Retirement Preparation Homework Workbook · Retirement Life Planning Homework . Financial Fear...
Transcript of Retirement Preparation Homework Workbook · Retirement Life Planning Homework . Financial Fear...
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Retirement Preparation Homework Workbook
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Welcome to Your Grand
Commencement—Retirement
Most people spend twelve
years in primary school and, for
some, two to eight additional
years in post-high school
institutions preparing for a
productive and successful
forty-plus years in a working
career.
In contrast, the time spent
preparing for a productive
and successful retirement, a
lifestyle that could last as long
or longer than the all the years
you worked, is significantly less.
Retirement is no longer a predetermined destination. To successfully
achieve the ultimate retirement goal of lifetime financial
independence, participants must create and fund their retirement
lifestyle vision plus take educated steps to protect their plan from the
risks that threaten an early spend down of assets.
This homework workbook, the textbook Retirement Is Recess for Grown-
Ups, and if applicable, a retirement planning preparation tutor (financial
adviser) are essential tools to improve your retirement readiness level.
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Workbook Instructions
Not everyone will need to complete all the homework covered in this
workbook. Some may have already completed specific assignments,
and others might find that their particular situation does not require a
certain project to be completed.
It is beneficial to complete applicable homework assignments over a
period of time rather than “cramming” in a haste to get them finished.
Remember, this is your multidecade retirement recess you are preparing
for. Thoroughness is the most important factor.
Finally, this workbook is designed to be utilized in conjunction with the
textbook Retirement Is Recess for Grown-Ups. It is recommended that
the participant read the book first and then complete applicable
homework assignments accordingly.
Good luck and best wishes for a healthy, prosperous retirement recess!
Retirement is Recess for Grown-ups, when
the bell rings will you be ready?
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Homework Assignment-Completion List
Assignment Page Date Assigned Completed
Thinking Outside the Box Exercise 5
Retirement Life Planning Homework
Financial Fear Inventory 7
Life Expectancy Exercise 10
Retirement Perception Exercise 12
Movie Date 13
Retiring “To” and “From” Exercise 14
Visualization Exercise 15
Create You Vision -Retirement Lifestyle 16
Assess Your Play-Ability 17
Primary Residence Location 19
Retirement Financial Planning Homework
(RISK) Assessment 22
Hiring a Financial Adviser or Not 23
Assessing a Financial Adviser 24
Financial Inventory 25
Monthly Expense Exercise 32
Monthly Retirement Income Source(s) 41
Retirement Contribution Priority Plan 43
Retirement Income Distributions Order 45
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Assignment Page Date Assigned Completed
Financial Planning Assumptions 47
Retirement Insurance Homework
Life Insurance Needs in Retirement 48
Medicare and Supplement Heath Ins. 52
Long-Term-Care Costs 53
Retirement Estate Homework
Asset Document Locator 54
Beneficiary Review Exercise 59
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Exercise: Thinking Outside the Box
Planning for a “retirement” lifestyle lasting three to four decades requires
some creative, outside-the-box thinking concerning traditional
retirement lifestyle perceptions. Both lifestyle goals and the financial
means to fund them have been rapidly changing as the landscape of
retirement has been altered by age longevity and disappearing
retirement income benefits.
This exercise is designed to challenge your thinking about how we
traditionally tend to solve a problem.
Brain Warm-up Exercise
Connect all nine dots with four straight lines without lifting your pencil tip
from the paper.
Solution: Last page of this workbook
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Financial Fear Inventory
As you have discovered in your reading, the two biggest fears
associated with retirement are running out of money before
running out of lifetime and
not being/remaining
relevant in your lifestyle
once retirement has begun.
Fortunately, engaging in
comprehensive financial
planning—including an
exercise to define and
create your retirement lifestyle plan—can greatly mitigate each
of these fears. Even so, it is useful to complete a fear inventory to
discover how fear can deter you from arriving at your financial
independence destination on time.
Completing a periodic financial-fear-inventory exercise can prove
very useful in discovering the root cause(s) of your fear, and more
importantly, it will help you realize how we all are empowered to
overcome our fears once we have the courage to face them.
Fear, financial or otherwise, most often is rooted in false beliefs.
When we examine why we tend to believe something to be true
or not, many times we
find that we are still
clinging to beliefs that
are way past their
expiration dates. In
other words, they may
have been applicable in the past, but not anymore. A perfect
example is found by examining beliefs about what our retirement
lifestyle will actually look like. Old retirement lifestyle beliefs
centered around being old, worn out, or obsolete. Who wants to
“I’ve lived through some
terrible things in my life, some
of which actually happened.”
