However, the advantages and disadvantages of the being in workforce tend to affect the individual experiences of retirement, so that attitudes toward retirement may vary depending on a number of factors. Health and potential revenue is not only the concerns of retired contemplation identified, but also consistently emerge as factors associated with retirement satisfaction. Poor health is often a precursor of early retirement and people with health problems are more likely to report dissatisfaction with retirement. Anyone with sufficient financial resources by pensions (both public and private) and retirement savings and are in good health, more likely to express a positive view of retirement. These key resources, the pensioners, more closely to the activities associated with the retirement lifestyle of travel and leisure, education, volunteering and other opportunities, free from the obligations of professional life. People with lack of sources of retirement income and / or poor health tend toward a more pessimistic retirement. Similarly, the state of the economy and its potential impact on retirement wealth effect is positive or negative attitude toward retirement.

These differences in the experiences of employees by gender and ethnicity influence attitudes toward retirement. Men are generally more likely to withdraw due to work circumstances or job characteristics, and women are more likely to resign for personal reasons. In woman cases, they often delaying in entering the workforce, the interruption of participation, the lower status line professional jobs and lower wages in the lower levels of labor force attachment results and more importantly, loss of retirement income sources. Pension and retirement will not be very attractive option for women. In addition, retirement for women are often not actively chosen, but by the needs and actions of others dictates of adopting a caring role or retired, together with a husband.

The attitude toward retirement may also be influenced by the proximity of the retirement event. If people close to retirement, they tend to spend more time thinking and planning for retirement. These activities tend to reinforce a positive image of a pending withdrawal of experience and with post-retirement level of satisfaction with what to do after retire. It is estimated that the number of people who have not thought about or planned for the retirement is about 10 % to 40 %. People who identify strongly with their work situation and have a high degree of attachment to the workforce are less likely to see retirement as a positive event in the life and actually give the full pension a second thought for continuous employee participation.

If you are not disciplined or possessed of a large amount of assets in the seven figures, you do run the risk of outliving your assets. Everyone choosing the MDO should be setting something aside in case that one or both of you, whether married or not, enjoys extraordinary longevity. If you have not saved against that eventuality, the MDO may reduce you to poverty in your extreme old age. The MDO carries that risk, and you will have to manage your finances accordingly.

The flexibility afforded by the MDO has, on the other hand, a number of advantages like estate planning benefit. If one assumes a modest amount of growth in your account, say 7% annually, then the amount of the MDO will increase every year. For the first several years of retirement, assuming a married couple, each aged 70, your account will grow because you are taking out less than 7% of the account’s value annually. The MDO is calculated by dividing the size of your account annually by the applicable period of life expectancy. If you have twenty years of life expectancy, then the minimum distribution rules only mandate that you received a 5% distribution. If we posit a 7% long-term growth rate, the account will grow. In fact, the numerator, the size of your account, will increase until, using 7% as a benchmark, your remaining life expectancy falls below fourteen years. The magic of fourteen years stems from the mathematical fact that you will then begin drawing slightly more than 7% of your account out every year.

That percentage will increase over time, but there are strategies for slowing that outflow. Your income will, as a matter of law, increase and enable you to keep pace with inflation more easily than if you were, for example, on a fixed annuity. If you retain a portion of your account in CREF investments, your account and therefore your income have the potential to grow significantly. If the market retreats in any year, your income may decrease, depending on how large the downward movement has been and whether you have other assets to tide you over.

The critical point remains that you have control over your destiny by changing the mix of investments and electing how much income to take each year. If you are able to live comfortably on the MDO alone, subject to the caveat that one is supposed to enjoy, not endure, retirement, the economic benefit will reach its maximum potential. We have set forth three hypothetical fact patterns, all assuming that a couple retires at age 70, and then showing the payout for an account of $500,000, $1 million, and $1.5 million. The math always works out the same in terms of the total paid versus the retirement benefit. The difference arises from the obvious fact that one can live more easily on an income three times the size of the baseline example of $500,000.

But even if you only have a TIAA-CREF account of $500,000, use of the MDO may remain feasible. Your spouse may have a retirement accumulation as well, you and/or your spouse may continue working in a part-time capacity, or you may have other income-producing assets that will make up any shortfall between needs and means. Such people do exist, and we have worked with them. To take a case that comes to mind, the couple had $600,000 in TIAA-CREF, the slightly younger wife was still working, their house was paid for, and the wife had $200,000 or so in Individual Retirement Accounts. The husband had retired at age 65, was working part time, and was letting the account grow until he reached age 70 and his wife had also retired.

