This document discusses planning for health care costs in retirement. It outlines that retirees need significant savings to cover health care expenses - $116,000 for men and $131,000 for women is recommended. Health care costs can be divided into recurring costs like doctor visits and prescription drugs, which average $1,885 annually, and non-recurring costs like hospital stays that increase with age. Proper retirement planning requires considering total expected costs like health premiums, taxes, and debt payments in addition to direct health care expenses.

1. YOUR FINANCIAL FUTURE
Your Guide to Life Planning
December 2015
We thought of you when we
reviewed this article and
hope you find it interesting.
Please call if you have any
questions and we hope all is
well!
Christian Phillips
Phillips Financial
LPL Registered Principal
1920 Tienda Drive Suite 202
Lodi, CA 95242
209-367-0868
Fax: 209-367-0811
christian.phillips@lpl.c
om
http://lpladvisorweb.com
/PhillipsFinancial/
CA Insurance Lic# 0A20651
In This Issue
Common Estate Planning Mistakes -- and How to Avoid
Them
Estate planning can be as simple as drafting a will -- or as complex as setting up specialized
trusts. When you are ready to create your own plan, it's wise to enlist the help of a qualified,
experienced estate planning expert.
When Changing Jobs, It Pays to Keep Track of Your 401(k)
Indecision or lack of communication on your part may mean that the money sitting in a
retirement plan when you leave a job could be transferred to an IRA -- or cashed out -- without
your consent.
How Taxes and Inflation May Affect Your Retirement
Portfolio
Inflation and taxes are two factors that can have a major impact on your retirement assets, but
they are easy to forget when planning a retirement income strategy.
Planning for Known -- and Unknown -- Health Care Costs in
Retirement
An EBRI study sheds light on different types of health care costs to consider in retirement.
Rising Longevity and Your Retirement
New research indicates that Americans are living, on average, two years longer than previously
estimated. How might those extra years impact your retirement plans?

2. 2 Your Guide to Life Planning
Whether drafting a
basic will or crafting
an elaborate strategy
involving trusts and
tax planning, an
estate plan can help
reduce estate taxes,
save on estate
administrative costs,
and specify how your
assets are to be
distributed.
Common Estate Planning Mistakes -- and How to Avoid Them
Estate planning can be a minefield of potential missteps, some of which could have far-reaching consequences.
Many of the poor choices individuals make when planning for their own future or passing assets to their
families are caused by "one-size-fits-all" planning strategies or well-intended advice from family or friends.
Following are some common and potentially costly mistakes along with suggestions for avoiding them.
Failing to plan. Whether drafting a basic will or crafting an elaborate strategy involving trusts and tax
planning, an estate plan can help reduce estate taxes, save on estate administrative costs and specify how your
assets are to be distributed. Today, the majority of Americans have no will. If you die without one, your estate
will be divided according to the intestacy laws of your state -- not according to your wishes. This could create
problems if your intended beneficiary is a minor child, a child with special needs, a favorite charity, or a
combination of the above. In these cases, you need a will that details each contingency and a trust or multiple
trusts to accomplish your goals.
Not maximizing your marital estate exemptions. Perhaps one of the most important pieces of tax
legislation passed recently is referred to as the "portability" provision. This means that if one spouse dies
without using up his or her federal estate tax exemption -- $5.43 million in 2015 -- the unused portion may be
transferred to the surviving spouse without incurring any federal estate tax.
How might the portability provision work in a real life situation? Consider the following scenario involving the
hypothetical $8 million estate of Jim and Helen:
If Jim dies in 2015, the executor of his estate can elect to use the unlimited spousal exemption and can also
transfer Jim's unused $5.43 million federal estate tax exemption to Helen. If Helen dies in 2015 with $8
million in assets, her estate will have a total of $10.86 million in federal estate-tax exemptions: the $5.43
million exclusion transferred from Jim and her own $5.43 million exclusion. As a result, none of Jim and
Helen's $8 million estate would be subject to federal estate tax.
