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Journey towards Financial Wholeness

Growing into Tomorrow…Today. Journey towards Financial Wholeness. Updated August 2014. Disclaimer.

aidan-melendez
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Journey towards Financial Wholeness

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  1. Growing into Tomorrow…Today Journey towards Financial Wholeness Updated August 2014

  2. Disclaimer Information provided in this presentation is for educational purposes only, and is not to be construed as offering specific tax or legal advice. Consult your own qualified tax advisors and legal counsel regarding your particular situation. The Plan Documents remain primary, and supersede any information provided today.

  3. Journey Toward Financial Wholeness: Learning Objectives Participants will: • Explore the concept of financial wholeness • Recognize the budget as the key component to financial wholeness • Define what the Board provides for benefits in retirement • Identify what the U.S. government provides for benefits in retirement • Discuss how personal savings can enhance retirement

  4. Slide left open for your questions

  5. Slide left open for your questions

  6. Retirement Savings Plan (RSP) Highlights • Bypass income and Social Security taxes • Tax-deferred growth • Withdrawals classified as housing allowance • Possible Saver’s Tax Credit

  7. Journey Toward Financial Wholeness • Part I: Budget, retirement expenses, net worth • Part II: Retirement income • Board of Pensions and Social Security retirement benefits, plus personal savings • Personal retirement financial projection • Part III: Making the most of your money • Basic savings and investing concepts • Debt and credit management • Board-sponsored Retirement Savings Plan [403(b)(9)] • Part IV: Estate planning

  8. Retirement Income Meeting Monthly Expenses Employer: Retirement Pension Survivor’s Pension Disability Benefit Death Benefit Government: Social Security Medicare Medicaid Individual: Savings/Investments Real Estate Working in Retirement Medicare Supplement Life Insurance

  9. What Is Financial Wholeness?

  10. Budget: Key to Financial Wholeness • Charitable donations • Emergency fund • Save & invest • Taxes on income • Medical • Other insurance • Housing • Mortgage/rent • Maintenance • Utilities • Debts and loans • Food • Transportation/auto • Gifts • Vacation/travel • Clothes • Laundry/cleaning • Entertainment • Restaurants • Subscriptions • Etc. • Education • Other

  11. Budget: 30-Day Challenge* • Keep track of all expenses for 30 days • Factor in expenses that do not occur every month • Categorize expenses • Determine what is important to you • Determine what can you change • Implement the changes *Watch Lesson 1: Taking the 30-Day Challenge in the Personal Finance e-learning series on pensions.org.

  12. Budget: 50/30/20 Method Terms and percentages from All Your Worth. Resources section page 12

  13. Budget: 50/30/20 Method Terms and percentages from All Your Worth. Resources section page 12

  14. Budget: 50/30/20 Method Terms and percentages from All Your Worth. Resources section page 12

  15. Section 125 and Tax-Advantaged Plans:Employers and Employees Save on Taxes • Employees choose additional benefits: • Also called “cafeteria plans” • Started in 1978 • Done on a pre-tax basis: • Employers save 7.65% in FICA taxes • Employees save FICA (SECA for clergy) and federal income tax (and where applicable, state and local taxes)

  16. Section 125 and Tax-Advantaged Plans:An Overview *The Board’s Medical Plan of the PC(USA) is not a High-Deductible Health Plan. High-Deductible Health Plans are required in order to have a HSA or MSA.

  17. Section 125 Plans:Employers and Employees Save on Taxes • Most common plans are Flexible Spending Arrangements (FSAs) • Emphasis on pre-tax contributions and tax-free reimbursements • Common examples include: • Health FSA • Dependent Care FSA • Other FSA (parking and transit expenses)

  18. FSA: A Section 125 Plan • Funded through a voluntary salary reduction agreement • Employee must declare full annual amount before the beginning of the plan year • Amount may be adjusted during year only for life change events as allowed by law and described in employer’s plan document

  19. FSA: A Section 125 Plan (Cont’d) • Claims for household, not just employee • Claims should be submitted as incurred • Even if money has not yet been deducted from employee pay, employee may claim reimbursement for covered expenses • Use-it-or-lose-it rule applies (grace periods & carry overs) • Plans may allow a grace period of up to 2½ months of next year expenses to apply to previous year’s funds • Effective Nov. 1, 2013, plans may eliminate the grace period and allow up to $500 of unused amounts be carried over into the next plan year. Solely at employer’s discretion, who controls plan design

  20. Health FSA: A Section 125 Plan • Deductions made on a pre-tax basis, then eligible expenses reimbursed. Employers may contribute. • Medical expenses not covered by your Medical Plan that can be reimbursed: • Deductibles, copays, prescription drugs, dental care, vision exams, eye glasses and contacts, hearing aids, other medical-related costs • Also includes approved OTC items • $2,500 maximum for 2014

  21. Dependent Care FSA: A Section 125 Plan • Claimed as a dependent on the employee’s federal tax return • Used for: • childcare for children under age 13 • children of any age incapable of self-care • adult daycare for senior citizen dependents • $5,000 maximum for 2014

  22. Health Reimbursement Arrangements (HRA) • Solely funded by employer • No contribution limits • Medical costs not covered may be reimbursed. However, unused funds can be rolled over to next year. • HRA can also reimburse cost of premiums for additional medical, dental, vision, or related coverage • Requires a third-party administrator