Some number exists below which estate planning benefit for a TIAA-CREF account becomes unrealistic. What that floor equals we do not know. Obviously, the smaller the account, the lower the odds that the MDO will work to provide enough income for a couple or even a single retiree to live comfortably, and the first priority in any financial planning has to be a sufficient income stream to provide for you and your spouse or partner.

If, on the other hand, one survives the cut, so to speak, then the account can work its tax-deferred magic for the benefit of two and possibly three generations. As will be discussed later, attendant costs arising out of the federal estate tax will require attention and funding.

Finally, being able to pass on one’s TIAA-CREF account to one’s family produces enormous satisfaction for those who pursue this alternative. Your work and sacrifice have unexpectedly led to financial security and well-being for your family. Your children and grandchildren will have a range of career and other options that might otherwise have proven unavailable. And all because you planned and took the right steps at the right time.

If, however, you have a larger accumulation, say $750,000 or more, and you have other income-producing assets, you may find that an annuity is not the most advantageous choice. If you would like to be able to access funds as you need them (in addition to the minimum distribution, which must be taken out as a matter of law) and you would like to name heirs or a charity as your beneficiary, a single life annuity may not provide the right answer. You must face the trade-off between flexibility and security.

Some participants want their retirement account to be invested and distributed over the lifetimes of the participant, spouse, and children. In those cases, the Minimum Distribution Option TIA-CREF represents the only viable option. Even those who are not as single-minded ought to examine the MDO as an alternative to or as a companion to annuitization. You do not have to annuitize your entire accumulation, and you do not have to take that step on your Required Beginning Date. Remember, as you look at the numbers, that annuitization represents an irrevocable step, and you ought to be clear in your mind that the annuity you pick best suits your needs. Annuitizing in stages may work best for you if you choose single life annuity. Assuming that your accumulation does not contract violently, the only cost of delay may result from a reduction in the permissible guaranteed period or term certain.

In less dramatic situations, we have seen cases where peer pressure or “peer fear” has led to decisions that did not make good economic sense. If you are choosing an annuity, you are making an irrevocable trust choice with major implications for you and typically those whom you love. Be skeptical, become as informed as you can be, and work through the exercises. Recognize that limits do exist to human foresight, but the limits on human insight are less constricting. If you have an annuity partner, the choice ought to work for both of you, and you should both feel comfortable with your decision regarding annuity advantages and annuity disadvantages. Again, leave yourself enough time. Medical consultation may be required in order for you to make a final decision. If you have planned for retirement, then the election of an annuity option (annuity advantages and annuity disadvantages) should not pose an insurmountable challenge. To the contrary, the choice should comport with that planning, subject to any last-minute second thoughts. Above all, do not sin in haste and repent at leisure.

As we mentioned before, if you can obtain advice from a professional outside of the TIAA-CREF retirement organization who can look at your and your family’s issues independently with an unemotional approach, you will increase the likelihood that you will make the appropriate choice. You need to recognize that no one can predict health changes and their effect on longevity. But someone who can work with you to determine overall income and the accumulation or depletion of assets for the foreseeable future clearly represents a welcome addition to the process.

With those thoughts in mind, read through the following with an open mind and your focus on your own situation. You may perceive what we deem an advantage or a disadvantage entirely differently. Of necessity, our views come from our own experience as second-hand observers. Neither of us has retired, probably to the growing irritation of our colleagues. We have spoken to many people in the retirement planning process, not just participants in TIAA-CREF. The concerns about annuity advantages and annuity disadvantages we have heard and situations that have arisen usually strike common chords. But they may not to you. No one is, strictly speaking, average.

Inflation means your retirement dollars will buy less, so you’ll need more retirement dollars just to stay even. For example, let’s say you’ve got a fixed retirement income of $25,000 a year. Inflation will eat into the buying power of that money in short order. Fixed income leaves you in a fix when it comes to inflation. You’ll need to grow your retirement income just to keep pace with the ravages of inflation. Certainly, you need better retirement income strategies to cope with inflation and taxes. Table below shows annual inflation for the past 25 years.

Inflation and Tax Retirement

Retirement income taxes affect what retirement money you have to spend. Depending on your retirement income sources, some may be tax free (fully available for spending), while some may be taxable (you have only what’s left after you’ve paid taxes on the income). For example, the $1,000 of interest you earn on municipal bonds is not subject to federal income tax, but the $1,000 of interest on Treasury bonds is federally taxable. If you’re in the 28% federal income tax bracket, you’ll have $1,000 of interest to spend from your municipal bond interest but only $720 ($1,000 interest less $280 taxes) of your Treasury bond interest. Of course, there may be state income tax on municipal bonds. In figuring the impact of federal income taxes on your retirement income, don’t ignore the alternative minimum tax (AMT). AMT is designed to ensure that even high-income taxpayers will pay at least some income tax. In actuality, the AMT can affect even middle-class people who claim certain deductions or credits or have certain types of income (such as private activity municipal bonds which are free from regular income tax but potentially subject to AMT and employee retirement income).

