1. Retirement Plans

2. Long Term Saving Two main reasons to save money for the long term: to build a retirement fund and to afford your child’s education Two main reasons to save money for the long term: to build a retirement fund and to afford your child’s education Current status of Social Security shows that you should be saving for your own retirement Current status of Social Security shows that you should be saving for your own retirement

3. Even people with modest incomes can retire with enormous wealth- the secret is discipline Even people with modest incomes can retire with enormous wealth- the secret is discipline Also- compounding interest (you earn interest on an investment for one year, the borrower will pay you interest based upon the higher second year amount) Also- compounding interest (you earn interest on an investment for one year, the borrower will pay you interest based upon the higher second year amount)

4. $10,000 account in the first year- at 10% interest, $1000 is earned $10,000 account in the first year- at 10% interest, $1000 is earned Second year- borrower will pay the same interest rate on $11,000 Second year- borrower will pay the same interest rate on $11,000 10% of $11,000 is $1100 10% of $11,000 is $1100 After 2 years- the investment has grown to $12,100 After 2 years- the investment has grown to $12,100

5. After 5 years- the original amount has increased to $16,105 After 5 years- the original amount has increased to $16,105 In the meantime, you did not do any work for the money In the meantime, you did not do any work for the money

6. The money deposited in the first few years will be the hardest working money in your whole portfolio The money deposited in the first few years will be the hardest working money in your whole portfolio

7. How much do you need to retire? Answer to that relies upon the lifestyle you wish to enjoy when you get older How much do you need to retire? Answer to that relies upon the lifestyle you wish to enjoy when you get older Could you live on $20,000 per year, or perhaps you need $50,000? Could you live on $20,000 per year, or perhaps you need $50,000?

8. Basically, $100,000 will give you $7000 to 10,000 per year when you retire. You’ll need more than that. Basically, $100,000 will give you $7000 to 10,000 per year when you retire. You’ll need more than that. What are some of the opportunity costs involved in saving for a retirement? What are some of the opportunity costs involved in saving for a retirement?

9. Many people who are nearing retirement are finding out they have not saved enough money for a comfortable retirement Many people who are nearing retirement are finding out they have not saved enough money for a comfortable retirement Also, the US is getting older Also, the US is getting older

10. Baby boomers (born between 1945 and 1960) will be retiring Baby boomers (born between 1945 and 1960) will be retiring They will place an unbelievable strain on our Social Security and Medicare programs They will place an unbelievable strain on our Social Security and Medicare programs

11. Retirement First job out of college First job out of college 401 (k) most likely to be offered 401 (k) most likely to be offered If no option for 401 (k), you could start a 403 (b) on your own If no option for 401 (k), you could start a 403 (b) on your own

12. Retirement Plans Two types of plans: Two types of plans: Defined Benefit Defined Benefit Defined Contribution Defined Contribution

13. Defined Benefit Old GM employee pensions Old GM employee pensions Traditional pension plan Traditional pension plan Most likely you will not get this Most likely you will not get this

14. Pensions are a perk offered by some companies Pensions are a perk offered by some companies The organization involved will contribute money to a pension fund in the name of the employee The organization involved will contribute money to a pension fund in the name of the employee

15. Upon retirement, the worker will receive a predetermined amount of money each month. Upon retirement, the worker will receive a predetermined amount of money each month. Pension plans are not offered as much as they were 20 or 30 years ago Pension plans are not offered as much as they were 20 or 30 years ago The real growth is in defined contribution plans The real growth is in defined contribution plans

16. Defined Contribution Employer commits to contributing to your retirement Employer commits to contributing to your retirement 401 (k) most frequent type 401 (k) most frequent type

17. 401(k) Employers will match your contributions up to a certain % (usually 3-5 %) Employers will match your contributions up to a certain % (usually 3-5 %) Money is not taxed until you withdraw it at retirement, then it is taxed Money is not taxed until you withdraw it at retirement, then it is taxed

