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TABLE OF CONTENTS XI
TABLE OF CONTENTS
Chapter 1: Introduction to Case Analysis and Presentation
Introduction ..................................................................................................................................................3Personal Financial Planning ..........................................................................................................................3
The Process .................................................................................................................................................... 3Contents of the Financial Plan ....................................................................................................................... 4Establish and Define the Client Relationship ................................................................................................. 5Gather Client Data ...................................................................................................................................... 10
Chapter 2: Financial Planning Approaches: Analysis & Recommendations
Introduction ................................................................................................................................................15Reasonable Assumptions ..............................................................................................................................15The Analysis ................................................................................................................................................16The Approaches to Financial Planning Analysis and Recommendations .....................................................17The Life Cycle Approach .............................................................................................................................20The Pie Chart Approach ..............................................................................................................................22
Income Statement Pie Chart ........................................................................................................................ 22Balance Sheet Pie Chart ............................................................................................................................... 25Summary Regarding the Life Cycle and Pie Chart Approaches .................................................................... 27
The Financial Statement and Ratio Analysis Approach ...............................................................................28Liquidity Ratios ........................................................................................................................................... 28Debt Ratios .................................................................................................................................................. 30Ratios for Financial Security Goals ............................................................................................................... 32Performance Ratios ...................................................................................................................................... 38Guide for Calculating Financial Ratios ........................................................................................................ 41
PART 1: CASE ANALYSIS AND PRESENTATION
XII TABLE OF CONTENTS
Hess Case Example of Applying the Pie Chart, Financial Statement, and Ratio Analysis Approach .......... 43Financial Statements: Statement of Income and Expenses ............................................................................44Pie Chart Analysis for Hess Case ..................................................................................................................46Financial Ratios for Hess Case ......................................................................................................................47
The Two-Step / Three-Panel / Metrics Approach ....................................................................................... 49Two-Step Approach .....................................................................................................................................49Three-Panel Approach ..................................................................................................................................49Metrics Approach .........................................................................................................................................51Risk Tolerance and Asset Allocation .............................................................................................................53
The Present Value of Goals Approach ......................................................................................................... 56The Cash Flow Approach ............................................................................................................................ 61
Risk Management .........................................................................................................................................61Debt Management .......................................................................................................................................63Savings and Investing Management ..............................................................................................................65
The Strategic Approach ............................................................................................................................... 66Mission Statement (An Enduring Long-Term Statement) ............................................................................67Goals (Broadly Conceived Goals) .................................................................................................................67Objectives (Narrow Measurable Objectives) .................................................................................................67Investment Analysis ......................................................................................................................................68
Presentation of the Present Value Approach ............................................................................................... 68
Chapter 3: Personal Financial Statements: Preparation & Analysis
Introduction ................................................................................................................................................ 71Balance Sheet (Statement of Financial Position) ......................................................................................... 72
Cash and Cash Equivalents ...........................................................................................................................72Investment Assets .........................................................................................................................................73Personal Use Assets .......................................................................................................................................74Liabilities ......................................................................................................................................................75Valuing Assets and Liabilities ........................................................................................................................77Net Worth ...................................................................................................................................................78Sources of Information .................................................................................................................................81Account Ownership ......................................................................................................................................81Footnotes to the Financial Statements ..........................................................................................................83
Statement of Income and Expenses ............................................................................................................. 83Income .........................................................................................................................................................83Savings Contributions ..................................................................................................................................84Expenses .......................................................................................................................................................84Net Discretionary Cash Flows ......................................................................................................................85Sources of Information .................................................................................................................................88Projected Income Statements ........................................................................................................................88
Statement of Net Worth .............................................................................................................................. 88Cash Flow Statement .................................................................................................................................. 89
TABLE OF CONTENTS XIII
Forecasting ..................................................................................................................................................90Importance of Budgeting ............................................................................................................................. 91Financial Statement Analysis ........................................................................................................................ 92Comparative Financial Statement Tools ....................................................................................................... 92Ratio Analysis .............................................................................................................................................. 97
Financial Statement Analysis - The Bowdens ...............................................................................................98Categories of Financial Ratios .................................................................................................................... 102Liquidity Ratios ......................................................................................................................................... 102Emergency Fund Ratio .............................................................................................................................. 102Current Ratio ............................................................................................................................................ 105Debt Ratios ................................................................................................................................................ 106Ratios for Financial Security Goals ............................................................................................................. 111Performance Ratios .................................................................................................................................... 115Limitations of Financial Statement Analysis ............................................................................................... 120