Mark Twain
F.E.A.R. = False Evidence Appearing Real
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work and save toward that end? Much of what you are reading in
the book Retirement Is Recess for Grown-Ups is about planning and
living an empowered, dynamic retirement lifestyle that is anything
but obsolete. Recess for grown-ups equates to being active,
creative, and engaging—not boring, restrictive, and dull.
The word “fear” can be viewed as an acronym—FEAR—False
Evidence Appearing Real. Ensure your perceptions are real.
Homework: Find a quiet time where
you won’t be interrupted for fifteen to
twenty minutes. Take a few deep
breaths and clear your mind. Ask
yourself each fear question out loud.
Write down your response to each
question. Do not judge your answers as
“good” or “bad,” “right” or “wrong.”
Also, don’t try to overthink your
responses.
What is my greatest financial fear?
When did I first become aware of this fear?
How is this fear affecting me today?
What is the lie I am telling myself as a result of this fear?
How do I perpetuate this lie in my daily life?
What can I do instead? List three action steps:
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Financial-Fear Inventory—Example
What is my greatest financial fear?
That I won’t have enough money to retire on my terms.
When did I first become aware of this fear?
Watched someone I know not achieve his financial goals.
How is this fear affecting me today?
Freezes me up from taking any action. Keeps me from planning
for financial freedom.
What is the lie I am telling myself as a result of this fear?
It is not possible for me to achieve financial independence.
How do I perpetuate this lie in my daily life?
Procrastination. Too “busy” to complete financial planning.
What can I do instead?
Finish my homework. Find someone who will hold me
accountable for my actions. Change my outdated perceptions.
Complete a separate fear inventory for as many financial fears as
you presently have. It might be helpful to take a fear inventory
periodically or whenever you begin to feel yourself freezing up and
not taking action on a financial matter.
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Retirement Life Planning
For those who are managing
to put money aside for their
“retirement years,” many
have no idea what their
retirement life might look like.
Unlike the generalization of
saving for a “rainy day,”
saving for a thirty-year-long
lifestyle extends over 10,950
days of both sunshine and rain. We must begin to think beyond the
science of financial data and awaken the desired future lifestyle
dreams that slumber within. Although the financial calculations
play a critical role and provide the discipline of ensuring that
money lasts as long as you do, equally important is the creative art
of envisioning what your ideal lifestyle looks, tastes, smells, sounds,
and feels like. After all, longevity trends say you are going to be
spending a lot of time somewhere. Why not design a plan to fit
your desires rather than settling for someone else’s default vision—
or worse, no vision at all?
It’s time to modernize our
definitions and outdated
perceptions of what the lifestyle
of retirement is versus what it
was. In the past, the idea of
retirement signaled the
beginning of the end. Today it
introduces the beginning of a
new and very active extended
lifetime. In the past, retirement
meant being permanently
resigned from a career. Today, an increasing number of people
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are “re-hired” into new and dynamic careers and businesses, some
for pay and some for no pay. In the past, retirement implied elderly
and worn out. Today, thanks to longer life expectancies and a
higher quality of life, it signifies new and exciting chapters in the
continuing story of you.
It is vital to define as specifically as you can the lifestyle you are
envisioning and at what age you would like the recess bell to ring.
Once your retirement life vision is out of your head and written
down on paper, you are ready to create a financial plan to fund
and protect it.
Life-Expectancy Exercise
Go online to https://apps.goldensoncenter.uconn.edu/HLEC/ and
access the healthy life expectancy calculator developed by the
Goldenson Center at the University of
Connecticut. This is a very good free life-
expectancy calculator that is not affiliated
with any commercial site. Enter your
information by using the slide buttons and
request the results.
You will receive an estimate for healthy future years and unhealthy
years. You will also receive comments on your strong points and
areas you can improve to extend your life-expectancy projections.
Your predicted future healthy years: _____
Your predicted future unhealthy years: _____
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List positive lifestyle traits contributing to extending your life-
expectancy years
_______________________________________________________________
_______________________________________________________________
List any suggested improvements:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Question: How old would you say you are if you didn’t know your
age? ____
Keep in mind that predicting life expectancy is not an exact
science until after the fact!
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Retirement-Perception Exercise
Define what the word “retirement”
means to you. Create your own
synonyms for the word “retirement.”
Write down your answers. Examples
include: retirement = inspirement;
overtime on my terms; the best second
half of life; unsupervised playtime;
recreating and re-creating. Email your
“retirement” definitions to me at
[email protected], and I will
share them with others who are also
completing this assignment.
What retirement means to me:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
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Movie Date
Make some popcorn and watch a
movie or two about lifestyles in
retirement. A couple of my favorites are
The Intern, Cocoon, On Golden Pond,
and About Schmidt. What do you like
and dislike about the retirement
lifestyles portrayed in these movies?
Write down your thoughts and feelings.
What movies did you watch?