To complicate matters, tax rates are not static. The rates have risen and fallen over the years. Currently, there are five regular income tax brackets: 15%, 28%, 31%, 36%, and 39.6%. (Different tax rates apply to capital gains, which are gains on the sale of stocks, bonds, and other property.) In the past, the top rate on ordinary income has been as high as 70% (in 1982) and as low as 28% (in 1988). Even the Commissioner of the Internal Revenue Service can’t tell you where rates will be 5 or 10 years from now.

What is a Social Security Death Benefit: One-Time Death Benefit?

It is also known as Survivors Benefits, these types of payments are granted to surviving spouses and children (and parents under some circumstances) whoever family members gained a minimum amount social security spouse benefits credits throughout their working years. Usually, only surviving spouses and children of deceased workers qualify for the one-time death benefit. Furthermore, the deceased family member should have previously worked long enough to be insured under Social Security, however it doesn’t make a difference if they were already accumulating Social Security or not.

The death benefit payment was made to the surviving spouse (widow or widower) living with the deceased person during the time he/she passed, or perhaps when there is no surviving spouse, the settlement was made to a kid of the deceased person. Spouses who’re not living with each other when one spouse passes away may well continue to get the death benefit if they were entitled to benefits on the deceased spouse’s income in the thirty day period the spouse passed. When there is no surviving spouse or child that qualifies for the settlement, then no payment will be made.

Death benefits are paid out in two different ways:

* Lump Sum Death Benefit: This can be a one-time settlement from Social Security directed at the next of kin or beneficiary.

* Monthly payments: Aside from the lump sum benefit, Social Security could also distribute monthly payments towards eligible spouses and children.

The death benefit is comparable to what your Social Security benefit is going to be when you stop working. For instance, if you pass away once you reach full retirement age, your partner can receive a death benefit up to 100 percent of your basic Social Security benefit. Your partner will immediately seventy five percent (no matter of their age) if she or he is caring for a child under age of 16. Usually, children get 75 percent of the benefits.

This is a one-time, lump sum benefit; nevertheless some survivors may be eligible for a a monthly benefit as well as the one-time death benefit. You have to apply for the lump-sum social security death benefit within just two years of the family member’s death.

Who is Eligible for the Survivors Benefits?

For any surviving spouse to get a Social Security death benefit, she or he should be:

* Older than 65 (or 50 in the event that disabled)
* An ex-spouse at any age if she or he is actually caring for your child who is under age 16 or disabled

Benefits for Children and Parents

Dependent children of a parent (or in some cases grandparent) who passed away could also receive Social Security Death Benefits. In some situations, mother and father may receive Survivors Benefits if their child dies.

The following is a seven-step guide to help you determine if you are on target to meet your retirement goal, or how much you need to save annually to meet that goal.

Step 1: Determine the amount of retirement income needs you desire and the retirement age you want it to begin. Most retirement advisors recommend you retire on about 70% of the income you earn during the year prior to retirement. On the other hand, many individuals desire to “better” their lifestyle at retirement and want to retire on 100% of their final year’s income.

Step 2: Determine your Social Security benefit at your retirement age. This benefit depends on your wages and the number of years you contributed to the Social Security system. The maximum benefit in 1998 payable to a husband and wife is about $20,000 a year. This amount may increase due to inflation.

You can contact the Social Security Administration to determine your estimated retirement benefit by using from SSA-7004-SM-OP1. Most insurance professionals have these forms.

Step 3: Calculate retirement benefit you will receive from your employer’s retirement plan at your retirement age.
(1) If you are a participant in a defined benefit plan, you are entitled to a monthly benefit, which you can obtain from your plan administrator.
(2) If you are a participant in a defined contribution plan such as profit sharing, 403(b), or 401(k), your retirement benefit is based on the sum total of your current account, future interest earned, future employer contributions, and future employee contributions.

Step 4: Calculate the amount of retirement income sources, if any, you will receive from other sources. This includes personal savings or investments and the proceeds realized from the sale of a home or other property, including a business

Step 5: Add the total amount of your anticipated income (Steps 2, 3, and 4).

