1. Assuming the deathclock.com projection is accurate, Cory is concerned about getting back as much as possible of his Social Security taxes. At what age can he retire and receive full Social Security benefits? If he delays retirement, what percentage increase in his benefits can he expect? What is the earliest age that Cory can retire and receive Social Security? How will early retirement affect his benefits? 

2. If Cory or Tisha were to die tomorrow, what kind of Social Security benefits, if any, would the surviving spouse, Chad, and Haley receive? For how long? 

3. Both Cory and Tisha are contributing to a “qualified” or tax-favored 401(k) retirement plan at work. 

a. What are two unique benefits of such a plan? b. Why are these benefits and the time value of money particularly important in retirement planning? 

c. What must the Dumonts do to be “active participants”? d. What are “catch-up” provisions? Why and how are they used? 

4. Cory and Tisha are interested in other retirement saving strategies. What is the maximum amount they could contribute to an IRA? If they decided to contribute to a traditional IRA, would they receive a full or partial tax deduction? Why? What are the advantages and disadvantages of opening a Roth IRA instead of a traditional IRA? What advantages are common to both plans?

5. Cory’s company is planning to convert all employees to a cash-balance retirement plan. Explain this plan, noting advantages and disadvantages for Cory. 

6. The Dumonts estimate their current living expenses at approximately $81,000, which they joke could be very comfortable without the kids that they won’t have during retirement. 

a. How much income, before and after taxes, will they need to retire, assuming an average tax rate of 17 percent during retirement? 

b. Assume that through a combination of savings, Social Security, and retirement plan distributions, Cory and Tisha are able to receive $45,000 annually in retirement. Determine their retirement income shortfall. Assuming a 4 percent inflation rate and 35 years until retirement, calculate their inflation-adjusted shortfall. 

c. If Cory and Tisha can earn a 5 percent inflation-adjusted return, determine how much they must accumulate in savings over the 35 years to fund the annual inflation-adjusted shortfall calculated earlier. 

d. How much do the Dumonts need to start saving each year for the next 35 years at 9 percent to meet their savings accumulation goal calculated in item c? 

7. If Cory and Tisha invested $2,000 in a tax-free account at the end of every year for 30 years, what would be the future value of the account if they earned 9 percent annually? If, instead, they first paid taxes (marginal tax rate of 15 percent) and then made the investment, how much would the account be worth at the end of 30 years? Based on these calculations, what advice would you give to Cory and Tisha regarding their retirement savings? What principle of saving in an IRS tax-deferred plan does this example demonstrate? 

8. Recall that Cory has $2,500 in retirement funds with a former employer. When Cory resigned, the account value was almost $4,000, but only part of it was available to him. Explain how vesting rules explain the difference between the two dollar amounts. What options and tax implications should Cory compare to claim his retirement benefits? 

9. Cory has considered using the $2,500 for a surprise vacation for the family, an IRA account, or another mutual fund account to fund a 25- year anniversary trip with Tisha. Could he roll over the distribution from the qualified plan to a traditional IRA invested in a mutual fund (remember, no income taxes have been paid on the contributions) and in 19 years take money out for the trip? What are the tax implications of this plan instead of funding a taxable mutual fund account? 

10. Tisha has considered offering accounting services to small businesses. She has obtained a business license and plans to work out of her home. Would she qualify for a small business/self-employed retirement plan? If so, what plan should she consider? 

11. Tisha has indicated that she thinks a single life annuity will be her choice when she begins to receive retirement pension benefits. She thinks this is the best payout structure because (a) she has earned the entire benefit, (b) she can control the investment of the funds, and (c) Cory will receive his own pension. Will Tisha automatically be able to choose a single life annuity payout option? Assuming that Cory does not want Tisha to have a single life annuity, what type of joint and survivor annuity will provide the greatest immediate payout and afford Cory a guaranteed income should he outlive Tisha? 

12. After retirement, what expected and unexpected changes should the Dumonts monitor to safeguard their future? 

13. At this stage of the life cycle, which of the objectives of estate planning are most important to the Dumont household? Preparation of what two estate planning documents would enable them to accomplish these objectives? Where should the documents be kept? 

14. Recall that Cory’s parents recently gave each of the children a $20,000 gift to be invested for college. How much federal income tax and gift tax are due on this transfer? Will there be any generation-skipping transfer tax due? The senior Dumonts planned to give Chad $30,000 instead of $20,000 but were advised not to. Why? 

15. Cory and Tisha want to develop other saving strategies to fund education costs. What are the advantages or disadvantages of opening a Coverdell Education Savings Account or a 529 plan for each of the children? Could they establish both types of accounts? 

16. The Dumonts are curious as to why someone would want to avoid probate. Having the court oversee the will and the distribution of assets sounds like a good thing. Explain why avoiding probate may be an important issue in estate planning. What four steps could the Dumonts take to avoid probate? 

17. Recently, Cory reluctantly agreed to be named as executor for his older sister Elsa’s estate. Does serving as executor include acting as guardian for her child, who is younger than Chad and Haley? What are the duties that Cory would be expected to perform as executor? 

18. The Dumonts recently noticed on their bank statement that their accounts are owned jointly with right of survivorship. Provide a simple explanation of this term. 

19. The Dumonts have always considered a trust a financial tool of the wealthy. But they do want to learn more about estate planning. Provide a simple explanation of how both living and testamentary trusts, which by definition are quite different, can accomplish the same purpose of reducing estate taxes. 

20. Cory’s parents have always joked that they plan to cheat the “tax man” by dying broke. Their estate planning strategy involves utilizing the unlimited marital deduction. Explain how relying on the unlimited marital deduction may not always be an effective planning strategy.

After finding the Web site deathclock.com, Cory talked Tisha into checking out their life expectancies. The “pessimistic” view projected that Cory would die at age 53. Cory jokingly commented, “Forget the life insurance premiums and saving for retirement, I’m living it up now!” The “normal” perspective projected that Cory would live to age 73, whereas Tisha was projected to die at the age of 79. Her reply to Cory, “You may live it up now, but I’ve got 6 years to live it up without you! And if I inherit all our assets, I could be a wealthy old lady! We need to save and invest even more. I wonder how much fun a wealthy old lady could have.” Although Cory and Tisha could joke about their deathclock.com experience, it did raise some important financial issues for them to consider. They don’t plan to retire or to transfer their estate anytime soon, but their concerns are clearly a part of the financial planning process. 

With your assistance, they have reviewed their spending, credit usage, insurance needs, and investment plans. In short, by developing a financial plan and changing a few spending habits, they are building an estate for the future. They are concerned about financial independence during their “golden years”—however long that might be—and want to make the most of their retirement options. They are also concerned about preserving their estate for the benefit of Chad and Haley, regardless of the timing of their deaths.