Mini Case 1: Risk Management
William and Lucy Hayes ............................................................................................................................125The Family ................................................................................................................................................ 125Financial Goals & Concerns ...................................................................................................................... 125External Information ................................................................................................................................. 125Insurance Information ............................................................................................................................... 126
Suggested Solution ....................................................................................................................................128Analysis ...................................................................................................................................................... 128Risk Management Portfolio ....................................................................................................................... 128
Mini Case 2: Short-Term Goals and Obligations
Ryan and Tiffany Pierce ............................................................................................................................131The Family ................................................................................................................................................ 131Financial Goals & Concerns ...................................................................................................................... 131External Information ................................................................................................................................. 132Investment Information ............................................................................................................................. 132
Suggested Solution ....................................................................................................................................136Analysis Tools ............................................................................................................................................ 136Housing Ratio 1 ........................................................................................................................................ 137Housing Ratio 2 ........................................................................................................................................ 137Further Analysis ......................................................................................................................................... 137Looking at the Debt ................................................................................................................................... 137Presentation to the Pierce Family ............................................................................................................... 138
PART 2: MINI CASES: EXAMPLES & EXERCISES
XIV TABLE OF CONTENTS
Mini Case 3: Education and Education Funding
William and Kate Windsor ....................................................................................................................... 139Introductory Data ......................................................................................................................................139The Family .................................................................................................................................................139External Information ..................................................................................................................................141
Suggested Solution .................................................................................................................................... 142Using the Uneven Cash Flow Approach to Calculate the NPV of 4 Years of Education Expense ................143Finding Financial Aid .................................................................................................................................144
Mini Case 4: Retirement Needs and Capital Needs Analysis
Uday Gupta ............................................................................................................................................... 149Introductory Data ......................................................................................................................................149Financial Goal ............................................................................................................................................149Economic and Investment Information ......................................................................................................149
Suggested Solution .................................................................................................................................... 150Analytical Tool ...........................................................................................................................................150Analytical Conclusion .................................................................................................................................151Next Step - Talk with Client ......................................................................................................................151Presentation to Client .................................................................................................................................152Summary ....................................................................................................................................................152
Mini Case 5: Present Value Approach
Charles and Charlotte Rangle ................................................................................................................... 153Introductory Data ......................................................................................................................................153
Suggested Solution .................................................................................................................................... 154The RV Goal ..............................................................................................................................................154The Education Goal ...................................................................................................................................154The Retirement Goal ..................................................................................................................................154Summary of All Long-Term Goals in Present Value Terms ........................................................................155Present Value of All Goals Less Current Resources .....................................................................................155The Alternatives .........................................................................................................................................155
Mini Case 6: Tax Analysis
Larry and Kay Mullen ............................................................................................................................... 159Introductory Data ......................................................................................................................................159The Family .................................................................................................................................................159Financial Goals & Concerns .......................................................................................................................160
TABLE OF CONTENTS XV
External Information ................................................................................................................................. 160Investment Information ............................................................................................................................ 160Personal Residence ..................................................................................................................................... 160Assumptions .............................................................................................................................................. 161Statement of Financial Position (Beginning of Year) .................................................................................. 161Income Statement ...................................................................................................................................... 162
Suggested Solution ....................................................................................................................................163
Mini Case 7: Risk Tolerance & Investments
Tommy and Kristine Kraft ........................................................................................................................165Introductory Data ...................................................................................................................................... 165Investment Information ............................................................................................................................. 166
Suggested Solution ....................................................................................................................................167
Mini Case 8: Estate Planning
Chase and Janet Fisher ..............................................................................................................................169Introductory Data ...................................................................................................................................... 168Financial Goals .......................................................................................................................................... 169Assets ......................................................................................................................................................... 170
