section 13.2 retirement planning p . 324
DESCRIPTION
Section 13.2 Retirement Planning p . 324. What should retirement look like? How do communities benefit from retirees?. What are 2 key factors in building wealth? Hint: shown below…. Goal: $2,000,000. 13.2 Objectives: *Compare/contrast investment options designed for retirement planning. - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/1.jpg)
Section 13.2
Retirement Planning p. 324
What should retirement look like?
How do communities benefit from retirees?
![Page 2: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/2.jpg)
What are 2 key factors in building wealth?
Hint: shown below…
![Page 3: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/3.jpg)
Goal: $2,000,000
13.2 Objectives:*Compare/contrast investment options designed for retirement planning.*What are some types of plans?*Explain need to take an active role in your retirement planning.**In a 2010 survey of 226 registered investment advisors commissioned by Scottrade Advisor Services,77% suggested a Retirement savings goal of at least $2 million for members of Generation Y, those ages 18 to 26. •http://money.usnews.com/money/retirement/articles/2011/09/15/gen-ys-2-million-retirement-price-tag
![Page 4: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/4.jpg)
U.S. Retirement Statistics Out of 100 people who start working at the age of 25, by the age 65:
1% are wealthy
4% have adequate capital stowed away for retirement
3% are still working
63% are dependent on Social Security, friends, relatives or charity.
29% are deceased.
•Do you see any concerns with these statistics?•Tuesday, 11 January 2011 16:09 Written by Ted Fowler Read 3178 times •Published in Financial Blog
![Page 5: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/5.jpg)
13.2 RETIREMENT PLANNING:
Social Security Pension Plans: Personal Investing: Defined benefit plan: IRA Defined contribution plan: ROTH IRA
*401K *403B Keogh Plan *Profit Sharing Plans *Employee Stock Ownership Plan
![Page 6: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/6.jpg)
How does Social Security work?
• Administered by Federal Government.• Current workers pay into fund.• That money is used to help pay for people
already collecting Social Security.• How much you receive is determined by:
– how long you work, – earned income, – age you begin collecting SS benefits. (Earlier
collectors receive less monthly benefit)
![Page 7: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/7.jpg)
Do you see any problems with this plan?? Baby Boomer Statistics: As of January 1st, 2011 every single DAY more than 10,000 Baby Boomers reach the age of 65. That is going to keep happening every single day for the next 18 years.
![Page 8: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/8.jpg)
Social Security:
• In 1950, each retiree's Social Security benefit was paid for by 16 U.S. workers.
• In 2010, each retiree's Social Security benefit is paid for by approximately 3.3 U.S. workers.
• By 2025, there will be approximately 2 U.S. workers for each retiree
![Page 9: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/9.jpg)
35% of Americans over 65 are totally dependent on Social Security…
• Will there be any money left by 2041??
• Even if fund is depleted, there will still be enough tax base to pay about $781 for every $1000 owed.
• http://www.ssa.gov/newsletter/Statement%20Insert%2025+.pdf
![Page 10: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/10.jpg)
Do you currently pay into Social Security??
• Did you take home pay decrease at beginning of year???
• Jan. 1, 2013: Payroll taxes, which pay for Social Security, returned to their normal rate of 6.2% of income. They had been at 4.2 %.
![Page 11: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/11.jpg)
RETIREMENT PLANNING:
Social Security
•For an average worker, Social Security replaces about 40 % of annual pre-retirement earnings
Pension Plans: Personal Investing: Defined benefit plan: IRA Defined contribution plan: ROTH IRA
*401K *403B Keogh Plan *Profit Sharing Plans *Employee Stock Ownership Plan
![Page 12: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/12.jpg)
Pension Plans: Retirement plans offered by your Employer.
• Defined-Benefit Plans:• HOW DOES IT WORK?
– Company pays retirees a fixed amount each month based on how income and years of employment.
– EMPLOYER ASSUMES ALL RISK-• Have to invest $ and be able to pay retirees for life.• Becoming less common.
– Too expensive for them to continue?
http://bottomline.nbcnews.com/_news/2012/10/24/14646131-3-states-with-sinking-pension-funds?lite
![Page 13: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/13.jpg)
RETIREMENT PLANNING:
Social Security•For an average worker, Social Security replaces about 40 % of annual pre-retirement earnings
Pension Plans:Contributions and earnings are not taxed until collected.
Defined benefit plan: Defined contribution plan:
*Less common/underfunded
ex: *401K *403B
![Page 14: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/14.jpg)
PENSION: Defined Contribution Plan
• How does it work?• Employee contributes to a plan invested on
their behalf.– Employer may or may not contribute to plan.
• “company match”
– Amount employee receives is determined by how much they contribute and how well the investment performs.
– EMPLOYEE ASSUMES ALL RISK.
![Page 15: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/15.jpg)
Defined contribution statistics:
• According to one recent survey, 36 % of Americans say that they don't contribute anything at all to retirement savings.
![Page 16: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/16.jpg)
401K plans• Choice of Investment Plans are selected by your
employer. (mutual funds/stocks/bonds, etc.)
