifies the
benefits an employee will receive at retirement age, based on
total earnings and years on the job.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 69
Chapter 15Retirement and Estate Planning
Reviewing Key Concepts5. Explain the advantages of the Roth IRA over a regular IRA.
Unlike a regular IRA, a Roth IRA allows you to continue to make
annual contributions to your IRA even after age 70½.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 70
Chapter 15Retirement and Estate Planning
Reviewing Key Concepts6. Explain why creating a living will is an important part of
estate planning.
At some point in your life, you may become physically or mentally
disabled and unable to act on your own behalf.
If that happens, a living will can help ensure that you will be cared
for according to your wishes.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 71
Chapter 15Retirement and Estate Planning
Reviewing Key Concepts7. Describe the major advantages of trusts.
Some of the common reasons for setting up a trust are to: Reduce or provide for payment of estate taxes Avoid probate and transfer your assets immediately to
your beneficiaries Free yourself from managing your assets while you
receive a regular income from the trust Ensure that your property serves a desired purpose
after your death
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 72
Chapter 15Retirement and Estate Planning
Reviewing Key Concepts8. Explain what it means to be an executor of an estate.
An executor is a person who is willing and able to perform the
tasks involved in carrying out a will.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 73
Chapter 15Retirement and Estate Planning
Reviewing Key Concepts9. List some estate planning methods to reduce inheritance
taxes.
One way to reduce the tax liability of your estate is to reduce the
size of the estate while you are alive by giving away portions of it
as gifts.
Business and Personal Finance Unit 4 Chapter 15 © 2007 Glencoe/McGraw-Hill 74
Newsclip: Higher RatesSocial Security reform has been highly debated in the news for
years. Many politicians aim to change the system.
Log On Go to finance07.glencoe.com and open Chapter 15.
Learn more about retirement saving options. Write a list of ways
to help save seniors from financial hardships. Also write a list of
ways to help younger people prepare for retirement.