metlife interview qa 20150419(2)
TRANSCRIPT
MetLife Interview Q&A Outline
5/8
1. what is estate planning?
Estate Planning means different things to different people.
Sometimes Estate Planning is as simple as having a Will drafted.
But for most people, Estate Planning involves much more.
It involves determining who will care for your children, and with
what finances, should you meet an early death.
It involves structuring your finances so that your surviving spouse
and beneficiaries are well taken care of.
It involves strategizing the best way to minimize the costs of dying
and most efficient way to pay the costs of dying.
It involves determining who should handle your finances should you
become incapacitated through injury or disease such as
Alzheimer’s.
It involves determining who will make medical decisions for you
should you be incapable of making them for yourself.
It involves determining if your beneficiaries are mature enough to
handle a large, lump sum of money, or whether they would benefit
from having someone manage money for them so that it is
distributed over a number of years.
2. why you need to do estate planning?
Because putting it off could be risky. In estate planning, you
may only get one chance to properly plan your estate. When you
die, the risk of losing your capital due to a variety of reasons
including Probate costs, Legal and Accounting fees, State
inheritance taxes, Income taxes and yes, possibly federal estate
taxes -- and the risk of never recouping your losses is much greater
than in the world of investments. This is because those losses are
real losses and not paper losses. In the investment world, losses
may only be on paper and around the corner there may be another
good investment opportunity.
But in the estate planning world, a missed opportunity can be
significant. A missed estate planning opportunity could result in
having your assets pass to the wrong heir at the wrong time and in
the wrong way – or in not having the liquidity needed to provide a
life income to your spouse, partner and children. It might result in
your heirs having to sell real estate, a business, or other precious
family assets at a deep discount simply because they can’t or don’t
know how to manage them or need to raise funds needed to pay
estate costs. Or it may result in your inability to buy life insurance
at a good rate.
In estate planning, a missed opportunity could become a
financial disaster for you and your family. No one knows how much
time you’ll have to plan your estate.
3. what specific strategies are available?
One strategy to benefit your heirs during your lifetime - gift
tax-free - is to make annual gifts under the Annual Gift Tax
Exclusion. Under this exclusion, each year, you can give up to
$14,000 to as many people as you want without any tax
consequences or filings. If you are married, you can give up to
$28,000 to as many people as you want in any given year, if your
spouse consents to the gifts.
Married couples have another strategy available to them. It is
called the unlimited marital deduction. Anything and everything
that you give while alive or leave at death to your U.S. Citizen
spouse is gift and estate tax-free. There is no dollar limit on this.
Transfers made by Will, by beneficiary designation, or by contract
qualify. If you take full advantage of this at your death, your
“taxable” estate will be zero.
Another strategy available to all taxpayers is the Applicable
Exclusion Amount. This is the Amount that can be transferred
exempt from federal estate, gift and GST (Generation Skipping
Transfer) tax.
You could also review your Wills and Trusts. You should make
sure they are: 1.Tax efficient; 2. Protect your heirs and assets; 3.
Remain flexible so they can accomplish your objectives.
Perhaps a better strategy is to use a Will that takes advantage
of both the marital deduction and the exemptions of both spouses –
regardless when death occurs. This type of Will is often referred to
as an “A/B” Will. Many people find that an A/B will is preferable –
not only because it allows the couple to take advantage of EACH of
their estate exemptions but because it provides benefits that only
trusts can provide.
The final strategy is irrevocable life insurance trust. For
wealthy individuals, it is important that new life insurance acquired
to help pay federal estate taxes not add to the estate tax problem
by being included as an asset of the estate. Therefore, a third
party, such as an irrevocable life insurance trust should be the
owner and beneficiary of the policy. An irrevocable life insurance
trust owns and is the beneficiary of a life insurance policy. A
properly structured irrevocable life insurance trust can help an
estate avoid the estate taxes that would otherwise be due following
death when an insured owns a life insurance policy.
4. what barriers should people take into consideration?
Final expenses can reduce the size of your estate before assets
pass to your beneficiaries. These can include: debts and mortgages;
funeral bills; medical bills; probate expenses and taxes. Your
beneficiaries stand in line behind all of the above to receive their
share. They get what is left. Without proper planning, they may get
a lot less than you think. However, with planning these costs can
be anticipated, managed and, in many cases, reduced.
5. Why small business need succession plan? Without a
formal written succession plan, what will happen to small
business?
There are several reasons why businesses fail. Studies show that
businesses often fail for lack of planning for growth and poor
management of the company’s financials. In addition, the lack of a
succession plan for the loss of an owner is often an issue when it
comes to the longevity of many small businesses.
