Retirement Savings and Borrowing Money Vehicles, interest, and not being poor when you are old

Retirement savings Average American lives to be about 79 years old Average retirement age is 63 Need to live for at least 16 years, if not more 

Social Security From Investopidia: Social Security benefits are calculated by combining your 35 highest-paid working years. First, all wages are indexed to account for inflation. Wages from previous years are multiplied by a factor, based on the years in which each salary was earned and the year in which the claimant reaches age 60, to give an amount comparable in buying power based on the current value of the dollar.

Social Security Payouts The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. The estimated average monthly benefit for "all retired workers" in 2016 is $1,341. A good thing to support your retirement, but usually not enough to be your only hope.

Pensions Per Google: Defined benefit A regular payment made during a person's retirement from an investment fund to which that person or their employer has contributed during their working life. Defined benefit Rare in private sector, becoming rare in public sector

Pension Calculations & Pros/Cons Pension works on a simple formula: Salary X # years worked x multiplier Pro Guaranteed income for life No worry about market fluctuations Con No personal control over your money Some uncertainty in the future

401k/403B/457 Sponsored by employer – 57% of Americans Only 39% use them per BLS Define contribution plan Money put in by yourself Can be matched by your employer Maximum personal contribution - $18,000 Maximum total contribution - $53,000

IRA Individual Retirement Account Not tied to an employer Must have “earned income” Limit of $5,500 a year

Flavors of IRA/401K Traditional Roth Put pre-tax money in Some get tax deduction, full for 401K or partial for IRA (under $71,000 is single, or $118,000 married) Taxes paid when money is withdrawn Roth Post tax money Income limits (Phase-out starts at $117,000 single, $184,000 married) Money is withdrawn tax free (for now)

Pros/Cons of IRA/401K Pro Con Money grows tax free Traditional – lowers taxes now Roth – tax free income in the future Different ways to use the money other than retirement Con Money is often tied up until 59 and ½ Can lose value over time Need to save it for it to work 

Where to put accounts Savings accounts Mutual funds Individual stocks Broker Load No load – self run Individual stocks

Power of compound interest As a saver Lets say you place $2,000 a year into your Roth IRA every year from 25 to 65 when you retire. If you reinvest the dividends and assume a 6% interest rate, what do you get when you retire? $328,000

Power of compound interest Lets say you save the limit each year instead of just $2,000. You place $5,500 from 23 to 67 (full retirement age) @ 6% $1,164,500 – WOW!

Loans and interest While savings can be great, interest on loans can also be harmful if not taken into account. Most common loans Student Mortgage Business

Mortgage length and interest rate Most common lengths for mortgages are 15 and 30 years 15 year mortgage has a lower interest rate, why? Same loan amount: $200,000 Same interest rate: 4% Different amounts paid in interest: 30 year mortgage - $143,739.01 15 year mortgage - $66,287.65 What's the catch with a 15 year mortgage?

Extra Mortgage payment If you were to pay $100 a month on your 30 year mortgage, you could save almost 5 years off your mortgage – a savings of almost $27,000 in interest If you have a 15 year mortgage, it shortens it by 15 months – a savings of $6,000 Why is it less of a good deal for a 15 year mortgage?

Student loans Average graduate in 2016 had $31,400 upon graduation - What do you think the average interest rate is for student loans? 6.8%!!!!

Student loan payments You will pay 26,041.67 in interest!! Standard repayment term is 20 years You payment would be about $240 a month for 20 years You will pay 26,041.67 in interest!!