Thoughts and comments:
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Retiring “To” and “From” Exercise
Ask yourself what you are retiring from
and what you are retiring to. Do you
want to retire from something, like a job
environment you dislike or even hate?
Do you want to retire to something new
and different? Maybe it’s a second
chance at a new career. How about
living in a different part of the country or
world, where the climate and lifestyle
are perceived as more suitable for you?
Climate is now second to affordability
on the short list as a primary reason to
relocate in retirement. Make a “from”
and “to” list to help provide clues as to
the lifestyle direction you imagine your
retirement journey might take.
I’m retiring from: I’m retiring to:
__________________________ _________________________
__________________________ _________________________
__________________________ __________________________
__________________________ __________________________
__________________________ __________________________
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Visualization Exercise
Create or collect pictures from
magazines and the internet that
graphically illustrate what you want
your retirement recess to look like. Paste
them on a presentation board for
viewing or upload them to Pinterest.
Make sure every area of your life is
represented by this collage that
describes where you will live, play, work,
rest, grow, share, and just be.
Email your visual collage to
[email protected]. I will post it
on our web page “Retirement—You
Vision” so others can be inspired by your
visuals and create their own.
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Create Your Lifestyle Vision Plan
As assigned in the book, go to
www.retirementrecess.com/retire-
ready-resource-center and request the
e-book - You Vision™. Complete the
exercise to discover your relevance in
seven facets of your retirement
lifestyle.
Self
Life Partner
Family and
Friends
Community
Explore
Avocation and
Vocation
Something Bigger
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Retirement Transition Exercise
Assess Your Play-Ability
No matter which retirement transitional strategy you consider as
right for you—the “on/off” immediate or gradual “dimmer
switch”—it is important to assess
your play-ability prior to your
goal date.
I’ve never met a five-year-old
who didn’t know how to play
with vigor. Children instinctively
switch immediately from a state
of rest into play mode. As we
grow up, we devote more of
our attention and time to
working for a living and dealing
with the responsibilities of life and less time practicing our play skills
we learned as kids. Slowly our play abilities atrophy if they are not
exercised regularly.
Do you know any grown-ups who have difficulty switching
between work periods and playtime? You may notice this when
you begin a vacation or extended holiday. Those who have
forgotten how to play have difficulty switching from full-time career
to full-time retirement without a transition period. The honeymoon
phase of a careerless lifestyle can wear off after a short time and
turn to boredom, depression, and anxiety. Alcoholism and drug
addiction cases increase as drinks and drugs fill the void where
social and status aspects of employment once lived.
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Pre-cess
If practical, plan and practice playtime (mini recess) for increasing
periods of time prior to your actual full-time retirement date. During
school years, this period was called “spring/fall break.” I call these
preretirement practice periods “pre-cess.” Practicing pre-cess
prior to retirement recess accomplishes two important goals:
1. Initially, you begin the process of conditioning yourself and the
people around you by switching back and forth between work
and play. This decompression step allows you time to develop
your sense of balance between playtime and work time.
2. You begin to build confidence that your job responsibilities will
actually allow you to break from your work routine for extended
periods of time without business falling apart while you are gone.
Being able to shift your work load (or delegate) is a skill that takes
time and practice for most people to master.
Pre-cess is great for building confidence
by getting a feel for how difficult or easy
it will be to move between your work
and play life in the future.
Schedule an extended trip to a pre-
cess place (playground) you have
never been to before. If a voice in your
head says there is no way you can be
gone from work even for a few days,
and you are within five years of your
retirement age goal, you need to
consider what things must happen
before you can complete this
assignment.
Comments about pre-cess experiences:
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Advanced skill development: During a pre-cess time, try turning
your cell phone off for an entire day. If this is too big of a leap,
consider a four-hour respite from your “wired” life. No fair counting
sleeping hours as part of your four-hour period!
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Choosing Your
Primary Residence
Location
As you create your
retirement-recess lifestyle,
deciding on your primary,
and in some cases
secondary, residence is an
important consideration.
Whether you choose a
traditional residence—with
or without maintenance
and upkeep—or live in a
home on wheels where
the view out your living
room window changes with location, where you choose to reside
says a lot about you. Still others choose to “age in place,” where
they already reside. Vacant kids’ bedrooms easily convert to gym,
yoga, and art studios.
Where you decide to live during your retirement years is usually
based on several factors I call “location attractors”:
• Climate/seasons
• Geographic proximity to people you visit
often
• Cost of living: general/medical/insurance
• Social settings and area amenities,
including medical
• Availability of support facilities
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• Employment/business opportunities
• Familiarity of location
• Security
Based on the location attractors
discussed in your reading, where do
you want your primary residence to be
located during your retirement-recess
years?