Suggested Solution ....................................................................................................................................170Analysis of Current Situation ..................................................................................................................... 170Recommendations ..................................................................................................................................... 170To Avoid Probate ....................................................................................................................................... 171To Educate the Grandchildren ................................................................................................................... 171To Reduce the Gross Estate Using a Family Limited Partnership for the Business ..................................... 171Total Result ............................................................................................................................................... 172
Mini Case 9: Mini Case & Exercises
Alan and Angel Young ...............................................................................................................................173The Family ................................................................................................................................................ 173
External Information .................................................................................................................................174Economic Information ............................................................................................................................... 174Bank Lending Rates ................................................................................................................................... 174Investment Information ............................................................................................................................. 174
Internal Information .................................................................................................................................174The Residence ............................................................................................................................................ 174Insurance Information ............................................................................................................................... 174Financial Statements .................................................................................................................................. 175Investment Information ............................................................................................................................. 177
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Tax Information .........................................................................................................................................178Estate Information ......................................................................................................................................178
Goals and Concerns .................................................................................................................................. 178Mini Exercises ........................................................................................................................................... 179
Exercise 1 - Risk Management ....................................................................................................................179Exercise 2 - Debt management and Short-Term Obligations ......................................................................180Exercise 3 - Education and Education Funding ..........................................................................................181Exercise 4 - Retirement Analysis .................................................................................................................182Exercise 5 - PV Approach for All Long-Term Goals ...................................................................................183Exercise 6 - Tax Analysis .............................................................................................................................184Exercise 7 - Risk Tolerance and Investment Returns ...................................................................................185Exercise 8 - Estate Planning ........................................................................................................................186
John and Mary Burke Case
Introductory Data ..................................................................................................................................... 189Engagement Letter .....................................................................................................................................194
Personal Background and Information Collected ..................................................................................... 195The Family .................................................................................................................................................195
External Information ................................................................................................................................ 195Economic Information ...............................................................................................................................195Bank Lending Rates ....................................................................................................................................195Expected Investment Returns .....................................................................................................................195
Internal Information ................................................................................................................................. 196Insurance Information ................................................................................................................................196Investment Information ..............................................................................................................................197Financial Statements ...................................................................................................................................199Income Tax Information ............................................................................................................................201Retirement Information .............................................................................................................................201Gifts, Estates, Trusts, and Will Information ...............................................................................................201
Information Regarding Assets and Liabilities ........................................................................................... 201Automobile ................................................................................................................................................201Financial Goals ...........................................................................................................................................201
John and Mary Burke Case Analysis
Pie Chart Approach .................................................................................................................................. 204Introduction ...............................................................................................................................................204Data for Pie Chart Approach - Balance Sheet 1/1/2014 ..............................................................................205Data for Pie Chart Approach - Income Statement 1/1/2014 .......................................................................206Financial Statement Analysis - Ratio Analysis Approach .............................................................................207
PART 3: COMPREHENSIVE CASE EXAMPLE
TABLE OF CONTENTS XVII
Burke’s Ratio Analysis ................................................................................................................................ 208The Two-Step / Three-Panel / Metrics Approach ......................................................................................209
Introduction .............................................................................................................................................. 209Home Purchase Analysis - Schedule A ....................................................................................................... 211Savings Schedule - Schedule B ................................................................................................................... 212Payment Schedule - Schedule C ................................................................................................................. 212Auto Interest - Schedule D ......................................................................................................................... 213Comments on Three-Panel / Metrics Approach Analysis ........................................................................... 213Risk Tolerance and Asset Allocation ........................................................................................................... 214The Present Value of all Goals Approach ................................................................................................... 216The Summarization of the Present Value of Goals ..................................................................................... 217
The Cash Flow Approach ..........................................................................................................................217Burke Cash Flow Approach with Recommendations .................................................................................. 218Assets Sold to Pay Off Credit Cards - Schedule A ...................................................................................... 219
Strategic Approach ....................................................................................................................................219Introduction .............................................................................................................................................. 219Mission Statement (An Enduring Long-Term Statement) .......................................................................... 219Goals (Broadly Conceived Goals) ............................................................................................................... 219Objectives (Narrow Measurable Objectives) ............................................................................................... 219Comments on Strategic Approach .............................................................................................................. 220