Step 6: Subtract the number in Step 5 from Step 1

Step 7: Calculate how much you need to save, if any, to make up the shortage shown in Step 6. This depends on the interest factor you assume, the number of years you have to save, and the amount of time you want your retirement benefit to last. (See case study below.) ____________

Case Study

Sam is a 50-year-old plant manager who wants to know if he is on track to meeting his retirement objectives. Sam currently earns $100,000 annually. He estimates his income will increase 4% each year until he retires. Using the retirement benefits calculator, Sam’s analysis shows:

Step 1: Annual retirement income objective (about 70% of future salary at age 65, which will be about $180,000): $126,000

Step 2: Assumed Social Security benefit:4 $20,000

Step 3: Assumed retirement benefit from employer’s pension and 401(k) plan:5 $50,000

Step 4: Assumed income from personal investments or from retirement income investment:6 $10,000

Step 5: Projected total income: (Steps 2+3+4) $80,000. Sam is assuming Social Security benefits will not increase. To simplify matters, it is assumed that Sam’s pension plan will provide him with a retirement benefit of 27% of his salary prior to retiring. Sam owns a bond fund which pays him about $10,000 annually.

Step 6: Shortage: (Step 1 minus step 5) $46,000

Step 7: Amount of capital needed to generate $46,000 of income based on retirement benefits calculator is:7 $575,000

In addition to the husband to collect a record of social security benefits in retirement with his wife on the basis of their income. Husband may decide to delay collecting benefits. You can apply for Social Security Spouse Benefits at the age of sixty two require, provided that higher earning spouse or working spouse is eligible and applied for the benefits.

It actually no beneficial to the low earning spouse to hold back more than her maximum retirement age to apply for spousal benefits since the spousal benefit won’t generate credits beyond the full retirement age. As a result, spouses trying to get the spousal benefit have to do so as soon as they get to full retirement age.

To provide you with a good illustration, in case the wife is sixty two and the husband is sixty one, the wife can start getting benefits estimated based on her earnings, however she cannot get based on her partner’s earnings till he becomes sixty two and begins getting his own benefits.

In both situations stated earlier, the wife can begin collecting benefits according to her own income the moment she turns sixty two (assuming she has got at least 40 quarters of earnings and qualifies for benefits on her own), then change to one half of her partner’s benefit when her husband qualifies for Social Security.

This particular earnings test is applicable to spousal and survivor benefits and also retirement benefits, if you expect to work when you reach full retirement age, you need to delay your retirement and spousal benefits.

In case a wife applies for Social Security spousal benefits determined on her husband’s earnings when she reaches full retirement age (age sixty six for folks retiring now), then she will receive half of her husband’s primary insurance amount (PIA). Having said that, if she applies for her spousal benefit at age sixty two, then her benefit will be decreased to just 35 percent of her husband’s primary insurance amount (PIA).

It does not give advantage for the spouse to hold back till right after reaching full retirement age to apply for benefits, as spousal benefits do not consist of delayed credits. In addition, it doesn’t give gain or advantage for the wife if the husband waits to apply for benefits simply because she will not receive any increase in benefits that he will get by holding out to collect benefits.

Whenever a spouse reached full retirement age and is eligible to get the spousal benefit or her own benefit, she may begin getting the spousal benefit at this point and delay receiving her own benefit so she may build-up delayed credits on her own benefit. An individual may collect Social Security Spousal Benefits according to an ex-spouse’s income when you were married for at least ten years and you are unmarried at that particular time. In case you have more than one ex-spouse that you just meet the criteria regarding spousal benefits, you will get the highest social security spouse benefits you are entitled to.

1. Income Taxes.

The above discussion did not take into consideration income taxes. You might have to save more if you have to pay income taxes on all or part of your retirement benefit or your contributions. Distributions from qualified employer plans are always subject to retirement income tax.

2. Social Security.

Your might want to consider social security benefits as part of your retirement. Eligible taxpayers can start to receive reduced benefits at age 62. These social security benefits can offset the amount you need to save.

3. Inflation.

Inflation will erode the value of your money. Inflation is a fact of life. According to the government, inflation averaged 4 percent between 1957 and 1997. If you want to retire with the understanding that you can purchase goods and services in today’s dollars, you should increase your retirement projection or goals by future increases in inflation. The impact of inflation retirement can be illustrated in two ways. Let’s assume your retirement goal is to accumulate $500,000 in 20 years and that inflation will average 4 percent per year. Your $500,000 will only equal $228,193 in today’s buying power. If you want to accumulate $500,000 in today’s value, you would have to accumulate $1,095,561 in the 20 years.

4. Lifestyle.

When you retire, your retirement lifestyle may change. If your goal is to sell your house, business, or any other asset and move into an apartment or smaller home, you should consider the net proceeds you may realize from the sale. If the proceeds from one or more of these assets are going to be used for retirement, you may have to save less each year.

