Retirement “It’s never too early to save: If you started investing at age 25 and put the same amount of money into stocks until age 35, you’d have MORE money at retirement than if you started saving at 35 and invested the same amount of money in stocks every year until retirement”

Retirement Savings Right now, retirement seems a long way off, you haven’t even started your careers yet! However, the sooner you begin saving for retirement, the better off you will be. Retirement savings are a special savings for the years after people stop working. After you stop working, you still need income to pay for your living expenses.

Retirement sources- Social Security Many people are eligible for Social Security once they retire and turn 65. However, Social Security may not be around in 40 years, and it only gives an annual average of $26,000 per person. After taxes that is approximately $18,200 a year! Workers pay into the Social Security system for their entire working lives.

Social Security Origins Social Security was originally created in the Great Depression to support older workers who were no longer efficient, but needed money to survive. Old workers who are less efficient would no longer be part of the workforce, but would be able to support themselves. Hiring would focus on middle age and younger workers as a result. These younger workers are theoretically more efficient and capable.

Social Security uncertainty Though millions of people are dependent on the Social Security system, it is becoming financially unstable. With an aging population in America, and millions of baby boomers retiring, the system is overtaxed and under funded. The main problems are: -people are living longer and longer -Baby Boomers represent millions of retirees that outnumber new workers -Federal deficit has leeched money away from Social Security You have to do your OWN retirement savings as well

Retirement sources- Pensions Pensions are company sponsored and supported retirement plans. The workers put in a set amount of money over time and are able to draw from their contributions during retirement to supplement Social Security. Companies usually sponsor 401k plans, where a portion of each check is withheld. Some companies even give match contributions up to a certain amount. Public employees have 403B plans for their retirement pensions. Pensions- Structured retirement plans to assist workers in saving for retirement.

Pension Benefits The benefit to Pensions is that many private companies will match the contributions up to a certain amount. Additionally, because the money comes right from your pay check, you do not pay taxes until you withdraw the money. This gives you more money to invest upfront. In other words, with a 401K or 403B you invest pretax money. For example, if you are taxed at 30%, for every $100 you earn, only $70 comes to you in your pay. However, if you put pre-tax dollars into the 401K or 403B then you can invest the full $100 NOW! Benefitting you further, when you retire you typically go down in tax brackets meaning you will pay even less tax on your investments.

Union Pensions Another form of retirement pension is all but extinct today. These pensions are those held by a small number of private and public employees, mostly union members. These pensions work based on a contribution by the worker throughout their career. However, they give a set amount and will earn a larger portion during retirement than a typical 401K/ 403B. Most public employees find it beneficial for them to earn LESS throughout their career in order to have a better, more secure retirement. Union Pensions are currently under attack as being far too expensive. However, things to consider: -Public employees make less than private sectors employees -as unions decrease, pension plans decrease -employees ay into the system

Self-Investment Despite the availability of Social Security and Pension plans many workers will need even more in retirement than these two solutions will provide. As a result, you must invest in your retirement in other ways. Common ways of investing are: --IRA- Individual Retirement Accounts --Roth IRA --Real estate --Stocks --Bonds

Individual Retirement Accounts IRA An IRA is a tax deductible retirement contribution. Up to $5,500 can be contributed to an IRA per year and then be deducted from taxable income. The benefit for IRAs is that you are not taxed that year, nor is the interest you earned taxed. However, you must pay the taxes when you withdraw money during retirement or for any other reasons.

IRA vs 401K (or 403B)

Roth IRA Roth IRAs also allow contributions of up to $5,000 a year. There are no tax deductions available and all contributed money is taxed. However, when you withdraw the money later, you do NOT pay taxes, as tax was already paid. The benefit here is you do not pay tax on earned interest income.

Roth IRA vs Traditional IRA The Roth and IRA offer a good retirement savings option, however they vary slightly from each other. The Roth IRA taxes your POST tax dollars, meaning you put less in for savings, but you don’t pay taxes after the fact, even on the money you earn. Both are good options, but some financial advisors push clients toward traditional IRAs because the contributions are pre-tax, meaning more goes into the account.