6. What is buy-sell agreement? What does it contains? How
will the buy-sell be funded?
A Buy-Sell Agreement is a legal document that defines the
rights of buyers and sellers with regard to interests in a business.
Specifically, the buy-sell agreement contains: Who will buy the
business entity? At what time will the purchase happen? What price
will be paid for the business? What are the stated terms of the
transaction? Finally, the buy-sell agreement should set forth a
method of valuing the business.
Several methods of funding business owners are used to ensure
the Buy-Sell Agreement will have the liquidity it needs. These
methods include:
Borrow the Funds: The company needs to pledge assets of the
business. This usually requires the commitment of future profits to
pay for the business interest. Obviously, this is a disadvantage for
the heirs and surviving owners.
Save (Sinking Fund): Good in theory, but wouldn’t you prefer
the option to use savings to fund the additional growth of your
business or for some other business need? In addition, there may
be adverse tax ramifications of using a sinking fund.
Installment Sale: An installment purchase is often involved in
the retirement of an owner. It allows the management team to
purchase a business interest over a number of years. However, this
solution entails long-term debt which will expose you and your
heirs to the risk of the company not being able to satisfy its
obligations under the installment sale, clearly another
disadvantage for you or your heirs.
Life and Disability coverage: As we will see, life and disability
insurance offer many advantages over the other methods of
funding. Not only in terms of costs, but more importantly in terms
of expediency in getting cash into the hands of the surviving
owners or heirs.
7. What methods could be used to value the business?
When you are ready to sell your business the principal objective
should be to receive the fair market value for your business
interest. A Buy-Sell agreement can help you achieve this by
establishing a valuation process. The valuation of the business may
be determined in several ways:
Appraisal: the business should consider utilizing professional
appraisers.
Stated Price: The agreement may contain an agreed upon price
that must be reviewed and updated. This value should be updated
periodically with assistance from your professional advisors such as
your CPA.
Formula: Formulas can be used to accurately reflect the fair
market value of the business. A formula should be reviewed
periodically to insure that it reflects any changes in the business
that will impact its fair market value.
8. What are the three forms of buy-sell agreement? What
factors should be considered when choosing the best
form?
There are essentially two forms of buy/sells:
Redemption/Entity, which is between two or more parties, and
Cross Purchase, which is between two or more parties.
When a non-owner of a business agrees to purchase the
business interest of an owner, the agreement is known as a
unilateral Buy-Sell. A unilateral Buy-Sell is typically between an
owner of a business and a key employee, apprentice or protégé.
Only one party is to sell and one or more non-owners to buy the
business at the retirement, disability or death of the owner.
There are a multitude of factors which must be weighed when
determining which type of buy-sell agreement is right for your
situation. One could choose the right type by comparing the
advantages and disadvantages of each type.
5/22
1. Why everyone should plan retirement in advance? What
are the benefits?
The business world has changed over the years with regards to
retirement plans. Many employers are choosing not to adopt
defined benefit pension plans and some are even terminating
existing ones. That means much of the responsibility for saving and
investing for retirement will fall on you. In 2010, only 27,500
defined benefit pension plans remain, covering only 19% of
workers. But even those who have a pension, overestimate how
much it will cover. 50% of those with a pension think it will cover
50 - 99% of their needs in retirement. In reality, it may cover less
than 50%.3
2. What steps could people take to ensure adequate
retirement income?
According to the 2011 study, “Best-Case Strategies for a
Flexible Retirement: The MetLife Study of Thinking About
Retirement in Uncertain Times”, people who had a stream of
guaranteed retirement income felt more confident in their
retirement plans.
You should do your own financial checklist towards your
retirement, which include pension benefits from previous & current
employers; social security benefits;401(k) plan or IRA assets;
personal savings and investments; part-time jobs.
You should also calculate your retirement savings mileage,
include assess your income resources, determine living expenses
calculate the difference and determine if you need to save more.
3. What are biggest concerns for retirement? What are
Essential Expenses – How much will cover them?
According to the 2011 MetLife Retirement IQ survey, having
enough money to cover essential expenses is the number one
concern among pre-retirees. So one thing one should do is to
assess your income resources after retirement. Another thing is to
determine essential living expenses. Based on these two, one could
calculate what percentage of pre-retirement income will cover
essential expenses in retirement; as well as how much of your pre-
retirement income will you need to maintain your standard of living
in retirement. Many financial professionals suggest that you will
need up to 100% of your pre-retirement income to live a
comparable lifestyle during retirement.