Presentation to John and Mary Burke .......................................................................................................220Projected Financial Statements and Ratios ................................................................................................. 220Schedule A - Analysis of John’s 401(k) Plan ............................................................................................... 220Schedule B - Analysis of Mary’s 401(k) Plan .............................................................................................. 221Schedule C - Combined Savings Rate After Recommendations (not including tax overwithheld) ............. 221Schedule D - Income Tax Analysis ............................................................................................................. 221Projected Statement of Financial Position .................................................................................................. 223Schedule E - Reconciliation of Year-End Net Worth ................................................................................. 224Projected Statement of Income and Expenses ............................................................................................. 225Projected Selected Ratios............................................................................................................................. 226Schedule F - Projected Ratios ..................................................................................................................... 226
Summary ...................................................................................................................................................226Projected Selected Ratios ...........................................................................................................................226
Closing Engagement Letter ....................................................................................................................... 227
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Case 1: George and Laura Freeman Case
Introductory Data ..................................................................................................................................... 231The Family .................................................................................................................................................231Financial Goals & Concerns .......................................................................................................................231
External Information ................................................................................................................................ 232Economic Information ...............................................................................................................................232Bank Lending Rates ....................................................................................................................................232Investment Return Expectations .................................................................................................................232
Internal Information ................................................................................................................................. 233Financial Statements ...................................................................................................................................233Insurance Information ................................................................................................................................235Investment Information ..............................................................................................................................236Investment Portfolio ...................................................................................................................................238Income Tax Information ............................................................................................................................ 240Retirement Information .............................................................................................................................240Estate Planning Information .......................................................................................................................240Other Information Regarding Assets and Liabilities ....................................................................................241
Case Assumptions ..................................................................................................................................... 242
Case 2: Alvin and Fran Jackson Case
Introductory Data ..................................................................................................................................... 243The Family .................................................................................................................................................243Financial Goals & Concerns (in order of priority) ......................................................................................244
External Information ................................................................................................................................ 244Economic Information ...............................................................................................................................244Bank Lending Rates ....................................................................................................................................244Investment Return Expectations .................................................................................................................244
Internal Information ................................................................................................................................. 245Financial Statements ...................................................................................................................................245Insurance Information ................................................................................................................................247Education Information ...............................................................................................................................249Investment Information ..............................................................................................................................250Retirement Information .............................................................................................................................252Estate Planning Information .......................................................................................................................252
Case Assumptions ..................................................................................................................................... 252Unit Prices Over Time ...............................................................................................................................253
PART 4: COMPREHENSIVE CASES
TABLE OF CONTENTS XIX
Case 3: Sharon Laynee Case
Introductory Data .....................................................................................................................................255The Family ................................................................................................................................................ 255Financial Goals & Concerns ...................................................................................................................... 256
External Information .................................................................................................................................256Economic Information ............................................................................................................................... 256Bank Lending Rates ................................................................................................................................... 257Investment Return Expectations ................................................................................................................ 257
Internal Information .................................................................................................................................258Financial Statements .................................................................................................................................. 258Insurance Information ............................................................................................................................... 260Debt .......................................................................................................................................................... 261Education Information .............................................................................................................................. 262Divorce ...................................................................................................................................................... 262Investment Information ............................................................................................................................. 262Estate Documents ...................................................................................................................................... 264Other Information Regarding Assets and Liabilities ................................................................................... 264
Case Assumptions ......................................................................................................................................265
Case 4: Argo and Marie Merritt Case
Introductory Data .....................................................................................................................................267The Family ................................................................................................................................................ 267Financial Goals & Concerns ...................................................................................................................... 267
External Information .................................................................................................................................268Economic Information ............................................................................................................................... 268Bank Lending Rates ................................................................................................................................... 268Investment Return Expectations ................................................................................................................ 268