18. 401 (k) Government mandated maximum that you can contribute increases every year 2006 - $15,000 Government mandated maximum that you can contribute increases every year 2006 - $15,000 Contribute at least as much as what your employer will match Contribute at least as much as what your employer will match

19. 401 (k) If your company says it will match 50% of your first 6% you contribute (means they will contribute 3% of total salary)- you must be willing to contribute a minimum of 6% of your salary to get that If your company says it will match 50% of your first 6% you contribute (means they will contribute 3% of total salary)- you must be willing to contribute a minimum of 6% of your salary to get that

20. If you decide to put $200 a month into your retirement fund, you are actually saving maybe $400 per month because of the additional contribution of your company. If you decide to put $200 a month into your retirement fund, you are actually saving maybe $400 per month because of the additional contribution of your company.

21. 401 (k) You are 100% vested in your own contribution from Day 1 You are 100% vested in your own contribution from Day 1 It is your money, and it cannot be taken away from you at that point It is your money, and it cannot be taken away from you at that point

22. Vesting Step: Example: After first year of working, you are entitled to 20% of what company has put in. After second year, you are entitled to 40% of what company has put in, and so on. (5 Yr step vesting schedule) Step: Example: After first year of working, you are entitled to 20% of what company has put in. After second year, you are entitled to 40% of what company has put in, and so on. (5 Yr step vesting schedule)

23. Vesting Cliff: 0% until you get 100% Cliff: 0% until you get 100% Example is that you must stay five years before you are entitled to the company’s match Example is that you must stay five years before you are entitled to the company’s match

24. Withdrawals If you withdraw from 401 (k) before age 59 1/2, subject to regular tax on amount of withdrawal plus a 10% penalty tax as well on anything you withdraw If you withdraw from 401 (k) before age 59 1/2, subject to regular tax on amount of withdrawal plus a 10% penalty tax as well on anything you withdraw

25. Hardship withdrawal exceptions to buy a primary residence to buy a primary residence to prevent foreclosure or eviction from your home to prevent foreclosure or eviction from your home to pay college tuition for yourself or a dependent, provided the tuition is due within the next 12 months to pay college tuition for yourself or a dependent, provided the tuition is due within the next 12 months

26. Hardship withdrawals cont’d to pay unreimbursed medical expenses for you or your dependents to pay unreimbursed medical expenses for you or your dependents Only taxed on withdrawal amount, no 10% additional penalty Only taxed on withdrawal amount, no 10% additional penalty

27. Withdrawals Can take a loan from your 401(k) Can take a loan from your 401(k) Employer may mandate 100% repayment as of termination of employment Employer may mandate 100% repayment as of termination of employment Watch fees charged to set up a loan Watch fees charged to set up a loan Only do under worst circumstances Only do under worst circumstances

28. Other retirement options IRA: IRA: low contribution limit of what you are allowed to contribute a year $4,000 low contribution limit of what you are allowed to contribute a year $4,000 Get taxed when you take the money out as well Get taxed when you take the money out as well Depends on your income if your contributions get taxed Depends on your income if your contributions get taxed

29. Other retirement options ROTH IRA: ROTH IRA: Taxed fully on amounts contributed Taxed fully on amounts contributed Not taxed at all on withdrawals or earnings Not taxed at all on withdrawals or earnings Account must be 5 years old and owner of account must be 59 ½, or can withdraw $10k for 1 st home Account must be 5 years old and owner of account must be 59 ½, or can withdraw $10k for 1 st home

30. Savings For Education Expenses 529 college savings plans 529 college savings plans Coverdell (Education) IRA’s Coverdell (Education) IRA’s

31. Mutual Funds Pool of money invested in various investment vehicles Pool of money invested in various investment vehicles Primary investment option in 401(k)’s, IRA’s, 529’s Primary investment option in 401(k)’s, IRA’s, 529’s Offer diversification (decreased risk) at an affordable price Offer diversification (decreased risk) at an affordable price