Location Attractor Location
#1
Location
#2
Location
#3
Comments
Climate/seasons
Proximity to family
& friends
Cost of living
Social and area
amenities(Medical)
Support facilities
Jobs/business
opportunities
Familiarity of
location
Personal security
Other:
Grade: A = Ideal B = Strong C = Neutral D = Not suitable
I= Incomplete—Need more information
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Other considerations: Will you or do you maintain a primary
residence and a secondary home?
If yes, describe the location, amenities, services, attractions, and
activities of each residence location:
Retirement Financial Planning
Retirement Income Security Killers (RISK)
Assessment
Complete a Retirement Income
Security Killer (RISK) Profile
Assessment
The goal of this homework step is to
evaluate and identify financial,
economic, and personal core risks that
have a high probability of impacting
your financial health if and when they
do occur. A RISK mitigation plan of
action can then be developed to
manage each risk appropriately,
beginning with potential “high impact”
risks first. A RISK assessment
questionnaire is available for download
free at
www.retirementrecess.com/retire-
ready-resouce-center.
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After completing the RISK assessment
previously assigned, create a RISK
mitigation plan of actions. A worksheet
is provided at the end of the RISK profile
assessment e-book available at
www.retirementrecess.com.
Hiring a Financial Adviser—or Not
Self-assess your abilities to be your own
financial adviser: strong/average/weak.
Three Ts In the past Currently 10 years from now 20 years from now
Time
(Focus)
Training
(Education)
Temperament
(Discipline)
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If you rated yourself average or weak in any of the three “T”
categories, your next assignment is to locate a lifetime financial
adviser who scores “strong” in each “T” area.
Locating, Vetting, interviewing, and Hiring a
Lifetime Financial Adviser
Go to www.retirementrecess.com/retire-
ready-resource-center
and download the e-book Seven C
Financial Adviser Assessment.
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Financial Inventory Exercise
The financial exercises that follow are traditionally requested by
financial advisers assisting you with your retirement financial
planning.
Because the information you complete is critically important to
financial-scenario (outcome) planning, accurate and complete
data is a must. I have provided worksheets for your convenience.
Financial Inventory
Assets /Liabilities/Income/Expenset Inventory
List current assets(savings, investments,
real estate) and debts or encumbrances
(credit cards, loans, mortgages). Obtain
estimates of retirement income sources
(Social Security, pensions, rents/royalties,
employment, and other income
sources). List any potential financial windfalls such as an
inheritance or the sale of a business interest or home, and also list
any liabilities you are anticipating in the future and during your
expected retirement years.
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Confidential
Financial Data
Participant 1 Full Name: _________________Age: ____Relationship: _____
Participant 2 Full Name: _________________Age: ____Relationship: _____
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Financial Assets
Cash Reserve
Accounts
Goal Participant
1
Participant
2
Joint Monthly
Additions
Checking
Savings
Savings
Other cash
account
Other cash
account
Totals
Taxable
Investment (Nonretirement
Accounts)
Goal Participant
1
Participant
2
Joint Monthly
Additions
Govt & Corp
Bonds
Individual
Stocks
Mutual Funds
Exchange
Traded Funds
Managed
Account
Other
Taxable
Totals
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Tax-
Deferred/Tax-
Free Assets
Goal Participant
1
Participant
2
Joint Monthly
Additions
US Govt.
Savings Bonds
Municipal
Bonds
IRA
Retire
Roth IRA
Retire
Employer
Plan (401(k))
Retire
Employer
Plan (401(k))
Retire
Tax-Deferred
Annuities
Retire
Health
Savings
(HSA)
Retire
Deferred
Comp
Retire
Stock Options
Tax-Deferred
Annuities
Reverse
Mortgage
Retire
Other
Other
Totals
29
Real Estate and Nonfinancial Assets
Real Estate/
Other
Nonfinancial
Assets
Goal Participant
1
Participant
2
Joint Monthly
Additions
Autos
Other
Vehicles
Primary
Residence
Personal
Property
Second
Residence
Rental
Property
Business
Ownership
Other Asset
Other Asset
Totals
Comments:
30
Liabilities Current Balances
Liabilities Monthly
Payment
Participant
1
Participant
2
Joint Paid-in-
Full Date
Credit Card
Total
Vehicle Loans
Primary
Residence
Mortgage
Second
Residence
Mortgage
Rental
Property
Mortgage
Business
Ownership
Loans Owed
Retirement
Plan Loan
Student
Loan(s)
Other Debt
Other Debt
Total
Liabilities
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Summary of Assets and Liabilities
Asset Category Participant
1
Participant
2
Joint Monthly
Additions
Cash Reserve
Accts
Taxable Accounts
Tax-Free/Tax-
Deferred Accts
Real Estate/Other
Nonfinancial
Total Assets
Liabilities
Net Worth Total Assets – Total
Liabilities
Financial Documents Checklist
The following is a list of common financial documents that should be
gathered to complete your retirement-planning activities:
Bank statements for all accts
Investment statements
Retirement accounts—
IRA/401(k)
List of all debts
Employer benefit summary
Pension plan
Social Security statements
Life/disability/long-term-care
insurance polices
Income tax return Med Insurance coverages
Will/power of attorney/medical directives
Trust
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Monthly Retirement-Living-Expense Report
A critical part of your retirement financial
plan is identifying your actual or anticipated
cost-of-living expenses as accurately as
possible.