Internal Information .................................................................................................................................269Financial Statements .................................................................................................................................. 269Insurance Information ............................................................................................................................... 271Investment Information ............................................................................................................................. 273Other Information Regarding Assets and Liabilities ................................................................................... 275Income Tax Information ............................................................................................................................ 275Retirement Information ............................................................................................................................. 275Estate Planning Information ...................................................................................................................... 276Additional Case Information ...................................................................................................................... 276
XX TABLE OF CONTENTS
Case 5: The Berry Case
Introductory Data ..................................................................................................................................... 277The Family................................................................................................................................................. 277Financial Goals & Concerns .......................................................................................................................278
External Information ................................................................................................................................ 278Economic Information ...............................................................................................................................278Bank Lending Rates ....................................................................................................................................278Investment Return Expectations .................................................................................................................278
Internal Information ................................................................................................................................. 279Financial Statements ...................................................................................................................................279Insurance Information ................................................................................................................................281Investment Information ..............................................................................................................................282Other Information Regarding Assets and Liabilities ....................................................................................282Mortgage Market Conditions .....................................................................................................................284Education ...................................................................................................................................................284Retirement Information .............................................................................................................................284Income Tax Information ............................................................................................................................284Estate Information ......................................................................................................................................284
Case 6: John and Jackie Griffin Case
Introductory Data ..................................................................................................................................... 285The Family .................................................................................................................................................285Financial Goals & Concerns .......................................................................................................................286
External Information ................................................................................................................................ 286Economic Information ...............................................................................................................................286Bank Lending Rates ....................................................................................................................................286Investment Returns Expected ....................................................................................................................286Investment Return Expectations .................................................................................................................287
Internal Information ................................................................................................................................. 288Financial Statements ...................................................................................................................................288Insurance Information ................................................................................................................................290Investment Information ..............................................................................................................................291Education Information ...............................................................................................................................293Home .........................................................................................................................................................294Other Assets ...............................................................................................................................................294Retirement Information .............................................................................................................................294Estate Planning Information .......................................................................................................................294Debt ...........................................................................................................................................................295
Case Assumptions ..................................................................................................................................... 295
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Case 7: Elvis and Adele Singer Case
Introductory Data .....................................................................................................................................297The Family ................................................................................................................................................ 297Financial Goals & Concerns ...................................................................................................................... 298
External Information .................................................................................................................................298Economic Information ............................................................................................................................... 298Bank Lending Rates ................................................................................................................................... 298Investment Returns Expected ..................................................................................................................... 299Investment Return Expectations ................................................................................................................ 299
Internal Information .................................................................................................................................300Financial Statements .................................................................................................................................. 300Education Information .............................................................................................................................. 302Insurance Information ............................................................................................................................... 302Investment Information ............................................................................................................................. 304Retirement Information ............................................................................................................................. 306Estate Planning Information ...................................................................................................................... 306Debt .......................................................................................................................................................... 306Other Information Regarding Assets and Liabilities ................................................................................... 307
Case Assumptions ......................................................................................................................................307
Case 8: Grayson and Tally Alexander Case
Introductory Data .....................................................................................................................................309The Family ................................................................................................................................................ 309Financial Goals & Concerns ...................................................................................................................... 310
External Information .................................................................................................................................311Economic Information ............................................................................................................................... 311Bank Lending Rates ................................................................................................................................... 311Investment Return Expectations ................................................................................................................ 311