Essential expenses are the regular bills that we all have to pay.
Things like: housing (rent/mortgage); food; healthcare;
transportation; insurance; utilities and taxes. Sixty percent of pre-
retirement income will cover essential expenses in retirement.
4. What are three common risks towards retirement
security?
The three common risks are: inflation risk, market risk and
longevity risk
Inflation risk is always present in our lives. While you are still
working, you may receive regular pay increases and the impact of
inflation may not be as obvious. But once you retire and live on a
fixed income, the increasing cost of basic necessities, such as food,
housing, and health care, can force you to cut back your spending
and reduce your standard of living.
For market risk, downturns can sideline you early in
retirement. All investments are subject to some risk. Downturns
can be especially problematic in the early years of retirement.
Longevity risk -- risk of outliving retirement assets -- is
probably the greatest risk that retirees face today. We can’t predict
exactly how long we will live, but we know that if people are living
longer today and spending more time enjoying retirement, so it’s
better to prepare for your income to last beyond the averages.
5. In light of these hazards, what can you do to make sure
that you are financially secure throughout retirement?
How can you guarantee that you will have enough income
to last your lifetime, no matter how long that may be?
One way to help ensure that you have income for life is by
designing a product allocation strategy that may include several
product types – like traditional investments, income annuities,
variable annuities and other financial vehicles.
A product allocation strategy can help you prepare for external
factors that are beyond your control. For example, a market
downturn at the wrong time can significantly reduce your
retirement savings. The years right before and right after
retirement, your money is most susceptible to market risk. This is
when you typically have the most money to lose. Negative returns
during this period could cause a significant reduction in your
retirement savings. A product that offers stable guaranteed income,
regardless of what the market does, can help you prepare against
this risk.
Overall, utilizing a number of different product categories may
help reduce or manage risks, maximize income payments
throughout your lifetime, maintain some liquidity and satisfy legacy
needs. Since different products have different benefits, combining
products may help you better accomplish retirement income goals.
Overall retirement strategies include retirement savings
options and tax qualified retirement plan.
6. What are the two types of Employer Sponsored IRA Plans?
Could you explain it in detail?
Employer Sponsored IRA Plans are programs where the
employer makes deductible contributions to the employee’s
individual IRA account. There are two types – Simple IRAs and
Simplified Employee Pensions (SEPs).
The Simple IRA has an employee salary deferral feature. The SEP
does not.
The rules that apply to Simple IRAs and SEPs are different from
those that apply to Defined Contribution and Defined Benefit Plans.
However, the limits are on the contributions so they are similar to
defined contribution plans. In both plans, the employer makes
contributions to the employee’s IRA.
The Simple IRA has an employee salary deferral feature. The
SEP does not.
Employer contributions in a Simple IRA are in the form of a
required match which is made when an employee makes a salary
deferral. Employer contributions to a SEP are fully
flexible/discretionary – they are not required.
These plans do not have as many design options as the ones we
discussed up to this point.
Qualified plans are an integral part of any business owner’s
overall retirement strategy. They provide current income-tax
deductions to the business and serve as tax-deferred wealth
accumulation vehicles. Different plan designs accomplish different
things. Therefore, the plan design is critical to maximizing the
efficiency of a retirement strategy for you.
7. What are benefits of social security? What qualifications
should one have to get those benefits?
According to the American Association of Retired Persons
(AARP), Social Security provides benefits to 55.4 million
Americans. As recipients of Social Security benefits, here is what
they receive:
• A stream of income payments that can last as long as you live
or as long as both you and your spouse live.
• Potential income adjustments to help you keep pace with
inflation. Basically, if the CPI goes up, your Social Security
benefits will go up as well.
• Survivor benefits. If you pass away unexpectedly, Social
Security will provide certain benefits for your surviving
spouse and dependent children.
• Disability benefits for you and certain members of your family
if you are "insured," meaning that you worked long enough
and paid Social Security taxes.
To be eligible for Social Security benefits, you need to earn a
certain number of credits by working. In 2013, you can earn one
credit for every $1,160 you make in income. You can earn a
maximum of 4 credits per year, and will need 40 credits total in
order to be eligible for benefits at your full retirement age. Some
Federal employees and employees of State or local government
agencies may be eligible for pensions that are based on earnings
not covered by Social Security.
8. What factors should one take into consideration to decide
when to take the social security benefits?