• Contribute % of pre tax income.– Paycheck deduction RECOMMEND 15-18% of pay to grow enough for
retirement.*Employer may match your contribution up to certain
percent. ex: 4% match You contribute 4% co contributes 4%
0% 0% 10% 4%
![Page 17: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/17.jpg)
401K• You decide how to allocate the funds.
– More risk or less?– May change allocations over time.– Part of your contribution pays fees for
administering the fund. – ie: Brokers, managers.
You are responsible for managing the fund. If you change jobs- may “rollover” investment to another investment to keep earning.
IF you take $ out to spend before 59 ½ yrs. Will be penalized ex: 30%+ of withdraw owed in taxes. ($10,000 - $3000 = $7000)
![Page 18: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/18.jpg)
Vested
• After a specified # years, you will be “100% vested” in the plan. You have 100% ownership of all funds in
your account (company match funds+ your contributions)
If you leave co. keep all $, may transfer to another investment account.**Pay taxes on the money when you withdraw after 59 ½ years.
![Page 19: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/19.jpg)
Review questions:
– 1)Why is social security not enough for you to count on for retirement?
– 2) Why are defined contribution plans now more common than defined benefit plans?
– 3) Why is this shift making it more challenging for Americans to retire?
– 4) If your employer offers a 401K with a 3% match, what should you do? What does 100% vested mean?
– 5) Why is it dangerous to take out money from retirement plans before 59 ½ years?
– 6) What two factors help build your wealth?
![Page 20: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/20.jpg)
RETIREMENT PLANNING:
Social Security Pension Plans: Personal Investing: Defined benefit plan: IRA Defined contribution plan: **ROTH IRA
*401K *403B Keogh Plan *Profit Sharing Plans *Employee Stock Ownership Plan
![Page 21: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/21.jpg)
403B
• Similar to a 401K but for non-profit organizations:– Teachers, librarians.– Anyone that works for a non-profit group may
have a 403b plan to contribute to.
![Page 22: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/22.jpg)
If your employer offers a 401K
• What is the company match?– Meet the match.
How long until 100% vested?
![Page 23: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/23.jpg)
What happened to Pensions?
• Frontline can you afford to retire?• First segment.• http://www.pbs.org/wgbh/pages/frontline/video/
flv/generic.html?s=frol02p79&continuous=1 • How pensions are changing for average
Americans….United Airlines– BTW… Mr. Jeffery A. Smisek , 58
Chairman of The Board, Chief Exec. Officer, – Pay $4,780,000 / yr. or or $91,923 a week!!
![Page 24: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/24.jpg)
Other types of defined contribution plans: Profit Sharing
• incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses.
• In publicly traded companies these plans typically amount to allocation of shares to employees.
![Page 25: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/25.jpg)
ESOP- Employee Stock Ownership Plan
• Instead of profit sharing, employees give participants shares of company stock.
• Can not sell until employee leaves company or retires.• Great If company stock value increases.• Con’s:
– Lacks diversity.– If company does not do well, neither will your stock.
• Worse case scenario- lose job and investment value– Can not be a sole source of retirement income.
![Page 26: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/26.jpg)
ESOP- Employee Stock Ownership Plan
• http://www.nceo.org/main/article.php/id/11/
The Employee Ownership 100: America's Largest Majority Employee-Owned Companies
![Page 27: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/27.jpg)
Personal Investment plans
• IRA: “Individual Retirement Account”Annual Contributions are limited by
law.
*Traditional IRA*Roth IRA
For 2013, the limit is $5,500 ($6,500 if you are 50 or older).
![Page 28: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/28.jpg)
Personal Investment plans
• Traditional IRA: $ put in will not be taxed until
withdrawn.must w/d by 70 ½ years.tax penalty if w/d before 59 ½. yrs.
![Page 29: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/29.jpg)
Personal Investment plans• Roth IRA: requires Pre-taxed $--
– Net pay contributions. (So you must be employed to start one)– If single and make over $127,000 can no longer contribute.
**TAX-FREE GROWTH**
– There is no tax on the profits you make.– Ex: $5000 /yr for 40 years. 8% return
• $1,400,000 in account. Tax free.
If in another type of account (401K): $1,400,000 at 25% tax bracketgive $350,000 back to government.
$1,050,000
http://www.irs.gov/publications/p590/ch02.html#en_US_2011_publink1000230988
![Page 30: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/30.jpg)
Most flexible plan• Can make withdraws at any age
with no penalty for the following:– Emergencies (contributions only)– Education (contributions only) – First time home purchase--- (after
5 years.)• up to $10,000• If a couple each has $10,000 can take
$20,000 out of Roth for purchase….Marry someone who also has a fully funded ROTH IRA, seriously!
![Page 31: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/31.jpg)
• Does a ROTH IRA sound like a good idea?
![Page 32: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/32.jpg)
• Generally recommended to meet the match with a 401K plan and then put rest of your money into a ROTH IRA.
![Page 33: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/33.jpg)
![Page 34: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/34.jpg)
Keogh Plan
• For Self employed• Federally approved.• Defined contribution plan• Contributions are tax deductible.
![Page 35: Section 13.2 Retirement Planning p . 324](https://reader030.vdocuments.net/reader030/viewer/2022032709/568130e3550346895d96f507/html5/thumbnails/35.jpg)
• http://www.today.com/money/survey-third-americans-expect-work-until-they-drop-8C11440612