1. Financial Planning 101 Todd Jorns www.flip4u.org

3. Facts & Stats 91% report that Social Security provides a source of income for their retirement. 69% say SS is a major source of income. 21% are very confident about having enough money to live comfortably during their retirement. 42% are somewhat confident. 19% say they are not at all confident. 2012 Retirement Confidence Survey

4. Facts & Stats Only 58% of workers are currently saving for retirement. 67% state that they are a little or a lot behind schedule. 79% of workers expect SS to be a major or minor source of income in retirement. Over 56% have not tried to calculate how much money they will need in retirement. 2012 Retirement Confidence Survey

7. Objectives Improve Awareness and Understanding of “saving versus investing”. Familiarize and Educate attendees on the various retirement options available to them. Inspire and Motivate attendees to be in charge of their retirement. Challenge attendees to share this knowledge with their children, family and friends.

8. Waiver I am not a certified financial planner or accountant. All information I share with you are things I have read about or seen on TV. I have a passion to share my financial knowledge with anyone who will listen. My goal is to help others find the path towards F 3 (future financial freedom).

10. How to Have a Net Worth of $1 Million at Age 55 Monthly Savings Age Return of 10% Return of 8% Return of 4% Return of 2% 20$264$435$1,094$1,646 25$442$670$1,440$2,030 30$754$1,051$1,945$2,572 35$1,317$1,697$2,726$3,392 40$2,413$2,889$4,063$4,768 45$4,882$5,466$6,791$7,535 50$12,914$13,609$15,083$15,861 Bloomberg Personal, September 1994

11. Interest Rates and Their Effect on Your Investments 5-yrs10-yrs20-yrs30-yrs40-yrs 0%$10,000 1%$10,512$11,051$12,213$13,497$14,916 2%$11,051$12,212$14,913$18,212$22,241 4%$12,210$14,908$22,226$33,135$49,399 6%$13,489$18,194$33102$60,226$109,575 8%$14,898$22,196$49,268$109,357$242,734 10%$16,453$27,070$73,281$198,374$537,007 12%$18,167$33,004$108,926$359,496$1,186,477 $10,000 Lump Sum

12. Interest Rates and Their Effect on Your Investments $100 Per Month 5-yrs10-yrs20-yrs30-yrs40-yrs 0%$6,000$12,000$24,000$36,000$48,000 1%$6,155$12,625$26,578$41,998$59,038 2%$6,315$13,294$29,529$49,355$73,566 4%$6,652$14,774$36,800$69,636$118,590 6%$7,012$16,470$46,435$100,954$200,145 8%$7,397$18,417$59,295$150,030$351,428 10%$7,808$20,655$76,570$227,933$637,678 12%$8,249$23,234$99,915$352,991$1,188,242

13. The Magic of Compound Interest Jimmie –Opens IRA at 12% interest at age 22. –Invests $2,000/year for 6 years = $12,000. –After 43 years IRA is worth $1,348,440. Joel –Spends $2,000/yr on himself for six years. –Opens IRA at 12% at age 28. –Invests $2,000/yr for 37 years = $74,000. –After 43 years, IRA is worth $1,363,780. Difference of $15,340 (start early!).

14. The Magic of Compound Interest JimmieJoelJake AgePaymentAccumulationPaymentAccumulationPaymentAccumulation 22 $2,000$2,240$0 $2,000$2,240 23 $2,000$4,749$0 $2,000$4,749 24 $2,000$7,559$0 $2,000$7,559 25 $2,000$10,706$0 $2,000$10,706 26 $2,000$14,230$0 $2,000$14,230 27 $2,000$18,178$0 $2,000$18,178 28 $0$20,359$2,000$ 2,240$2,000$ 22,599 29-64 $0↕ $2,000↕ $2,000↕ 65$0 $1,348,440 $0 $1,363,780 $0 $2,712,220

15. Rule of 72 The rule of 72 says if you take the interest rate you are receiving and divide it into 72, it will give you the number of years it will take for your investment to double. Example, 72 divided by 4 (interest rate at a bank) = 18 years for your money to double. Another example, 72 ÷ 2 = 36 years.