One of the first questions you’ll want to answer is do you need
income right away? When you begin to take the benefits? You have
the option to start collecting your benefits anytime between age 62
and age 70. However, if you collect before full retirement age, you
will collect reduced benefits. If you wait until full retirement age,
you will be eligible for your full benefits (also known as your
primary insurance amount). If you wait until after full retirement,
you will be eligible for an increased benefit.
Another factor is if you are married. If you are married, you
have the option to take spousal benefits. That means, instead of
taking benefits based on your work history, you would take benefits
based on your spouse’s work history. As a spouse, you would get
50% of your husband or wife’s benefit. But this only works if both
of you are at full retirement age.
Another thing that can affect when you would want to start
taking benefits is your health and the health and longevity in your
family. This can be a good indication of how long you might live.
You may want to keep that in mind as you develop your retirement
income strategy, knowing that your Social Security benefits will be
greatest if you wait until age 70.
The final thing one need to consider is if you are still working.
Social Security benefits are intended to be supplemental retirement
income. So the SSA really wants you to be retired when you collect
them. Therefore, they will penalize clients for collecting early if
they are not actually retired. If you collect benefits early, you will
be subject to an annual earnings test which looks exclusively at
salary. Prior to full retirement age, if you earn more than the
threshold amount ($15,480 in 2014), you lose $1 of benefits for
every $2 earned over the threshold. For the year in which you
reach full retirement age, a different rule applies. The threshold is
$41,400 in 2014. And the rule is that you lose $1 in benefits for
every $3 in earnings over the threshold. Once full retirement age is
reached (in August and beyond), there is no threshold so you can
earn any amount after that with no reduction in benefits.
9. What are tools one could use to help to estimate the social
security benefit one could get?
There are some online tools you can use to get started planning
and taking Social Security benefits.
At the Social Security Administration website – www.ssa.gov –
you can view your benefits statement and apply for benefits. They
also have a lot of education information, if you want to learn more
about the benefits themselves.
The American Association of Retired Persons (AARP) also have
a great website – www.aarp.org – including a section on Social
Security, where you can find articles and calculators to help you
decide when to take Social Security benefits.
You can also go to MetLife’s website and use our Retirement
Income Snapshot tool, which can help you determine if you have
enough income for retirement.
10. Could one get his social security benefit while he is still
working?
If you take Social Security benefits before your full retirement
age and continue to work, you will lose $1 of benefits for every $2
you earn above a specific threshold, which in 2013 is $15,120
annually or $1260 a month. However, if you wait until full
retirement age to begin taking benefits, you can continue to work
or go back to work without being penalized.
11. Should people pay taxes on social security benefits?
Social Security benefits may be taxed, depending on your
income when you take benefits. The tax you pay is based on a
formula that includes your Adjusted Gross Income (without regard
to certain deductions and exclusions), nontaxable interest and half
of your Social Security benefits.
See the below table:
Single Married Taxed or Not?
$25,000 or less $32,000 or les No Tax
$25,001-$34,000 $32,001-$44,000 Up to 50% of benefit
is taxed
$34,001 or more $44,001 or more Up to 85% of benefit
is taxed
12. How to maximize your social security benefits?
How to maximize the social security benefits depends on
everyone’s own situation. There are a bunch of factors could affect
if one could get the most benefits. Several main factors include: do
you begin to take the benefits before or after the full retirement
age; the marital status; your current health, your family history of
longevity.
Here’s one example of a couple who take advantage of spousal
benefits. In this case, the wife’s benefits are quite a bit less than
her husband’s. Both husband and wife are the same age. The wife
files and starts receiving her own reduced benefits at age 62. But
then at age 66, the husband files for benefits. This lets his wife
receive spousal benefits, which are more than she was getting from
her own benefits.
But, since the couple is trying to maximize their benefits, the
husband should suspend his own benefits (doesn’t take them at age
66), and don’t start until age 70. That’s the latest he can start his
own benefits. In this way, he could also receive the maximum
benefit. By using this strategy, the couple is able to maximize their
benefits when they really need them – which is later in life.
13. Does Social Security benefit/Medicare cover long term
care ?
Long-term care is a range of services and support for your
personal care needs. Most long-term care isn't medical care, but
rather helps with basic personal tasks of everyday life, sometimes
called activities of daily living.
There are six basic activities of daily livings: eating, bathing,
dressing, toileting, transferring (walking) and continence.
Medicare doesn’t cover long-term care (also called custodial
care), if that's the only care you need. Most nursing home care is
custodial care.
Medicare does cover: care in a long-term care hospital,skilled
nursing care in a skilled nursing facility , eligible home health
services, and hospice & respite care.