  23. Medical Savings Account (MSA) and Health Savings Account (HSA) MSAs and HSAs only work with High-Deductible Health Plans. MSAs and HSAscannotbe offered in conjunction with the Board’s Medical Plan because it is not a High-Deductible Health Plan. See IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

  24. Section 125 Plans and Medical Dues • June 2013 announced change in medical dues, effective Jan. 2015 • Member-only mandatory coverage: 23% • Member + family coverage: 24.5% • Starting in 2015, dues for family coverage may be shared with member • Employer, following presbytery guidelines, decides allowable dues share of all, some or none of the 1.5% • Permits the allowable dues share to be on a pretax basis • Can also include dental premiums • IRS refers to these as “Premium Only Plans”

  25. FSA Plans Are Legal Documents • Board provides sample FSA plan documents • Anti-discrimination rules may apply • FSAs usually non-discriminatory due to voluntary salary reduction agreement • HRAs are more complex, due to possible discrimination • Seek legal advice to finalize any plan

  26. Call to Health:A New Member Health Initiative • What: • Leverage preventive care benefits • Identify and manage chronic conditions • Save with a lower deductible in 2015! • How: • ActiveHealth online Rewards Center (opens Jan 2014) • MyActiveHealth.com/pcusa • When: • 2014: Complete Health Actions by Sep. 30, 2014 • 2015: Lower deductibles take effect • pensions.org/calltohealth

  27. Retirement Expenses:First Year of Retirement Increase Decrease 1. 2. 3. 4. 5. 6. • 1. • 2. • 3. • 4. • 5. • 6.

  28. Retirement Expenses:First Year of Retirement Increase Decrease 1. Auto 2. Taxes 3. Contributions 4. Clothing 5. 403(b)/IRA 6. Life insurance • 1. Healthcare • 2. Housing • 3. Auto • 4. Travel • 5. Entertainment • 6. Moving expenses

  29. Where You Are Now:Calculate Your Net Worth Assets Liabilities Short-term liabilities Long-term liabilities • Short-term assets • Long-term assets • Personal property • Total assets • (minus) • Total liabilities • = (equals) • Net worth • $ _________________ • $ _________________ • = • $ _________________

  30. Retirement Income Meeting Monthly Expenses Employer: Retirement Pension Survivor’s Pension Disability Benefit Death Benefit Government: Social Security Medicare Medicaid Individual: Savings/Investments Real Estate Working in Retirement Medicare Supplement Life Insurance

  31. Board of Pensions Retirement Benefits Topics to discuss: • Pension • How the pension works • How the pension accumulates • How pension benefits are paid • Tax considerations • Death Benefits • Active • Retired

  32. How the Pension Plan Works • Defined benefit plan • Vesting • Pension credits formula • Alternate median calculation • Experience apportionments • Early retirement • Post-normal retirement

  33. How Pension Accumulates:Base Pension Credit Accrual Example 1.25% effective salary = pension credits for that year 1.25% x $40,000 = 500 pension credits 500 x 30 years = 15,000 pension credits of service Each accrued credit equals $1 at retirement

  34. How Pension Accumulates: Alternate Median Calculation

  35. How Pension Accumulates:Alternate Median Calculation

  36. How Pension Accumulates: Experience Apportionment History • 1% on 7/01/2013 • Priorities: • Maintain long-term viability of pension fund • Keep commitments to retirees, survivors, and future retirees

  37. How Pension Accumulates: Experience Apportionment History Monthly Benefit Comparison () Actual Pension Benefit = $2,681 Basic Benefit + CPI = $1,978 Basic Benefit = $1,000

  38. How Pension Benefits Are Paid:Early Retirement & Social Security Leveling Social Security Leveling Option between ages 55 and 62

  39. How Pension Benefits Are Paid: Post-Normal Retirement Adjustments

  40. How Pension Benefits Are Paid:Post-Normal Retirement Adjustment Example

  41. How Pension Benefits Are Paid • No earnings limitations • All pensions paid first of the month • First payment is a physical check • Direct deposit for all subsequent payments

  42. How Pension Benefits Are Paid • Plan member • Eligible survivor • Covered partner • Dependent • Children • Parents, etc. • Former covered partner through court order • Joint and survivor options

  43. Tax Considerations: Housing Allowance • Designated 100% as clergy housing allowance: • Board pension benefit • Retirement Savings Plan (RSP) withdrawals • IRS rules same as for active clergy • Surviving covered partner benefit is not tax favored • Board provides Tax Letter every year in The Tax Guide for Ministers • State and local taxes vary

  44. Tax Considerations:Housing Allowance – Same Rules as Active • Employer-designated amount in advance of payment • Amount that is actually spent to provide the primary residence • Fair rental value, furnished, including appurtenances, plus actual cost of utilities Allowance limit is lesser of: Clergy Housing Allowance Clarification Act of 2002

  45. Death Benefits

  46. Death Benefits + Based on pension credits at member’s death

  47. Death Benefits:Salary Continuation If the retiree dies in…then the beneficiary receives… And so forth over 3 years until a residual benefit of $8,000 is payable in a lump sum to eligible dependents or the estate.

  48. Retirement Income Meeting Monthly Expenses Employer: Retirement Pension Survivor’s Pension Disability Benefit Death Benefit Government: Social Security Medicare Medicaid Individual: Savings/Investments Real Estate Working in Retirement Medicare Supplement Life Insurance

  49. Social SecurityRetirement Benefit

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