Planning for the long-term Personal Finance Planning for the long-term

Key Questions

Strategic Planning

Investment Vehicles Individual Retirement Accounts Simplified Employee Pension (SEP) Traditional Roth ”Qualified” Retirement Plans 401(k) 403(b) 457(b) Defined Benefit Plans AKA pensions

Defined Contribution Plans 401(k) Anyone employed by a nonprofit (public) school Employees of private, for-profit companies Local and State government employees

Individual Retirement Accounts Traditional IRA Contributions are deductible from taxable income Contributions and interest grow tax-deferred Good choice if you expect to be in a lower tax bracket when you retire Roth IRA Contributions NOT tax deductible Contributions and interest grow tax free

Investing is more than the stock market

Buying a house Purchasing a home is one of most important investment decisions most of us will make Rent or own? Owning builds equity over time (decades), but initially most of payment is interest cost How long will you live there? Rule of thumb: you need to live in a house at least three years to break even How much can you afford to put down? Today you can get mortgages with zero down. Don’t!!! Save until you can put 20% down Better interest rate Won’t have to pay primary mortgage insurance (PMI)

Buying a House (cont) Don’t forget other costs Don’t erode equity! Property taxes Insurance (mandatory) Maintenance costs Don’t erode equity! Do not take out a second mortgage or borrow against the equity in your house to improve your lifestyle

Value of education

Investment SMarts If it looks too good to be true, it is Only deal with legitimate, respected parties Never purchase an investment solicited by phone or e-mail Don’t let yourself be forced into quick decisions Don’t let friendships influence investment decisions Never, never listen to high-pressure marketing

Using Insurance to Manage Risk

Life involves risk Insurance can protect us from financial loss Risk makes us decide whether to get insurance (and how much) Risk is also what insurance companies use to decide whether to offer insurance and how much they will charge Insurance is a legal contract that transfers the risk from a policy older to an insurance provider

Why is it important to have insurance? Helps limit financial losses when an accident occurs Helps an individual/family be prepared for the unexpected Plays a large role in most financial management plans

Types of insurance Homeowners (or renters) Auto Life Medical/Dental Liability Long-term Care Travel Pet Etc.

Good decision or bad? Insure against events that would impose severe financial hardship Life Traditional Term Health Long-term Disability Auto Other types may or may not make financial sense E.g. extended warranties, liability, long-term care