Internal Information .................................................................................................................................312Financial Statements .................................................................................................................................. 312Insurance Information ............................................................................................................................... 315Investment Information ............................................................................................................................. 317Education Information .............................................................................................................................. 320Estate Planning Information ...................................................................................................................... 320Other Information Regarding Assets and Liabilities ................................................................................... 320
Case Assumptions ......................................................................................................................................321
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Case 9: Trevor and Linda Gates Case
Introductory Data ..................................................................................................................................... 323The Family .................................................................................................................................................323Financial Goals & Concerns .......................................................................................................................325
External Information ................................................................................................................................ 325Economic Information ...............................................................................................................................325Bank Lending Rates ....................................................................................................................................325Investment Return Expectations .................................................................................................................326
Internal Information ................................................................................................................................. 327Financial Statements ...................................................................................................................................327Education Information ...............................................................................................................................329Insurance Information ................................................................................................................................329Investment Information ..............................................................................................................................330Other Information Regarding Assets and Liabilities ....................................................................................333
Case Assumptions ..................................................................................................................................... 335
Case 10: Bob and Candi Sweet Case
Introductory Data ..................................................................................................................................... 337The Family .................................................................................................................................................337Financial Goals & Concerns .......................................................................................................................338
External Information ................................................................................................................................ 339Economic Information ...............................................................................................................................339Bank Lending Rates ....................................................................................................................................339Investment Return Expectations .................................................................................................................339
Internal Information ................................................................................................................................. 340Financial Statements ...................................................................................................................................340Insurance Information ................................................................................................................................343Investment Information...............................................................................................................................344Education Information ...............................................................................................................................345Truffle Times .............................................................................................................................................345Income Tax Information .............................................................................................................................348Retirement Information ..............................................................................................................................348Estate Planning Information .......................................................................................................................348Other Information Regarding Assets and Liabilities ....................................................................................349
Case Assumptions ..................................................................................................................................... 349
TABLE OF CONTENTS XXIII
Appendix A: Fundamentals
Standards of Professional Conduct ............................................................................................................. 353CFP Licensee Duties and Responsibilities .................................................................................................. 354Financial Planning Process ......................................................................................................................... 354Practice Standards Summary ...................................................................................................................... 355Investigative and Hearing Process .............................................................................................................. 356
Appendix B: Insurance
Hypothetical Insurance Premiums ............................................................................................................. 357Risk Management ...................................................................................................................................... 360Typical Covered Perils for Auto and Home ............................................................................................... 360Methods to Determine Life Insurance Needs ............................................................................................. 361Renewable Term Premium and Yearly Renewable Term Premium ............................................................ 361Feature Comparison of Common Life Insurance Policies ........................................................................... 362Likelihood of Disability ............................................................................................................................. 362Types of Disability Policies ........................................................................................................................ 362COBRA Benefits ....................................................................................................................................... 363Who Needs Long-Term Care .................................................................................................................... 363Long-Term Care Premium Factors ............................................................................................................ 363Common Features of Long-Term Care Policies ......................................................................................... 363List of Covered Perils - Property Insurance ............................................................................................... 364Summary of Homeowners Insurance Policies ............................................................................................. 365
Appendix C: Investments
Formulas .................................................................................................................................................... 367Global Portfolio Allocation Scoring System (PASS) for Individual Investors .............................................. 371Pass Scoring System .................................................................................................................................... 372
Appendix D: Income Tax
Income Tax Issues ......................................................................................................................................373Sources of Tax Law .................................................................................................................................... 373Summary of Penalties ................................................................................................................................. 374Court System Summary ............................................................................................................................. 374Individual Income Tax Formula ................................................................................................................ 375Partial List of Exclusions ............................................................................................................................ 375
PART 5: APPENDICES
XXIV TABLE OF CONTENTS