As welcome as the portability provision may be, it still does not account for future appreciation of assets from
the first spouse's estate. Nor does portability offer protection from creditors and others aiming to lay claim on
an estate's assets. Traditional strategies like credit shelter trusts and bypass trusts do provide these benefits
and therefore are still essential planning instruments for married couples.
Naming a family member as executor. Your executor is the person who will be responsible for
administering your estate after death. The responsibilities of an executor are serious, and you will want
someone who will take them seriously. There are many important reasons to choose a paid executor -- a bank
or trust company, for instance -- along with (or instead of) a spouse or family member. A professional executor
is familiar with the probate process and may actually save the family money, keeping expenses under control.
This will undoubtedly be an emotional time for your loved ones, and a family member may find it difficult to
focus on the details involved with settling an estate. In addition, when you name a family member, especially a
beneficiary as executor, you introduce the potential for conflict of interest. The larger the estate, the more
likely those conflicts become.
Relying on advice from family or friends. Would you go to a friend or relative for surgery or to fix your
car if he or she was not a skilled surgeon or auto mechanic? Why would you take their advice about estate
planning issues if they are not professional planners? When seeking a professional, look for a specialist --
someone who knows trusts, estate tax law, and probate issues. A specialist will have more experience and skill
in his/her chosen area -- and that will translate into higher quality services provided in the most cost effective
manner.
No set of rules or advice can apply in all cases, but a sure way to avoid these and other problems is to rely on a
trusted team of tax and legal professionals led by your financial advisor.
This communication is not intended to be tax and/or legal advice and should not be treated as such. Each
individual's situation is different. You should contact your tax/legal professional to discuss your personal
situation.
© 2015 Wealth Management Systems Inc. All rights reserved.
1-436522

3. 3 Your Guide to Life Planning
Make your wishes
known -- an employer
can only roll your
account balance into
a forced-transfer IRA
if you provide no
instructions as to
what you would like
to happen to your
account balance.
When Changing Jobs, It Pays to Keep Track of Your 401(k)
Americans are on the move, not only in their leisure pursuits, but in their jobs as well. According to the Bureau
of Labor Statistics, about 38% of U.S. workers change jobs every year. If your employment situation changes,
do you know what your choices are for managing the money in your 401(k) account?
Generally, workers have four options available to them: leave the money in their former employer's plan,
transfer the money into their new employer's 401(k) (if allowed), roll the money into an IRA, or take a cash
distribution. What many individuals don't realize is that if they fail to choose one of those options -- and their
account balance is small enough -- the decision can be made for them. Specifically, current law allows
employers to force participants with vested balances of $5,000 or less out of their 401(k) plans into an IRA
without their consent. Further, if the account balance is less than $1,000 when the participant separates from
the employer, the plan is allowed to cash out the account, triggering taxes and penalties if the participant does
not take action in a timely manner to redeposit the money in another retirement account.
How prevalent are these practices? According to the Plan Sponsor Council of America, more than half (57%) of
401(k) plans transfer account balances of between $1,000 and $5,000 to an IRA when a participant leaves the
company and/or cash out those accounts with balances of less than $1,000.1
High Fees, Low Returns
According to one study conducted by the Government Accountability Office (GAO), the trouble with these
so-called "forced-transfer" IRAs is that most balances decreased over time if not transferred out and
reinvested, due to the fees charged and the low returns earned by the conservative investments they are
required to invest in.2
Specifically, the GAO studied 10 forced-transfer IRA providers, including information about the fees they
charged, the default investments they used, and the returns earned. The typical investment return (prior to
fees) ranged from 0.01% to 2.05%. That coupled with account initiation fees ranging from $0 to $100 and
subsequent annual fees of $0 to $115 "can steadily decrease a comparatively small stagnant balance," the study
found. Further, when projecting these effects on a $1,000 balance over time, the GAO found that 13 of 19
balances decreased to $0 within 30 years.2
Given these circumstances, it is easy to see how a worker who changes jobs frequently and accumulates several
forced-transfer IRAs could be putting his or her retirement savings in jeopardy. Consider the following tips to
help keep your savings growing, not stagnating.