List all expenses in today’s values. Use
checking account and credit card
statements as resources, and list expenses
as “essential,” meaning “must have,” and
“nonessential,” meaning “could live without.”
A category may have a combination of
essential and nonessential expense amounts.
Complete only the categories where you
have actual or anticipated expenses.
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Monthly
Household
Living Expense
Essential
Expense
Nonessential
Expense
Expense
End Date
Comment
Groceries
Personal Care
Home Supplies
Clothing
Dry Cleaning
Gifts
Housekeeping
Pet(s)
Charity
Hobbies
Self-Improvement
Subscriptions
Furnishings
Professional Care
Child/Adult Care
Other
Other
Total Household Living
Expenses
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Notes and comments about household living expenses:
Monthly
Housing
Expenses
Essential
Expense
Nonessential
Expense
Date
Expense
Ends
Comment
Mortgage Rent
2nd Mortgage
2nd Home Mortgage
HOA Fees
Gas/Electric
Water
Trash Removal
Telephone/Cell
Cable
Internet
Home Services
Home Maint
Improvements
Property Taxes
Property Ins
Other:
Total Housing
Expenses
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Monthly
Transportation
Essential
Expense
Nonessential
Expense
Date
Expense
Ends
Comment
Auto Pmt
Auto Pmt
Auto Pmt
Fuel Costs
Auto Upkeep
Registration Tax
Insurance Costs
Boat/Camper
Other
Other
Total Transport
Expenses
On average, how often do you replace a primary vehicle?
Notes and comments about transportation expenses:
36
Monthly
Medical
Care
Essential
Expense
Nonessential
Expense
Date
Expense
Ends
Comment
Health Ins Prem
Deductibles
Out-of-Pocket
Other Cost
Medicare Prem
Medicare Supp
Disability Ins
Group Life Ins
Private Life Ins
Dental Ins
Dental Expense
Vision Ins
Vision Expense
Long Term Care
Assisted Living
Home Health
Health Club
Other
Other
Total Medical
Care
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Monthly
Entertainment
Essential
Expense
Nonessential
Expense
Date
Expense
Ends
Comment
Meals Out
Movies/Theater
Day Trips
Events
Ticket Expense
Recreation
Other
Other
Total
Entertainment
Notes and comments about entertainment:
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Travel and
Vacations
Essential
Expense
Nonessential
Expense
Date
Expense
Ends
Comment
Airfare
Hotel/ Lodging
Meals
Entertainment
Tour Expense
Other
Other
Other
Total Travel
and Vacations
Notes and comments about travel and vacation expenses:
How many trips do/will you enjoy each year? ______________
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Monthly Taxes* Current
Year
Previous
Year
Comment
Fed Income Tax
FICA
State Income tax
Local
Other
Total Taxes
. * Source: federal and state income tax returns
Do you have any extraordinary income tax expense items in the future?
If “yes,” explain:
Notes and comments about tax expenses:
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Summary—All Estimated Monthly Expenses Reported in Today’s
Dollars
Total Household Expense
Total Transportation
Total Medical Care
Total Entertainment
Total Travel & Vacations
Total Taxes
Total Expenses
Questions you have about any expense category:
Expense
Category
Essential
Expenses
Nonessential
Expenses
Total Expenses
Total Housing Expenses
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Expected Retirement-Income-Sources
Exercise
Instructions:
1. Review each retirement income source listed below and
identify income tax type when distributed:
(T)Taxable—Ordinary Income Tax
(TP)Tax-Preferenced—Capital Gains Tax
(TF)Tax-Free
2. Analyze timing of income sources and consider income tax
optimization (accelerating and/or deferring income to
balance income tax liability each year).
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Expected Retirement-Income-Sources Exercise
Income
Source
Tax Participant
1
Monthly $
Participant 1
Age Income
Begins/Ends
Participant
2
Monthly $
Participant 2
Age Income
Begins/Ends
Retirement
Employment
T
Business
Income
T
Rents/
Royalties
T
Other Wages
T
Social Security
Vested
Pension
T
Other Ret
Income
Annuities
T*
Qualified IRA
and 401(k)
T
Tax-Free Roth
IRA
TF
Taxable
Retirement
Savings
T
Reverse
Mortgage
TF
Other Income
Total Income
Sources
* If annuity is annuitized (Income payments for life requested), distributions may include a return of
principal which is tax free.