Items Included in Gross Income .................................................................................................................375Partial List of Deductions for Adjusted Gross Income ................................................................................376Partial List of Itemized Deductions............................................................................................................. 376Community Property States .......................................................................................................................376Qualified Dividend Tax Rates (2014) ........................................................................................................376Summary of Limitations on Imputed Interest ............................................................................................377Inclusion/Exclusion of Compensation for Damages from Injuries .............................................................377Uniform Premium Table (Table 79) .......................................................................................................... 377Social Security Base Amounts for Taxation .................................................................................................378Deductibility of Student Loan Interest .......................................................................................................378Summary of Above-The-Line Deductions for Individuals ...........................................................................378Summary of Above-The-Line Business Deductions ....................................................................................378Summary of Deductible and Nondeductible Medical Expenses ..................................................................379Summary of Deductible and Nondeductible Taxes .....................................................................................379Summary of Deductible and Nondeductible Interest Expense as Itemized Deduction ................................379Deductible Miscellaneous Itemized Deductions .........................................................................................380Classification of Rental Real Estate Activities ..............................................................................................380Home Ownership Classification for Income Tax Purposes .........................................................................381Summary of Specific Deductions ................................................................................................................381Summary of Disallowed Losses ...................................................................................................................381The American Opportunity Tax Credit and Lifetime Learning Credit Compared ......................................382
Property Issues .......................................................................................................................................... 383Items Included in Basis ...............................................................................................................................383Double Basis Rule ......................................................................................................................................383Asset Categories ..........................................................................................................................................383Holding Period Summary ...........................................................................................................................383Summary of Holding Period Rules .............................................................................................................384Long-Term Capital Gains Tax Rates Summary ..........................................................................................384Types of Income .........................................................................................................................................384Assets that Qualify for Like-Kind Exchange Treatment ..............................................................................385Tax Consequences of a Section 1031 Exchange ..........................................................................................385Exchanging Insurance Products ..................................................................................................................385Summary of Material Participation .............................................................................................................386Alternative Minimum Tax Formula ............................................................................................................386AMT Exemption Amounts .........................................................................................................................386AMT Phaseout Thresholds .........................................................................................................................387Summary of Itemized Deductions ..............................................................................................................387Deductions Lost Using AMT .....................................................................................................................387
Appendix E: Retirement & Social Security
Retirement ................................................................................................................................................ 389Investment Assets / Gross Pay % Exhibit ....................................................................................................389Investment Assets / Gross Pay % Without Social Security ..........................................................................390Investment Assets / Gross Pay % With Social Security (Example) ..............................................................390
TABLE OF CONTENTS XXV
Required Savings Rate for Retirement ........................................................................................................ 391Benchmark for Investment Assets as a Percentage of Gross Pay .................................................................. 391Required Earning Rate ............................................................................................................................... 391Summary of Selected Factors Affecting Retirement Planning ..................................................................... 392The Differences Between Pension Plans and Profit-Sharing Plans .............................................................. 392Characteristics of Defined Benefit vs. Defined Contribution Plans ............................................................ 393Defined Contribution Plan Vesting Schedules ........................................................................................... 393Defined Benefit Plan Vesting Schedule ...................................................................................................... 394Comparison of Roth IRA and Roth Accounts (2014) ................................................................................ 394Qualified Plan Summary of Characteristics ................................................................................................ 395401(k) Non-Discrimination Testing .......................................................................................................... 396Various Relationships and Transactions in a Leveraged ESOP ................................................................... 397Summary of Allowable Rollovers ................................................................................................................ 398Summary of Exceptions for Qualified Plans and IRAs ................................................................................ 399Uniform Lifetime Table Used by Participants ............................................................................................ 400Excerpt from the Joint and Last Survivor Table ......................................................................................... 401Single Life Expectancy Used by Beneficiaries ............................................................................................. 403Death of Participant Summary ................................................................................................................... 404Sources of Plan Information ....................................................................................................................... 405NQSO and ISO Summary ......................................................................................................................... 407
Social Security ...........................................................................................................................................408Social Security Retirement Benefit Percentage Based on Age ...................................................................... 408Summary of Social Security OASDI Benefits (As a Percentage of PIA) ...................................................... 409Age Full Retirement Benefits Begin (Normal Age Retirement) ................................................................... 410Social Security Full Retirement and Reductions* by Age ............................................................................ 410
Appendix F: Estates
Power of Attorney vs. Power of Appointment ............................................................................................ 411Property Ownership ................................................................................................................................... 411Documents ................................................................................................................................................ 414Assets Passing Through and Around the Probate Process ........................................................................... 415Tax Rates ................................................................................................................................................... 416Summary of Transfers During Life (Intra Family Transfers) ...................................................................... 417Trusts - Summary of Tax Issues ................................................................................................................. 418Charities .................................................................................................................................................... 418Unlimited Marital Deduction .................................................................................................................... 421Summary of Alternative Tax Deductions ................................................................................................... 422Alternate Valuation Date (AVD) .............................................................................................................. 422Comparison of the Gift, Estate, and GSTT Tax Systems ........................................................................... 423GSTT - Unrelated Persons and Nonlineal Descendents ............................................................................. 423
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