Make your wishes known -- an employer can only roll your account balance into a forced-transfer IRA
if you provide no instructions as to what you would like to happen to your account balance.
Keep contact information current -- when leaving one job for another, be sure you provide up-to-date
contact information to the 401(k) plan administrator.
Save more -- forced transfers only apply to low-balance accounts. By keeping your account above the
$5,000 mark you ensure that it stays protected from any unintended or unwanted actions.
, "How to Avoid Being Forced Out of Your 401(k)," January 13, 2015.1U.S. News
2United States Government Accountability Office, "401(k) Plans: Greater Protections Needed for Forced
Transfers and Inactive Accounts," November 2014.
© 2015 Wealth Management Systems Inc. All rights reserved.
1-436534

4. 4 Your Guide to Life Planning
It is critical to
understand the
effects of inflation on
a retirement
portfolio, because a
retirement account in
the future probably
won't have the same
purchasing power
that it has today.
How Taxes and Inflation May Affect Your Retirement Portfolio
Benjamin Franklin famously stated that the only two certainties in life are death and taxes. But there's at least
one more that could probably be added to the list: inflation.
Inflation is the sustained, ongoing increase in the general level of prices for goods and services. As prices rise
over time, the purchasing power of every dollar goes down. Due to inflation, one dollar in ten years will likely
purchase less than the same dollar would today.
How Inflation Is Measured
The rate of inflation in the United States is measured by the Consumer Price Index (CPI), which calculates
monthly changes in the prices paid for a representative basket of goods and services. Over the past three
decades, inflation in the United States has risen at an annualized rate of 2.69%. This has shrunk the1
purchasing power of $1 in 1985 to just $0.45 today.2
It is critical to understand the effects of inflation on a retirement portfolio, because a retirement account in the
future probably won't have the same purchasing power that it has today. For example, a $1 million portfolio
today would need to grow to $1.7 million in 20 years to have the same purchasing power.2
But inflation is not the only potential hazard to the long-term purchasing power of your retirement nest egg.
The Tax Man Cometh
Let's go back to Mr. Franklin, because taxes may also impact how much money you actually get to put in your
pocket when you begin taking distributions from your retirement account in the future.
Many retirement plans allow participants to save money on a tax-deferred basis, but this isn't the same thing
as saving on a tax-free basis. When you contribute money to a traditional IRA or 401(k), for example, your
contributions are excluded from your current taxable income. In other words, you don't have to pay tax on the
money today, but instead are deferring this tax until you begin taking distributions from the account typically
during retirement.
In comparison, contributions to a Roth IRA or 401(k) are included in your current taxable income. And since
you are paying taxes on the money now, you don't have to pay taxes again when you withdraw the funds during
retirement.3
Pay Me Now, or Pay Me Later
One of the decisions you must make as part of your retirement strategy is whether to invest on a tax-deferred
basis, and pay taxes when you withdraw the money, or invest tax free and pay the taxes now?
No one has a crystal ball to predict whether tax rates will be higher or lower in the future. That is why it is
important to work with a financial planning expert who, using sophisticated retirement planning tools and
software -- and taking your individual circumstances, risk tolerance, and goals into consideration -- can help
you work through various inflation and tax scenarios to determine the most appropriate strategies for you.
This communication is not intended to be tax advice and should not be treated as such. Each individual's tax
situation is different. You should contact your tax professional to discuss your personal situation.
United States Department of Labor -- Bureau of Labor Statistics. For the 30-year period ended June 30,1
2015.
Wealth Management Systems Inc. based on price inflation for the 30-year period ended June 30, 2015.2
Withdrawals from qualified plans taken before age 59½ are generally subject to a 10% additional federal3
tax -- on top of any regular income taxes owed -- although there are a few exceptions to this rule.
© 2015 Wealth Management Systems Inc. All rights reserved.