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Prioritizing a Retirement Lifestyle Funding Strategy
(Preretirement)
The priority of retirement contributions you choose
during the retirement-asset-accumulation phase of
your planning is important for several reasons:
If you contribute solely to tax-deferred retirement
investments such as 401(k) and IRA accounts, as
many do, you may end up with a large income tax surprise as you distribute
these taxable funds during your retirement years to supplement other
income sources. Generating high levels of taxable income from tax-
deferred account distributions raises marginal tax costs and can trigger
other taxes such as the Medicare premium surcharge tax. Total income
during retirement also determines the percentage of Social Security
income that is included as taxable income.
Additionally, because qualified tax-deferred investments (401(k), IRA) also
have mandatory distribution requirements once the account owner
reaches age seventy and a half, large balances in these accounts can
force large taxable distributions. This is not to say that you shouldn’t fund
your qualified retirement accounts, but rather that you should be smart
about considering the benefits and costs, including taxes, for both the
accumulating and deaccumulating phases of your retirement planning.
Conversely, if taxable accumulation and bank accounts are the primary or
only source of retirement income supplementation, paying taxes along the
way rather than deferring taxes until later, when tax brackets may be lower,
can create a drag on accumulated account values and affect future
income distributions. Important income tax deductions and possible
employer matching contributions offered through employer-sponsored,
tax-deferred retirement accounts may also be missed.
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Rather than investing too much in tax-deferred or taxable investments and
trying to minimize the resulting income tax issues in or near retirement, a
better approach is to create a plan to balance the benefits of tax-free, tax-
deferred, and taxable income by prioritizing contributions during the
accumulation phase of your retirement-planning life. Debt reduction
should also be prioritized with the ideal goal of having all debts eliminated
prior to or early in the retirement-income phase of your retirement cash flow
plan.
Based on goals and personal circumstances, priority can be given to how
you deploy that part of your working income reserved for your future
nonworking lifestyle. The ultimate goal is to accomplish the following:
• Maximize tax deductibility of working income—pay less tax
• Balance retirement account sources (taxable, tax-deferred, tax-free)
to optimize retirement distribution strategies later on as income is
distributed
• Meet estate planning goals for the future
• Create ample liquidity and flexibility for future unknowns
This exercise is often difficult to complete without the aid of an experienced
financial adviser who specializes in comprehensive retirement planning.
There is very little information available to the public about the topic of
prioritizing retirement source funding and debt reduction other than
general rules of thumb. A one-size-fits-all or rule-of-thumb general
recommendation on how to prioritize funding retirement sources and pay
down debt may not be appropriate for you and your situation. This is an
area of financial planning where professional, personalized assistance can
prove invaluable in providing the best long-term results.
45
Prioritizing the Order of Retirement
Income Distributions During
Retirement
Your retirement distribution order of liquidation will depend on several
factors:
The percentage allocation of available retirement financial
resources already invested in taxable, tax-deferred qualified
(retirement plans), tax-deferred nonqualified, and tax-free
accounts.
Your sources of noninvestment retirement income, including
when they begin and end: employment, Social Security, pension,
business, and rental.
Current investment percentages allocated in growth, income,
and cash objectives.
Your effective and marginal income tax rates based on current
and future income goals and current and future income tax
deductions and credits.
Your estate planning goals and charity bequests.
Your desire to match lifetime guaranteed income sources to
essential expenses.
46
Priority
1-2-3
Retirement Planning
Account Category
Current
Balance
Current
Distribution/
Payment
Goal
Distribution/
Payment
Comments
Cash Reserves—Emergency
Funds
Cash Reserves—Retirement
Income Supplement Fund
Cash Reserves—Other Short-
Term Goal
Credit Card—Accelerated
Payoff
Auto Loan—Accelerated
Payoff
Home Mortgage—Primary
Home Mortgage—Second,
Accelerated
Payoff
401(k) Loan, Accelerated
Payoff
Employer-Sponsored
Retirement Plan (401(k))
Deductible IRA
Nondeductible IRA
Roth IRA
Taxable IRA Conversion to
Tax-Free Roth
Taxable Retirement Account
Includes Stock Options
Tax-Deferred Retirement
Account
(Annuity—Deferred Comp)
Health Savings Account
(HSA)
Reverse Mortgage Line of
Credit
Other Retirement Account
Copyright © 2016
RetirED,LLC
47
Common Assumptions Used in Financial Planning for Retirement
Circle or highlight the financial planning
assumptions you are or will be using in your
retirement financial plan projections.
