Retirement and Estate Planning Research Paper

Pages: 5 (1762 words)  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: College Senior  ·  Topic: Literature

Financial Management

Current Condition and Life Goals

My current financial condition is that I have a mortgage that I have been paying down for several years. I also have around $20,000 in credit card debt right now. I am in mid-career, working in a hospital as a clinical systems analyst. I have a car loan at present, and I am 45 years of age and a single mom. I expect to progress further in my career, which will come with increased responsibility and income. I have two goals as relating to retirement. The first is that I would like to retire at age 60, which is fifteen years from now. The second is that I would like to be debt-free sooner than that. In particular, paying off the credit card debt, and then eliminating my mortgage within ten years are two things that I will need to do before I retire. The sooner I accomplish those objectives, the better position I will be in to save money for my retirement. I also wish to build my retirement savings, and would like to get that process started as soon as possible.

Retirement Plan

There are several elements to a retirement plan that are worth mentioning. The first step is to understand how much money will be required to retire with the standard of living that is desired. The client would like to retire by the beach, and presently lives in the Tampa Bay area, but not by the beach. To retire by the beach probably implies being able to sell her home and move to a new house that costs around the same amount of money.

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To determine the amount of money needed for retirement, the rule of thumb is 80% of your current annual salary to maintain your current standard of living. This might change, in the sense that the current salary includes the need to pay for a mortgage and the client expects to have no mortgage in retirement. That said, health care costs increase as on ages and that will need to be taken into account as well Furthermore it is recommended to be conservative when planning for retirement (Elmerraji, 2016). The life expectancy for an American female is 82 years (CIA World Factbook, 2016), so the retirement period that the client is targeting is 22 years.

Research Paper on Retirement and Estate Planning Assignment

Another aspect of the plan is retirement savings. The client currently has credit card debt of $20,000, but wants to start retirement savings. The problem for the client is that the interest rate on credit card debt is higher than the interest rate that would be paid out on any retirement savings. Thus, it is more valuable in terms of long-term financial health to pay off credit card debt first, then put money into savings (, 2016). It is worth noting that without discipline, this is a trap for many people, as they will run the cards back up again. Only if the credit card debt does not grow again does this option work -- so it is recommended that the client pays off the credit cards first, cuts them, and then pursues savings.

Another element of the retirement plan is the home. The client wishes to pay off the mortgage in ten years. This is a good objective. At present, mortgage rates are very low, so the interest rate is not significant, and the client has been paying this mortgage for years. With a low rate, there is no imperative to pay the mortgage right away, but to continue to make the regular payments. Money invested in equities will return more than what the client is paying on her mortgage, perhaps, depending on what her mortgage rate is. The client should also be taking into consideration where it might be possible to buy a home on the beach for around the same amount of money that her home is worth today.

Savings is another key element of the retirement plan. It has been established that the client will benefit from having around 80% of her current income in retirement. For most people, this income comes from multipole sources. She works at a hospital as a systems analyst, and may have some sort of 401K or other retirement plan or pension that comes from the hospital. There are different types of retirement plans -- defined benefit and defined contribution. Most today are defined contribution, where the money is invested into mutual funds or other portfolio in order to deliver a return. This is risky for the client, of course, and the client has to consider that such retirement funds are not necessarily going to account for the entire 80% (Investopedia, 2016). The client bears the risk in a defined contribution plan, and most clients simply choose a portfolio that will be invested for them. It is important, however, to choose the right type of portfolio.

The client's time horizon is around 15 years, until the age of sixty. This means that the client only has limited ability to handle market fluctuations. Moreover, the client has not indicated a history of investing nor has she indicated that she has any particular knowledge about financial markets or products. This indicates that the client is not in a position to bear too much risk. The recommendation for the client, when she starts to build her retirement portfolio, or for any such portfolio that does exist, is a mix of debt and equity securities. Some equity is acceptable because of the medium time horizon and the fact that mutual funds can help to diversify this part of the portfolio, but some debt will deliver a degree of security that the client requires Long-term corporate debt from highly-rated companies is probably the best, as this will pay interest steadily but will also be at low default risk for the length of time that it is being held. It is important to know, however, what other retirement funds or plans the client has, including any 401K or plan associated with her current place of work.

One of the most important aspects of the retirement plan will be for the client to save aggressively during her prime earning years. She is entering those years now, but of course will have the opportunity to earn more if she is in a position to be promoted at this point. The client will need to especially save heavily during the years after she has paid off her credit cards and mortgage. These savings will form a significant portion of her retirement funds.

Lastly, the client may need to undertake a calculation of precisely how much money will be needed for the retirement that she envisions. Depending on what her level of savings and income are, it may not be feasible to retire at 60. The client should know this sort of thing as early as possible, to set up a plan that works. Having conducted such a calculation, the client may indeed need to adjust her savings rates to being to save more than she is presently doing, in order to meet her retirement goals. Again, this is an area where having knowledge today is going to be valuable for the future.

Estate Plan

The client is a single mother, so there will be a need for estate planning. Given that the client does not have much in the way of assets right now, it is not expected that there will be any savings. The main asset that can be expected to be included in the estate is the home. The client can expect to live in the home for a couple of decades after retiring. It will be necessary to maintain the value of the home through this time period, as this is the primary estate asset.

Beachfront property typically has good value, so it will be necessary to ensure that this value is maintained. However, it is not expected based on current projections that the client will have much cash left over, so the reality is that the house will likely need to be sold in order to satisfy any taxes that are levied on the state. There is no Florida estate tax, but there is a U.S. federal estate tax. This tax is 0% up to $10,000, but starts at 18% after that, escalating upwards of 40%. An estate worth $100,000 will be taxed $23,800 at current rates. Thus, the heir(s) will need to be made to be aware of this reality, so that if they wish to keep the house they will have the means to pay this tax without selling the property. Otherwise, they will need to sell in order to pay the estate tax.

Further, there are specific, and sometimes complicated rules regarding the transfer of property. It is advised that the client writes a living will as soon as possible to ensure that her estate is handled according to her wishes. Further, it is recommended that once the client purchases her beach home (or… [END OF PREVIEW] . . . READ MORE

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How to Cite "Retirement and Estate Planning" Research Paper in a Bibliography:

APA Style

Retirement and Estate Planning.  (2016, May 20).  Retrieved January 22, 2021, from

MLA Format

"Retirement and Estate Planning."  20 May 2016.  Web.  22 January 2021. <>.

Chicago Style

"Retirement and Estate Planning."  May 20, 2016.  Accessed January 22, 2021.