1-425693

5. 5 Your Guide to Life Planning
Financial advisors
often recommend
taking a holistic
approach to
calculating income
needs in retirement,
factoring in such
costs as taxes and
debt payments along
with other typical
expenses including
health care.
Planning for Known -- and Unknown -- Health Care Costs in Retirement
The issue of health care costs in retirement -- and planning for them well in advance of retirement -- is
becoming a centerpiece of any retirement planning discussion.
A recent study by Employee Benefit Research Institute (EBRI) projected that in 2014, men and women who
wanted a 90% chance of having enough money to cover out-of-pocket health care expenses in retirement
would need to have saved $116,000 and $131,000 respectively by age 65. This is a sobering goal when you1
consider that just 42% of workers in their 50s and 60s report total savings and investments in excess of
$100,000.2
Part of the problem with putting a price tag on retiree health care expenses is that every situation will vary
depending on an individual's health, the type of health care coverage they carry, and when they hope to retire.
That said, EBRI has identified some "recurring expenses," or standard elements of cost that can be estimated
and planned for in advance as well as "non-recurring" expenses that are less predictable but tend to increase
with age.
Recurring vs. Non-Recurring Expenses
Using data gleaned from the Health and Retirement Study (HRS) -- a longstanding, highly respected study of
representative U.S. households with individuals over age 50 -- EBRI was able to categorize utilization patterns
and expenses for two separate types of health care services:
Recurring services -- include doctor visits, prescription drug usage, and dentist services. Since these
services tend to remain stable throughout retirement, it is possible to calculate an average
out-of-pocket expense among individuals age 65 and older of $1,885 annually. Projecting forward, and3
factoring in the following assumptions: a 2% inflation rate, a 3% rate of return on investments, and a
life expectancy of 90 years, EBRI estimates that one would need $40,798 at age 65 to cover the average
out-of-pocket expenses for recurring health care needs throughout retirement. It should be noted that
this calculation does not include expenses for any insurance premiums or over-the-counter
medications.
Non-recurring expenses -- include overnight hospital stays, overnight nursing home stays, home health
care, outpatient surgery, and special facilities. Unlike recurring expenses, the cost of most
non-recurring services increases with age. For example, average annual out-of-pocket expenses for
nursing home stays are estimated at $8,902 for those in the 65 to 74 age group, $16,948 for those aged
75 to 84, and $24,185 for individuals aged 85 and up.3
Yet because the likelihood of utilizing these services and the degree to which they will be needed is largely
unknown, projecting the savings needed to cover these costs throughout retirement is an elusive exercise.
However, by thinking about the total out-of-pocket savings goals of $116,000 for men and $131,000 for women
cited earlier in terms of recurring and non-recurring costs may help retirees and those nearing retirement in
their planning efforts.
Bigger Picture Planning
Financial advisors often recommend taking a holistic approach to calculating income needs in retirement,
factoring in such costs as taxes and debt payments along with other typical expenses including health care. In
addition to the out-of-pocket health care calculations discussed above, consider what you think you might have
to pay in annual premiums if you were to apply for health insurance today. Lastly, and perhaps most
important, add in an allowance for inflation -- both general and health care inflation.
Your financial planner can help get the retirement income planning discussion started and -- as part of that
exercise -- can work with you to put some numbers around your health care planning needs.
This article offers only an outline; it is not a definitive guide to all possible consequences and implications of
any specific saving or investment strategy. For this reason, be sure to seek advice from knowledgeable
professionals.
Employee Benefit Research Institute, news release, "Needed Savings for Health Care in Retirement Continue1
to Fall," October 28, 2014.
Employee Benefit Research Institute, , March 2014. (Not including the2 2014 Retirement Confidence Survey
value of a primary residence or defined benefit plans.)

6. 6 Your Guide to Life Planning
3Employee Benefit Research Institute, "Utilization Patterns and Out-of-Pocket Expenses for Different Health
Care Services Among American Retirees," February 2015.
© 2015 Wealth Management Systems Inc. All rights reserved.