Financial Planning Assumptions
Conservative Moderate Aggressive
Mortality Age Note: Assuming younger mortality ages
is considered more aggressive due to
heightened risk of underestimating your
actual mortality date, resulting in not having
enough money to fund the years beyond
your estimate.
95 or higher 85-95 85 or lower
Annual Inflation Percentage - Living Expenses
Annual Inflation Percentage - Medical
5% or higher
7–8%
3–4%
5–6%
2% or lower
3–4%
Investment Performance: (*)
Five-Year Average
Growth (Stocks) 5% or lower 6–7% 8% or
higher
Income (Bonds) 2% or lower 3–4% 5% or
higher
Cash (Money Market, Savings,
High Yield Savings )
1% or lower 1-2% 3% or
higher
Systematic Investment Withdrawal % 3% or lower 4% 5% or
higher
Tax Expense: Fed and State 30% or
higher 25%
20% or
lower
48
Life Insurance Needs-Assessment Worksheet “How much and what kind of life insurance do I really need?”
If joint, each participant completes a separate assessment worksheet
Participant Name:
Age
this
year:
Health: Excellent Good Poor
Smoker: Y N
Immediate Cash Expenses: Estimated
Amount
Comments:
Final Expenses (Uninsured Medical, Funeral, Probate, Misc.)
(Est. $5,000)
Final Year Federal and State Income Tax Estimate Reserve
Federal and State Estate Tax Estimate Reserve (Estates over
$10 million)
Other Immediate Cash Needs:
Total Immediate Cash Expenses
Debt Payoff: Credit Card(s)
Auto Loan(s)
Home Mortgage
Second Mortgage
Reverse Mortgage
Other Loans/Debts
Other Loans/Debts
Total Debt Payoff:
Lump Sum Bequests: Children/Grandchildren College Funding
Donations/Charity/Gifts
Buy/Sell Business
Other Bequests:
Other Bequests:
Total Lump Sum Bequests:
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(1) Survivor(s) net monthly income need = In today’s dollars, adjusted gross household monthly expenses less
survivor income sources: continued survivor income, survivor Social Security benefits, survivor pension benefit,
inherited retirement/nonretirement assets, and other income-continuation sources.
(2) Determine how long you wish to have income replacement continue. Examples: For a certain period of
time. Until spouse receives survivor Social Security income. Until younger child is 18–21.
(3) Present value estimate calculation includes assumed values for annual investment return: (Assume %:_____)
and annual inflation amount: (Assume %:____). Assumed values are estimates for planning purposes and are
not guaranteed. Your actual results over time will vary from these estimates due to several variables.
Life-Insurance-Needs Exercise
Survivor(s) Income Needs
Decedent’s
Monthly
Gross Income
Before Death:
Survivor’s
Monthly Net
Amount
Needed
(1)
For How
Long? (2)
Lump Sum
Estimated
Amount (3)
Comments:
Example:
$8,000
$ 4,000
10 years
$ 480,000
Lump sum based on assumed annual
return of 3%. Annual inflation = 3%.
50
(1) Insurance Policy Type: TI = Term/Individual TG = Term/Group CVI = Cash Value/Individual CVG =
Cash Value/Group
(2) Ownership: P = Participant B = Beneficiary JT = Joint O = Other:_____________________________________
Life-Insurance-Needs Exercise
Existing Life Insurance Coverage Review (Participant Is Insured)
Insurance Company
Name
Type
(1)
Owner
(2)
Face
Amount
At Death
Term
Period
Date
of
Issue
Annual
Prem
Amt
Primary
Beneficiary
Contingent
Beneficiary
51
Life-Insurance-Needs Exercise
Survivor Asset Inventory
Asset Name Estimated
Value
Owner
(1)
Beneficiary Income
Producing?
Bank Account(s)
Taxable Investment Account(s)
Tax-Free Investment Account(s)
Tax-Deferred Nonqualified Investment(s)
(Annuity)
IRA(s) Traditional
P
IRA(s) Roth
P
Employer Qualified Retirement Plan(s)
P
Real Estate Primary Residence
Real Estate Other:
Business Interest(s)
Other Asset(s)
Other Asset(s)
Total Existing Assets
52
Medicare and Medicare Supplement Insurance
Go To:
www.retirementrecess.com/retire-ready-
resource-center
Review Medicare Essentials
If you are within six months of your sixty-fifth birthday and plan to use
Medicare, it is important to review the rules regarding your Medicare
eligibility and specific declines to avoid penalties and gaps in
coverage.
53
Long-Term-Care Costs
Create a financial plan to protect your
retirement income sources from uninsured
catastrophic medical expenses.
Go to: www.retirementrecess.com/retire-ready-resource-center
Review current expenses for long-term-care / home-health
care expenses.