16. Rule of 72 Interest Rate (Lump Sum Investment) Year2%4%6%8%10%12% 72÷2=3672÷4=1872÷6=1272÷8=972÷10=7.272÷12=6 0$1,000 6$1,130$1,268$1,432$1,617$1,813$2,047 12$1,277$1,607$2,051$2,616$3,288$4,191 18$1,443$2,037$2,937$4,231$5,962$8,579 24$1,631$2,583$4,206$6,843$10,811$17,561 30$1,843$3,274$6,023$11,067$19,603$35,950 36$2,083$4,151$8,625$17,899$35,545$73,592

17. Retirement Options/Vehicles 401(k) (corporations) 403(b) (not-for-profits-education/hospitals) 457(b) (government) Roth IRA IRA Annuities U.S. Savings Bonds CDs Savings Accounts Others

18. Retirement Contributions *Catch-up contributions: Workers age 50 and above are permitted to contribute an additional $1,000 to their IRAs and $5,500 to their 403b and 457b plans. **Future increases indexed to inflation released in October of each year. Vehicle 2012 2013**2014** MaxMonthlyMaxMonthlyMaxMonthly *IRAs$5,000$416$5,000$416$5,000$416 *403(b)$17,000$1,416$17,000$1,416$17,000$1,416 *457(b)$17,000$1,416$17,000$1,416$17,000$1,416 Totals$39,000$3,248$39,000$3,248$39,000$3,248

19. Net Worth Projection – Calculator Will help you plan for retirement. Allows you to make projections into the future. Adjustments made to the Interest Rate show the impact on investments. You can download this calculator at www.flip4u.org. www.flip4u.org

21. House Loan (Mortgage) Mortgages are usually good debt because equity in the house is built up over time. Only borrow what you can reasonably afford to pay back each month. The shorter the term (15yr vs. 30yr) the less interest you pay over time. Shop around for lowest interest rate.

22. Auto Loan Auto loans are considered not so good debt because the value of the car goes down over time. The shorter the term (36 mo vs. 60 mo) the less interest you pay over time. Shop around for lowest interest rate. Better to buy a used car or save up and pay cash for your vehicles.

23. Personal Loan Personal loans are considered bad debt because you pay interest with no return. Only borrow if it is a true emergency. Shop around for lowest interest rate. Pay back the loan ASAP. Better to create your own “emergency” fund and borrow from and repay yourself.

24. Credit Card Debt Credit Card debt is ugly debt because you pay enormously high interest rates. Interest rates can range from 0% - 30% Credit card debt is one of the leading causes of personal bankruptcy. Don’t carry balance over each month. Better to only charge what you can easily pay back each month.

25. Credit Card Debt How long to pay off credit card? –$5,000 balance –10% interest rate –$100 monthly payment Almost 5.5 years to pay off the debt. –$1,495 of interest –$5,000 principle –$6,495 total money paid – Ugly!

26. Credit Card Debt How long to pay off credit card? –$5,000 balance –20% interest rate –$100 monthly payment Over 9 years to pay off the debt. –$5,840 of interest –$5,000 principle –$10,840 total money paid – Uglier!

27. Financial Web Resources www.vanguard.com www.fidelity.com www.morningstar.com/ www.bankrate.com/brm/popcalc2.asp www.savingforcollege.com/ www.collegesavings.org/ www.bogleheads.org/ www.mrmoneymustache.com/ www.flip4u.org

28. Financial Priorities 1.Pay down (eliminate) credit card debt ASAP 2.Create an emergency fund - enough to cover 3 – 6 months of monthly expenses 3.Make sure you have adequate life insurance (term is the cheapest) 4.Maximize all your tax-deferred opportunities first (401k, 403b, 457b) 5.Open Roth IRAs 6.Save for children’s college education

29. Words to “Live” By Start saving/investing now Pay yourself first Rule of 72 Compounding interest ($ work hard for you) Live below your means Invest 50% of your annual raise in you Work smart, Invest hard, Retire peacefully

30. Questions Todd.Jorns@illinois.gov www.flip4u.org