Real Estate Despite market fluctuations and 2008’s housing crash, real estate remains a good investment in the long run. The longer you hold the property the more return on investment. Additionally, developed land, such as a house, is the best bet. Purchasing undeveloped land is much more risky, and can backfire. The major downside of real estate as a investment for retirement is that real estate is not easy to quickly turn into cash. The return on investment can be huge, but the turn around time can be months or years until the property sells. Equity- Value of a house after subtracting remaining payments Real Estate investments can generate huge returns on investment, but it can take a long time to get the cash for it.

Stock Stocks allow investors to own a small part of a business at little risk. A small investment into the company can pay out if the company performs well. However, if the business goes bankrupt then the investor is out their money. The key to the stock market is buying low and selling high. If an investor makes money on their stock investment, it is considered a capital gain. If they lose money it is a capital lose: Example: Buy at $20/share and sell at $30 a share- Capital gain of $10/share Buy at $20/ share and sell at $10/share- Capital loss $10/share Buy low, Sell high

Bulls and Bears The stock market has constant fluctuations as price stocks rise and fall. When the market is high it is considered a bull market, but when the market is poor it is considered a bear market. Bull Market statue located outside the New York Stock Exchange

Bonds Bonds are a far more secure way of investing money because Bonds have a guaranteed return. In exchange for a safe investment, the return is not very high. The safer the bond the lower the return. For example, government bonds typically return only 2%. Less risk means lower returns

Corporate Bonds Sometimes businesses will offer bonds at a slightly higher rate of return. While a stock gives the purchaser partial ownership in a business, a bond does not. However, bonds are a guaranteed return where stocks are not.

Mutual Fund Some stocks are extremely expensive, but offer a chance at great riches. The average investor cannot afford these prices, and instead needs to join a mutual fund to pool together their money to buy stocks. The pooled money works to create greater returns. Mutual fund managers can manage accounts worth millions of dollars. Unfortunately, in recent years several high profile cases have broken the public trust of mutual funds as major schemes have cost millions their life savings.

Risk Allocation Depending where you are in your investment journey you have to be very aware of the risks. In the beginning of your career you want to make great gains, but great gains mean great risks. As workers near retirement they want to switch to fewer risks and safer investments. When considering investments there are 3 main categories: Aggressive- Greatest risk and largest possible return Moderate- a balance of risk and return possibilities Conservative- lowest risk and lowest return Stocks and Bonds represent the two different sides of the aggressive and conservative balance. Which investment option is which? Aggressive- stocks Conservative- Bonds

Diversification The best retirement portfolios are diverse, with a variety of investment options such as stocks, bonds, currencies and mutual funds. The more diverse the better because if one fails the rest will be buoyed.

Start Early- Compounding The earlier you start the bigger your retirement portfolio can grow. In fact, if you start early enough then STOP contributing to your retirement, you will still earn more for retirement than if you start late and contribute for 3 times as long: “It’s never too early to save: If you started investing at age 25 and put the same amount of money into stocks until age 35, you’d have MORE money at retirement than if you started saving at 35 and invested the same amount of money in stocks every year until retirement”

Compounding The reason you can earn more by starting so early is known as Compounding. By using the money earned and reinvesting it into the market, you are able to earn more money, even without putting more in your self.

Start Early Article... 1)When you are finished reading identify three sentences as the “Most important” and influential in stressing the main idea of the article. Explain in detail why you picked each of these. 2)Analyze and Explain the following quote: “Your best retirement plan for retiring happy and prosperous — don't be a burden on others.” — Ernie Zelinski 3) Provide advice to your best friend on the best way to prepare for retirement; incorporate the quote above into your advice. Proper grammar and formation are not important, but advise your friend in the best way to prepare for retirement. Hand in when you are done.