1-375580

7. 7 Your Guide to Life Planning
Individuals who are
already retired might
need to scale back
their annual
withdrawal amounts
in order to create
reserves for those
extra two years.
Rising Longevity and Your Retirement
New research conducted by the Society of Actuaries (SOA), a leading membership-based organization for
actuaries in the United States and Canada, revealed that older Americans are living longer than previously
estimated. Specifically, SOA's data showed that since its last report published in 2000 the life expectancy of
men age 65 has risen two years from age 84.6 to age 86.6 in 2014. Similarly, among 65-year-old women,
longevity rose 2.4 years, from age 86.4 in 2000 to age 88.8 in 2014.1
Commenting on the findings, Dale Hall, managing director of research for the SOA stated, "The purpose of the
new reports is to provide reliable data that actuaries can use to assist plan sponsors and policy makers in
assessing the financial implications of longer lives."1
What about individuals? How might this news affect the financial lives of retirees and/or the retirement
planning strategies of those nearing retirement age? Those additional two years could mean that the time the
typical person might expect to spend in retirement could increase by 10% or more than he or she originally
anticipated. As a result, the values associated with a retirement accumulation and/or distribution plan may
need to be adjusted accordingly.
For example, individuals still accumulating retirement assets who had previously determined they needed a $1
million nest egg, would now need $1.1 million to finance those two added years. For someone who is in
mid-stream on a retirement savings plan, increased longevity could mean boosting contributions by 20% or
more to catch up. Similarly, individuals who are already retired might need to scale back their annual
withdrawal amounts in order to create reserves for those extra two years.
Making Your Money Last
Because of increased longevity, managing cash flow in retirement is more critical than ever. As a starting point
you will need to clarify your current financial situation, as well as any significant changes you expect. Two
sources will provide this information:
A net-worth statement, which provides a snapshot of your assets, debt, and cash reserves.
Your monthly or annual budget, with itemized breakdowns of your income and expenses. If you haven't
retired yet, it's a good idea to prepare a projected budget of your retirement income and expenses.
Even with reasonable assumptions about investment returns, inflation, and retirement living costs, it is likely
you will encounter numerous changes to your cash flow over time. Experts often recommend a monthly review
of your budget, as well as a comprehensive annual review of your financial situation and goals.
As you monitor your finances keep the following factors in mind, as any one of them could affect your cash
flow and necessitate adjustments to your plan.
Interest rate trends and market moves may result in an increase or decrease in income from your
savings and investments.
Changes in federal, state, and local tax rates and regulations.
Changes in Social Security or Medicare benefits or eligibility, as well as new rules affecting
employer-sponsored retirement benefits and private insurance coverage.
Inflation and health care costs.
Life events such as marriage, the death of a spouse, or the addition or loss of a dependent may also
affect your cash flow.
It is worth paying close attention to cash flow, making sure you budget carefully, monitor income and expenses
frequently, and take action whenever you believe that significant changes may be necessary.
Society of Actuaries, press release, "Society of Actuaries Releases New Mortality Tables and an Updated1
Mortality Improvement Scale to Improve Accuracy of Private Pension Plan Estimates," October 27, 2014.
The calculations presented are based on public mortality tables, which were developed with certain
populations in mind, and reflect probabilities based on averages in large populations.
© 2015 Wealth Management Systems Inc. All rights reserved.
1-345377

8. The opinions voiced in this material are for general information only and are not intended to provide specific
advice or recommendations for any individual. To determine which investment(s) may be appropriate for
you, consult your financial advisor prior to investing. All performance referenced is historical and is no
guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The financial consultants of Phillips Financial are registered representatives with and Securities are offered
through LPL Financial. Member FINRA/SIPC. Insurance products offered through LPL Financial or its
licensed affiliates.
Not FDIC/NCUA Insured
Not Bank/Credit Union
Guaranteed
May Lose Value
Not Insured by any Federal Government Agency Not a Bank Deposit
This newsletter was created using , powered by Wealth Management Systems Inc.Newsletter OnDemand