You may also want to consider how you will spend money at retirement. Income needs may go down if you don’t commute, do not have children to support, or move to a less expensive part of the country. However, decreases in costs may be offset by an increase in leisure time. You may spend more money on travel, entertainment, and health care (despite having medical insurance).

5. Life Expectancy.

A conservative approach at retirement is to live off interest on money you accumulate. This prevents you from outliving your retirement income. There are two ways to do this. The first way is simply to invest your money and live off of the interest. If you have $500,000 and earn 6 percent interest, your income is $30,000. Your principal remains constant and can be invaded for emergencies or become a legacy for your family after your death.

A second approach is to use your retirement money to purchase an annuity from an insurance company. The annuity can pay you a guaranteed income as long as you live. This is called an immediate life annuity. If you want to provide a benefit for your spouse, you can purchase a joint and survivor annuity, which is payable over your life and your spouse’s life. Guaranteed annuities at retirement are popular. They pay a fixed amount at a time when your income needs may remain constant. In exchange for your premium (your retirement accumulation), the insurance company pays you a promised benefit regardless of market conditions and regardless of how long you or your spouse lives. Fixed rate annuity payments do not increase. However, if you want your payment to increase, you may need a variable type of annuity or other financial product like supplemental retirement annuity.

The disadvantages of purchasing pure life annuities are that you don’t have access to your principal and you generally cannot leave a legacy for your family. To illustrate, let’s look at the following example. Suppose you purchase a joint and survivor annuity that pays you and your spouse an annuity of $5,000 per month as long as either of you lives. Once you purchase the annuity you don’t have access to the principal (the cash you spent to pay for the annuity). However, your annuity payout is a combination of a return of your principal and interest. In essence, you are getting back your principal in monthly payments or you can transfer payout annuity.

Both you and the insurance company assume risk when you purchase a pure lifetime annuity. The risk you assume is that you won’t live to life expectancy retirement. The insurance company assumes the risk you will live past expectancy. If you die early, the insurance company makes money because the payout is less than expected. If you live past life expectancy, the insurance company loses money because the payout is greater than expected. So if you buy an annuity and want to ”beat” the insurance company, remember what your mother told you: “Eat healthy, diet, and exercise.”

6. Use Common Sense.

When it comes to purchasing financial products or property or spending money, use the common sense you have accumulated during your life. At retirement, you might not be able to afford to lose money or become liable for losses. Remember another old adage: “If it is too good to be true, it’s probably illegal.” When in doubt, delay decisions and consult your advisor. Spending a few dollars on an attorney, accountant, or other advisor can save you money.

7. Protect Against Disability.

Most people have to work to save money for retirement. If you are disabled because of illness or injury, you may lose your ability to save for retirement. To help protect against this contingency, you should have adequate disability income insurance. A disability policy can pay you a specific benefit if you are unable to work as defined in the policy.

Sometimes your employer may provide disability insurance through a group plan. Often, this insurance may not be adequate for your needs. You may want to supplement this benefit with your own policy. If you own your own business, it is critical to have overhead expenses and income protection. Without you, the business may cease to exist. Then there will be no one to pay your salary or business expenses.

8. Protect Your Family After Death.

Your retirement plan provides benefits to you and may provide benefits to your spouse (spouse pension) or another individual who is dependent upon you. If you die prior to retirement, your employer contributions and your contributions stop. In general, your beneficiary is only entitled to the accumulated value of your retirement account. This may not be enough to adequately support your beneficiary or to provide an adequate retirement for him or her.

Most employees who have families or other dependents need life insurance to help protect them. Without life insurance, the value of your assets may not be sufficient to provide adequate income for your beneficiary.

How much life insurance do you need and what type of insurance should you buy? These are difficult questions that you should discuss with your insurance professional. But there are some guidelines to follow: Don’t assume you need an amount of life insurance that is simply equal to a multiple of your salary, such as 3, 4, or 5 times. You may need much more, or you may need less or none at all. Don’t assume you no longer have insurance needs just because your children are grown or your spouse also works. A sixty-year-old surviving spouse may still have substantial income needs. Base your insurance on your financial needs and goals. If you want life insurance to replace lost income, you need a sum of money which generates income equal to the lost salary. Here’s an example:

The type of life insurance you should buy depends on your needs. If your insurance need is long term, a cash value policy may be best. If your insurance need is temporary, then term insurance may be more appropriate. Long-term or temporary needs will vary based on your age and personal situation. Your insurance representative should be able to help you purchase the appropriate type of policy and the amount you need.

Regardless of the type and amount of life insurance, in this book you will learn creative ways to help you pay premiums.