54
Estate Document/Asset Location
In the event that you passed away without explaining where your important
documents and accounts were located, your survivor(s) would have the
added burden of locating these important financial items. Completing an
inventory and identifying the location of your estate records would greatly
reduce the stress created by searching for these important records on your
behalf.
Estate Document Locator Worksheet
Complete the estate document locator
worksheet. Important: Safeguard this and all
personal identification information and
confidential data from theft.
55
Confidential
Asset Document Locator Worksheet
Full Legal Name:
Date of Birth:
Social Security Number:
Institution/
Document
Source
Institution/
Document
Name
Account—
Password—
Policy
Number
Contact
Name
Contact #:
Document
Location
(Use Code
Listed
Below)
Bank/Credit Union
Safe Deposit Box
Will Document
Power of Attorney
Medical Directive
Bank/Credit Union
Account
Bank/Credit Union
Account
Investment Firm
Investment Firm
56
Institution/
Document
Source
Institution/
Document
Name
Account—
Password—
Policy
Number
Contact
Name
Contact #:
Document
Location
(Use Code
Listed
Below)
Employer Benefits:
Health Care Ins
Pension
Retirement Savings
Life Insurance
Stock Options
Deferred Comp
Vaca/Sick Leave
Life Insurance
Life Insurance
Credit Card*
Credit Card*
Credit Card*
Primary Mortgage
Residence Deed
2nd Mortgage
Reverse Mortgage
57
Institution/
Document
Source
Institution/
Document
Name
Account—
Password—
Policy
Number
Contact
Name
Contact #:
Document
Location
(Use Code
listed
below)
Other Mortgage
Auto Loan*
Auto Loan*
Auto Loan*
Other Loans*
Income Tax
Returns
Vehicle Title
Vehicle Title
Vehicle Title
Vehicle Title
Email Address:
User Name:
Email Address:
User Name:
Other:
Other:
Other:
Other:
58
Document Locator Code:
*Check for credit life insurance with each credit card and loan company.
Notes and comment about asset document location:
Location
Location
Code
Comment
House
Where:
A
Office:
Where:
B
Bank Name:
Safe Deposit Box #:
C
Computer:
User Name:
Password:
D
Cell phone:
Password:
E
Attorney:
Contact #
F
CPA/Tax Preparer:
Contact #:
G
Location:
H
Location:
I
Location:
J
Location:
K
Nonapplicable—I do not own X
59
Asset Beneficiary Review
Estate—Things to Do:
✓ Complete Estate-Beneficiary Exercise. Review your beneficiary
designations annually.
✓ Complete an asset location exercise. Update periodically.
✓ Create a written will, power of attorney (POA), advance medical
directive (AMD), also known as a medical power of attorney, and
living trust, if appropriate.
✓ Talk to your children/heirs, if applicable, about your legacy wishes.
✓ For estate and legal questions, consult an attorney familiar with
estate laws in your state of domicile.
60
Asset Beneficiary Review Name____________________
Asset (1)
Ow
ner (2
)
Prim
ary B
eneficiary (3)
Percen
tage
Relatio
n
to O
wn
er
Meth
od
of
Transfer
(4)
Co
ntin
gent
Ben
eficiary (5)
Percen
tage
Relatio
n to
O
wn
er
Meth
od
of
Transfer (4
)
EXAMPLE
IRA Tom
Barb
100
Spouse
Direct
Estate
100
Estate
Will
61
Instructions: Complete each column
(1) Assets you own
(2) Owner name and legal registration of each asset:
Individual (Ind.)/Joint Tenants (JT) /Joint Tenants with rights of survivorship (JTROS)/
Tenants in common (TC)/Trust (T) /Uniform transfer to minors (UTMA)/Other: Explain
(3) Primary Beneficiary/Percentage of distribution/Relationship to owner
(4) Method of asset transfer upon death of owner:
Direct Beneficiary Designation
Transfer on Death/Payable on Death (TOD /POD)
Assets Registration
Valid Will
Trust
Intestate—no valid written will
If a direct beneficiary is not named or the asset does not pass by registration such as joint tenants with rights of survivorship and a valid will is not available, the decedent’s estate is intestate and will pass by probate court order. Check your state of domicile for specific details.
(5) Contingent Beneficiary/Percentage of distribution/Relationship to owner
The contingency arises when the primary beneficiary predeceases the owner or for
some other reason cannot inherit the estate of the deceased.
Notes:
Disclaimer: This exercise is not intended to provide or represent legal advice. Estate laws can be complex, and
they vary depending on many factors. Participants are encouraged to seek out competent legal advice from an
attorney familiar with their personal situation and knowledgeable on estate issues for a specific state of
residence.
62
Solution
(3)
(4) (2)
Start (1)
Connect all dots with four lines without lifting the marker tip from the paper